G 20: the real start is in April – RIMANDATI AD APRILE

Photo: January 30, 2007. REUTERS/Jason Reed

The Times cartoon. © Peter Brooks

0811_st-barack

QUASI BOCCIATI, RIMANDATI AD APRILE.

ITALIAN SUMMARY.

ASPETTANDO B.Ob. LA TELA DI RAGNO DI GORDON BROWN, laburista annacquato.

LI PENSAVAMO BOCCIATI; INVECE SON SOLO RIMANDATI AD APRILE: e’ un risulato magro ma sopra le aspettative.

Il G20 era atteso come  un buco nell’acqua, invece ha sorpeso, pur senza entusiasmare affatto:

– da un lato, ultimo grido liberista del 2° Millennio, seppellito nel marzo-settembre 2008

– dall’altro, un primo vagito del nuovo millennio Chindiano che avanza: focus sulla regolazione forte (?) della Finanza, anche se .. leggete il testo finale integrale: final statement. Le rating agencies? Devono … registrarsi, e’ tutto. Ma erano ben note e nelle dita di una mano!  Niente guillotine per  il loro top management, non una notte in prigione e nemmeno a casa senza liquidazione. Il FT le aveva trovate con le dita nella marmellata: usavano modelli TRUCCATI per valutare il rischio, lo sapevano e coprivano per mesi e mesi, continuando a barare.  Al confronto, il Watergate era una cosa da educande.

– Occhio Obama: col gradualismo alla Gordon Brown non si va da nessuna parte, si lasciano tutti gli attori e le istituzioni-chiave al loro posto. CI VUOLE UNA RIVOLUZIONE (al momento senza nome, così sarà più creativa ed al passo coi problemi).

 

AND THE WINNER IS …

Surprise surprise: Gordon Brown again, the win-win guy of global summits! 

For  a sorting out lame-duck (GWB, US), another one (GB, GB) stays with us forever. Gordon Brown had reached below zero poll evaluations, for his treacherous delaying tactics on Northern Rock: oh, dear! He was so shy and  timid (Blair complex?),  before statalism became fashionable again (the real Millennium cut is in 2008, either March or September). But now he’s the star, at least before B.Ob. enters the stage.

wsj

 

Brown Wins Reform Demands

U.K. Prime Minister Gordon Brown appeared to win many of his key demands to reform the global regulatory system and restart the Doha round of trade talks at the meeting of G-20 

As expected by everybody, lame duck GWB did not get anything from  Sat. 15th G20 meeting. Markets didn’t bet a buck on such a meeting, so perhaps they will not fall down dramatically on Monday. The G20:

+ has already become a focal institution (as Gordon Brown has underlined), and will have some work to do next year, particularly in the next meeting before April 30. First of all, verify whether the March deadline (see G20 document below) has been met for the emergency Global Finance re-regulation. By now the G20:

did not start any coordination of fiscal stimuli (from now on  the focus of policies), nor of  monetary and credit policy guidelines; in such a way, national and (at most) regional policies are already ending up: either  in “beggar your neighbour”; or becoming a ground for knittimg new international alliances: e.g., see the rge discussion on China’s fiscal plan:

the timing of the Chinese package is likely influenced both by domestic demands, and the external outlook. The timing before the G20 heads of state is clearly significant.

 

The hypothesis sounds right to me. China is trying to knit alliances around the US, to decouple.

+ dealt mainly with the financial meltdown, with a gradual approach (not mentioning the roots of today’s problems);

+ further work might follow, namely in the FSF coordinated by Mr Draghi, which should include BRIC and deal with change in  Bretton Wood institutions;

  –  no real finance reform, nonetheless: look at RATING AGENCIES (perhaps the most bastard subcriminals, the FT found them conspiring and treaching). They just need to … register !!!  Fuckoff.

 Pleaded for pursuing an “Open Global Economy”, AS IF it was not a dead walking: sooner or later bailout protectionism will give the floor to trade protectionism and capital controls; we bet the deadline of resurrecting the Doha Round by December  will NOT work;

apparently ignored the risks of an open deflation, signalled by the lack of response of gold and stock markets to the massive national rescue plans.  

∑ – Final G20 mark: – 5 + 3 = -2.  Only such a nerd as G Brown gets good marks! The other pupils most come back in the April session, with new essays 2B evaluated.

Even if its financial and institutional (IMF and WB) plan had to be timely applied, this would not change much of the current severe global recession by insufficient demand, on the verge of degenerating into a low consumption-led depression in the US – on behalf of the irresponsibility and laissez faire of Pres. Bush and his staff, even after the subcrime bubble imploded in August 2007, i.e. 15 months ago: 15 months lost, waiting for Godot. Luckily Godot is about to come from Chicago. This is why Russia asked to recall the G20 soon, and got it.

The real test will be whether their minimalist approach to focus upon an immediate stabilisation of financial markets will get any result soon. Dedline: March 31. This is the core of their long final statement:

9. We commit to implementing policies consistent with the following common principles for reform.

• Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking.

• Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems.

 Promoting Integrity in Financial Markets: We commit to protect the integrity of the world’s financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.

 Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.

• Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF – directed by Mr Draghi, NdR) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response. 

Today’s rge is full of interesting clusters on G20 related issues:

  •  G20 Nations Agree More Concerted Efforts, Regulatory Coordination
  •  Will Coordinated Policy Interventions Prevent a Global Recession?
  •  Towards A New Financial Order: Regulatory Issues Tackled At The G-20
  •  Liquidity Trap Possibility: What’s the Solution?
     G20 Nations Debate Coordinated Fiscal Stimulus
     Economists Debate: What Should Be Accomplished at the G20?

2nd & last (?) rally day

FAQ 1 –  IS THE RALLY ALREADY OVER? IN SUCH A CASE, A  “PLAN C” WOULD BE NECESSARY. FOCUSSING UPON MEAN STREET.

w post

live coverage

Posted at 2:09 PM ET, 10/14/2008

Reid Calls for More Stimulus

In a statement released moments ago by Senate Majority Leader Harry Reid (D-Nev.), he echoed calls by House Speaker Nancy Pelosi (D-Calif.) for an economic stimulus plan aimed at Main Street, now that the Wall Street bailout/rescue plan apparently is underway.

Faq 2. In a severe recession, on the verge of a decade (2010s) depression,  where are the fundamentals of profits actualisation? Likely at about 1/2 of current stock values, i.e. 2/3 down from the Autumn 2007 apex.  A different answer in the ft, by LEX (implicitly assuming we are so close to the bottom floor ?):

Time to buy?

Published: Monday 13 Oct 2008 09:55

With stock markets falling day by day, investment gurus suggest that it is time to buy – taking a 30-year view.  Certainly, there are plenty of companies across the developed world in little immediate danger and trading at eyewateringly low prices. But there is no telling how long a market recovery could take. The Dow Jones Industrial Average took 24 years to regain its pre-crash highs following the Great Depression. Japanese equities are still a quarter of what they were almost 20 years ago.


BREAKING NEWS.  -3% Nasdaq, at 2 pm ET, -4.5% at 3 pm ET

NASDAQ GOES DOWN! WALL STREET PUTS BRAKES TO THE EUROPEAN RALLY

LA FRENATA DI WALL STREET RALLENTA LA CORSA DELLE BORSE EUROPEE A FINE GIORNATA

Market Index Charts

 

At  5pm GMT = 1pm ET (see the self-updating graphs) the Nasdaq was losing 1.35%, at 5.30: – 1.75%, at 6.00: -2.45%; on expectations of  a severe recession hitting ICT profits and consumption (on a Pepsi profit warning). DIJA  + 0.34%, then becoming negative at 5.35pm GMT (1.35 ET).

The rally is over at Wall St., and it lasted JUST 1 day.

Tokyo up a Guinness 14%. Europe on average up 3% (DJ Stoxx 600), but it might be the end of it, and the slide down continue –  although not as catastrophically as last week.

bloomberg

Roubini Sees Worst Recession in 40 Years, Rally’s End (Update1)

By Eric Martin and Rhonda Schaffler

 

Oct. 14 (Bloomberg) — Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to “sputter.”

“There are significant downside risks still to the market and the economy,” Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. “We’re going to be surprised by the severity of the recession and the severity of the financial losses.”

The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

“This will be the first round of recapitalization of the banks,” Roubini said. “The government has to decide to intervene much more directly in the provision of credit and the management of these companies.” (…)

“The stock market is going to stop rallying soon enough when they see the economy is really tanking right now,” Roubini added. (…)

Roubini said total credit losses resulting from the meltdown of the subprime mortgage market will be “closer to $3 trillion,” up from his previous estimate of $1 trillion to $2 trillion. The International Monetary Fund estimated $1.4 trillion estimate on Oct. 7. Financial firms have so far reported $637 billion in losses, according to data compiled by Bloomberg. 

SEE OUR ESTIMATE (from last Summer) in our blog title: $3 tr, IRAQ cost = SUBCRIME cost.

wsj

Disaster Averted, EU’s Recession Looms

European governments can congratulate themselves on preventing the region’s troubled financial sector from collapsing. But the focus will swiftly return to the bleak macroeconomic outlook.

Actually, we expect the Wall Street worries on the recession to spread tomorrow, Wednesday in Asia and Europe.

Reuters 

Worry over profit outlook halts early stock burst

Tue Oct 14, 2008 12:05pm EDT = 16.05 GMT

By Ellis Mnyandu

 

NEW YORK (Reuters) – The Nasdaq fell in choppy trading on Tuesday as investors sold technology shares on fears that fallout from the credit turmoil would hurt profits despite the U.S. government’s plan to invest in banks to shore up the financial system.

The Dow and S&P 500 were moderately higher after a sharp rise at the open. Concerns about the broad profit outlook overshadowed the Treasury Department’s plan to inject $250 billion in major banks to stabilize the financial system in hopes of averting further damage to the economy.

A profit miss by soft drink company PepsiCo , whose shares were down 9 percent, added to worries over how consumer spending will hold up against declines in home values, stocks and tighter credit.

On Nasdaq, shares of chip maker Intel Corp fell more than 5 percent to $16.02 before it reports quarterly results after Tuesday’s closing bell.

The semiconductor index was off nearly 4 percent, a day after Wall Street roared back from its worst week ever with one of its best single days ever on Monday.

“We may be trying to establish the floor with the credit crisis, and that’s why you had the euphoria in the last day and a half,” said Alan Lancz, president of Alan B. Lancz & Associates Inc investment advisory firm in Toledo, Ohio. “Now people are starting to look at how much damage the credit crisis has done to the economy and earnings.”

The Dow Jones industrial average rose 58.86 points, or 0.63 percent, to 9,446.47. The Standard & Poor’s 500 Index climbed 6.59 points, or 0.66 percent, to 1,009.94. The Nasdaq Composite Index slid 24.42 points, or 1.32 percent, to 1,819.83.

Shares of software maker Microsoft Corp declined more than 5 percent to $24.17. Computer maker Dell slide nearly 6 percent to $14.32.

w post

Posted at 12:03 PM ET, 10/14/2008

Crisis Hits Real Economy: Pepsi Flat

 

PepsiCo. which, like Coca-Cola, has long been considered a “safety stock” — in good times or bad, folks drink soda — said this morning that people actually aren’t drinking soda. Result: The company will cut 3,300 jobs in the United States.

 

The company’s stock is being hammered thanks to a trifecta of bad news from the soda giant this morning: Third-quarter profits fell short of Wall Street expectations, the company cut its full-year outlook and it refused to give guidance for 2009.

 

Nearing lunchtime, shares of PepsiCo. are trading down about 10 percent. 

ft – Global markets rally as US launches bank rescue

Asian and European (Milan closes at + 3.6%) Markets

 (BUT – SURPRISINGLY – NOT WALL STREET !!!)  

are still in rally mood today, Tuesday Oct. 14, but Wall Street’s COLD SHOWER decelerated the European rally at end of the day.

The very short lived rally (1 day ad  a half) was an answer to the week-end instant diffusion of Gordon Brown’s pseudo-nationalisations (Plan B, after the useless Pauson’s Plan A) in US and Europe; in each country measures are undertaken, but also find a lot of social and economic opposition and discussion, A dramatic acceleration in the US where the top 9 banks are partially State owned ($250 bn): Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America, Merrill Lynch (also becoming controlled by Mitsubishi), Citigroup, Wells Fargo, Bank of New York Mellon, and State Street. In Italy it was observed: What about the Made in Italy, if its environment, the districts and supply chains of SMEs, are about to disappear, since they receive no credit?  A much similar question (mutatis mutandis) is posed in the US (see below). 

wp

Dow Soars 11 Percent; Biggest Point Gain Ever
The U.S. government is dramatically escalating its response to the financial crisis by planning to invest $250 billion in the country’s banks, forcing nine of the largest to accept a Treasury stake in what amounts to a partial nationalization.

A REJOINDER ON POLICIES. 

From today’s update in Section 2 of our “AAA updates on subcrimes” page:

Wall Street and the global financial system are pro tempore nationalised in US and Europe.

The stock and credit markets historical BLACK WEEK  (6-10 Oct. 2008) has wiped out Paulson’s Plan B. Europe and the US hurried up to adopt Gordon’s Brown PLAN B – and the Labour Premier from a lame duck suddenly became the prophet of Financial Socialism, Hood Robin. As Lex (Brownian Motion in Europe. FT, Oct. 13) puts it

The lugubrious British premier, out of sorts at home and seriously adrift in the polls, has been styled as a swashbuckling conductor in the Spanish press, and a “magician” in France. Europe has apparently bought into Mr Brown’s conviction that this is a severe, but transient crisis of confidence that can be overcome by piling on more and more government debt.

While the wisdom of that strategy is questionable, it is clear that there is strength in numbers. If governments all muck in together, using taxpayers’ money to recapitalise banks

What about Mean Street, the middle, lower and under classes?

There is no alternative (against the persisting risks of the severe recession to degenerate into a 2010s depression) than a Robin Hood policy for the poor and the middle class. As the historian Howard Zinn puts it, arguing in advance for an Obama New Deal (Beyond the New Deal, The Nation, April 7 – oL March 20),
We might wonder why no Democratic Party contender for the presidency has invoked the memory of the New Deal and its unprecedented series of laws aimed at helping people in need. The New Deal was tentative, cautious, bold enough to shake the pillars of the system but not to replace them. It created many jobs but left 9 million unemployed. It built public housing but not nearly enough. It helped large commercial farmers but not tenant farmers. Excluded from its programs were the poorest of the poor, especially blacks. As farm laborers, migrants or domestic workers, they didn’t qualify for unemployment insurance, a minimum wage, Social Security or farm subsidies.
Still, in today’s climate of endless war and uncontrolled greed, drawing upon the heritage of the 1930s would be a huge step forward. Perhaps the momentum of such a project could carry the nation past the limits of FDR’s reforms, especially if there were a popular upsurge that demanded it.

wp

Low-Wage Workers
Low-wage workers have been hardest hit by the economic downturn, yet most remain hopeful about the future. 

 

PLAN B IN THE US

slate

Take On Me

By Daniel Politi

Posted Tuesday, Oct. 14, 2008, at 6:42 AM ET (our bold characters)

The U.S. government is officially switching gears. In news that almost all the papers banner across the front page, the Treasury Department will be announcing that the U.S. government plans to invest up to $250 billion in the nation’s banks in a move that will effectively translate into a partial nationalization of the financial institutions that take federal money. In addition, the government would provide insurance on all deposits in non-interest-bearing accounts and insure certain types of bank debt. The New York Times calls it the Treasury Department’s “boldest move yet” to deal with the financial crisis. The Wall Street Journal does the best job of summarizing that the move “intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.” USA Today points out that Europe’s moves to prop up banks across the pond, “set the pattern for the U.S. plan” because if the Bush administration failed to act “in a similar fashion, investors might have moved money abroad to seek safety.”

The move represents a dramatic shift for Treasury Secretary Henry Paulson, who had previously opposed the idea of taking equity stakes in banks. The Los Angeles Times specifies that while the government still plans to go ahead with its plan to buy toxic securities, “the new strategy is likely to move that into a secondary position.” The new program will be divided into two parts. First, the government will devote $125 billion to buy a minority stake in nine of the nation’s top financial institutions and then make the other $125 billion available to thousands of banks and thrifts across the country. Executives from the nine big banks met with Paulson yesterday and while some weren’t happy with the plan, they all agreed to participate. The Washington Post says Paulson told the executives they needed to agree to it for the good of the American economy, illustrating that while “officially the program was voluntary, the banks had little choice in the matter.”

By pretty much forcing the nine big financial institutions to take government money, officials wanted to make sure there would be no stigma associated with receiving the funds, which would have made the entire plan useless. The WSJ and USAT have the full list of the nine banks that will now be partially owned by taxpayers: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon, and State Street.

The amount of money each bank will get won’t be uniform—the WSJ has the specific numbers—but essentially the Treasury will buy up to $25 billion in preferred stock in each of the financial institutions. The stock each bank issues “will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years,” the NYT details. The government also added a provision that would allow taxpayers to benefit if the stock value of the financial institutions increases.

The NYT notes that while financial institutions that accept government money won’t be required to eliminate dividends or fire their chief executives, they will “be held to strict restrictions on compensation.” But the WSJ isn’t impressed and notes that the restrictions “are relatively weak compared with what congressional Democrats had wanted.” Key Democratic lawmakers emphasized yesterday that they fully expect the government to impose strict limits on compensation, signaling that a failure to do so could put in doubt whether Congress releases more of the $700 billion after Treasury officials burn through the first installment.

The LAT says that some in the banking industry “reacted with alarm” when details of the plan began appearing in news reports and they predicted the government would soon hear from hundreds of angry banks that were left out of the first phase of the program. “This worked in Sweden, where you have about 14 banks,” one “industry insider” said, adding that it’s little surprise that Paulson, a Wall Street insider, would choose to pump up big New York financial institutions first. “It’s like picking your kids,” he said. The WP notes that there is a risk the banks will use the government money “to bolster their balance sheets” instead of increasing lending, but regulators will apparently pressure the financial institutions not to let that happen.

(…) If there’s a clear winner in all this it’s the British government. Of course, that could all change if the rescue plans that are taking shape around the world fail. But as of now, Prime Minister Gordon Brown, went, in a matter of days, from lame duck to global leader as the plan he announced last week to inject billions into British banks was quickly taken up by European leaders and now the United States. “He’s the cat who got the cream,” a British historian tells the WP. “It was a gift from heaven for him to have this crisis in his field of expertise.”

For their part, investors are cheering. News that European leaders were planning to prop up banks, coupled with anticipation for a new U.S. program, sent stock prices soaring yesterday. The Dow Jones industrial average ended more than 900 points higher, the largest point gain in history, for an 11 percent gain, the biggest since 1933. As the WSJ highlights in its front page, history has shown that these quick gains can be short-lived, which is why no one was ready to say that yesterday marked a turning point in the ongoing crisis.

Brownian motion: a cure for subcrime cancer?

While the G7 in Washington was inconclusive, Europe advanced more yesterday by generalising G. Brown’s approach: each country will use its own resources, but the plan is coordinated –  aiming to interbank lending and temporary quasi-nationalisations (taxpayer- based recapitalisation of banks). Today’s rally (now 6% in Europe, at 4 pm GMT) is meaning nothing: we were observing a decreasing length of rally periods after injections of money and policies. The political good news is the return to a Berlin-Paris axis, which traditionally marks political waves of Europe building.

LEX

 G. Brown is a Robin Hood PRO TEMPORE: after the crisis, he’ll give banks back to rentiers, and Nottingham will be exploited as  it was before.

Brownian Motion in Europe

Published: October 13 2008 09:48 | Last updated: October 13 2008 16:24

Perhaps Gordon Brown should travel more often. The lugubrious British premier, out of sorts at home and seriously adrift in the polls, has been styled as a swashbuckling conductor in the Spanish press, and a “magician” in France. Europe has apparently bought into Mr Brown’s conviction that this is a severe, but transient crisis of confidence that can be overcome by piling on more and more government debt.

While the wisdom of that strategy is questionable, it is clear that there is strength in numbers. If governments all muck in together, using taxpayers’ money to recapitalise banks while providing guarantees on new debt issuance, they sacrifice their balance sheets en masse. Some budget deficits will widen more than others. But if they cock a collective snook at fiscal rules and targets, they’ll discourage capital arbitrage within the Union …

RGE

Roubini Hood is optimist for the 1st time in years

I spent the weekend in Washington attending the IMF annual meetings and giving a series of talks in a variety of public and private fora (IADB talk, C-Span interview, Euro 50 Group meeting, IMF panel, etc.). After last week crash in stock markets and financial markets (and it was indeed a crash as during the week equity prices fell as much as the two day crash of 1929) policy makers finally realized the risk of a systemic financial meltdown, they peered into the systemic collapse abyss a few steps in front of them and finally got religion and started announcing radical policy actions (the G7 statement, the EU leaders agreement to bailout European banks, the British plan to rescue – and partially nationalize – its banks, the European countries plans along the same lines, and the Treasury plan to ditch the initial TARP that was aimed only buying toxic assets in favor of plan to recapitalize – i.e. partially nationalize – US banks and broker dealers. While many details of these plans are fuzzy and there will be some national variants the contour of the approach are similar andclose to the recommendations that I made in this forum