From Macro Man….

People who are acquainted with Macro Man, either personally or virtually, will know that he is very rarely lost for words. This morning, however, he has reached that milestone, as he’s watched prices flicker on his screen in slack-jawed silence.

Policymakers often reference a desire to avoid “excessive volatility” and the proper functioning of markets. Suffice to say that that we are now firmly in the presence of the former, with an utter absence of the latter. Regardless of your market view, right or wrong, you want to have a market in which to transact. The past couple of weeks, and the past couple of days in particular, has seen complete implosion of the market’s ability to reflect transaction flows and fundamentals.

This morning, for example, the German ifo survey printed a lower-than-expected 82.6, it’s worst reading since…err…ever. Regardless of what you think about the dollar, it would seem to be an excessive response for EUR/USD to rally 3 big figures in the ensuing hour.

Brad Setser spells it out a little more concretely…..

Only a few days ago, so it seems, it took about $1.25 to buy a euro. Now it takes closer to $1.45 (it was more earlier today, but the dollar subsequently rallied). And — as Macro Man notes — the dollar’s move pales relative to the recent slide in the pound. Not so long ago a pound bought 1.5 euros. Now it buys a euro and change. The Anglo-Saxon currencies haven’t had a good two week run.

Both the US and the UK had housing and finance centric economies. Both have significant external deficits. And both are inclined to use monetary and fiscal policy aggressively to combat a downturn.

Maybe this has something to do with the Fed telling everyone who will listen that they are going to print dollars until all their problems go away.

Macro Man argues other wise. He points out that Euro moved high against everything so he does not think that this move should be considered some kind of reaction against the dollar.

But a good part of the dollar’s recent strength has been the desire for a safe haven. Maybe a lot of people decided they wanted a new safe haven. I don’t see why that would not drive the Euro up against everything

From the Naked Capitalism…..

AIG’s loans so far come to $1.4 million per employee, and many of whom are stationed overseas. But their requests for more cash and better terms got speedy approval, while the auto industry, on whom far more jobs depend, may be dealt a deadly blow due to the failure to due a basic investigation of likely consequences.

I get the point. But throwing money down a rat hole is throwing money down a rat hole regardless if it is the Big Three or AIG. My solution for this injustice would be to stop giving money to AIG.

From Calculated Risk…..

Just checked some money market funds, and for a few of them the expenses are now greater than the yield – so you’d do better with a mattress.

From Pajamas Media…

But almost all of the discussion, when it comes to UAW culpability, has been on wages. The even larger issue, though, is the elephant in the room that seemingly no one discusses, even when given a political opportunity. For instance, I saw a “debate” on Fox News recently in which the Democrat defending the union said that it was partly management’s fault because of the poor quality of the cars, and the Republican failed to respond. And it’s not like people are unaware of it, at least people familiar with the industry. The issue isn’t wages — though those are a problem — so much as work rules. UAW work rules, which have evolved over the many decades since the passage of the Wagner Act, are the biggest reason that General Motors is uncompetitive with its non-union American counterparts.

What are work rules? They are agreements negotiated in the contract between management and the union covering how the employees are to be classified, how many breaks they get, how much time off they get, who can do which jobs, how discipline is to be enforced, etc. The goal of the rules is not to enhance productivity or production quality. It is to provide opportunities for featherbedding, increase numbers of (overpaid) jobs for union workers, and minimize how much they have to actually work. This is important because it’s at least in theory possible that the industry could be making money even at current wages, if they could be provided with the flexibility to increase worker productivity.

The article is full of little anecdotes to back up the author’s point. I have seen enough with my own eyes that I have no doubt that his point is correct.

But I still blame management for the problems. The power of unions is easy to overstate. A lot of times they are used as an excuse by managements for not doing their jobs.

Moreover, management could have refused to agree to those restrictions on their authority. But a lot of times, upper management thinks that such rules are relatively harmless compared to paying more money. I think they tend to think that all monkeys are the same. So they don’t feel like they are losing much when they give up the right to reward the better monkey.

From Euro Intelligence….

Frankfurter Allgemeine has cracking scoop this morning, having obtained an internal memo from the economics ministry, which expects a slump in growth of more than minus 3 per cent for next year, by far the worst economic decline in German post-war history. The ministry plans to make this forecast official in its annual economic report, due out January.

Worse still, the decline in the present quarter is estimate at 1.25-1.75%. Note these are actual, not annualized figures.