Capital Commerce


November 2008


Worst Global Economy Since WWII

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Before we all start loading up on Elmo Live! toys and Wii Fit games, might be a good time for an economic reality check. As Bruce Kasman of JP Morgan gloomily sees things:

"Economic reports continue to beat the drum of a deep and synchronized global downturn. Industrial activity readings are ...

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Zawahiri: Blame Al Qaeda for Wall Street Woes

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Hey, good news for Alan Greenspan, Barney Frank, Chris Dodd and those Wall Street quants who never figured housing prices could plunge across the country: America's financial fiasco isn't your fault. At least that's the claim of Ayman al-Zawahiri. Al Qaeda's #2 has this to say about the credit ...

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Barack Obama: His Economic Blind Spot

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Barack Obama has said he'll do "whatever it takes" to boost the economy. But I think what Obama really means is that he'll do "pretty much whatever it takes." Could you imagine him, for instance, pushing this economic recovery plan formulated by Nobel Prize-winning economist Robert Mundell,

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Some Liberals Frown at Obama's Economics Team

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The media and Wall Street might be thrilled with Obama's economic picks, but not some left-of-center folks. Here are some Daily Kos comments today on the Paul Volcker/Austan Goolsbee selections:

1) "Goolsbee's straight out of the University of Chicago's "free trade" think tank."

2) "Goolsbee' s about ...

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Obama, Volcker & Goolsbee

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No one can complain about Paul Volcker and Austan Goolsbee being part of this new Economic Recovery Board. Top notch folks. But who else is going to be part of it? Maybe it is time for some economic bipartisanship, yes? How about John Taylor, Greg Mankiw, Glenn Hubbard, Martin Feldstein, Larry ...

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Timothy Geithner: Obama's Teflon Treasury Secretary

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Who is Timothy Geithner that upon news of his impending nomination by Barack Obama, Matt Drudge would wonder -- in huge headline type --  if he was the man would "save the economy?"

Timothy Franz Geithner. New York Federal Reserve President. Technocrat. Bureaucrat. Career civil servant. Didn't like ...

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Ben Bernanke's Big Housing Plan

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OK, so the Fed said it will purchase a) up to $100 billion in GSE debt and b) up to $500 billion in mortgage-backed securities backed by the GSEs. Why is this important? Michael Feroli of JPMorgan Chase says "it will measurably improve conditions in the mortgage markets and will have beneficial ...

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The Size of Obama's Stimulus Plan

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Goldman Sachs does the stimulus math this way: Take Obama's claim that his stimulus proposal would create 2.5 million jobs. According to Okun's Law (concerning the relationship between unemployment and GDP), an increase of 1.8 percent in employment requires a 3.6 percent increase in the size of the ...

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Obama's Tax Conundrum

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My guy Pete Davis of Davis Capital Ideas on why taxes are going up, all of which may explain why Obama waffled yesterday on keeping the 2001 and 2003 tax cuts until at least their expiration at the end of 2010): "With the deficit reaching $1 trillion ... there will be pressure to raise revenue. If ...

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Is Citigroup Now a GSE?

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Citigroup is now a GSE, a Governmet Secured Enterprise. IHS Global Insight  puts taxpayers on the hook for just over $100 billion on the deal, not to mention the new $20 billion capital injection. And to think taxpayers could own the whole thing for $25 billion last week.

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Robert "The Architect" Rubin vs. Phil Gramm

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The weekend NY Times story on Citigroup was not kind to Robert Rubin:

"Robert Rubin has moved seamlessly between Wall Street and Washington. After making his millions as a trader and an executive at Goldman Sachs, he joined the Clinton administration. Mr. Weill, as Citigroup’s chief, wooed Mr. Rubin ...

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Citigroup: U.S. Government Bailout Arrives

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Ok, here were go (from the WSJ):

1) Treasury agrees to inject $20 billion at 8 percent interest.

2)  The government agrees to backstop a $300 billion pool of assets, including MBS. "Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that ...

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Obama Blinks on Taxes

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It now looks like Obama will not propose raising taxes next year, instead waiting for the end-of-2010 expiration of the 2001 and 2003 tax cuts. I guess this means he believes, on some level, that raising taxes hurts economic growth. So I guess it really was about "fairness" all along. I think every ...

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Bernanke: I Was Mistaken

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Oh, like this will help investor confidence. Federal Reserve Chairman Ben Bernanke tells New Yorker magazine that "I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very ...

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Citigroup Nationalization: Good Bank, Bad Bank

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Several sources are now reporting that Citigroup is nearing a deal with the government to create a seperate "bad bank" to house $50 billion worth of toxic mortgage and other assets, as well perhaps a $1 trillion or more in off-balance-sheet entitites. The WSJ's version of the story also says the ...

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The Obama Economic Team

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Team Obamanomics, courtesy of the WSJ:

"The team is expected to include New York Federal Reserve Bank President Timothy Geithner, who will be nominated as the next Treasury secretary, Mr. [Lawrence] Summers, and incoming budget director Peter Orszag. Jacob Lew, a former White House budget director,

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Treasury Secretary Geithner: Further Thoughts

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1) Comfort. Like Obama, Geithner is 47 (Obama is 14 days older), a fast riser and a technocrat.

2) Multipolar. If Larry Summers takes a White House post, you will have two bright academics (Summers, Bernanke) along with a bureaucrat running U.S. economic policy. It would be nice to have someone with ...

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Timothy Geithner: Obama Treasury Secretary

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It looks like New York Federal Reserve Bank President Timothy Geithner is our next Treasury secretary. A few quick thoughts:

1) He has the edge of being from Wall Street and understanding that world without being of Wall Street and having his hands "dirty" from the subprime crisis.

2)  CNBC's Jim ...

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Ronald Reagan on Election Night, 1980

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It's been a long week and think we could all use some of this. It's the Gipper from Nov. 4, 1980:

"You know, Abe Lincoln, the day after his election to the presidency, gathered in his office the newsmen who had been covering his campaign and he said to them, 'Well boys, you're troubles are over now,

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TAGS:
Reagan, Ronald

Financial Crisis Elbowing Out Climate Change

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Expect to see more stories like this:

LIMA (AFP) – Climate change is fading as a priority in the Pacific Rim as the gloomy state of the global economy takes precedence, a survey of opinion leaders showed Wednesday. The private Pacific Economic Cooperation Council released an annual survey of leaders ...

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Stock Returns Washed Away

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Brad DeLong does the terrible math:

"Average real capital gain over the twelve years since Greenspan's "irrational exuberance" speech in December 1996: -2.1% per year.

Average dividend paid on the S&P composite over the twelve years since Greenspan's "irrational exuberance" speech in December 1996:

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Dow Down 22 Percent Since Election Day

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OK, we've had a bear market even if you count only the losses since Barack Obama was elected.What, don't investors know the MegaStimulus Package is on the way? Maybe instead of a guesstimated $500 billion, it should $1 trillion or maybe even $2 trillion (which I actually heard suggested on CNBC).

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Washington Continues to Chill Stocks

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The great Andy Busch, FX guru at BMO Capital Markets, thinks the Beltway Boys should go on vacation ASAP:

"For the week, I underestimated the negative impact of two appearances by the auto executives in front of Congress. This has cast a pall over the markets analogous to the October appearances by ...

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The Gingrich Middle-Class Tax Cut

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Now was that so hard? Want to boost the economy? Cut taxes. Newt Gingrich, in the WSJ, proposes cutting the 25 percent tax bracket to 15 percent, basically creating a 15 percent flat tax for 90 percent of all Americans. As Gingirch puts it:

"This would be much more effective than Mr. Obama's tax ...

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Dow Down 16.9 Percent Since Obama Election

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Another day, another decline. In the 11 trading sessions since Barack Obama was elected president, the Dow has fallen 16.9 percent, or an average of 148 Dow points a session. The stock market is forward looking. The stock market discounts. The stock market cares about what happens in Washington.

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Creating Higher Unemployment

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 Just because you call something stimulus doesn't mean it's really stimulus. This from the Heritage Foundation: "Workers stay unemployed longer when the government pays longer unemployment benefits. The Congressional Budget Office estimates that a 13-week extension of benefits causes the typical ...

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Cheap Gas vs. Recession

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Will the $140 billion "tax cut" from lower gasoline prices save the economy? Nope, but they help. I think economist James Hamilton may be right on this: "How severe the financial bankruptcies and mortgage defaults ultimately prove to be will depend directly on how far real estate prices decline.

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Rebuilding the Right

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Club for Growth or Sam's Club? What should be the direction of the conservative movement and the GOP?  Let me add this: They might want to choose a candidate who could actually explain his own healthcare plan at least as well as his opponent could explain it. That wasn't the case in 2008.

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The Chances of a Depression

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Now according to Intrade, there is a 12.9 percent chance the economy will tumble into a depression next year, defined as a cumulative GDP drop of 10 percent or more over four consecutive quarters. To put that into some perspective, the betting markets think there is a 13.7 percent chance of Osama ...

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Worst Economy in a Generation

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The latest forecast from Macroeconomic Advisers predicts a 3.9 percent GDP drop in 4Q, the worst decline since the first quarter of 1982 when the economy shrank 6.4 percent. (Remember, these are annual rates.) I think it is time to hike taxes, yes?

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The G-20: What Happened

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The econ team at IHS Global Insight sees these as the outcomes from the G-2- meeting:

1) Further monetary policy action - possibly co-ordinated - including reductions in key interest rates in the U.S., Britain, the euro-zone and other industrialized countries.

2) Further fiscal stimulus measures,

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The 11 Blunders of Hank Paulson

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Strategist Ed Yardeni says that  "everything that [Hank] Paulson has done or endorsed has worsened the credit crisis and sent stocks reeling." Like what, for instance? Like these, and I quote:

(1) Paulson's Super-SIV proposal was a distraction that went nowhere. It was the first clue that he likes ...

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TAGS:
Paulson, Henry

Obama: Reagan Was Right After All

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This is the sort of talk that would have made Hillary Clinton the Democratic nominee. Barack Obama on 60 Minutes: "And whether it's coming from FDR or it's coming from Ronald Reagan, if the idea is right for the times then we're gonna apply it. And things that don't work we're gonna get rid of."

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Geithner Tops Odds for Next Treasury Secretary

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The lastest from Intrade: Geithner 45 percent, Summers 26 percent, Corzine 10 percent, Volcker 9 percent, Bair 8 percent. My darkhorse is Buffett at 5 percent. I'm just saying.  ... Let me also add that if Obama picks Hillary for Secretary of State, that might give him some room with liberals ...

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The Meaning of the G-20 Summit

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A few thoughts and observations on the big G-20 wingding here in Washington:

1)The financial footprint of this hastily-called meeting will be far less than the carbon footprint.

2) The best thing that could come out of it would be a joint statement that was as ringing in its defense of free markets ...

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Jennifer Granholm: Big Three Woes Not Their Fault

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Gov. Jennifer Granholm on the real reason the Big Three need help from the U.S. taxpayer:

"The reason why the autos are in this challenge is because of the meltdown in the financial market," said Michigan Gov. Jennifer Granholm. "They were on a restructuring path -- yes, they were challenged -- but ...

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More Bad News on Jobs

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This, from JP Morgan Chase:

"Initial jobless claims surged to a new cycle high of 516,000 in the week ending November 8 from 484,000 in the previous week. The Labor Department said claims were up in many states, and that the 32,000 rise was not due to any special factors. Claims are now ...

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A Cynical View of a Big 3 Bailout

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To some degree, wouldn't a bailout (or partial government takeover) of GM or other U.S. automakers really just be a bailout of the Democrat-friendly UAW since bankruptcy would give the companies the power to slash wages and benefits or even cancel union contracts? And with Uncle Sam as a partner,

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