Quote:G.D.P. Revision Suggests a Long, Steep Downfall
CATHERINE RAMPELL
Published: February 27, 2009
The economy contracted at a far faster rate than initially estimated in the final months of 2008, the government reported Friday, suggesting a deeper recession that will further challenge the health of the financial system.
Financial stocks led the market down on economic worries in general and concerns about nationalization, after the government announced that it was vastly increasing its stake in Citigroup.
In the fourth quarter, the gross domestic product fell at an annualized rate of 6.2 percent, the steepest decline since the 1982 recession and sharper than the 3.8 percent reported earlier. Every major component of the economy shrank, except government spending. Economists said all signs point to a similar drop in output in the current quarter
http://www.nytimes.com/2009/02/28/business/economy/28econ.html?_r=1&hp
Obama seriously needs to grow some balls....this very same day the government announces that Q4 2008 was about twice as bad as previously believed Obama announces that he will not yet nationalize Citi.......WTF is he waiting for????
@hawkeye10,
hawkeye, It's a bad idea to nationalize the banks, but it's also a bad idea to keep feeding a dead horse. The feds should let citi die its natural death, then let other banks bid for it. However, the government is feeding more funds into the bank to "own" over 35% of the bank's assets. We can't call it "goodwill," because they have none; it's probably in negative territory.
@cicerone imposter,
Quote:It's a bad idea to nationalize the banks, but it's also a bad idea to keep feeding a dead horse
the consensus has gone the other way. These companies need to be broken up but only after the economy stabilizes. Right now the assets can not be bought because the financial system is broken, there is no ability to buy and sell large assets. The Government must take them over so that they can remain operating, and hold them until a sale of the pieces is possible.
Obama WILL nationalize Citi, BA, and AIG, there is no other way forwards, and the longer he waits to pull the trigger the deeper the recession/depression will go. We are already showing many signs that this is a depression not a recession.
@hawkeye10,
They are no longer considered "large assets." They've lost 90% of their value, and the only reason it's maintaining current levels is because of the government bailouts. Without it, it would drop further to where it's really worth. There are still several healthy banks that can buy them out - on the cheap. After all, the government is also guaranteeing that some value remain in the mortgage instruments from their support for current and future healthy buyers by providing some form of "guarantee."
@cicerone imposter,
Quote:They are no longer considered "large assets." They've lost 90% of their value, and the only reason it's maintaining current levels is because of the government bailouts
they are massively undervalued, because the financial system failure takes value from them that they otherwise would retain. See AIG for instruction, 90%+ of that company is well managed and profitable, yet those assets can't get a decent price right now because nobody can get financing to buy them. They will be worth a lot more a few years from now if they can keep operating, and keep their talent. The only way to preserve those assets in good condition until the financial system works again thus allows for their sale is for them to be nationalized.
Obama thinks that he can fix the financial system fast with bailouts and thus get these assets broken up and sold to new owners before they rot.....wrong. $9 trillion in backing has not worked, $20 trillion would not work either.
@hawkeye10,
Exactly what AIG products and services are "profitable" and "under-valued?" Please provide the URL or article to support your claim.
@hawkeye10,
In fact, AIG has lost big time in most of their products and services, and their primary insurance group is also in big trouble. As the article says, there isn't any company interested in buying the deflated assets of AIG. Your "undervalued" says nothing about AIG or their marketability.
@hawkeye10,
Seems like your article confirms what I said about the "value" of AIG; they lost a bunch in the market. I have seen reports where some AIG divisions lost over 50% of their value during this bear market. Some of their divisions performed better in January, but with the total collapse of our economy, it's questionable whether AIG will be able to maintain a positive position for the rest of this year and next.
@cicerone imposter,
If 70% of the people who might like to buy your house don't qualify for a mortgage the 30% who remain can and will drive a harder bargain....this is primarily the reason AIG units are not getting good bids in this dismantling of AIG. Almost no one can swing these deals, and those who can demand rock bottom prices.
The losses as AIG come primarily from the one unit that caused all of the other problems, this time because they are unwinding all of their positions in the derivative market.
Quote:Edward Liddy, the AIG chief executive appointed by the US Government, is hoping to sell about two thirds of AIG’s assets. However, the company will scrap this strategy if tough market conditions prevent it from achieving a good price for its assets. “We are going to receive full and fair value,” a spokesman said last night. “If the current market conditions won’t permit that, we will rethink our sales strategy on our important assets.”
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5799187.ece
Bottom line is that Bush screwed this up, AIG should have been nationalized and then held for several years. This idea that we would float them a short term loan which they would pay off by selling themselves has not worked, and will not work. There is no market for the sale of AIG at reasonable valuations, and will not be until the financial markets reopen and transparency returns to the books of corporate firms. We are into AIG for over $150 BILLION, and until we bite the bullet and do full scale nationalization the costs to the taxpayers will continue to climb.
Hawkeye 10 wrote:
Obama seriously needs to grow some balls....this very same day the government announces that Q4 2008 was about twice as bad as previously believed Obama announces that he will not yet nationalize Citi.......WTF is he waiting for????
end of quote
Apparently, his spokesman Gibbs was sent out Feb. 21 to reassure the Market.
As you may be aware, the market is tanking. Soon it will be below 7,000. Holders of 401K's will be very angry when they get thier statements in April. Obama was supposed to bring positive change with his "charismatic" and "intelligent" approach to the Presidency.
GIBBS( Obama's spokesman said: NO NATIONALIZATION.
Note:
White House says supports private banking system
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Posted 2009/02/21 at 3:19 am EST
WASHINGTON, Feb. 21, 2009 (Reuters) " The White House said on Friday it strongly believed in a privately held bank system, after rumors that the U.S. government could nationalize banks caused shares in Bank of America and Citigroup plummet.
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"Let me reassure as best I can on banks," White House press secretary Robert Gibbs told a briefing with reporters.
"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government.
"That's been our belief for quite some time and we continue to have that."
The White House spokesman's comments helped lift U.S. stocks from their lows of the day, traders said. The Nasdaq Composite index briefly turned positive, and the Dow Jones industrial average and Standard & Poor's 500 index both cut deep losses.
U.S. government debt prices cut their gains as the move up in equities diminished their safe-haven appeal.
Hawkeye 10--It wasn't AIG that was the proximate cause of the downturn, it was Fannie Mae, Fannie Mac, Barney Frank and Christopher Dodd. Note:
Thursday, October 09, 2008
Barney Frank and Christopher Dodd deserve blame for Fannie and Freddie
The Independent, a British newspaper, blames the Democrats for the failure of Fannie Mae and Freddie Mac:
What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush " and other Republicans " to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.
In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings " to which its senior executives' bonuses were linked " by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.
Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush's initiative, Frank declared: "The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially." His colleague on the committee, the California Democrat Maxine Walters, said: "There were nearly a dozen hearings where we were trying to fix something that wasn't broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines."
When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that "our assets are so riskless, we could have a capital ratio of under 2 per cent".
Cyclops doesn't know what he is talking about- The Obama Revolution will ruin America.
Note:
REVIEW & OUTLOOK FEBRUARY 27, 2009, 11:20 A.M. ET The Obama Revolution
In the closing weeks of last year's election campaign, we wrote that Democrats had in mind the most sweeping expansion of government in decades. Liberals clucked, but it turns out even we've been outbid. With yesterday's fiscal 2010 budget proposal, President Obama is attempting not merely to expand the role of the federal government but to put it in such a dominant position that its power can never be rolled back.
APThe first point to understand is the sheer magnitude of federal spending built into this proposal. As the nearby chart shows, federal outlays will soar in fiscal 2009 to $4 trillion, or 27.7% of GDP, from $3 trillion or 21% of GDP in 2008, and 20% in 2007. This is higher as a share of the economy than any year since 1945, when the country was still mobilized for World War II. It is more spending by far than during the Vietnam War, or during the recessions of 1974-75 or 1981-82.
But let's assume, for the sake of argument, that Mr. Obama is right that this spending is needed now to "jump-start" an economic recovery. Though the budget predicts that the economy will recover in 2010, spending will still be 24.1% of GDP that year, and the budget proposes that spending will remain higher than 22% for the entire next decade even as the defense budget steadily declines. All Presidential budgets predict spending will decline in the "out years," if only to give the illusion of spending restraint. Mr. Obama tries the same trick, but he is proposing so many new and expanded nondefense programs that his budgeteers can't get anywhere close even to Jimmy Carter spending levels.
These columns focus on spending, rather than deficits, because Milton Friedman taught us that spending represents the real future burden on taxpayers. Nonetheless, the 2009 budget deficit is estimated to be an eye-popping 12.7% of GDP, which once again dwarfs anything we've seen in the postwar era. The White House blueprint predicts that this will fall back down to 3.5% as soon as 2012, but this is based on assumptions about Washington that aren't going to happen.
For example, Mr. Obama's budget assumes that nearly all of the new stimulus spending will be temporary -- a fantasy. He also proposes to eliminate farm subsidies for those with annual sales of more than $500,000. This is a great idea, and long overdue. But has the President checked with Senators Kent Conrad (North Dakota) or Chuck Grassley (Iowa)? We hope we're wrong, but a White House that showed no interest in restraining Congress during the recent stimulus bacchanal isn't likely to stand athwart history to stop the agribusiness lobby.
The falling deficit also assumes the largest tax increase in U.S. history, starting in 2011 with the repeal of the Bush tax rates on incomes higher than $200,000 for individuals and $250,000 for couples. The White House says this will yield upwards of $1 trillion, if you choose to believe that tax rates don't affect taxpayer behavior.
In the real world, two of every three tax filers who fall into this income category are small business owners or investors, who are certainly capable of finding ways to invest that allow them to declare less taxable income. The real impact of this looming tax increase will be to cast further uncertainty over economic decisions and either slow or postpone the recovery. Ditto for the estimated $646 billion from a new cap-and-trade tax, which no one wants to call a tax but would give the political class vast new leverage over the private economy. (See here.)
Then there is Mr. Obama's plan for national health care. The White House has put a $634 billion place holder in the budget to pay for covering tens of millions of uninsured Americans with government subsidized coverage. But even advocates of this government plan say the cost will be closer to $1 trillion over 10 years, and probably much more. Meanwhile, the President is promising to reform entitlements, but his budget proposes a net increase of about $1 trillion in Medicare, Medicaid and other entitlements.
The biggest illusion in this budget may be its optimistic economic forecast. The White House assumes that the economy will decline by only 1.2% this year, before growing by 3.2% next year. This assumes the recovery will begin later this year and gather steam quickly to return to normal levels of growth. By 2010 to 2013, the budget adds, the economy will be cooking by an average of 4% a year -- which is also how it conjures up magical deficit reduction.
This growth is a lovely thought, but how? The only impetus for growth in this budget comes from the government spending more money that it is taking out of the job-producing private economy. With $1 trillion of new entitlements, $1.4 trillion in new taxes, and $5 trillion in new debt, America's entrepreneurs aren't getting any help soon from Washington.
Democrats will want to rush all of this into law this year while Mr. Obama retains his honeymoon aura and they can blame the recession on George W. Bush. But Americans are only beginning to understand the magnitude of Mr. Obama's ambitions, and how much of their own income will be required to fulfill them. Republicans have an obligation to insist on a long and considerable debate on all of this, lest Americans discover in a year or two that they live in a very different country.
Hawkeye 10 wrote:
Obama seriously needs to grow some balls....this very same day the government announces that Q4 2008 was about twice as bad as previously believed Obama announces that he will not yet nationalize Citi.......WTF is he waiting for????
**********************************************************************
Hawkeye 10 Do you remember when Jesse Jackson was overheard saying that Obama should have his "nuts" cut off? Do you think that Jesse..........?
No, He just never had any to begin with!!!!
@genoves,
Quote:For example, Mr. Obama's budget assumes that nearly all of the new stimulus spending will be temporary -- a fantasy. He also proposes to eliminate farm subsidies for those with annual sales of more than $500,000. This is a great idea, and long overdue. But has the President checked with Senators Kent Conrad (North Dakota) or Chuck Grassley (Iowa)? We hope we're wrong, but a White House that showed no interest in restraining Congress during the recent stimulus bacchanal isn't likely to stand athwart history to stop the agribusiness lobby.
The falling deficit also assumes the largest tax increase in U.S. history, starting in 2011 with the repeal of the Bush tax rates on incomes higher than $200,000 for individuals and $250,000 for couples. The White House says this will yield upwards of $1 trillion, if you choose to believe that tax rates don't affect taxpayer behavior.
The Obama budget also assumes National economic production numbers for FY09 and FY10 which are pure fantasy. The anticipated tax collection numbers will not be close to reality. This is the type of nonsense that leads the world to not have faith in Washington to have any positive contribution to solving the global economic collapse.
The opposition party making it clear that they are not signed on to the proposed U.S. solution to the collapse does not help the confidence in our leadership factor:
Quote:Burr says Washington in a ‘state of denial’
.
(CNN) " North Carolina Sen. Richard Burr said Washington is in a “state of denial,” in Saturday’s weekly Republican radio address.
“It seems that every morning you pick up the newspaper, you’re reading about another multi-billion dollar government spending plan being proposed or even worse, passed … We become numb to what the dollar figures really mean, or the obligation that accompanies them,” he said.
Pointing to the “spending priorities of the Democrats in Washington” and President Obama’s proposed budget, Burr warned that “for the first time, we could see the American Dream vanish.”
Burr said Republicans and Democrats agree on where they want to go, but they disagree on how to get there.
http://politicalticker.blogs.cnn.com/
@hawkeye10,
In the current market conditions, there is no way AIG is going to get any buyers, because we still don't know where the bottom will be. Edward Liddy is living a pipe dream if he thinks they're going to "receive full and fair value." It doesn't take a rocket scientist to conclude that. It's the same with all those mortgage instruments; nobody still knows where the bottom is.
What we do know is that this crisis originated with these mortgage instruments based on speculation and greed.
Irregardless of whether Bush screwed up or not, it's the whole economy that's in crisis, and Obama must try to reverse this trend of lost jobs and homes.
I agree that the Obama plan has too many social programs embedded into it that will handicap any recovery, but they must do "some thing." That's not an option for the government; to do nothing.
@cicerone imposter,
Quote:In the current market conditions, there is no way AIG is going to get any buyers, because we still don't know where the bottom will be
How can you both have enough sense to make this statement but also be opposed the the U.S. government holding the AIG assets and maintaining their intrinsic value until they can be sold at fair value???? It is not in anybodies interest to force the marking of losses which both not fair and temporary and are created by the breakdown of economic systems that we know that we can fix with-in a few years.
Quote:The ones who are being hit the hardest and will have the most difficult time recovering are America’s young workers. Nearly 2.2 million young people, ages 16 through 29, have already lost their jobs in this recession. This follows an already steep decline in employment opportunities for young workers over the past several years.
Good jobs were hard to find for most categories of workers during that period. One of the results has been that older men and women have been taking and holding onto jobs that in prior eras would have gone to young people.
“What we’ve seen over the past eight years, for young people under 30, is the largest age reversal with regard to jobs that we’ve ever had in our history,” said Andrew Sum, the director of the Center for Labor Market Studies. “The younger you are, the more you got pushed out of this labor market.”
There were not enough jobs to go around before the recession took hold. So the young, the poor and the poorly educated were already suffering. Now that pool of suffering is rapidly expanding.
This has ominous long-term implications for the country. The economy cannot perform well with such a large cohort of young people condemned to marginal economic status
http://www.nytimes.com/2009/02/28/opinion/28herbert.html?_r=1
Anger and the resulting political storm being first on the list of Dangerous implications.......this is the stuff from which revolutions and revolts are made.
