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Tuesday Evening News Roundup

Tuesday Evening News Roundup

Austerity really isn’t working out all that well in Europe.

William Black, scholar and economist, takes the Washington Post’s William Samuelson to task for advocating for austerity measures

We have known for over 75 years that the key to recovering from a recession is to follow a counter-cyclical fiscal policy that will reduce unemployment. We have long exhibited the wisdom to adopt automatic stabilizers that increase government services and decrease taxes when a recession strikes.

What would have happened if Obama had adopted austerity as Berlin imposed austerity on the European periphery? It would have prevented any recovery, throwing the U.S. into an even more severe recession. Berlin’s austerity demands have thrown the Eurozone back into a gratuitous recession, increasing the budget deficit in many nations and plunging Greece and Spain into depressions. Europe has followed Samuelson’s and Ryan’s policy advice and the results have been disastrous. Samuelson’s and Ryan’s austerity policies violate economic theory, economic history, and a natural experiment in Europe with austerity that has proved catastrophic. Samuelson, however, makes bizarre odes to Irish austerity, emphasizing the necessity of “persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions.”

New York Atty. Gen. sues Bear Stearns (J.P. Morgan bought the remnants of Bear Stearns). It appears that Bear Stearns was selling toxic complex mortgage-backed securities and they knew it was garbage but sold it as “good as gold.” (more…)

By |2013-11-03T18:14:59-04:00October 3rd, 2012|Economy, Elections, Foreign Affairs, Party Politics|1 Comment

Friday Morning News Roundup

  • If you read just a little bit about the Great Recession, then you know that whenever one of the big Wall Street firms was in trouble, Bear Stearns, Lehman Brothers and even Morgan Stanley, they all at one time or another called Warren Buffett for an emergency loan. So it is interesting that Bank of America just got an infusion of $5 billion from Warren Buffett. Bank of America is having trouble fending off lawsuits over its Countrywide acquisition. It appears that several parties believe that countrywide acted in a fraudulent manner and continue to sue countrywide for large sums of money, with which Bank of America needs to settle. Warren Buffett’s infusion of cash does help.
  • Hispanics are currently the largest minority group in college. They have just recently surpassed Blacks. All I can say is that we need more Americans in college. We need more Americans to graduate college. We need more government loans and grants to help pay for the ever-increasing expense that is college.
  • Ben Bernanke, the Fed Chairman, and the rest of the world’s financial gurus are all gathered at Jackson Hole, Wyoming. This is the annual Fed meeting. This is the meeting where you would expect a lot of discussion and then finally a brilliant intervention to fix what is ailing our economy. Don’t expect it. With Republicans mired in reactionary policies which are going to hurt the economy and the Democrats mired in indecision, as usual, the Fed is stuck in molasses.
  • Pakistan is becoming the new wild wild West.
  • The US economy is growing, although it is growing at a very slow pace.
  • One of the few programs that the government has instituted to help homeowners was buried in the Trouble Asset Relief Program. Over $45 billion was set aside to help homeowners fend off foreclosure. Only $2 billion of that has been used. Somehow, that money is going to be rolled back into the treasury in order to pay down the deficit.
  • The manufacturing sector expanded modestly this month.
  • Our own obesity is starting to cost us billions of dollars. Estimates that obesity is going to cost us over $66 billion by the year 2030 are hard to swallow (pun intended). As we struggle with our healthcare costs, we’re going to have to address the obesity crisis in the United States.

Jill St. John as Tiffany Case in the James Bond movie – Diamonds Are Forever

  • A new planet has been found in another galaxy. This planet is made entirely of crystallized carbon – it’s a diamond. How cool is that?
By |2011-08-26T09:58:09-04:00August 26th, 2011|Economy, Healthcare, Pakistan, Race, Science|Comments Off on Friday Morning News Roundup

Repo Madness

I’ve been furiously reading about the economic meltdown. There are so many factors and so many people involved. The system is so complex. For those of us who never studied economics, this has been an eye-opening experience. I foolishly thought that huge Wall Street firms had some amount of cash on hand. This cash would then be used to fund the trades of that firm and its clients. Well, this just proves that I’m old and misinformed. That is not how it’s done.

The repo market, repurchase transaction, grew up in the late 80s and early 90s. These amount to short-term loans which these large financial institutions like Goldman Sachs, Lehman Brothers and Citibank depend on on a day-to-day basis. As I understand it, in order to operate, these financial giants and large banks will raise billions of dollars on a day-to-day basis in order to fund their operations. These loans are backed with the securities that are held by these financial institutions. The loans can be as short as 24 hours and as long as a week to 10 days.

It is unclear how large the repo market really is. According to one professor, the repo market is $12 trillion (that is trillion with a T.)

So, one source of the major collapse of Bear Stearns and Lehman Brothers was the repo market. If your stock is getting hammered, for whatever reason, and people are worried about your financial health, it is understandable that these short-term loans would become problematic. Those institutions lending money weakened asked for more and more collateral. Therefore, as in the case of Bear Stearns, some institutions asked for more collateral every single day for the same loan. Finally, as the rumors continued to mount, those institutions simply stopped lending money. This is money that you use every day to operate. Without the money, you’re stuck in the water without paddles.

This repo market was one of the reasons that these extremely large institutions collapsed so quickly. Now, I have not read every single word of the Wall Street Financial Reform Act. I don’t think they addressed the repo market at all. This seems to be a huge problem in our financial system. Maybe it’s more politically correct to state that it is a “huge challenge.” It seems to be nothing but craziness to me.

What are your thoughts on the repo market?

By |2010-08-18T07:30:02-04:00August 18th, 2010|Business, Economy|Comments Off on Repo Madness
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