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Are central banks independent actors?

Just over a decade ago, the Bank of England was given full monetary independence from the British government, making it one of the last major central banks to achieve this status. The move was heralded as critical for maintaining confidence in the Pound and for removing political calculus from monetary policy.

But fast forward to 2009 and the heralded independence of the BoE, along with its counterparts, the Federal Reserve in the United States and the Bank of Japan amongst others, is not to be take for granted. Monetary policy seems to have come under the influence of politicians once again. Is this good for the global economy?

Rio Tinto’s Leng quits after a month on the job

Jim Leng, the new Chairman of troubled mining giant Rio Tinto has quit abruptly despite having been employed by the company for only one month. This does not bode well as the company’s mountainous debt is at the core of why Leng is leaving the firm.

Bloomberg quotes Leng as saying “there has been a difference of opinion over which option the company should pursue.” Rio has “‘a financial issue to resolve in terms of its debt and repayment. I am hopeful that my resignation will enable the board to reach a consensual decision.”

FDIC Friday Night Special: FirstBank of Georgia

The FDIC has closed another bank. This time it is FirstBank of Georgia. The bank only had $285 million in deposits, so this was no titan. Regional powerhouse Regions Financial has assumed the deposits, which is positive because last week we saw one case in which the FDIC could not find a buyer of the the failed institution’s deposits. The […]

Massive U.S. job loss of 598,000 in January

Massive U.S. job loss of 598,000 in January

While job losses of 598,000 in today’s report for January 2009 were more than the 525,000 expected, it was within the expected range. Evidence of this comes from the increase in long-term treasury yields and stock futures prices immediately after the announcement.

Nevertheless, the number was the largest since 1974 and clearly indicates that the employment market is weak. We have now lost the greatest number of jobs in three months since data keeping began in 1939 – another data point which is telling. The unemployment rate also surged to 7.6%. However, we are nowhere near the bottom. Expect the unemployment rate to surge into double digits before the Depression ends. (Note: I had previously remarked I anticipated the unemployment rate to peak above 9%. I now expect the rate to be much higher than that).

Below is the heart of the U.S. Department of Labor’s employment situation summary accompanying the numbers. I have highlighted the most salient details.

Infighting begins within Obama’s team

We are barely two weeks into Barack Obama’s tenure and reports are surfacing everywhere that his “team of rivals” is at each other’s throat. President Obama had said just after the election that he was looking to pull together the best and the brightest. However, this strategy comes with a cost as the outsized egos assembled in his team are starting to jockey for political position.

A well-informed reader alerted me to the latest and most depressing story, which involves former Harvard President and Treasury Secretary Larry Summers shunting aside legendary ex-Fed Chairman Paul Volcker. Summers is trying to exclude Volcker, who is legendary for righting the U.S. economy after the stagflation of the 1970s. If he succeeds in sidelining Volcker, we will be the worse for it.

Links: 2009-02-04

Bloomberg set to cut foreign-language channels – Telegraph Paterson Leaks Intended to Smear Kennedy — Political Wire Russia’s debt rating downgraded by Fitch – National Post Martin Wolf – Why Davos Man is waiting for Obama to save him – Buffett Cancels Event With Biographer – US decline and the rise of emerging markets – Columns – […]

GE Capital’s looming time bomb

I do not think General Electric is AAA company — far from it. Their finance arm GE Capital is at the center of the private equity and asset-backed security time bombs that have yet to explode. And this makes the cash flow expected from GE Capital vulnerable because they are under-reserving. Translation: their financial results are artificially goosed by not reserving for likely losses.

In previous posts I have argued that GE must cut its dividend and that it will lose its AAA credit rating, despite an investment by Warren Buffett. The following video which focuses on the under-reserving at General Electric demonstrates why.

S.E.C. complicit in Madoff fraud, whistleblower says

Harry Markopolos is a fraud examiner who once worked as a fund manager. He knows fraud when he sees it and he saw it as plain as day with Bernard Madoff, who ran the largest Ponzi scheme in history. In fact, he tipped off the regulators at the Securities and Exchange Commission multiple times, dating back to 2000. The response? Nothing. The S.E.C. was asleep at the wheel, demonstrating yet again that the deregulatory mindset in Washington allowed the financial services industry to create all kinds of mischief.

Canada is furious about U.S. protectonism

The “Buy American” clause stuck onto the stimulus bill wending its way through Congress is a pernicious piece of legislation because it has engendered a ferocious response from trading partners, not the least of which is Canada.

Below is a Wall Street Journal video clip discussing this piece of legislation and the Canadian reaction to it. In addition, the video rightly claims that the bailouts now being conducted for financial services industries around the world are subsidies that are equally protectionist. None of this bodes well for the global economy.