Every so often, Calculated Risk posts a chart that has been created by dshort showing how the stock market has been doing compared to other historical bear markets. Given the recent falls, I thought that people might want to look at the most recent chart.
The loan-financing arm of Toyota, Japan’s biggest industrial giant, is understood to have approached a state-backed fund for as much as $2 billion in emergency loans.
A request for Government funding from the Japanese giant is expected to trigger a deluge of other demands for capital by other of the country’s struggling industrial companies.
When the article says $2 billion dollars it means dollars not the equivalent value of yen. What this means is that Japan is going to have to sell some T-bonds if it is going to honor this request.
Given the scale of the T-bond market, this is small potatoes. Still, it does demonstrate the mechanism by which T-bond yields could spike even if Japan or China do not decided to deliberately dump dollars as a matter of policy.
The latest canard is the pretense at negotiations with AIG. If you recall, AIG, which is regulated by a host of countries at the insurance subsidiary level, came begging to Uncle Sam because it had a credit default swaps unit at the holding company level that had written unhedged policies that looked pretty certain to crater the parent company. Even though the subsidiary companies are well regarded (in many cases very well regarded) they cannot readily upstream cash to the parent. The only way to realize value is by selling them, and this isn’t a great environment for doing that.
What has been appalling about AIG is that Uncle Sam initially imposed a suitably puntitive deal but then for reasons that remain a mystery, relented . Since the federal government is NOT a regulator of AIG, there was no reason to expect the authorities to step in, save Ben Bernanke and Hank Paulson’s attentiveness to the needs of the financial sector generally. AIG has globe-spanning operations, and there is no good reason why the US public should be stuck with the consequences of their lousy risk management decisions. But not only did AIG get considerably more in loans in version 2.0 of its deal with the US government, but the terms on its initial loans were improved considerably.
I have to tell you, in all my years of private sector dealings, when a company comes back for more money, particularly when it has missed targets (as AIG did, it claimed the initial loan would be sufficient), the new money, be it debt or equity, comes on vastly more costly terms. And it is simply unheard of to revise an initial deal to be more company friendly. I do not know why the travesty of the kow-towing to AIG’s faux needs has not resulted in more ridicule.
And it only gets worse. AIG is on the verge of getting even more fawning treatment from a “sympathetic” government. Do little guy deadbeats get such kid glove treatment?
I have no use for the Big Three auto makers plea that they need government money. Unlike Yves Smith, I want to see them go bankrupt.
But I can’t help feel that auto unions and every other blue collar worker in this country have every right to be mad enough to chew nails. We will make an industrial company beg to get 20 billion and at the same time we shovel hundreds of billions of dollars at one white collar company that helped to get us into this mess.
The British Bankers’ Association said that customers withdrew £2.3bn in January, the biggest drop since records began.
The BBA said personal deposits fell by £2.3bn as spending drained cash and savers sought alternative ways of getting a return on their cash. The previous high for falling deposits was £1.5bn in 1997.
Predictable, but it is still not what you want to see.
Pakistan is capitulating to the Taliban in the picturesque Swat Valley, where the Islamists plan to introduce Sharia law. Now the militants’ triumph threatens to encourage radicals throughout the region.
The defeat was celebrated as if it had been a victory. The chief minister of the North-West Frontier Province greeted a delegation from the local Taliban. The Taliban officials, with their long beards and turbans, had come to the governor’s office to sign a treaty. After arriving in large limousines, the men were seated on velvet armchairs and served food on silver trays.
Then the pious foes of the government in Islamabad were given a coveted piece of Pakistan as a gift.
Read the whole thing if you have not been following this story.
So that was a cheap shot. But for those who have already seen this clip before (like me), The Common Room has a rough translation of the lyrics.
Sick, depressing, scary music for a sick, depressing, scary week.
Wall Street has turned the clock back to 1997. Investors unable to extinguish their worries about a recession that has no end in sight dumped stocks again Monday. The Dow Jones industrial average tumbled 251 points to its lowest close since May 7, 1997, while the Standard & Poor’s 500 index logged its lowest finish since April 11, 1997. It’s as if the decade’s dot-com surge, collapse and subsequent recovery never occurred.
The Dow is just over 100 points from 7,000. Both indexes have lost about half their value since hitting record highs in October 2007.
At first I thought that this took us back to when Greenspan made his famous “irrationally exuberant” speech. But turns out that was made at the begining of 96 when the Dow was below 7,000. Almost there.
I always thought the man’s biggest problem was that he stayed in the job for too long. The longer you are in, the more you resemble the inmates.
Germany and France may be forced to contemplate the bailout of entire nations rather than just individual banks as European government budgets buckle under the weight of recession.
German Finance Minister Peer Steinbrueck became the first senior policy maker to broach the topic this week, saying some of the 16 euro nations are “getting into difficulties” and may need help. French officials are also concerned about market tensions as the cost of insuring Irish, Greek and Spanish debt against default rises to records and bond spreads widen.
Of course, if political leaders are talking in vague terms about bailing a few countries out, you know that the problems are much wider then that. As Edward Hugh correctly notes…
Well basically, because I think that Europe’s leaders are still in general denial on the scope of this problem. We are not talking simply of little cases, like Greece and Ireland, we are talking about potentially much harder chestnuts to crack, like Spain, and Italy, the UK, and even Germany itself. Remember Germany’s economic is now contracting at an almost astonishing pace, and German bonds are getting harder to sell all the time.
The full extent of the problems in the German banking system, as defaults mount in Spain and Eastern Europe, is yet to be measured.
I strongly disagree with the overall reasoning of Mr. Hugh’s post even though I think the above point is excellent. He takes it as a given that Europe must hang together or they will hang separately. I feel that tying everybody together is a good way of ensuring that everyone drowns.
People have taken all the wrong lessons from the failure of Lehman’s. People have noted how much pain that event caused and have sworn that it must never happen again. But it does not follow that because the collapse of Lehman’s caused a lot of pain that the alternative must somehow have been better. Has letting the zombies stay afloat at all costs really been less costly in dollar terms?
Just consider the fix that Europe is in. Spain is like California expect that Spain’s economy is even more dependent on housing then California was. Sarkozy is throwing huge amounts of money (for a nation the size of France) around in an attempt to keep the French unions off the street. Eastern Europe is so horrible it does not bear thinking about. Not only are they highly indebted and facing huge demographic problems, they also face currency risk on a large scale. This from the Times…..
All this means that doubts over whether the governments and companies of Central and Eastern Europe will be able to service their debts are very much to the fore. Much of the borrowing in these countries during the bubble was not done in their own currencies but in others, such as the euro and the Swiss franc, which means that there will almost certainly be defaults.
The zloty, for example, has lost a third of its value against the euro since last summer, with Hungary’s forint down 23 per cent and the Czech crown down by about 17 per cent in the same period.
I could go on and on. The economic news is horrible everywhere you look. But it is really, really horrible in large swathes in Europe. To the extent that Mr. Hugh and others who are arguing that Europe needs to hang together have a point, it is that there are very real questions about whether any of the parties can separate their economic fortunes from each other in any practical way.
But there is no way that Europe can keep the existing edifice intact. At the very least, they need to cut Eastern Europe lose. Possibly the richer Western Europe might be able to keep itself afloat for a while longer in that case. Working under the assumption that every government in Europe can be prevented from defaulting is simply not realistic. It may be that they will all effectively default. But trying to ensure that no one defaults will ensure that they all fail in the end.
Edit: Having written this while I should have been going to bed and with the aid of the head cold, it leaves a lot to be desired. Crucially, I failed to really articulate why Mr. Hugh’s reasoning is flawed. Perhaps I shall improve on this later. But for now I leave you with this thought: One of the reasons that Germany is in such a pickle is that it fell into an economic model where it had to lend money to others (Spain, Eastern Europe, and others) in order to create enough of an export market to fuel German economic growth. How is lending more money to preserve its export markets (and hence its economic growth) going to help matters?
In recent years, the photogenic mother of seven has pushed through a number of measures making child-bearing less of a financial burden, such as generous income support for both men and women taking parental leave.
The policies appear to be working. Germany’s birth rate, which had been in decline for years, rose slightly in both 2007 and, as recently released statistics suggest, 2008.
Lets put this success in context. From later on in the article…..
Von der Leyen pointed to the increase in the fertility rate in Germany, which rose to 1.37 children per woman in 2007 from 1.33 in 2004.
I am not trying to knock the Spiegel article. It is mostly about how economic problems endanger the recent “success” that Germany has had in raising its birth rate. But even if this “success” had continued on its current course, Germany still would not have any hope. The birth rate simply was not increasing fast enough even in good times to stave off disaster. And as everyone knows, good times do not last forever.
I don’t see how a company that can do all this (or train people to do all this) can be called a mere security company.
It is interesting to speculate what this vast increase in the number of people who are skilled in close quarters combat means for the future. Heck, there are plenty of places that will teach civilians a lot of these skills even if they have no connection to the government.
Close quarters combat is the true martial art of our age (in the original meaning of the term) and it is worth remembering that most martial arts were perfected in times of utter chaos that followed the breakdown of authority.
