Archive for February 2010
From: Times Online February 26
TODAY’S summit is crucial to policy and economic prospects in the US and the West.
YOU MAY NOT HAVE NOTICED, but today is a very important day for US politics, world economic prospects and even for the global balance of power between Western democracy and benign dictatorship along Chinese lines. Why? Because today marks either the beginning of the end of Barack Obama’s presidency, or the end of the beginning.
At ten a.m. US eastern time, he will host an all-day “summit”, broadcast live on nationwide TV, with his Republican congressional opponents and his wayward Democratic supporters, to try to establish some kind of political consensus on the top priority of his presidency – reform of the ruinously expensive US healthcare system. Medicine now absorbs 17 per cent of US national income, double the average in other advanced economies.
If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs.
Today’s summit represents Mr Obama’s last chance to find a way forward, either by shaming some Republicans into supporting him or by embarrassing his own perennially divided Democratic Party into uniting around a single plan. If he is unable to do this, he will have almost no chance of passing any significant legislation on any other issue. In short, Mr Obama has staked his entire presidency on today’s summit. If you are not convinced, just listen to the President’s own radio broadcast last weekend: “What’s being tested in the healthcare summit is not just our ability to solve this one problem, but our ability to solve any problem.”
Consider what three years without effective government in Washington could mean, not only for America but for the entire Western world. The absence of effective US leadership will dash any hopes of progress in foreign policy, whether on issues such as energy, trade and climate change or on security threats such as Afghanistan, Iran and the Middle East.
by Liam Halligan
Originally published 13 Feb 2010
Could the endgame of this Greek tragedy be a eurozone break-up? The single currency’s supporters maintain that such an outcome is mere mythology.
GREECE ACCOUNTS FOR ONLY THREE PER CENT of the 16 member states’ combined GDP, they say, and has lower debts than some of the banks bailed-out during sub-prime. A loan of €20bn (£17.5bn) would do the trick, we’re told. That’s less than the British government injected into either Lloyds or the Royal Bank of Scotland.
Such analysis sounds vaguely plausible. But it is naïve and politically dishonest. Then again, the single currency was built on political dishonesty. That’s because, at the heart of the eurozone project there was always a fundamental contradiction – one that the architects of monetary union never dared to address. Now its being highlighted for them, whether they like it or not.
While the European Central Bank controls eurozone interest rates and the money supply, the size of each country’s fiscal deficit results from the spending and taxation decisions of its own sovereign government.
How can you enforce collective fiscal discipline in a currency union of individual sovereign states, each answerable to their own electorate? The truthful answer is you can’t – not unless you subjugate the autonomy of democratically-elected politicians and, by proxy, their voters.
Voters don’t like that. Neither do politicians. Faced with a choice between seriously annoying their own voters and seriously annoying the ECB, the most ardently “pro-European” lawmakers, even those with years of Brussels trough-nuzzling under their belt, will always side with their own. That’s why the eurozone will ultimately break-up – whether Greece is bailed out or not.
The eurocrats blame “speculators” for the single currency’s woes. That’s a bit like sailors blaming the sea. The eurozone is ultimately doomed because, in the end, economic logic wins and the will of each country’s electorate bursts through. This current Greek saga won’t end the eurozone – but future historians will identify it, perhaps, as the beginning of the end.
Many have said it’s hardly surprising that Greece (with its history of financial profligacy and capital flight) has emerged as the eurozone’s Achilles heel. A more germane observation is that, while fiscally wayward, Greece is also the birthplace of democracy. If the Greek population wants to get upset, throw out its elected politicians and reject austerity, it must be allowed to do so. I think they’d be mad, but it must be their choice.
Posted originally February 21, 2010 by Seeking Alpha
See here for original article
WHAT A TIME TO BE AN OLIGARCH! All I wanted to do was vomit when I saw this. Folks, there is no way we can have economic prosperity in this country when the top 1% has all of the money. The middle class is basically being destroyed right in front of our very eyes. Consumption economies die when the consumers have no money to consume! This graph was an eye opener for me (not that I should be surprised):
I see growing signs of desperation and anger as the wealth of this nation continues to get transferred to the elite of this nation. People are starting to “lose” it as a result. This past week’s airplane event in Austin was a disturbing development. [See story following this article below.] I must admit that I really am not surprised. The government shouldn’t be either. Things are only going to get worse in the violence department as the taxpayers continue to get violated and more desperate as a result of this economic cataststrophe. The news media tried to downplay the actions in Austin.
I think Washington was both surprised and concerned about what took place in Texas. I have to ask: Should the government really be surpised that an American flew a plane into an IRS building in a fit of rage as we all get repeatedly fleeced by the political and social elites of this country? Let me preface all of this by saying violence is not the answer here. However, why shouldn’t every American be infuriated by what has ocurred since this crisis began? All the government has done is bail out Wall Street continuously since 2008. My guess is the disparity of wealth in this chart would look even worse if it included 2009.
The rest of America has basically been ignored minus a few housing programs to help lower mortgage payments. That’s what’s been so frustrating about this whole crisis and America is finally starting to get it. Just about ALL of the steps that have been taken by the government to help fix this crisis have involved throwing more and more money to the financial elites of this country. I mean, the examples are endless: TARP, AIG, Bank of America, Citi, Freddie, Fannie… Need I say more?
The sheeple are finally realizing that the money is not trickling to them like Washington had promised when they threw billions to the banks. The people have only seen things get worse while Wall Street has prospered. They now want to know where their friggin’ bailout is! They are also realizing that the goverment’s actions since this all started in 2007 have done nothing but drop the yields on their CD’s to 0%. Gee thanks! Let’s not forget that the sheeple/middle class were also victimized by Wall Street as they were gamed into buying homes they couldn’t afford.
From The New York Times
Originally published February 13, 2010
Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
Gary D. Cohn, above, president of Goldman Sachs, went to Athens to pitch complex products to defer debt. Such deals let Greece continue deficit spending, like a consumer with a second mortgage.
AS WORRIES OVER GREECE RATTLE WORLD MARKETS, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels. Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama. As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.
by Niall Ferguson Financial Times, London
Posted originally Wednesday, February 10, 2010
IT BEGAN IN ATHENS. IT IS SPREADING TO LISBON AND MADRID. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the Western world. Its ramifications are far more profound than most investors currently appreciate.
There is of course a distinctive feature to the eurozone crisis. Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bailout of the Greek government by the European Union, other member states, or the European Central Bank (Articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control,” but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.
That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history — reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bailout led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain, and possibly others, it may take much horse-trading before one can be reached.
Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.