Wednesday, January 06, 2010

What I'm Reading This Week

"Explaining the current state of global fiscal affairs is often confusing – it’s much like Robert Palmer’s 1980s classic song where he laments that “She’s so fine, there’s no telling where the money went!” Where government spending has gone is not always clear, but one thing is certain: public debt is soaring and most of it has come from G7 countries intent on stimulating their respective economies.

"What will be a game-changer is if Congress fails to recognize that the Treasury's action is at minimum an evasion, and possibly a usurpation of powers that are enumerated to Congress alone. If Congress does not forcefully defend that prerogative – even if it ultimately ends up voting for exactly the same policy – it will have relinquished the power of fiscal policymaking into the hands of unelected bureaucrats. This is real public money that is being spent to make bad mortgage loans whole. It may not appear to be costly at present, since risk-averse individuals conscious of credit risks, and foreign countries running massive trade surpluses, are still willing to accumulate the Treasury securities being issued, with no apparent impact. But ultimately, those securities will either stand as claims on our future national production, or they will be inflated away."

"“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

"What Bernanake seems to be overlooking in his exoneration of ultra-low rates was the impact they had on the world’s Bond managers — especially pension funds, large trusts and foundations. Subsequently, there was an enormous cascading effect of 1% Fed Funds rate on the demand for higher yielding instruments, like securitized mortgages"

"Fed chairman Ben Bernanke is back at it again, pointing the crisis finger at everyone but himself. To be sure there are plenty of congressional clowns deserving of a Babe Ruth style "big point", but the biggest point belongs straight at himself."

"Investors who see much better returns ahead are making the same mistake as those who expect a V-shaped recovery...They fail to grasp that the crisis-led downturn was not a cyclical event, but the first stage of a secular recalibration."

State budgets continue to look like a ticking time bomb:

"Politicians are unwilling to stand up to unions and demand reform. Instead they put off fixing the problem year in and year out selling long-term bonds to finance short-term needs...The system is flat broke and the state of Illinois is bankrupt. Meanwhile greedy unions refuse to even compromise. At this point compromise is not needed. A taxpayer revolt and all out war on unions, graft, pension promises, and corrupt politicians is."

"Washington has been spending money like a drunken sailor to "rescue" the economy, but its efforts have been at least partly offset by the fiscal constraints other levels of government have to contend with. Hence, while federal authorities can (seemingly) borrow as much as they like to fund the difference between revenues and outlays, municipalities don't have that luxury. They must maintain balanced budgets (or the fiction of such), which means they've had to sharply scale back spending as sales, property, and income tax receipts have plunged (and social safety net costs have surged). That's one reason, among many, why all the pump-priming is not producing the gusher of activity that policymakers and economists were expecting."

“The prospects for a robust prudently guided financial sector have been substantially clouded by the fact that both the corporate governance structure and the executive leadership of the financial sector remain largely unchanged—92% of the management and directors of the top 17 recipients of TARP funds are still in office.”

I said from the moment it was announced that the PPIP was a scam. (see: Kid Dynamite: "The PPIP is a SCAM").  Karl Denninger reminds us that he said so too - and that, sadly, we were right.


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