Wednesday, December 31, 2008
This is mind blowing stuff. Read the entire presentation as well as the Q&A afterward. Keep your eye on Craig Venter. 2009 might be notable for the first creation of artificial life.
Tuesday, December 30, 2008
Published: December 27 2008 00:23 | Last updated: December 27 2008 00:23
On the one hand, the increasing integration of markets for commodities, manufactures, labour and capital had led to great gains. As Adam Smith had foreseen in The Wealth of Nations, economic liberalisation had allowed the division of labour and comparative advantage to operate on a global scale. From the 1980s until 2007, the world economy had enjoyed higher, more widespread growth and fewer, less severe crises – hence Federal Reserve chairman Ben Bernanke’s hubristic celebration of a “great moderation” in 2004.
On the other hand, the more the world came to resemble an intricate, multi-nodal network operating at maximum efficiency – with minimal inventories and just-in-time delivery – the more vulnerable it became to a massive systemic crash.
That was the true significance of the Great Repression which began in August 2007 and reached its nadir in 2009. It was clearly not a Great Depression on the scale of the 1930s, when output in the US declined by as much as a third and unemployment reached 25 per cent. Nor was it merely a Big Recession. As output in the developed world continued to decline throughout 2009 – despite the best efforts of central banks and finance ministries – the tag “Great Repression” seemed more and more apt: although this was the worst economic crisis in 70 years, many people remained in deep denial about it.
“We assumed that we economists had learned how to combat this kind of crisis,” admitted one of President Barack Obama’s “dream team” of economic advisers, shortly after his return to academic life in September 2009. “We thought that if the Fed injected enough liquidity into the financial system, we could avoid deflation. We thought if the government ran a big enough deficit, we could end a recession. It turned out we were wrong. So much for [John Maynard] Keynes. So much for [Milton] Friedman.”
The root of the problem remained the US’s property bubble, which continued to deflate throughout the year. Many people had assumed that by the end of 2008 the worst must be over. It was not. Economist Robert Shiller’s real home price index in 2006 had stood at just under 206, nearly double its level just six years earlier. To return to its pre-bubble level, it therefore had to fall by 50 per cent. Barely half that decline had taken place by the end of 2008. So house prices continued to slide in the US. As they did, more and more families found themselves in negative equity, with debts exceeding the value of their homes. In turn, rising foreclosures translated into bigger losses on mortgage-backed securities and yet more red ink on banks’ balance sheets.
With total debt above 350 per cent of US gross domestic product, the excesses of the age of leverage proved difficult to purge. Households reined in their consumption. Banks sought to restrict new lending. The recession deepened. Unemployment rose towards 10 per cent, and then higher. The economic downward spiral seemed unstoppable. No matter how hard they saved, Americans simply could not stabilise the ratio of their debts to their disposable incomes. The paradox of thrift meant that rising savings translated into falling consumer demand, which led to rising unemployment, falling incomes and so on, ever downwards.
“Necessity will be the mother of invention,” Obama declared in his inaugural address on January 20. “By investing in innovation, we can restore our faith in American creativity. We need to build new schools, not new shopping malls. We need to produce clean energy, not dirty derivatives.” Commentators agreed that the speech was on a par with Franklin Roosevelt’s on his inauguration in 1933. Yet Roosevelt had spoken after the worst of the Depression was over, Obama in mid-tailspin. The rhetoric flew high. But the markets sank lower. The contagion spread inexorably from subprime to prime mortgages, to commercial real estate, to corporate bonds and back to the financial sector. By the end of June, Standard & Poor’s 500 Index had sunk to 624, its lowest monthly close since January 1996, and about 60 per cent below its October 2007 peak.
The crux of the problem was the fundamental insolvency of the major banks, another reality that policymakers sought to repress. In 2008, the Bank of England had estimated total losses on toxic assets at about $2.8 trillion. Yet total bank writedowns by the end of 2008 were little more than $583bn, while total capital raised was just $435bn. Losses, in other words, were either being massively understated, or they had been incurred outside the banking system. Either way, the system of credit creation had broken down. The banks could not contract their balance sheets because of a host of pre-arranged credit lines, which their clients were now desperately drawing on, while their only source of new capital was the US Treasury, which had to contend with an increasingly sceptical Congress. The other credit-creating institutions – especially the markets for asset-backed securities – were all but paralysed.
There was uproar when Timothy Geithner, US Treasury secretary, requested an additional $300bn to provide further equity injections for Citigroup, Bank of America and the seven other big banks, just a week after imposing an agonising “mega-merger” on the automobile industry. In Detroit, the Big Three had become just a Big One, on the formation of CGF (Chrysler-General Motors-Ford; inevitably, the press soon re-christened it “Can’t Get Funding”). The banks, by contrast, seemed to enjoy an infinite claim on public funds. Yet no amount of money seemed enough to persuade them to make new loans at lower rates. As one indignant Michigan law-maker put it: “Nobody wants to face the fact that these institutions [the banks] are bust. Not only have they lost all of their capital. If we genuinely marked their assets to market, they would have lost it twice over. The Big Three were never so badly managed as these bankrupt banks.”
In the first quarter, the Fed continued to do everything in its power to avert the slide into deflation. The effective federal funds rate had already hit zero by the end of 2008. In all but name, quantitative easing had begun in November 2008, with large-scale purchases of the debt and mortgage-backed securities of government-sponsored agencies (the renationalised mortgage giants Fannie Mae and Freddie Mac) and the promise of future purchases of government bonds. Yet the expansion of the monetary base was negated by the contraction of broader monetary measures such as M2 (the measurement of money and its “close substitutes”, such as savings deposits, that is a key indicator of inflation). The ailing banks were eating liquidity almost as fast as the Fed could create it. The Fed increasingly resembled a government-owned hedge fund, leveraged at more than 75 to 1, its balance sheet composed of assets everyone else wanted to be rid of.
. . .
The position of the US federal government was scarcely better. By the end of 2008, the total value of loans, investments and guarantees given by the Fed and the Treasury since the beginning of the financial crisis had already reached $7.8 trillion. In the year to November 30 2008, the total federal debt had increased by more than $1.5 trillion. Morgan Stanley estimated that the total federal deficit for the fiscal year 2009 could equal 12.5 per cent of GDP. The figure would have been even higher had President Obama not been persuaded by his chief economic adviser, Lawrence Summers, to postpone his planned healthcare reform and promised spending increases in education, research and foreign aid.
Obama had set out to construct an administration in which his rivals and allies were equally represented. But his rivals were a good deal more experienced than his allies. The result was an administration that talked like Barack Obama but thought like Bill Clinton. The Clinton-era veterans, not least Secretary of State Hillary Clinton, had vivid memories of the bond-market volatility that had plagued them in 1993 (prompting campaign manager James Carville to say that, if there was such a thing as reincarnation, he wanted to come back as the bond market). Terrified at the swelling size of the deficit, they urged Obama to defer any expenditure that was not specifically targeted on ending the financial crisis.
Yet the world had changed since the early 1990s. Despite the fears of the still-influential former Treasury secretary Robert Rubin, investors around the world were more than happy to buy new issues of US Treasuries, no matter how voluminous. Contrary to conventional wisdom, the quadrupling of the deficit did not lead to falling bond prices and rising yields. Instead, the flight to quality and the deflationary pressures unleashed by the crisis around the world drove long-term yields downwards. They remained at close to 3 per cent all year.
Nor was there a dollar rout, as many had feared. The foreign appetite for the US currency withstood the Fed’s money-printing antics, and the trade weighted exchange rate actually appreciated during 2009.
Here was the irony at the heart of the crisis. In all kinds of ways, the Great Repression had “Made in America” stamped all over it. Yet its effects were more severe in the rest of the world than in the US. And, as a consequence, the US managed to retain its “safe haven” status. The worse things got in Europe, in Japan and in emerging markets, the more readily investors bought Treasuries and held dollars.
. . .
For the rest of the world, 2009 proved to be an annus horribilis. Japan was plunged back into the deflationary nightmare of the 1990s by yen appreciation and a collapse of consumer confidence. Things were little better in Europe. There had been much anti-American finger-pointing by European leaders in 2008. The French president Nicolas Sarkozy had talked at the G-20 summit in Washington as if he alone could save the world economy. The British prime minister Gordon Brown had sought to give a similar impression, claiming authorship of the policy of bank recapitalisation. The German chancellor Angela Merkel, meanwhile, voiced stern disapproval of the excessively large American deficit.
By the first quarter of 2009, however, the mood in Europe had darkened. It became apparent that the problems of the European banks were just as serious as those of their American counterparts. Indeed, the short-term liabilities of the Belgian, Swiss, British and Italian banks were far larger in relation to those countries’ economies, while the German, French and Danish banks were much more dangerously leveraged. Moreover, in the absence of a European-wide finance ministry, all talk of a European stimulus package was just that – mere talk. In practice, fiscal policy became a matter of sauve qui peut, with each European country improvising its own bailout and its own stimulus package. The result was a mess. Currencies outside the Euro area were afflicted by severe volatility. Inside the Euro area, the volatility was in the bond market, with spreads on Greek and Italian bonds exploding relative to German bunds.
The picture was even worse in most emerging markets. Especially hard hit in eastern Europe were Bulgaria, Romania, Ukraine and Hungary. Of the Brics (Brazil, Russia, India and China), Brazil had the best year, Russia the worst. It was a terrible year for oil and gas exporters, as prices plunged, taking currencies such as the rouble down with them. The Indian stock market, meanwhile, was battered by escalating tensions between New Delhi and Islamabad in the wake of the Mumbai terrorist attacks.
Political instability also struck China, where riots by newly redundant workers in Shenzhen and other export centres provoked a heavy-handed clampdown by the government, but also a renewed effort by the People’s Bank of China to prevent the appreciation of the yuan by buying up yet more hundreds of billions of dollars of US Treasuries. “Chimerica” – the symbiotic relationship between China and America – not only survived the crisis, but gained from it. Although Obama’s decision to attend the first G-2 summit in Beijing in April dismayed some liberals, most recognised that trade trumped Tibet at such a time of economic crisis.
This asymmetric character of the global crisis – the fact that the shocks were even bigger on the periphery than at the epicentre – had its disadvantages for the US, to be sure. Any hope that America could depreciate its way out from under its external debt burden faded as 10-year yields and the dollar held firm. Nor did American manufacturers get a second wind from reviving exports, as they would have done had the dollar sagged. The Fed’s achievement was to keep inflation in positive territory – just. Those who had feared galloping inflation and the end of the dollar as a reserve currency were confounded.
On the other hand, the troubles of the rest of the world meant that in relative terms the US gained, politically as well as economically. Many commentators had warned in 2008 that the financial crisis would be the final nail in the coffin of American credibility around the world. First, neo-conservatism had been discredited in Iraq. Now the “Washington consensus” on free markets had collapsed. Yet this was to overlook two things. The first was that most other economic systems fared even worse than America’s when the crisis struck: the country’s fiercest critics – Russia, Venezuela – fell flattest. The second was the enormous boost to America’s international reputation that followed Obama’s inauguration.
. . .
If proof were needed that the US constitution still worked, here it was. If proof were needed that America had expunged its original sin of racial discrimination, here it was. And if proof were needed that Americans were pragmatists, not ideologues, here it was. It was not that Obama’s New New Deal – announced after the Labor Day purge of the Clintonites – produced an economic miracle. Nobody had expected it to do so. It was more that the federal takeover of the big banks and the conversion of all private mortgage debt into new 50-year Obamabonds signalled an impressive boldness on the part of the new president.
The same was true of Obama’s decision to fly to Tehran in June – a decision that did more than anything else to sour relations with Hillary Clinton, whose supporters never quite recovered from the sight of the former presidential candidate shrouded in a veil. Not that the so-called “opening to Iran” produced a dramatic improvement in the Middle East region. Nobody had expected that either. It was more that, like Richard Nixon’s visit to China in 1972, it symbolised a readiness on Obama’s part to rethink the very fundamentals of American grand strategy. And the downfall of the Iranian president Mahmoud Ahmedinejad – followed soon after by the abandonment of the country’s nuclear weapons programme – was a significant prize in its own right. With their economy prostrate, the pragmatists in Tehran were finally ready to make their peace with “the Great Satan”, in return for desperately needed investment.
Meanwhile, al-Qaeda’s bungled attempt to assassinate Obama – on the eve of Thanksgiving – only served to discredit radical Islamism and to reinforce Obama’s public image as “The One”. Another of the many ironies of 2009 was that the mood of religious reawakening triggered by the economic crisis benefited the Democrats rather than the deeply divided Republicans.
By year end, it was possible for the first time to detect – rather than just to hope for – the beginning of the end of the Great Repression. The downward spiral in America’s real estate market and the banking system had finally been halted by radical steps that the administration had initially hesitated to take. At the same time, the far larger economic problems in the rest of the world had given Obama a unique opportunity to reassert American leadership, particularly in Asia and the Middle East.
The “unipolar moment” was over, no question. But power is a relative concept, as the president pointed out in his last press conference of the year: “They warned us that America was doomed to decline. And we certainly all got poorer this year. But they forgot that if everyone else declined even further, then America would still be out in front. After all, in the land of the blind, the one-eyed man is king.”
And, with a wink, President Barack Obama wished the world a happy new year.
Niall Ferguson is a contributing editor of the FT and the author of ‘The Ascent of Money: A Financial History of the World’ (Penguin)
Monday, December 22, 2008
December 20, 2008
How India Avoided a Crisis
By JOE NOCERA
“What has taken a number of us by surprise is the lack of adequate supervision and regulation,” Rana Kapoor was saying the other day. “This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don’t understand it. Maybe it’s because we sit in a more controlled economy but ....” He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.
Mr. Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers M.B.A. who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: “Yes is part of our name!”) But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: “#1 on Credit Quality amongst 56 Banks in India,” reads the headline.
I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people — including, tragically, Yes Bank’s co-founder Mr. Kapur, who had served as the company’s nonexecutive chairman and was gunned down while having dinner at the Oberoi Hotel. (His wife and two dinner companions miraculously escaped.)
My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn’t we understand that you can’t lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment — and an occasional hint of scorn. Like most Americans, I didn’t have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn’t, of course.
“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”
And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.”
Yet two years ago, the Indian real estate market — commercial and residential alike — was every bit as frothy as the American market. High-rises were being slapped up on spec. Housing developments were sprouting up everywhere. And there was plenty of money flowing into India, mainly from private equity and hedge funds, to fuel the commercial real estate bubble in particular. Goldman Sachs, Carlyle, Blackstone, Citibank — they were all here, throwing money at developers. So why did the Indian banks stay on the sidelines and avoid most of the pain that has been suffered by the big American banks?
Part of the reason is cultural. Indians are simply not as comfortable with credit as Americans. “A lot of Indians, when you push them, will say that if you spend more than you earn you will get in trouble,” an Indian consultant told me. “Americans spent more than they earned.”
Mr. Parekh said, “Savings are important. Joint families exist. When one son moves out, the family helps them. So you don’t borrow so much from the bank.” Even mortgage loans tend to have down payments in India that are a third of the purchase price, a far cry from the United States, where 20 percent is the new norm. (Let’s not even think about what they used to be.)
But there was also another factor, perhaps the most important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. V. Y. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Mr. Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
“He basically believed that if bankers were given the opportunity to sin, they would sin,” said one banker who asked not to be named because, well, there’s not much percentage in getting on the wrong side of the Reserve Bank of India. For all the bankers’ talk about their higher lending standards, the truth is that Mr. Reddy made them even more stringent during the bubble.
Unlike Alan Greenspan, who didn’t believe it was his job to even point out bubbles, much less try to deflate them, Mr. Reddy saw his job as making sure Indian banks did not get too caught up in the bubble mentality. About two years ago, he started sensing that real estate, in particular, had entered bubble territory. One of the first moves he made was to ban the use of bank loans for the purchase of raw land, which was skyrocketing. Only when the developer was about to commence building could the bank get involved — and then only to make construction loans. (Guess who wound up financing the land purchases? United States private equity and hedge funds, of course!)
Then, as securitizations and derivatives gained increasing prominence in the world’s financial system, the Reserve Bank of India sharply curtailed their use in the country. When Mr. Reddy saw American banks setting up off-balance-sheet vehicles to hide debt, he essentially banned them in India. As a result, banks in India wound up holding onto the loans they made to customers. On the one hand, this meant they made fewer loans than their American counterparts because they couldn’t sell off the loans to Wall Street in securitizations. On the other hand, it meant they still had the incentive — as American banks did not — to see those loans paid back.
Seeing inflation on the horizon, Mr. Reddy pushed interest rates up to more than 20 percent, which of course dampened the housing frenzy. He increased risk weightings on commercial buildings and shopping mall construction, doubling the amount of capital banks were required to hold in reserve in case things went awry. He made banks put aside extra capital for every loan they made. In effect, Mr. Reddy was creating liquidity even before there was a global liquidity crisis.
Did India’s bankers stand up to applaud Mr. Reddy as he was making these moves? Of course not. They were naturally furious, just as American bankers would have been if Mr. Greenspan had been more active. Their regulator was holding them back, constraining their growth! Mr. Parekh told me that while he had been saying for some time that Indian real estate was in bubble territory, he was still unhappy with the rules imposed by Mr. Reddy. “We were critical of the central bank,” he said. “We thought these were harsh measures.”
“For a while we were wondering if we were missing out on something,” said Ms. Kochhar of Icici. Banks in the United States seemed to have come up with some magical new formula for making money: make loans that required no down payment and little in the way of verification — and post instant, short-term, profits.
As Luis Miranda, who runs a private equity firm devoted to developing India’s infrastructure, put it: “We kept wondering if they had figured out something that we were too dense to figure out. It looked like they were smart and we were stupid.” Instead, India was the smart one, and we were the stupid ones.
Ms. Kochhar said that the underlying risks of having “a majority of loans not owned by the people who originated them” was not apparent during the bubble. Now that those risks have been made painfully clear, every banker in India realizes that Mr. Reddy did the right thing by limiting securitizations. “At times like this, you tend to appreciate what he did more than we did at the time,” said Mr. Kapoor. “He saved us,” added Mr. Parekh.
As the credit crisis has spread these past months, no Indian bank has come close to failing the way so many United States and European financial institutions have. None have required the kind of emergency injections of capital that Western banks have needed. None have had the huge write-downs that were par for the course in the West. As the bubble has burst, which lenders have taken the hit? Why, the private equity and hedge fund lenders who had been so eager to finance land development. Us, in others words, rather than them. Why is that not a surprise?
When I asked Mr. Kapoor for his take on what had happened in the United States, he replied: “We recognize it as a problem of plenty. It was perpetuated by greedy bankers, whether investment bankers or commercial bankers. The greed to make money is the impression it has made here. Anytime they wanted a loan, people just dipped into their home A.T.M. It was like money was on call.”
So it was. And our regulators, unlike theirs, just stood by and let it happen. The next time we’re moving into bubble territory, perhaps we can take a page from Mr. Reddy’s book — sometimes it’s better to apply the brakes too early than too late. Or, as was the case with Mr. Greenspan, not at all.
None of this is to say that the global credit crisis hasn’t affected India. It certainly has. I’ll be back after the holidays with more columns from India, including how Sept. 15 — the day Lehman Brothers defaulted — changed everything, even here, on the other side of the world.
This article speaks for itself. Its seems like Mr. Reddy did his job. Greenspan on the other hand....
Tuesday, December 16, 2008
FOMC Statement from http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm
Release Date: December 16, 2008
For immediate release
The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.
Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.
Ok so I havent posted in a long time. I was caught up in the post election euphoria that we actually elected Barack Obama. Well I'm back - shocked into writing again - by what else - a historic decision by the US Federal Reserve under Ben "Helicopter" Bernanke. Clearly, and I mean clearly, we're in uncharted waters now. Since the white house is not taking the proper policy actions - the Fed is throwing everything and the kitchen sink into play here. I knew that we might end up here about a year ago when I read and commented on the Calculated Risk blog - about Fed members speculating about zero bound. But to actually be here... holy crapsheet. I think the banks at some point will have no choice but to start lending again. But some of them are still insolvent. The market may bounce for now, but until the insolvency issue gets resolved - I dont think you will have a sustainable rally. But it does seem that the Fed is trying very, very hard to ring fence that issue and let the rest of the economy recover. There are still structural issues in the economy - such as the fact that manufacturing accounts for a much smaller pie in GDP and that US consumers are becoming savers - that we will need to surmount - but ring fencing the problems on Wall Street is certainly welcome. That combined with the Obama Stimulus Plan in Jan 2009 will mitigate the seriousness of this recession. With these actions, I still continue with my prior prediction of an end to this recession late 2009 / early 2010 and a possible HUGE expansion worldwide later in 2010. Time will tell.
Tuesday, November 4, 2008
Monday, November 3, 2008
On the Road: Atlanta, Georgia
"I got dog-tired beyond Macon and woke up Dean to resume. We got out of the car for air and suddenly both of us were stoned with joy to realize that in the darkness all around us was fragrant green grass and the smell of fresh manure and warm waters. "We're in the South!"– Jack Kerouac, “On the Road”
If there is one shocker on election night in the presidential race, cast your eyes to Georgia. 1,994,990 people voted early in Georgia. 3,301,875 total voted in Georgia's presidential race in 2004. Let that sink in.
"The pullout was greatly exaggerated," began Caroline Adelman, Georgia Communications Director, Obama for America. The pullout, of course, refers to the publicized redistribution of Obama staffers to other states when it appeared the Illinois Senator had no chance to win. Obama's skeleton staff of 53 is at least four times bigger than any other Democratic presidential effort in Georgia's history. Adelman, who's been involved here for the last five elections, estimated for us that even Bill Clinton, who won the state in 1992, only had a dozen staffers.
With 33 offices and 175 separate staging locations, at least one in every one of Georgia's 159 counties, Obama's operation seemed shockingly energetic for a state not on most pundit radars. With roughly 550,000 new voters registered and an exceptionally motivated volunteer base, the infrastructure of the organization was already in place when many organizers were shifted to other states.
Adelman credited wunderkind field operator Alex Lofton, now in Ohio, with setting up the infrastructure before he was considered too valuable not to have in a more competitive state. "He opened up all the offices, he trained all the kids, did conference calls twice a day," Adelman explained. "He was 23 and doing things in a way twice his age couldn't accomplish." Such are Obama's young brilliant organizers the campaign's great underwritten story."Really, in Georgia, that's all we needed," Adelman said. "The rest of it was neighbor to neighbor. People needed to see people in their own neighborhood" talking about Barack Obama. "The only place we were hurt was surrogate visits."Indeed, Obama is doing better with white voters in Georgia than either Kerry or Gore. In early voting, African-American voting was 35%. 25% is the historic level. As for totals after election day comes and goes, Adelman said, "anything over 30% and we're gonna win."
As the interview progressed just around the noon hour yesterday, we found ourselves pressed by a steady stream of volunteers elbowing us out of the way to get to the phones. In a flash, an already buzzing office grew packed. Volunteers think Obama is going win Georgia.We asked about the insanely long lines, and whether that would hamper voting. First, we learned, Barack Obama has "Comfort Teams," which are all volunteer forces who don't campaign, but simply bring water, hot chocolate and snacks. "No campaigning, no materials," Adelman said, just making sure the people who have to wait in long lines aren't hungry or thirsty. Second, McCain voters, who exist in smaller percentages in Obama-heavy precincts, may not have the same determination to spend all day in line the way Obama's voters have shown. That's the flip side of Republican failure to provide enough voting machines in Democratic-heavy districts when Democratic voters refuse to be deterred. It hurts some Republican vote as well, particularly since Republican base enthusiasm for John McCain (Huckabee won the Republican primary) is tepid at best.What Adelman has already seen in terms of voter determination and quiet peace at the long lines, she admitted, had already brought her and other staff to tears a time or two.
"Mayor Franklin and Congressman Lewis have been helping encourage people to stay in line," and 50-60 people in metro Atlanta alone have helped with the Comfort Teams. We pressed Adelman on why outside observers should feel confident that Georgians will stay in line, as long as it takes. Adelman paused for a moment, looking for a way to capture the intangible. Finally, with the air of a woman who'd seen early voters up close, she shrugged."I just think our voters are going to stand in line."
Monday, November 3, 2008
Barack Obama’s Speech on Race
The following is the text as prepared for delivery of Senator Barack Obama’s speech on race in Philadelphia, as provided by his presidential campaign.
“We the people, in order to form a more perfect union.”
Two hundred and twenty one years ago, in a hall that still stands across the street, a group of men gathered and, with these simple words, launched America’s improbable experiment in democracy. Farmers and scholars; statesmen and patriots who had traveled across an ocean to escape tyranny and persecution finally made real their declaration of independence at a Philadelphia convention that lasted through the spring of 1787.
The document they produced was eventually signed but ultimately unfinished. It was stained by this nation’s original sin of slavery, a question that divided the colonies and brought the convention to a stalemate until the founders chose to allow the slave trade to continue for at least twenty more years, and to leave any final resolution to future generations.
Of course, the answer to the slavery question was already embedded within our Constitution – a Constitution that had at its very core the ideal of equal citizenship under the law; a Constitution that promised its people liberty, and justice, and a union that could be and should be perfected over time.
And yet words on a parchment would not be enough to deliver slaves from bondage, or provide men and women of every color and creed their full rights and obligations as citizens of the United States. What would be needed were Americans in successive generations who were willing to do their part – through protests and struggle, on the streets and in the courts, through a civil war and civil disobedience and always at great risk - to narrow that gap between the promise of our ideals and the reality of their time.
This was one of the tasks we set forth at the beginning of this campaign – to continue the long march of those who came before us, a march for a more just, more equal, more free, more caring and more prosperous America. I chose to run for the presidency at this moment in history because I believe deeply that we cannot solve the challenges of our time unless we solve them together – unless we perfect our union by understanding that we may have different stories, but we hold common hopes; that we may not look the same and we may not have come from the same place, but we all want to move in the same direction – towards a better future for our children and our grandchildren.
This belief comes from my unyielding faith in the decency and generosity of the American people. But it also comes from my own American story.
I am the son of a black man from Kenya and a white woman from Kansas. I was raised with the help of a white grandfather who survived a Depression to serve in Patton’s Army during World War II and a white grandmother who worked on a bomber assembly line at Fort Leavenworth while he was overseas. I’ve gone to some of the best schools in America and lived in one of the world’s poorest nations. I am married to a black American who carries within her the blood of slaves and slaveowners – an inheritance we pass on to our two precious daughters. I have brothers, sisters, nieces, nephews, uncles and cousins, of every race and every hue, scattered across three continents, and for as long as I live, I will never forget that in no other country on Earth is my story even possible.
It’s a story that hasn’t made me the most conventional candidate. But it is a story that has seared into my genetic makeup the idea that this nation is more than the sum of its parts – that out of many, we are truly one.
Throughout the first year of this campaign, against all predictions to the contrary, we saw how hungry the American people were for this message of unity. Despite the temptation to view my candidacy through a purely racial lens, we won commanding victories in states with some of the whitest populations in the country. In South Carolina, where the Confederate Flag still flies, we built a powerful coalition of African Americans and white Americans.
This is not to say that race has not been an issue in the campaign. At various stages in the campaign, some commentators have deemed me either “too black” or “not black enough.” We saw racial tensions bubble to the surface during the week before the South Carolina primary. The press has scoured every exit poll for the latest evidence of racial polarization, not just in terms of white and black, but black and brown as well.
And yet, it has only been in the last couple of weeks that the discussion of race in this campaign has taken a particularly divisive turn.
On one end of the spectrum, we’ve heard the implication that my candidacy is somehow an exercise in affirmative action; that it’s based solely on the desire of wide-eyed liberals to purchase racial reconciliation on the cheap. On the other end, we’ve heard my former pastor, Reverend Jeremiah Wright, use incendiary language to express views that have the potential not only to widen the racial divide, but views that denigrate both the greatness and the goodness of our nation; that rightly offend white and black alike.
I have already condemned, in unequivocal terms, the statements of Reverend Wright that have caused such controversy. For some, nagging questions remain. Did I know him to be an occasionally fierce critic of American domestic and foreign policy? Of course. Did I ever hear him make remarks that could be considered controversial while I sat in church? Yes. Did I strongly disagree with many of his political views? Absolutely – just as I’m sure many of you have heard remarks from your pastors, priests, or rabbis with which you strongly disagreed.
But the remarks that have caused this recent firestorm weren’t simply controversial. They weren’t simply a religious leader’s effort to speak out against perceived injustice. Instead, they expressed a profoundly distorted view of this country – a view that sees white racism as endemic, and that elevates what is wrong with America above all that we know is right with America; a view that sees the conflicts in the Middle East as rooted primarily in the actions of stalwart allies like Israel, instead of emanating from the perverse and hateful ideologies of radical Islam.
As such, Reverend Wright’s comments were not only wrong but divisive, divisive at a time when we need unity; racially charged at a time when we need to come together to solve a set of monumental problems – two wars, a terrorist threat, a falling economy, a chronic health care crisis and potentially devastating climate change; problems that are neither black or white or Latino or Asian, but rather problems that confront us all.
Given my background, my politics, and my professed values and ideals, there will no doubt be those for whom my statements of condemnation are not enough. Why associate myself with Reverend Wright in the first place, they may ask? Why not join another church? And I confess that if all that I knew of Reverend Wright were the snippets of those sermons that have run in an endless loop on the television and You Tube, or if Trinity United Church of Christ conformed to the caricatures being peddled by some commentators, there is no doubt that I would react in much the same way
But the truth is, that isn’t all that I know of the man. The man I met more than twenty years ago is a man who helped introduce me to my Christian faith, a man who spoke to me about our obligations to love one another; to care for the sick and lift up the poor. He is a man who served his country as a U.S. Marine; who has studied and lectured at some of the finest universities and seminaries in the country, and who for over thirty years led a church that serves the community by doing God’s work here on Earth – by housing the homeless, ministering to the needy, providing day care services and scholarships and prison ministries, and reaching out to those suffering from HIV/AIDS.
In my first book, Dreams From My Father, I described the experience of my first service at Trinity:
“People began to shout, to rise from their seats and clap and cry out, a forceful wind carrying the reverend’s voice up into the rafters….And in that single note – hope! – I heard something else; at the foot of that cross, inside the thousands of churches across the city, I imagined the stories of ordinary black people merging with the stories of David and Goliath, Moses and Pharaoh, the Christians in the lion’s den, Ezekiel’s field of dry bones. Those stories – of survival, and freedom, and hope – became our story, my story; the blood that had spilled was our blood, the tears our tears; until this black church, on this bright day, seemed once more a vessel carrying the story of a people into future generations and into a larger world. Our trials and triumphs became at once unique and universal, black and more than black; in chronicling our journey, the stories and songs gave us a means to reclaim memories that we didn’t need to feel shame about…memories that all people might study and cherish – and with which we could start to rebuild.”
That has been my experience at Trinity. Like other predominantly black churches across the country, Trinity embodies the black community in its entirety – the doctor and the welfare mom, the model student and the former gang-banger. Like other black churches, Trinity’s services are full of raucous laughter and sometimes bawdy humor. They are full of dancing, clapping, screaming and shouting that may seem jarring to the untrained ear. The church contains in full the kindness and cruelty, the fierce intelligence and the shocking ignorance, the struggles and successes, the love and yes, the bitterness and bias that make up the black experience in America.
And this helps explain, perhaps, my relationship with Reverend Wright. As imperfect as he may be, he has been like family to me. He strengthened my faith, officiated my wedding, and baptized my children. Not once in my conversations with him have I heard him talk about any ethnic group in derogatory terms, or treat whites with whom he interacted with anything but courtesy and respect. He contains within him the contradictions – the good and the bad – of the community that he has served diligently for so many years.
I can no more disown him than I can disown the black community. I can no more disown him than I can my white grandmother – a woman who helped raise me, a woman who sacrificed again and again for me, a woman who loves me as much as she loves anything in this world, but a woman who once confessed her fear of black men who passed by her on the street, and who on more than one occasion has uttered racial or ethnic stereotypes that made me cringe.
These people are a part of me. And they are a part of America, this country that I love.
Some will see this as an attempt to justify or excuse comments that are simply inexcusable. I can assure you it is not. I suppose the politically safe thing would be to move on from this episode and just hope that it fades into the woodwork. We can dismiss Reverend Wright as a crank or a demagogue, just as some have dismissed Geraldine Ferraro, in the aftermath of her recent statements, as harboring some deep-seated racial bias.
But race is an issue that I believe this nation cannot afford to ignore right now. We would be making the same mistake that Reverend Wright made in his offending sermons about America – to simplify and stereotype and amplify the negative to the point that it distorts reality.
The fact is that the comments that have been made and the issues that have surfaced over the last few weeks reflect the complexities of race in this country that we’ve never really worked through – a part of our union that we have yet to perfect. And if we walk away now, if we simply retreat into our respective corners, we will never be able to come together and solve challenges like health care, or education, or the need to find good jobs for every American.
Understanding this reality requires a reminder of how we arrived at this point. As William Faulkner once wrote, “The past isn’t dead and buried. In fact, it isn’t even past.” We do not need to recite here the history of racial injustice in this country. But we do need to remind ourselves that so many of the disparities that exist in the African-American community today can be directly traced to inequalities passed on from an earlier generation that suffered under the brutal legacy of slavery and Jim Crow.
Segregated schools were, and are, inferior schools; we still haven’t fixed them, fifty years after Brown v. Board of Education, and the inferior education they provided, then and now, helps explain the pervasive achievement gap between today’s black and white students.
Legalized discrimination - where blacks were prevented, often through violence, from owning property, or loans were not granted to African-American business owners, or black homeowners could not access FHA mortgages, or blacks were excluded from unions, or the police force, or fire departments – meant that black families could not amass any meaningful wealth to bequeath to future generations. That history helps explain the wealth and income gap between black and white, and the concentrated pockets of poverty that persists in so many of today’s urban and rural communities.
A lack of economic opportunity among black men, and the shame and frustration that came from not being able to provide for one’s family, contributed to the erosion of black families – a problem that welfare policies for many years may have worsened. And the lack of basic services in so many urban black neighborhoods – parks for kids to play in, police walking the beat, regular garbage pick-up and building code enforcement – all helped create a cycle of violence, blight and neglect that continue to haunt us.
This is the reality in which Reverend Wright and other African-Americans of his generation grew up. They came of age in the late fifties and early sixties, a time when segregation was still the law of the land and opportunity was systematically constricted. What’s remarkable is not how many failed in the face of discrimination, but rather how many men and women overcame the odds; how many were able to make a way out of no way for those like me who would come after them.
But for all those who scratched and clawed their way to get a piece of the American Dream, there were many who didn’t make it – those who were ultimately defeated, in one way or another, by discrimination. That legacy of defeat was passed on to future generations – those young men and increasingly young women who we see standing on street corners or languishing in our prisons, without hope or prospects for the future. Even for those blacks who did make it, questions of race, and racism, continue to define their worldview in fundamental ways. For the men and women of Reverend Wright’s generation, the memories of humiliation and doubt and fear have not gone away; nor has the anger and the bitterness of those years. That anger may not get expressed in public, in front of white co-workers or white friends. But it does find voice in the barbershop or around the kitchen table. At times, that anger is exploited by politicians, to gin up votes along racial lines, or to make up for a politician’s own failings.
And occasionally it finds voice in the church on Sunday morning, in the pulpit and in the pews. The fact that so many people are surprised to hear that anger in some of Reverend Wright’s sermons simply reminds us of the old truism that the most segregated hour in American life occurs on Sunday morning. That anger is not always productive; indeed, all too often it distracts attention from solving real problems; it keeps us from squarely facing our own complicity in our condition, and prevents the African-American community from forging the alliances it needs to bring about real change. But the anger is real; it is powerful; and to simply wish it away, to condemn it without understanding its roots, only serves to widen the chasm of misunderstanding that exists between the races.
In fact, a similar anger exists within segments of the white community. Most working- and middle-class white Americans don’t feel that they have been particularly privileged by their race. Their experience is the immigrant experience – as far as they’re concerned, no one’s handed them anything, they’ve built it from scratch. They’ve worked hard all their lives, many times only to see their jobs shipped overseas or their pension dumped after a lifetime of labor. They are anxious about their futures, and feel their dreams slipping away; in an era of stagnant wages and global competition, opportunity comes to be seen as a zero sum game, in which your dreams come at my expense. So when they are told to bus their children to a school across town; when they hear that an African American is getting an advantage in landing a good job or a spot in a good college because of an injustice that they themselves never committed; when they’re told that their fears about crime in urban neighborhoods are somehow prejudiced, resentment builds over time.
Like the anger within the black community, these resentments aren’t always expressed in polite company. But they have helped shape the political landscape for at least a generation. Anger over welfare and affirmative action helped forge the Reagan Coalition. Politicians routinely exploited fears of crime for their own electoral ends. Talk show hosts and conservative commentators built entire careers unmasking bogus claims of racism while dismissing legitimate discussions of racial injustice and inequality as mere political correctness or reverse racism.
Just as black anger often proved counterproductive, so have these white resentments distracted attention from the real culprits of the middle class squeeze – a corporate culture rife with inside dealing, questionable accounting practices, and short-term greed; a Washington dominated by lobbyists and special interests; economic policies that favor the few over the many. And yet, to wish away the resentments of white Americans, to label them as misguided or even racist, without recognizing they are grounded in legitimate concerns – this too widens the racial divide, and blocks the path to understanding.
This is where we are right now. It’s a racial stalemate we’ve been stuck in for years. Contrary to the claims of some of my critics, black and white, I have never been so naïve as to believe that we can get beyond our racial divisions in a single election cycle, or with a single candidacy – particularly a candidacy as imperfect as my own.
But I have asserted a firm conviction – a conviction rooted in my faith in God and my faith in the American people – that working together we can move beyond some of our old racial wounds, and that in fact we have no choice if we are to continue on the path of a more perfect union.
For the African-American community, that path means embracing the burdens of our past without becoming victims of our past. It means continuing to insist on a full measure of justice in every aspect of American life. But it also means binding our particular grievances – for better health care, and better schools, and better jobs - to the larger aspirations of all Americans -- the white woman struggling to break the glass ceiling, the white man who's been laid off, the immigrant trying to feed his family. And it means taking full responsibility for own lives – by demanding more from our fathers, and spending more time with our children, and reading to them, and teaching them that while they may face challenges and discrimination in their own lives, they must never succumb to despair or cynicism; they must always believe that they can write their own destiny.
Ironically, this quintessentially American – and yes, conservative – notion of self-help found frequent expression in Reverend Wright’s sermons. But what my former pastor too often failed to understand is that embarking on a program of self-help also requires a belief that society can change.
The profound mistake of Reverend Wright’s sermons is not that he spoke about racism in our society. It’s that he spoke as if our society was static; as if no progress has been made; as if this country – a country that has made it possible for one of his own members to run for the highest office in the land and build a coalition of white and black; Latino and Asian, rich and poor, young and old -- is still irrevocably bound to a tragic past. But what we know -- what we have seen – is that America can change. That is true genius of this nation. What we have already achieved gives us hope – the audacity to hope – for what we can and must achieve tomorrow.
In the white community, the path to a more perfect union means acknowledging that what ails the African-American community does not just exist in the minds of black people; that the legacy of discrimination - and current incidents of discrimination, while less overt than in the past - are real and must be addressed. Not just with words, but with deeds – by investing in our schools and our communities; by enforcing our civil rights laws and ensuring fairness in our criminal justice system; by providing this generation with ladders of opportunity that were unavailable for previous generations. It requires all Americans to realize that your dreams do not have to come at the expense of my dreams; that investing in the health, welfare, and education of black and brown and white children will ultimately help all of America prosper.
In the end, then, what is called for is nothing more, and nothing less, than what all the world’s great religions demand – that we do unto others as we would have them do unto us. Let us be our brother’s keeper, Scripture tells us. Let us be our sister’s keeper. Let us find that common stake we all have in one another, and let our politics reflect that spirit as well.
For we have a choice in this country. We can accept a politics that breeds division, and conflict, and cynicism. We can tackle race only as spectacle – as we did in the OJ trial – or in the wake of tragedy, as we did in the aftermath of Katrina - or as fodder for the nightly news. We can play Reverend Wright’s sermons on every channel, every day and talk about them from now until the election, and make the only question in this campaign whether or not the American people think that I somehow believe or sympathize with his most offensive words. We can pounce on some gaffe by a Hillary supporter as evidence that she’s playing the race card, or we can speculate on whether white men will all flock to John McCain in the general election regardless of his policies.
We can do that.
But if we do, I can tell you that in the next election, we’ll be talking about some other distraction. And then another one. And then another one. And nothing will change.
That is one option. Or, at this moment, in this election, we can come together and say, “Not this time.” This time we want to talk about the crumbling schools that are stealing the future of black children and white children and Asian children and Hispanic children and Native American children. This time we want to reject the cynicism that tells us that these kids can’t learn; that those kids who don’t look like us are somebody else’s problem. The children of America are not those kids, they are our kids, and we will not let them fall behind in a 21st century economy. Not this time.
This time we want to talk about how the lines in the Emergency Room are filled with whites and blacks and Hispanics who do not have health care; who don’t have the power on their own to overcome the special interests in Washington, but who can take them on if we do it together.
This time we want to talk about the shuttered mills that once provided a decent life for men and women of every race, and the homes for sale that once belonged to Americans from every religion, every region, every walk of life. This time we want to talk about the fact that the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.
This time we want to talk about the men and women of every color and creed who serve together, and fight together, and bleed together under the same proud flag. We want to talk about how to bring them home from a war that never should’ve been authorized and never should’ve been waged, and we want to talk about how we’ll show our patriotism by caring for them, and their families, and giving them the benefits they have earned.
I would not be running for President if I didn’t believe with all my heart that this is what the vast majority of Americans want for this country. This union may never be perfect, but generation after generation has shown that it can always be perfected. And today, whenever I find myself feeling doubtful or cynical about this possibility, what gives me the most hope is the next generation – the young people whose attitudes and beliefs and openness to change have already made history in this election.
There is one story in particularly that I’d like to leave you with today – a story I told when I had the great honor of speaking on Dr. King’s birthday at his home church, Ebenezer Baptist, in Atlanta.
There is a young, twenty-three year old white woman named Ashley Baia who organized for our campaign in Florence, South Carolina. She had been working to organize a mostly African-American community since the beginning of this campaign, and one day she was at a roundtable discussion where everyone went around telling their story and why they were there.
And Ashley said that when she was nine years old, her mother got cancer. And because she had to miss days of work, she was let go and lost her health care. They had to file for bankruptcy, and that’s when Ashley decided that she had to do something to help her mom.
She knew that food was one of their most expensive costs, and so Ashley convinced her mother that what she really liked and really wanted to eat more than anything else was mustard and relish sandwiches. Because that was the cheapest way to eat.
She did this for a year until her mom got better, and she told everyone at the roundtable that the reason she joined our campaign was so that she could help the millions of other children in the country who want and need to help their parents too.
Now Ashley might have made a different choice. Perhaps somebody told her along the way that the source of her mother’s problems were blacks who were on welfare and too lazy to work, or Hispanics who were coming into the country illegally. But she didn’t. She sought out allies in her fight against injustice.
Anyway, Ashley finishes her story and then goes around the room and asks everyone else why they’re supporting the campaign. They all have different stories and reasons. Many bring up a specific issue. And finally they come to this elderly black man who’s been sitting there quietly the entire time. And Ashley asks him why he’s there. And he does not bring up a specific issue. He does not say health care or the economy. He does not say education or the war. He does not say that he was there because of Barack Obama. He simply says to everyone in the room, “I am here because of Ashley.”
“I’m here because of Ashley.” By itself, that single moment of recognition between that young white girl and that old black man is not enough. It is not enough to give health care to the sick, or jobs to the jobless, or education to our children.
But it is where we start. It is where our union grows stronger. And as so many generations have come to realize over the course of the two-hundred and twenty one years since a band of patriots signed that document in Philadelphia, that is where the perfection begins.
As I wait for 6am on Nov 4th 2008 - a historic day in my lifetime - I read this speech again. If you are not inspired after reading this - then check your pulse. It may not be beating.
Thursday, October 30, 2008
Sunday, October 26, 2008
October 23, 2008
The Bank Capital Mirage
The following more or less supports what some have been saying for a while -– that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over –- but it's still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks' prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won't take much to tip banks over into insolvency again.
Also from ftalphaville.ft.com
This is a singularly arresting chart (same as the one posted above):
It’s Bloomberg’s chart of the day and has been reproduced by Paul Kedrosky on his blog, Infectious Greed.
The following more or less supports what some have been saying for a while — that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over — but it’s still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks’ prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won’t take much to tip banks over into insolvency again.
This is frightening stuff. Not least because the Fed’s own balance sheet is not looking healthy. Via Brad Setser at the CFR, here’s Paul Swartz’s latest graph:
The balance sheet is likely to grow further too. Jan Hatzius, Goldman’s chief economist has pointed out that during the Japanese credit crisis of the 1990s, the Bank of Japan ended up with a balance sheet equivalent to 30 per cent of GDP. The Fed’s is currently 12 per cent. And on Wednesday the Fed made this announcement:
The Federal Reserve Board on Wednesday announced that it will alter the formula used to determine the interest rate paid to depository institutions on excess balances.
Previously, the rate on excess balances had been set as the lowest federal funds rate target established by the Federal Open Market Committee (FOMC) in effect during the reserve maintenance period minus 75 basis points. Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points. This change will become effective for the maintenance periods beginning Thursday, October 23.
Which is an admission, basically, that the Fed lost control of the Federal Funds Rate. And if that needed proving, take a look at the graph from the New York Fed:
Lastly a nice picture courtesy of http://www.ridingthedax.com/http://www.ridingthedax.com/2008/10/23/bubble-banks-revisited/
I have been harping for a while about insolvency issues. Looks like many others are catching on. The is one of the first issues that needs to be tackled. Unfortunately President Bush has made it clear that Nationalization wont happen on his watch. Volcker mentioned that banks have been "effectively" nationalized either overtly or through other lines by the Fed. But this is lack of clarity as many of these banks have market capitalizations well in excess of their balance sheet worthiness. What we vitally need right now is clarity (read the end of the insolvency issues) and then an INTELLIGENT strategy to combat the simultaneous develeraging of both banking and consumer levels -(regulating derivatives, debt restructuring of consumers, creation more jobs in the creation of tangible goods in the US, simultaneous creation of incentives for savings and increasing money velocity) etc.
On the Road: Big Stone Gap, Virginia
Last week, Julie Hensley made one of her thousands of phone calls on behalf of Barack Obama. A woman answered. As Hensley ran through her short script, the husband impatiently broke in. "Ma'am, we're voting for the n***er." And hung up. Hensley wasn't having it. "I went and made a couple other calls but chafed over this absurdity," she told us, "so I called them back, as I still had a couple questions for the wife." This time the man answered, asked pointedly who she was, and when she replied he hung up again.
We continue to hear stories like these in Appalachia. Big Stone Gap, where Barack Obama's southwesternmost field office in Virginia sits, gave us our latest version.
In Abingdon, where John McCain's Victory Center field office has been open nearly a month, we spoke with Don Carty, one of John McCain's U.S. Naval Academy '58 classmates. He strongly supported his fellow Middie in 2000, only to see "the ultraconservatives in the Republican Party (keep) him off the ticket." Remembering the days when the "Pat Robertson, Jerry Falwell crew" ignored McCain's offer to speak in this part of the state, Carty told us how he'd worked a booth at the county fair for a week prior to the Abingdon office opening where folks stopped in for bumper stickers and yard signs.Noting that this was the most he'd ever seen people express interest in the Republican campaign since he'd moved to the area in 1993, Carty offered that it was precisely because the independent voters in the area identified with McCain's maverick argument. When Sarah Palin was added to the ticket, Carty thought to himself, "John McCain just won the election."Two or three people a day drop in to make phone calls each day, Carty said, and the office was more involved with the state elections.
Another McCain volunteer, David Goldman, a native Englishman and resident of Dallas, Texas, gave us an interesting story. He'd contacted the campaign, asked where he could best volunteer, and on his own dime found his way to Abingdon, where he helps in the office every day. "I have no political experience," Goldman emphasized, "but I was so frustrated, having grown up in socialist England, I just know what Obama's going to bring." Health care, and his view that Americans didn't understand how terrible the situation was in England, was his primary concern. Highlighting the long waits for doctor visits and expensive care in England, Goldman said, "I'm just tired of hearing about how great England's health care system is. People are dying because they're not getting that treatment."Feeling compelled to help in any way he could, the middle-aged software salesman had been working since Sunday making phone calls, preparing canvass sheets, and doing whatever else he could to help. "It's just blocking and tackling.""I don't mind Democrats or Republicans," Goldman said. "This is far left wing socialism." Since he'd been volunteering, more and more folks had dropped by the office, getting involved when they wouldn't normally do so, he observed.
Goldman isn't the only native European to apply sweat labor to the Battle for Virginia. Back in Charlottesville, we encountered Alex Englehard, a German from Heidelberg pursuing his legal degree and on break after his fifth-year exams. Englehard, a dedicated full-time Obama volunteer, said many Americans "don't realize how big an impact this one election has on the rest of the world."He reported getting a few scattered complaints that a foreign citizen would get involved in American elections, but that they all came from people who told him they were supporting McCain. Nobody brought it up the day we tagged along. Though Englehard speaks English fluently and has many direct connections to America, some cultural gaps remain, which one recent incident illustrated. Englehard and a canvass partner approached a door of a house where a racist bumper sticker adorned the car parked there. Englehard had seen the sticker; his partner hadn't. Englehard hadn't understood the bumper sticker's implication, and the two avoided a possible confrontation when the door went unanswered. On the way out, the partner noticed the sticker. "He gave me a good lesson on what to watch for," Englehard chuckled.[UPDATE] Many queries. The bumper sticker said "If I'd known it'd be this much trouble, I'd have picked the cotton myself." You can see why this would go past a foreign citizen.
Mitch Stewart, Virginia State Director of Obama for America and one of the heroes of Iowa, told us in a sit-down interview that the Campaign for Change now boasted 49 offices in Virginia, with an additional 23 Virginia Coordinated Campaign party offices. 40 additional GOTV offices, not including the myriad GOTV staging locations clustered out from those offices, were already up and running.One of the cultural inside baseball games of campaign staffs, especially one as data-driven as the Obama campaign, is that everywhere you go there's a competition for numbers. Regional field directors must beat other regional field directors for doors knocked. One state must beat another for voter contacts. Individual field organizers must beat others in their office for dials. The competition is friendly but fierce. It's a pride thing.So when Stewart heard that his friend Jeremy Bird in Ohio had reported reaching 90% of his state's Neighborhood Team Leader goal, Stewart made sure to tell us that as of last Friday, Virginia's organizers had identified and trained 92% of its NTL goal. Your serve, J.B.[UPDATE] Bird was happy to inform us that Ohio is now at 93% of its NTLs trained and tested. Sorry Stewart.On a more serious note, Stewart talked about the success of the Iowa and the lessons the campaign had learned in developing its field program for the general election. "In Iowa," Stewart said, the question was, "will young voters under 30 and first time voters show up?" The answer was a resounding yes. "If you design a program and actively engage these voters" you can get the turnout you need, he said. Strong Virginia voter files are complemented by Catalist, the sophisticated datamining tool Democrats have begun to use the past two cycles. Catalist fills in holes where the voter file isn't complete. As Chris Schoenewald told us on the Republican side, good localized voter databases are better than a modeling tool, no matter how predictive the tool is. Voter Vault and Catalist predict voter behavior. Voter files are actual records of party-to-voter contact.Stewart told us that what the Obama campaign had done from the beginning of the race was more than traditional door to door and phone calls, more than just social networking, but "an extreme data acquisition" so that downstream the campaign could advertise and educate its potential voters. "It's all about education," said Stewart. Text messages and email addresses the campaign collected, for example, allowed the campaign to much more precisely aim its message as well as technical details like what to bring to the polls when voting, or where an individual's polling location was. Fundraising, of course, and pushing back against smear campaigns are included in this direct contact from the campaign.Virginia saw 438,000 newly registered voters this cycle, in large part due to the same systematic, relentless outreach to under-registered potential Democratic voters. If Virginia goes blue for the first time in 44 years at the presidential level, it shouldn't be forgotten that this race was won upstream with that effort.
By chance, we ran into James Gibbs, National Director of Organizing for the United Mine Workers of America, in Obama's Big Stone Gap office. After President of the UMWA Cecil Roberts endorsed Obama, "the membership went wholeheartedly" for the Democrat. "We want health and safety in these mines," said Gibbs. For the UMWA membership, Gibbs said, Barack Obama was the clear choice, and the membership was actively canvassing and phonebanking in nearby Castlewood and St. Paul.UMWA member Dennis R. Blagg, Sr. told us of his canvassing experiences in Big Stone Gap. Having knocked on at least 250 doors in the last two weeks, Blagg was "puzzled by some of the... slurs" aimed his way as he canvassed for Obama. Referring to the Republican ticket he viewed as responsible for fomenting racially harmful attitudes in his county, "they try to have scare tactics" to gin up division.It was Joe Biden's visit two and a half weeks prior that spurred Blagg into action. Referring to McCain, "They talk about experience... that guy's had 26 years of experience. Why hasn't he used it?"
As for Hensley, her story ended with a twist. A couple hours later during a pause in her dials, her phone rang. She recognized the number. "This is going to be good," she remembers thinking, getting ready to scrap. It was the husband. He was calling for the woman on whom he'd hung up. She then got something she didn't expect -- an apology. Calmly, Hensley told the man she'd accept his apology on one condition -- he had to tell her who he was voting for. "Oh, I don't normally talk about it but I feel like I owe you," the man said. "I am voting for Senator Obama." He asked if Hensley would like to speak to his wife, as he'd interrupted the original call. Hensley mentioned that she had been surprised when he'd called to apologize. Apparently the husband and wife had been talking the entire couple hours since the original call. "Did she get upset with you?" Hensley asked."What do you think?" the man replied.
Race has been America's San Andreas fault. This historic election may finally give us a President who is neither black nor white but BOTH by parentage. Although Barack Obama identifies himself as a black man and so does most of the country - it is important to note that Barack is a child of both black and white parents. A child of love between a black man from Kenya and a white woman from Kansas. My daughter, in particular, identifies with that as she herself is of mixed heritage. As we draw ever nearer to one of the most historic days we are likely to witness in our lifetime, I am ever more hopeful about the future of this great land.
Friday, October 24, 2008
October 24, 2008
Barack Obama for President
Hyperbole is the currency of presidential campaigns, but this year the nation’s future truly hangs in the balance.
The United States is battered and drifting after eight years of President Bush’s failed leadership. He is saddling his successor with two wars, a scarred global image and a government systematically stripped of its ability to protect and help its citizens — whether they are fleeing a hurricane’s floodwaters, searching for affordable health care or struggling to hold on to their homes, jobs, savings and pensions in the midst of a financial crisis that was foretold and preventable.
As tough as the times are, the selection of a new president is easy. After nearly two years of a grueling and ugly campaign, Senator Barack Obama of Illinois has proved that he is the right choice to be the 44th president of the United States.
Mr. Obama has met challenge after challenge, growing as a leader and putting real flesh on his early promises of hope and change. He has shown a cool head and sound judgment. We believe he has the will and the ability to forge the broad political consensus that is essential to finding solutions to this nation’s problems.
In the same time, Senator John McCain of Arizona has retreated farther and farther to the fringe of American politics, running a campaign on partisan division, class warfare and even hints of racism. His policies and worldview are mired in the past. His choice of a running mate so evidently unfit for the office was a final act of opportunism and bad judgment that eclipsed the accomplishments of 26 years in Congress.
Given the particularly ugly nature of Mr. McCain’s campaign, the urge to choose on the basis of raw emotion is strong. But there is a greater value in looking closely at the facts of life in America today and at the prescriptions the candidates offer. The differences are profound.
Mr. McCain offers more of the Republican every-man-for-himself ideology, now lying in shards on Wall Street and in Americans’ bank accounts. Mr. Obama has another vision of government’s role and responsibilities.
In his convention speech in Denver, Mr. Obama said, “Government cannot solve all our problems, but what it should do is that which we cannot do for ourselves: protect us from harm and provide every child a decent education; keep our water clean and our toys safe; invest in new schools and new roads and new science and technology.”
Since the financial crisis, he has correctly identified the abject failure of government regulation that has brought the markets to the brink of collapse.
The American financial system is the victim of decades of Republican deregulatory and anti-tax policies. Those ideas have been proved wrong at an unfathomable price, but Mr. McCain — a self-proclaimed “foot soldier in the Reagan revolution” — is still a believer.
Mr. Obama sees that far-reaching reforms will be needed to protect Americans and American business.
Mr. McCain talks about reform a lot, but his vision is pinched. His answer to any economic question is to eliminate pork-barrel spending — about $18 billion in a $3 trillion budget — cut taxes and wait for unfettered markets to solve the problem.
Mr. Obama is clear that the nation’s tax structure must be changed to make it fairer. That means the well-off Americans who have benefited disproportionately from Mr. Bush’s tax cuts will have to pay some more. Working Americans, who have seen their standard of living fall and their children’s options narrow, will benefit. Mr. Obama wants to raise the minimum wage and tie it to inflation, restore a climate in which workers are able to organize unions if they wish and expand educational opportunities.
Mr. McCain, who once opposed President Bush’s tax cuts for the wealthy as fiscally irresponsible, now wants to make them permanent. And while he talks about keeping taxes low for everyone, his proposed cuts would overwhelmingly benefit the top 1 percent of Americans while digging the country into a deeper fiscal hole.
The American military — its people and equipment — is dangerously overstretched. Mr. Bush has neglected the necessary war in Afghanistan, which now threatens to spiral into defeat. The unnecessary and staggeringly costly war in Iraq must be ended as quickly and responsibly as possible.
While Iraq’s leaders insist on a swift drawdown of American troops and a deadline for the end of the occupation, Mr. McCain is still talking about some ill-defined “victory.” As a result, he has offered no real plan for extracting American troops and limiting any further damage to Iraq and its neighbors.
Mr. Obama was an early and thoughtful opponent of the war in Iraq, and he has presented a military and diplomatic plan for withdrawing American forces. Mr. Obama also has correctly warned that until the Pentagon starts pulling troops out of Iraq, there will not be enough troops to defeat the Taliban and Al Qaeda in Afghanistan.
Mr. McCain, like Mr. Bush, has only belatedly focused on Afghanistan’s dangerous unraveling and the threat that neighboring Pakistan may quickly follow.
Mr. Obama would have a learning curve on foreign affairs, but he has already showed sounder judgment than his opponent on these critical issues. His choice of Senator Joseph Biden — who has deep foreign-policy expertise — as his running mate is another sign of that sound judgment. Mr. McCain’s long interest in foreign policy and the many dangers this country now faces make his choice of Gov. Sarah Palin of Alaska more irresponsible.
Both presidential candidates talk about strengthening alliances in Europe and Asia, including NATO, and strongly support Israel. Both candidates talk about repairing America’s image in the world. But it seems clear to us that Mr. Obama is far more likely to do that — and not just because the first black president would present a new American face to the world.
Mr. Obama wants to reform the United Nations, while Mr. McCain wants to create a new entity, the League of Democracies — a move that would incite even fiercer anti-American furies around the world.
Unfortunately, Mr. McCain, like Mr. Bush, sees the world as divided into friends (like Georgia) and adversaries (like Russia). He proposed kicking Russia out of the Group of 8 industrialized nations even before the invasion of Georgia. We have no sympathy for Moscow’s bullying, but we also have no desire to replay the cold war. The United States must find a way to constrain the Russians’ worst impulses, while preserving the ability to work with them on arms control and other vital initiatives.
Both candidates talk tough on terrorism, and neither has ruled out military action to end Iran’s nuclear weapons program. But Mr. Obama has called for a serious effort to try to wean Tehran from its nuclear ambitions with more credible diplomatic overtures and tougher sanctions. Mr. McCain’s willingness to joke about bombing Iran was frightening.
The Constitution and the Rule of Law
Under Mr. Bush and Vice President Dick Cheney, the Constitution, the Bill of Rights, the justice system and the separation of powers have come under relentless attack. Mr. Bush chose to exploit the tragedy of Sept. 11, 2001, the moment in which he looked like the president of a unified nation, to try to place himself above the law.
Mr. Bush has arrogated the power to imprison men without charges and browbeat Congress into granting an unfettered authority to spy on Americans. He has created untold numbers of “black” programs, including secret prisons and outsourced torture. The president has issued hundreds, if not thousands, of secret orders. We fear it will take years of forensic research to discover how many basic rights have been violated.
Both candidates have renounced torture and are committed to closing the prison camp in
Guantánamo Bay, Cuba.
But Mr. Obama has gone beyond that, promising to identify and correct Mr. Bush’s attacks on the democratic system. Mr. McCain has been silent on the subject.
Mr. McCain improved protections for detainees. But then he helped the White House push through the appalling Military Commissions Act of 2006, which denied detainees the right to a hearing in a real court and put Washington in conflict with the Geneva Conventions, greatly increasing the risk to American troops.
The next president will have the chance to appoint one or more justices to a Supreme Court that is on the brink of being dominated by a radical right wing. Mr. Obama may appoint less liberal judges than some of his followers might like, but Mr. McCain is certain to pick rigid ideologues. He has said he would never appoint a judge who believes in women’s reproductive rights.
It will be an enormous challenge just to get the nation back to where it was before Mr. Bush, to begin to mend its image in the world and to restore its self-confidence and its self-respect. Doing all of that, and leading America forward, will require strength of will, character and intellect, sober judgment and a cool, steady hand.
Mr. Obama has those qualities in abundance. Watching him being tested in the campaign has long since erased the reservations that led us to endorse Senator Hillary Rodham Clinton in the Democratic primaries. He has drawn in legions of new voters with powerful messages of hope and possibility and calls for shared sacrifice and social responsibility.
Mr. McCain, whom we chose as the best Republican nominee in the primaries, has spent the last coins of his reputation for principle and sound judgment to placate the limitless demands and narrow vision of the far-right wing. His righteous fury at being driven out of the 2000 primaries on a racist tide aimed at his adopted daughter has been replaced by a zealous embrace of those same win-at-all-costs tactics and tacticians.
He surrendered his standing as an independent thinker in his rush to embrace Mr. Bush’s misbegotten tax policies and to abandon his leadership position on climate change and immigration reform.
Mr. McCain could have seized the high ground on energy and the environment. Earlier in his career, he offered the first plausible bill to control America’s emissions of greenhouse gases. Now his positions are a caricature of that record: think Ms. Palin leading chants of “drill, baby, drill.”
Mr. Obama has endorsed some offshore drilling, but as part of a comprehensive strategy including big investments in new, clean technologies.
Mr. Obama has withstood some of the toughest campaign attacks ever mounted against a candidate. He’s been called un-American and accused of hiding a secret Islamic faith. The Republicans have linked him to domestic terrorists and questioned his wife’s love of her country. Ms. Palin has also questioned millions of Americans’ patriotism, calling Republican-leaning states “pro-America.”
This politics of fear, division and character assassination helped Mr. Bush drive Mr. McCain from the 2000 Republican primaries and defeat Senator John Kerry in 2004. It has been the dominant theme of his failed presidency.
The nation’s problems are simply too grave to be reduced to slashing “robo-calls” and negative ads. This country needs sensible leadership, compassionate leadership, honest leadership and strong leadership. Barack Obama has shown that he has all of those qualities.
Sunday, October 12, 2008
Sun Oct 12, 2008 3:56pm EDT
PARIS, Oct 12 (Reuters) - Leaders of euro zone countries held an emergency meeting on Sunday to decide pan-European measures aimed at propping up the battered financial sector.
Here is the full final statement released after the summit.
DECLARATION ON A CONCERTED EUROPEAN ACTION PLAN OF THE EURO AREA COUNTRIES
1) Financial systems contribute essentially to the well functioning of our economies and are therefore a necessary prerequisite for growth and a high level of employment. Millions of depositors have trusted their wealth to our financial institutions. The consequences of the current financial market crisis jeopardize the crucial economic role of the financial system.
2) Since the beginning of the crisis, we have acted to address the challenges posed to our financial system: we have committed ourselves to take decisive action and use all availables tools to support relevant institutions and prevent their failure and effectively acted in several cases ; we have increased transparency and disclosure on banks exposure ; we have enhanced retail deposit guarantee protection.
3) Further concerted action is urgently needed given the persistent problems of bank financing and the contagion from the financial crisis to the real economy.
4) We confirm today our commitment to act together in a decisive and comprehensive way in order to restore confidence and proper functioning of the financial system, aiming at restoring appropriate and efficient financing conditions for the economy. In parallel, Member States agree to coordinate measures to address the consequences of the financial crisis on the real economy, in line with 7th of October Ecofin conclusions. In particular, we welcome the EIB's decision to mobilise 30 billions - to support European SME's and its commitment to step up its ability to intervene in infrastructure projects.
5) As members of the Euro area, we share a common responsibility and have to contribute to a common European approach. We invite our European partners to adopt the following principles so that the European Union as a whole can act in a united manner and avoid that national measures adversely affect the functioning of the single market and the other member States.
This requires European Union and Euro area governments, central banks and supervisors to agree to a coordinated approach aiming at : - ensuring appropriate liquidity conditions for financial institutions ; - facilitating the funding of banks, which is currently constrained ; - providing financial institutions with additional capital ressources so as to continue to ensure the proper financing of the economy ; - allowing for an efficient recapitalisation of distressed banks; - ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances; - enhancing cooperation procedures among European countries. In the current exceptional circumstances, we stress the need for the Commission to continue to act quickly and apply flexibility in state aid decisions, continuing to uphold the principles of the single market and of the state aid regime.
Ensuring appropriate liquidity conditions for financial institutions.
6) We welcome the recent decision by the European Central Bank and other Central Banks in the world to cut their interest rates.
7) We also welcome the decisions by the European Central Bank to improve the conditions for the refinancing of banks and to provide more longer term funding. We look forward to Central Banks considering all ways and means to react flexibly to the current market environment.
We welcome the intention of the ECB and the Eurosystem to react flexibly to the current market environment, in particular in considering to further improve its collateral framework with regard to the eligibility of commercial paper. Facilitating the funding of banks, which is currently constrained.
8) With a view to complementing the actions taken by the European Central Bank in the interbank money market, the Governments of the Euro Area are ready to take proper action in a concerted and coordinated manner to improve market functioning over longer term maturities. The objective of such initiatives should be to address funding problems of liquidity constrained solvent banks.
We welcome the initiatives put forward in some member states to facilitate medium term funding of banks notably through purchase of high quality assets or through swaps of government securities. The worsening of financial conditions in the last four weeks requires additional coordinated actions.
To this aim, Governments would make available for an interim period and on appropriate commercial terms, directly or indirectly, a Government guarantee, insurance, or other similar arrangements of new medium term (up to 5 years) bank senior debt issuance. Depending on domestic market conditions in each country, actions could be targeted at some specific and relevant types of debt issuance.
In all cases, these actions will be designed in order to avoid any distortion in the level playing field and possible abuse at the expense of non beneficiaries of these arrangements. As a consequence: - the price of those instruments will reflect at least their true value with respect to normal market conditions ; - all the financial institutions incorporated and operating in our countries and subsidiary of foreign institutions with substantial operations will be eligible, provided they meet the regulatory capital requirements and other non discriminatory objective criteria ; - Governments may impose further conditions for the beneficiaries of these arrangements, including conditions to ensure an adequate support to real economy; - the scheme will be limited in amount, temporary and will be applied under close scrutiny of financial authorities, until December 31 2009.
While acting quickly as required by circumstances, we will coordinate in providing these guarantees as significant differences in national implementation could have a counter-productive effect, creating distortions in the global banking markets. We will also work in cooperation with the European Central Bank so as to ensure consistency with the management of liquidity by the Eurosystem and compatibility with the operational framework of the Eurosystem. Providing financial institutions with additional capital ressources so as to continue to ensure the proper financing of the economy.
9) So as to allow financial institutions to continue to ensure the proper financing of the Eurozone economy, each Member State will make available to financial institutions Tier 1 capital, e.g. by acquiring preferred shares or other instruments including non dilutive ones. Price conditions shall take into account the market situation of each involved instution. Governments commit themselves to provide capital when needed in appropriate volume while favouring by all available means the raising of private capital. Financial institutions should be obliged to accept additionnal restrictions, notably to preclude possible abuse of such arrangements at the expense of non beneficiaries.
10) Given the exceptional market circumstances, we urge national supervisors, in accordance with the spirit of Basel 2 rules, to implement prudential rules also with a view to stabilising the financial system. Allowing for an efficient recapitalisation of distressed banks.
11) Governments remain committed to support the financial system and therefore to avoid the failure of relevant financial institutions, through appropriate means including recapitalization. In doing so, we will be watchful regarding the interest of taxpayers and ensure that existing shareholders and management bear the due consequences of the intervention. Emergency recapitalisation of a given institution shall be followed by an appropriate restructuring plan.
Ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances.
12) We welcome the recent initiatives of the Commission regarding conclusions of the 7th October Ecofin regarding the classification of financial instruments by banks between their trading and banking books, notably to ensure a level playing field with our competitors.
Under the current exceptional circumstances, financial and non-financial institutions should be allowed as necessary to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets may no longer be appropriate.
We ask the competent autorities to take the next steps within the coming days. Enhancing cooperation among European countries.
13) In such circumstances, efficient crisis management requires constant and immediate monitoring. We will therefore set up and strengthen procedures allowing the exchange of information between our Governments, the President of the European Council, the President of the European Commission, the President of the European Central Bank and the President of the Eurogroup. We look forward the European Council on next Wednesday to setting up a mecanism to improve crisis managment between European countries.
14) The Ecofin Council with the support of the Commission and in cooperation with the European Central Bank will report in due time to the European Council on the implementation of these decisions.
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The much needed leadership comes from Europe. Makes one wonder why we didnt see such leadership here. I guess we're too worried to mention recapitalization to large banks in the US since we couldnt have their shareholders suffering. Unless ofcourse the markets do the government job for us. Does the US government honestly not know which banks are insolvent but that Europe does? Volcker - you're needed. Not next year in February - NOW! I guess the sequence of events is supposed to be Europe first, US next and a comprehensive restructuring of a New Financial World Order next weekend. Is this the end of Bretton Woods II as we know it?