Solarbird (solarbird) wrote,
Solarbird
solarbird

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longestpost

Good evening, and welcome, everyone coming over from bradhicks and also from Making Light; I'd been wondering what was spiking my traffic. My partner annathepiper just said, "Quickly! Be entertaining!" and I'm all "ikr!" and, well, I wouldn't go that far, but I hope you enjoy your Daily Dose of Down.

Really, these last few days have been a bit odd, or maybe it's my lack of focus. Simultaneously you have massive numbers of things going on, and nothing going on - at least, nothing seismic, if that makes any sense.

The auto bailout is much less than it seems; Mr. Bush essentially gave them enough to foist the problem off onto Mr. Obama. Mish at Global Economic Trend Analisys notes correctly that the contingencies on parts of the funding are not actual contingencies at all. The Canadian Federal government and provincial government of Ontario have chipped in another Can$4 billion - about twice as much per capita as the US pledge. That's not going to change the plans to idle plants.

What interests me more is GM's delay in the factory planned to build the engine for the Volt. I have good sources telling me that GM is betting everything left of the company on the Volt - but GM management has many different factions, and if the Volt faction is losing out, well... I don't suppose my opinion of GM management could sink any lower anyway, so it probably doesn't matter, and neither does GM.

Everyone's favourite pack of looting bastards insurance company AIG keeps showing up with massive new writeoffs, going, "oh, my! How did those get there?" Meanwhile <sings>everybody loves to be a bankerrrrrr</sings> including Discover, which is probably the most abusive of the credit-card companies (two-cycle billing is made of evil). It's all part of the scramble for tax dollars, in the form of the TARP. Hedge funds are in that game now, too, tho' they're borrowing from the TALF rather than the TARP. ToMAYto, toMAHto, sure, but as the Financial Times notes, "In effect, the Fed will now take on the role of prime broker – the lead bank that lends to a hedge fund – for specific assets." Lender of only resort, and all that.

The best part, of course, is that the ratings and purchasing decisions are being made based in no small part on ratings issued by the same clown-driven rating systems that helped get us in this mess. Mr. Mortgage has commentary on that, noting that most of the loans made over the last several years should've been given much lower ratings than actually awarded - as default rates are demonstrating.

TheStreet implies that blame for a lot of mortgage breakdown severity can be pinned to creation of the ABX index, on the basis that the ABX index gave MBS and CDO holders the first clues about how bad their holdings actually were. (Yes, this is the same ABX I've been talking about. Also, its friend the commercial-properties CMBX.) It's part of concerns about a new, similar index for so-called "prime" mortgages. I find this interpretation... annoying. I do find it amusing that even Fox News, subservient lapdogs they are, have gotten upset enough at all the opacity to sue over stonewalled FOIA requests.

I can't find the link right now, but I do want to mention that the new US interest rates will actually mean good news for a lot of people on adjustable mortgages, if and only if they aren't underwater on equity, and if they aren't in option-ARMs; this might reduce the size of that second-wave I keep pointing out in home mortgage reset graphs. I don't know what that ratio is, but I don't expect it's good. Still, at least some people will be in better positions, so that's a good effect. Also, this is a better TED spread than we've seen in some time, so that's good too.

Brad at Trader's Blog thinks the US will follow through on the implicit plans to print as much as it thinks is needed to avoid deflation. I'm reminded of the Paul Krugman paper asserting that deflation cannot be solved through printing. (Well, I suppose technically he ignores the currency-destroying cases, but one hopes that's not the plan.) The crew at Naked Capitalism have the same thoughts I have; the Fed is absolutely desperate. I'm also quite afraid of the whole treasuries-bubble blowoff possibility, because at that point, well, again, no currency. (Too many of these damn roads seem to go down the road of "oh noes, no currency anymore!" Makes me nervous.)

Home equity extraction - in the form of HELOCs and refinancing - has plunged through the floor and into negative numbers. This is unsurprising but will certainly continue to have a severe effect on consumer spending, as throughout the middle of the decade most of the gains in US consumer spending were powered by these "equity extractions."

Housing in the UK has started down the same cliff as housing in the US, with declines of 10% or so expected in 2009. Unemployment is also spiking up, with large jumps in initial claims. Ambrose Evans-Pritchard reports a bit breathlessly that Germany is "already collapsing," by which he really means is in rather sharp recession and a rather nasty confidence index, which, while bad, isn't the same thing as a collapse. Steady on, old man.

Mish Shedlock has a rather extensive rundown on the budget situation in California, along with a general economic overview for the state that I wouldn't consider at all pretty.

Japan is taking emergency action, moving their discount rate to 0.1% from an already trivial 0.3%, and has decided to resume quantitative easing practices. It didn't really work before, so they're hoping it will work this time if they do it faster. I suspect the rate action was part of their programme to intervene against their own currency. They're also acting to prop up their stock market. Mish (in the previous link) notes that the last set of currency interventions didn't get anywhere, and, in fact, there was an inverse correlation between intervention and result. That said, the JCB action was followed by a quick climb back up in the US dollar index.

Finally, don't piss off your lenders. And they're getting fairly pissy, talking about import tariffs. That's always, by which I mean almost never, a good idea. But what can the US do about it?
Tags: economics
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