notes oct 10 2008

October 10, 2008 § Leave a comment

How does the world look this morning? Micro economics – the small, very small, business owner who decides he has to dismiss  a new workers,or only one. he ripple effect through family and self worth and economy – tragic. And the way like an empty honeycomb it begins to define the space we all live in. For most people the difference between having a job with  a life and not is not a small continuums shift, but a jolt to relationships, place and the psyche.

 

look for example of this from the FT

Liquidity has become a major point of differentiation within the online gaming market and has allowed US facing online gaming sites such as Pokerstars and Full Tilt Poker to use enhanced liquidity pools to expand aggressively into the European online gaming market.

 

6:18 The “aggressive” means that they use other people’s capital, and that means capital invented by banks and derivative trading.  So the plan is to gve tax payer money to banks.  From the NYT.

Plan B: Flood Banks With Cash

By FLOYD NORRIS

The government needs to decide which banks it is sure are worth saving, and pump capital into them directly.

. The government needs to decide which banks it is sure are worth saving, and pump capital into them directly.

The announced plan for the bailout package was for the government to buy up dubious assets from banks, paying more than they are worth now but less than they are expected to be worth later.

yet they are probabaly worthless because they are not backed by real assets, only derivative paper with a weak paper tail back to the original mortgage.

If that is completed, banks will get cash — $700 billion or more. But their net worth will rise only to the extent the government overpays for the assets. Pricing those assets will be anything but easy, and the expectation of the government program has further frozen those markets. No one wants to sell until they can find out what the government will offer.

that is, until a solid profit – for the banks.

The alternative is to go in the direction Britain went this week. The government could use the $700 billion, or at least a large part of it, to buy preferred stock in banks.

but this means that the bankers get to play with the money, being middle men, in this transaction, and while profit goes to preferred stock holders, that is after banker expenses, meaning the buildins,  salaries and systems.

The terms could be arranged so that the government gets a reasonable profit if the bank can pay the money back within five years, and can convert its stake into common stock only if that deadline is not met.

But if no profit emerges, the bankers have still got their salaries for five years!

The sad saga of the American International Group is one reason for that chill. When A.I.G. first said it needed help, $40 billion was said to be all it needed. Now the total is over $120 billion, as more problems are found.

Given their need for capital, it is odd that most American banks are paying any dividends at all. Even after reductions, most big American bank shares now yield more than 3 percent, and some more than 7 percent.

In 1933, when Franklin Roosevelt became president amid a panic, he declared a bank holiday that closed the banks while federal examiners went over their books. When the holiday was over, the government closed some banks and declared the rest were healthy.

In reality, there was no way the government could be sure of that. But the public accepted it, and the bank runs stopped.

This time, the government has offered too many assurances that turned out to be false. It will take cash to convince the public — and the other banks — that the survivors are safe.

6:30 Now for the US market.. need to remember for each point on the curve there are an equal number of shares ought as sold. the index,such as the Dow, is the measure of maximum uncertainty.

6:57 down lots up a litle down…

from Richard Moore

The immediate crisis, yes, that’s about orchestrated deregulation and looting. The deeper crisis is about the reasons why deregulation and looting became a necessary strategy, beginning let’s say in 1972, when the bankers convinced Nixon to discard the gold standard. Gold and fixed exchange rates were the cork on the bottle of the Speculation Genie. When real economic growth became impossible to sustain, the cork was taken off the bottle. The Genie created castles and other wondrous things, and now they’ve turned to sand. Such is often the way of magic spells. Game over

and from (see source) quoted in Brad DeLong

Inevitably, the US, Britain and Europe are going to end up with nationalised banking systems in one form or another, and with governments guaranteeing not only their deposits but probably all their liabilities. The nationalisation will be a temporary emergency measure. But for some time at least the systemically important banks effectively are going to be public utilities and must be regulated accordingly. This taxpayer rescue of banking systems opens up a new and potentially very important avenue for unfreezing bank lending and restoring the flow of credit. If governments effectively control the banks, what is to stop them from demanding that they start lending again?

The source is Alan Wood, probably Australia’s most consistently hardline free-market economics commentator, writing in the Murdoch-owned Australian.

7:02 delong adds

Only direct public control, combined with a commitment to salvage the financial system as a whole has any chance of success.

does salvage it mean continuing he ruinous – to society as a whole – cost of the system in wages, bonuses  and buildings?

If “salvage” (Brad writes ” Only direct public control, combined with a commitment to salvage the financial system as a whole has any chance of success.”)means protecting the salaries, bonuses and buildings of the current system, it will just be a continuation of the wealth transfer. The financial system is too large,too costly. it should not be a major profit center in society but more like a public utility run efficiently for lending based on direct deposits.

Posted by: Douglass Carmichael | October 10, 2008 at 07:09 AM

8:05 and Krugman writes this morning

What he should have proposed instead, many economists agree, was direct injection of capital into financial firms: The U.S. government would provide financial institutions with the capital they need to do business, thereby halting the downward spiral, in return for partial ownership. When Congress modified the Paulson plan, it introduced provisions that made such a capital injection possible, but not mandatory. And until two days ago, Mr. Paulson remained resolutely opposed to doing the right thing.

Again, does this not give capital to the bankers to make profit and salaries from?

8:18 Would republican’s begin to vote for Obama because they don’t want the problems 1n 2009 to destroy a republican presidency? i know of a few people who think that way (Texas Horseshow?), with the strange logic that they think otherwise McCain could win and it would be a Republican (?) presidency.

and from NYT the lede

Highlights and Lowlights, 12:43 p.m. With the drop in crude oil prices, it is not surprising that the worst performer in the Standard & Poor’s 500-stock index were energy stocks. Shares of Exxon Mobil were down 11.6 percent, or $7.65, to $60.35. Chevron was down 9.8 percent, or $6.22, to $.57.77. Indeed, the S.&P. energy index was down 8.16 percent.

Surprisingly, the best performing index was the S.&P. financial index, which was down 0.11 percent. Citigroup, for example, is up 1.01 percent, or 17 cents to $13.10, while Bank of America was up 6.7 percent, or $1.17 to $20.80.

Now why would banks look good?

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