A Tale of Two Economies...

[GRG55]

Re: A Tale of Two Economies...

Airbus U.S. plant cheaper than France, Germany, CEO tells paper

Sat Sep 12, 2015 11:27am EDT

FRANKFURT (Reuters) - The United States will be a cheaper location for making the A320 aircraft than either France or Germany, Airbus Group Chief Executive Fabrice Bregier told the German weekly Welt am Sonntag.

Local production is needed to meet U.S. demand for aircraft, which could become a hub for exports, Bregier told the paper. New production techniques and lower costs for non-unionised labor help to make the United States an attractive location, he said.

"The aircraft which are made there are destined for sale in North America, the market is large. Long term, we have the possibility of exporting," Bregier is quoted as saying, although he added that exports are not currently planned.

"Europe really needs to do something to remain competitive," Bregier told Welt am Sonntag.

By the end of 2017 Airbus will make four A320 aircraft a month in Mobile, Alabama, creating 1,000 jobs in the United States. Airbus hopes to make a new version of the A320 there in 2017, the newspaper said.

As part of the push, Bregier hopes to increase the market share of Airbus to 50 percent of the United States market, from 40 percent currently.

Global production of the A320 will be ramped up to 50 aircraft a month, Bregier said. The company has over 5,400 orders for A320s, and a second production line in Hamburg is being considered.

This year, Airbus will deliver just under 30 Airbus A380 models, Bregier told the paper. Airbus also hopes to be able to report some "positive news" by the end of the year concerning the profitability of the A380 program, Bregier told the newspaper.

[jk]

Re: A Tale of Two Economies...

iirc airbus was created to compete with boeing and create/keep jobs in europe. and, iirc, it received funding from the uk, french and german gov'ts. it is amusing now to see airbus name mobile, ala, as an "attractive location" in part because of its cheaper, non-unionised work force. i doubt this what those gov'ts had in mind when they subsidised this entity.

[lakedaemonian]

Re: A Tale of Two Economies...

Airbus U.S. plant cheaper than France, Germany, CEO tells paper

Sat Sep 12, 2015 11:27am EDT

FRANKFURT (Reuters) - The United States will be a cheaper location for making the A320 aircraft than either France or Germany, Airbus Group Chief Executive Fabrice Bregier told the German weekly Welt am Sonntag.

Local production is needed to meet U.S. demand for aircraft, which could become a hub for exports, Bregier told the paper. New production techniques and lower costs for non-unionised labor help to make the United States an attractive location, he said.

"The aircraft which are made there are destined for sale in North America, the market is large. Long term, we have the possibility of exporting," Bregier is quoted as saying, although he added that exports are not currently planned.

"Europe really needs to do something to remain competitive," Bregier told Welt am Sonntag.

By the end of 2017 Airbus will make four A320 aircraft a month in Mobile, Alabama, creating 1,000 jobs in the United States. Airbus hopes to make a new version of the A320 there in 2017, the newspaper said.

As part of the push, Bregier hopes to increase the market share of Airbus to 50 percent of the United States market, from 40 percent currently.

Global production of the A320 will be ramped up to 50 aircraft a month, Bregier said. The company has over 5,400 orders for A320s, and a second production line in Hamburg is being considered.

This year, Airbus will deliver just under 30 Airbus A380 models, Bregier told the paper. Airbus also hopes to be able to report some "positive news" by the end of the year concerning the profitability of the A380 program, Bregier told the newspaper.

I wonder how this will have an impact on those sweet sweet GCC commercial aircraft deals?

i would think senior foreign service diplomatic efforts get deeply involved in pressuring/leveraging governments to recommend national carrier purchases.

Does this mean the U.S. might win either way?

Or I wonder if Aurbus production lines can be fiddled to benefit particular countries?

But I guess the greater question is when do both Boeing and Airbus start manufacturing in China?

[GRG55]

Re: A Tale of Two Economies...

I wonder how this will have an impact on those sweet sweet GCC commercial aircraft deals?

i would think senior foreign service diplomatic efforts get deeply involved in pressuring/leveraging governments to recommend national carrier purchases.

Does this mean the U.S. might win either way?

Or I wonder if Aurbus production lines can be fiddled to benefit particular countries?

But I guess the greater question is when do both Boeing and Airbus start manufacturing in China?

I wonder now that Airbus has US investments if the entire company comes under the FCPA? Now that would be a bit of a downer in the GCC, eh

As for your final question, Airbus has been assembling A320s in China for some time now.

As for "manufacturing", they may be doing just that involuntarily; I am referring of course to the French reports circa 2007 of an Airbus A320 that was delivered to China but never transferred to a Chinese carrier, and no maintenance records were ever returned to Airbus, the conclusion being the aircraft was dismantled to reverse engineer it

[don]

Re: A Tale of Two Economies...

The Fed’s Chatter About a Rate Hike Is to Appease Foreign Investors – Which Includes Money Launderers

By Pam Martens and Russ Martens: September 16, 2015


Time Warner Center in Manhattan

Tomorrow at 2 p.m. investors worldwide will learn if the U.S. Federal Reserve has decided to cease its endless blather about its elusive plan to hike interest rates and actually boost rates from the zero bound range it has enforced since December 2008.

A hike in rates will be comforting to foreign investors who rely on a strong U.S. Dollar to protect the value of investments they make in this country: investments like multi-million dollar condos in Manhattan, manufacturing plants in South Carolina, stakes in publicly traded U.S. companies, private equity funds and mega amounts of commercial real estate.

A stable or rising U.S. Dollar – supported by Fed talk that the U.S. economy is growing strongly enough to withstand a rate hike – is mothers’ milk to the ears of foreign investors since it means that if they should choose to cash out their U.S. investment and convert the Dollars into the currency of their home country, they would have a profit on the currency trade or, at least, a stable exchange rate. (When foreigners invest their money in the U.S., they have to hope that both the actual investment will appreciate in value and also that they don’t suffer losses when they convert U.S. currency back into their domestic currency.)

These many months of happy chatter from the Fed about the coming rate hike and improving U.S. economy has supported the U.S. currency and prevented any serious foreign capital outflows owing to a slumping U.S. Dollar. While foreign capital flight is not one of the Fed’s monetary policy mandates, you can bet that it is causing some sleepless nights among researchers at the Fed.

There’s a legitimate basis for concern. When the United Nations Conference on Trade and Development (UNCTAD) released its “World Investment Report” on June 25, 2015, it reported that the United States had slipped to number 3, behind China and Hong Kong, for inflows of Foreign Direct Investment.

Adding to concerns, UNCTAD reported that owing to lackluster growth in the global economy, overall global inflows of Foreign Direct Investment had declined 16 percent in 2014. That meant that the U.S. was not just slipping in investment stature but was competing for a piece of a shrinking investment pie.

According to UNCTAD, foreign investment inflows to the United States fell to $92 billion in 2014, a drop of 40 percent from the 2013 level, while China became the largest recipient with $129 billion in inflows. Hong Kong ranked second with $103 billion.

The report does note that the huge U.S. drop of 40 percent from 2013 levels was materially impacted by one large divestiture: Vodafone, a U.K. company, divested from U.S. based telecommunications company, Verizon.

There’s also growing concern that the United States might be so eager to keep its high rank for inflows of Foreign Direct Investment that it might look the other way at illicit money flowing in.

Louise Story and Stephanie Saul wrote a detailed report for the New York Times on February 7 of this year, documenting how shell companies with secret owners were gobbling up high end real estate in Manhattan. According to the report, roughly $8 billion is spent annually in New York City for residences costing $5 million or more and a little over half of those transactions were made by shell companies. The investigation notes further that “in Downtown Manhattan, 63 percent of luxury residences were sold to hidden buyers.”

The Time Warner Center was singled out in The Times as a haven for questionable foreign money. The reporters noted these troubling facts about owners of condos in the building:

“…The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities.

“The foreign owners have included government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico.

“They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies.”

On August 31, Wall Street On Parade published a review of economist Michael Hudson’s new book, “Killing the Host.” One thing we did not write about has lingered in our thoughts — an episode Hudson shares from his days working in Chase Manhattan’s economic research department. It also concerns an apparent desire by the U.S. to tap illicit foreign money as investment inflows. (Chase is now the commercial banking unit of Wall Street investment firm, JPMorganChase.)

Hudson writes:

“My last task at Chase dovetailed into the dollar problem. I was asked to estimate the volume of criminal savings going to Switzerland and other hideouts. The State Department had asked Chase and other banks to establish Caribbean branches to attract money from drug dealers, smugglers and their kin into dollar assets to support the dollar as foreign military outflows escalated. Congress helped by not imposing the 15 percent withholding tax on Treasury bond interest. My calculations showed that the most important factors in determining exchange rates were neither trade nor direct investment, but ‘errors and omissions,’ a euphemism for ‘hot money.’ Nobody is more ‘liquid’ or ‘hot’ than drug dealers and public officials embezzling their country’s export earnings. The U.S. Treasury and State Department sought to provide a safe haven for their takings, as a desperate means of offsetting the balance-of-payments cost of U.S. military spending.”

All of this raises the question, is the United States still the master of its own monetary policy?

[don]

Re: A Tale of Two Economies...

Hanging financial issues in the Xi-Obama summit

BY GARY KLEIMAN on SEPTEMBER 18, 2015 in ASIA TIMES NEWS & FEATURES, CHINA

Chinese President Xi Jinping’s visit to Washington beginning Sept. 24 has been on the calendar since US President Obama’s invitation last year, and might have passed with limited fanfare were it not for the extraordinary currency and stock-market events of the past two months that also coincided with an economic growth and debt squeeze.

U.S. President Barack Obama with Xi Jinping, then China’s Vice President, during their meeting in the Oval Office on February 14, 2012.

For China and general emerging market observers, the June Strategic and Economic Dialogue went largely unnoticed outside cybercrime-issue escalation and bilateral investment agreement consideration. Exchange rate undervaluation had been removed as a sticking point by US Treasury Department. IMF pronouncements that market forces were in play, and controversy over the new Asian Infrastructure Investment Bank, which Washington chose not to join, was partially defused by Beijing’s commitment to cooperate with Bretton Woods institutions.

However, the script for a cordial and quiet exchange of views has since been shelved. This is not only because of the threat of sanctions for China’s alleged computer network hacking, but also due to unprecedented post-2008 crisis doubts over banking and securities market health, Chinese GDP growth and the yuan’s direction that President Xi and his team must urgently clarify.

China’s leadership has already tried to preempt devaluation worry and reiterate its commitment to reform with official assurances. Premier Li recently said in a speech that no further weakening in the yuan was imminent. Top Chinese economic policy-makers also detailed their agenda for “mixed ownership” in the massive state-owned enterprise (SOE) sector at a recent retreat.

On the other hand, the Chinese currency has continued to decline in the offshore market toward 7 yuan to the dollar and Beijing has reportedly tried to intervene to reverse the trend. Additional formal depreciation before the Washington summit and through October’s IMF annual meeting in Peru would upset these events, especially as inclusion in the IMF’s SDR basket remains on the table. Nonetheless, global investor surveys now regularly cite Chinese currency risk in light of the record $600 billion in capital outflows during the past year that have depleted international reserves to $3.5 trillion. Recession, defined as growth in the 5% plus range, is another worry reflected in the latest industrial and consumer figures, and announced moves to introduce minority private ownership and fresh management at SOEs falls short of the competitive push needed to put the economy back on track.

Banking and shadow banking have been the subject of bland communiqués in the past. But recent troubles are raising their importance in the upcoming Xi-Obama meet. This mirrors how the 2008 subprime debacle was addressed in bilateral channels. The four giant state commercial banks continue to report earnings drops and non-performing loan increases, particularly in the real estate and local government sectors. The bad credit ratio is just over 1% according to local accounting standards. However, international estimates believe the damage could be halfway between there and the rate experienced after the 1990s regional financial crisis at 15-20%. Smaller private banks, bereft of sovereign backing, began experiencing liquidity difficulties last year when a crackdown began on high-yield informal trusts and the wealth management products they promoted. These structures have since been adapted in other forms and have the potential to wreak havoc. Underground and new online lenders that have previously escaped the net have come under regulatory scrutiny and are appealing to the government to rescue them.

Now that regulators have expended hundreds of billions of dollars in intervention and trading has been suspended in hundreds of listed Chinese companies, the Shanghai stock exchange is no longer accessible as a normal emerging market. US retail and institutional investors have dumped their holdings, but large sums remain trapped. Hedge funds like Chicago’s Citadel are under investigation for short-selling during the immediate crash. That practice has been banned during the 30% correction since June, which commenced just as index provider MSCI decided not to increase China’s core universe 25% weighting. With its actions and the absence of a timetable for lifting interference, both the mainland and Hong Kong will face calls for reductions and even suspensions from the benchmark gauge. President Xi may not have originally contemplated such a test ahead of his summit with Obama. But he will be measured in Washington for the first time globally by a strict and widely-followed financial system stability yardstick.

Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C.

[don]

Re: A Tale of Two Economies...

Who Turned the Stock Market Around at 4:47 A.M. This Morning?


By Pam Martens and Russ Martens: September 23, 2015

Eric Hunsader of Nanex Tweets the Early A.M. Trades in Stock Futures

We may have just gotten our answer to the puzzling question of why we can put a man on the moon but the Securities and Exchange Commission can’t create a consolidated tape of our markets for forensic auditing purposes: a consolidated tape would tell us just who it is that is messing around with stock futures in the middle of the night as well as creating flash crashes during the trading day.

We thought it was very peculiar that prior to the opening of the U.S. stock market this morning, futures on the Standard and Poor’s 500 index had staged a miraculous rally on the heels of distressing manufacturing news out of China last night.

According to the preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) which was released last evening, manufacturing activity in China dropped to 47.0 in September, the worst reading since the financial crisis in 2009. Readings below 50 signal that manufacturing is contracting.

As that news was released, futures on the Dow Jones Industrial Average slumped by a sharp 140 points and the S&P 500 futures went into a steep decline. (See S&P E-Mini futures chart below.)

But as market data expert Eric Hunsader of Nanex noted in the Tweet above, a bull raid occurred in the futures market between the minutes of 4:47 and 4:48 a.m. this morning, pumping stock futures higher.

No such bull raid occurred in Asian markets: China’s Shanghai Composite Index closed down 2.19 percent on the scary manufacturing data, Hong Kong’s Hang Seng declined 2.26 percent and Japan’s Nikkei 225 dropped 1.96 percent.

Stocks have been especially jittery about economic growth in China since Federal Reserve Chair Janet Yellen cited China and emerging markets at her press conference on September 17 as factoring into the concerns that resulted in the Fed maintaining its zero bound interest rate policy when it met last week.

Given the bearish tone to the U.S. equity markets, one has to imagine that hedge funds and high frequency traders – who are now effectively holding the markets hostage – would be more inclined to be conducting bear raids in the middle of the night rather than bull raids.

Even Stephen Blyth, CEO of the Harvard Management Company which manages Harvard’s $37.6 billion endowment, expressed caution about this market in a letter he released this month. Blyth used words such as “frothy” and “illiquid” to describe markets and indicated Harvard is considering hiring managers “with demonstrable investment expertise” to short the market as well as those who would be buying on the long side of the market.

Blyth writes:

“We are proceeding with caution in several areas of the portfolio: many of our absolute return managers are accumulating increasing amounts of cash; we are being careful about not over-committing into illiquid investments in potentially frothy markets, while still ensuring we will be involved if market dislocations arise; and we are being particularly discriminating about underwriting and return assumptions given current valuations. In addition, we have renewed focus on identifying public equity managers with demonstrable investment expertise on both the long and short sides of the market. And we are concentrating on investment opportunities with idiosyncratic features that still offer value creation, such as the life science laboratory space, and the retail sector where transformation continues at rapid pace. We are executing on these themes through a variety of instruments, including equity, debt, private securities and real assets. More broadly, across HMC we are developing new platforms, fund relationships and internal capabilities that will give us greater flexibility to respond to the changing market environment.”

S&P 500 E-Mini Futures Contract, September 22 and September 23 (Courtesy of CNBC)

Yup, two economies . . . .

[don]

Re: A Tale of Two Economies...

Oh, My . . . .

[touchring]

Re: A Tale of Two Economies...

Interesting to see that Huawei and ZTE are absent.

[vt]

Re: A Tale of Two Economies...

[don]

Re: A Tale of Two Economies...

Who Messed With the Pope’s Speech Last Week?

By Pam Martens and Russ Martens: September 28, 2015

Both Fed Chair Janet Yellen and Pope Francis delivered speeches on Thursday of last week that took an odd turn of events. A section of the Pope’s official speech transcript that slammed the finance industry was gutted before the Pope delivered his address to a joint session of Congress. In the case of Yellen, evidence strongly suggests that egregiously bad event planning sabotaged her speech at the University of Massachusetts in Amherst, triggering media hysteria and prognostications of how fast Stanley Fischer, the Fed’s Vice Chairman, would slide into Yellen’s seat as Chair of the Fed.

The official transcript of the Pope’s speech to Congress appears here. It contains the following passage:

“Here I think of the political history of the United States, where democracy is deeply rooted in the mind of the American people. All political activity must serve and promote the good of the human person and be based on respect for his or her dignity. ‘We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness’ (Declaration of Independence, 4 July 1776). If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance.”

The C-Span video of the Pope’s address, available here, shows the above section was gutted from the address when the Pope spoke to Congress.

Apparently, someone did not want finance, as in Wall Street, to be slammed by the Pope. Of course, the Pope is correct — the United States and its people are now enslaved to Wall Street.

Pope Francis Addresses a Joint Session of Congress on September 24, 2015

[don]

Re: A Tale of Two Economies...

A Junk Diet can Kill Ya . . . .

They’re Shouting from the Rooftops About Junk Bond Dangers – $2.2 Trillion Too Late

BlackRock Corporate High Yield ETF, August 1 to September 30, 2015

By Pam Martens and Russ Martens: October 1, 2015

An uncanny number of people woke up this week with the same thought – it’s time to panic over the size, structure and illiquidity of the junk bond market. (Not to put too fine a point on it, but Wall Street On Parade made the warning in 2013 and again on August 18of this year.)

On Tuesday morning, it was both Carl Icahn, the famous hostile takeover artist and hedge fund billionaire, along with the more staid academics at the International Monetary Fund (IMF), who issued junk bond warnings. (Junk bonds are corporate debt with ratings below investment grade, also known as “high yield” bonds.)

Carl Icahn Blames Janet Yellen and BlackRock for Junk Bond Problems in This Cartoon In His Video

Icahn released a video (see clip below) assigning blame to companies like BlackRock which have bundled illiquid junk bonds into Exchange Traded Funds (ETFs), listed them on the New York Stock Exchange, and sat back and watched as millions of mom and pop investors were sold a bill of goods that these are liquid investments that can be exited at any time during the trading day. The danger, says Icahn, is that liquidity dries up when everyone heads for the exits at the same time. Icahn includes a graph in his video showing that the U.S. junk bond and leveraged loan market has grown from $1 trillion in 2007 to $2.2 trillion today.

Icahn pulled no punches in his assignment of blame, showing a cartoon of Fed Chair Janet Yellen and BlackRock CEO Larry Fink pushing a party bus filled with high yield revelers off a cliff, headed for impact against a “big black rock.” Icahn blames Yellen for keeping rates so excruciatingly low for so long that it created this imprudent search for yield without an appropriate assessment of risk.

The IMF also came out on Tuesday with a warning on junk bonds that carried a brain stumper title: “Market Liquidity Not in Decline But Prone to Evaporate.” Check out the plunge line on August 24 in the above chart for one of BlackRock’s junk bond ETFs to grasp the nuance of that title. August 24 is the day the Dow Jones precipitously dropped 1089 points shortly after the open, closing down 588 points on the day.

The IMF report notes the following:

“ ‘In recent years, factors such as investors’ higher risk appetite and low interest rates have been masking growing underlying fragilities in market liquidity,’ said Gaston Gelos, Chief of the Global Financial Stability Analysis Division at the IMF…

“If financial conditions worsen or investors become weary of a particular asset class or financial market, market liquidity can quickly evaporate. Furthermore, swings in market liquidity in one asset class seem to spill over to other asset classes more frequently, and high-yield and emerging market bonds show some signs of deterioration in market liquidity. As spillovers between asset classes increase, it becomes more likely for a liquidity shock in one market to spread to other markets, possibly leading to a shock to the global financial system, as was the case in 2008.”

Also on Tuesday, the Wall Street Journal added to the angst with this report:

“As of mid-September, nearly 15.7% of the roughly 1,720 bonds rated below investment grade traded at distressed levels, the biggest share since 2011, according to Standard & Poor’s Ratings Services. Such bonds were trading with yields at least 10 percentage points over comparable U.S. Treasurys. Yields on bonds rise when prices fall.

“Companies with distressed bonds may not be able to refinance or access other forms of capital, said Diane Vazza, an S&P managing director.”

Jesse Colombo, an economics contributor at Forbes, wrote yesterday: “I believe that junk bonds have experienced a speculative bubble in the past several years thanks to record low interest rates and quantitative easing, which pushed investors into these risky assets in order to earn higher returns. I also believe that a terrifying day of reckoning is ahead when the junk bond bubble ultimately pops.”

On top of mushrooming concerns over distressed U.S. corporate debt, there are growing concerns over foreign corporate debt owed to U.S. banks by struggling companies in emerging markets. Christine Lagarde, Managing Director of the IMF, delivered a speech yesterday in Washington, D.C. to the Council of the Americas which delineated the problem. Lagarde stated:

“…many emerging and developing economies responded to the global financial crisis with bold counter-cyclical fiscal and monetary actions. By using these policy buffers, they were able to lead the global economy in its time of need. And over the past five years, they have accounted for almost 80 percent of global growth.

“These policy actions generally went together with an increase in financial leverage in the private sector, and many countries have incurred more debt – a significant portion of which is in U.S dollars.

“So rising U.S. interest rates and a stronger dollar could reveal currency mismatches, leading to corporate defaults – and a vicious cycle between corporates, banks, and sovereigns.”

Lagarde is referring to the fact that the currencies of emerging market countries have declined dramatically against the U.S. dollar as the U.S. Fed has talked up the dollar with persistent predictions that it would be raising interest rates this year. That has caused the amount of the debt owed by emerging market companies to mushroom, since it takes more of their local currency to pay back the debt in U.S. dollars.

This raises another serious question. Would the benefit to U.S. mega banks from a Fed rate hike (allowing them to increase their loan rates) be more than offset by defaults of emerging market debt that resides quietly at present on their books?

Bloomberg Business has a story out this morning suggesting that there will not be a rational resolution to this problem.

Japan’s $1.2 trillion government pension fund has announced it plans to invest in junk bonds.

[GRG55]

The Northern Peso Strikes Back...

General Electric to move 350 jobs to Canada to get export financing


Industrial giant pledges $265M plant to make gas-powered engines for power generation

CBC News Posted: Sep 28, 2015 11:15 AM ET Last Updated: Sep 28, 2015 12:42 PM ET

General Electric Co. says it plans to move production of large, gas-powered engines from the U.S. to an unspecified location in Canada, to benefit from trade financing from Export Development Canada.

In an announcement geared at pressuring the U.S. Congress to fund the U.S. Import-Export Development Bank, GE said it would shut its Waukesha, Wis., plant and move 350 jobs to Canada.

GE said in a news release that it notified its U.S. employees and its local suppliers today.

GE said it will invest $265 million in a new state-of-the-art manufacturing plant in Canada to make large piston engines generally used for compression, mechanical drive and power generation applications.

GE is winning contracts around the world, especially in emerging economies, for power generation, but its customers need the help of government-backed trade banks to get financing.

The Republican-controlled Congress has blocked new funding for the U.S. Export-Import Bank. The federal credit agency stopped accepting new loans at the beginning after Congress allowed its charter to expire on July 1.

Trade development agencies have been lining up for GE's business in the interim.

Export Development Canada has pledged export financing for products made in the new plant, expected to begin operations in about 20 months, GE said. The company said it has a long history of working with the EDC to export products made in Canada.

The facility can be expanded and provide flexible manufacturing capacity to support other GE businesses, including engines for railroad locomotives, GE said...

[don]

Re: The Northern Peso Strikes Back...

Hudson on the Neoliberal Economic Model (excerpts)

A year or two ago, Lloyd Blankfein of Goldman Sachs said that the reason Goldman Sachs’ managers are paid more than anybody else is because they’re so productive. The question is, productive of what?

Today’s vocabulary is what Orwell would call DoubleThink.

The first thing the neoliberal Chicago School did when they took over Chile was to close down every economics department in the country except the one they controlled at the Catholic University. They started an assassination program of left wing professors, labor leaders and politicians, and imposed neoliberalism by gunpoint.

Once high finance takes over governments as a means of exploiting the 99 Percent, it’s all for active government policy – for itself.

Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately proceeding oligarchy. All economies go through three stages repeating a cycle: from democracy into oligarchy, and then the oligarchs make themselves hereditary. Today, Jeb Bush wants to abolish the estate tax to help the emerging power elite make itself into a hereditary aristocracy. Then, some of the aristocratic families will fight among themselves, and take the public into their camp and promote democracy, so you have the cycle going all over again. That’s the kind of cycle we’re having now, just as in ancient Athens. It’s a transition from democracy to oligarchy on its way to becoming an aristocracy of the power elite.

In Mexico, when they told it to be more “efficient” and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico’s phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft

... in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise “productivity” and make countries wealthier, as if it were not the road to neofeudal serfdom.

One of the first Austrian’s was Carl Menger in the 1870s. His “individualistic” theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, “There’s no such thing as society,” the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history.

If you treat debt as a weapon, the basic idea is that finance is the new mode of warfare

It's a lengthy interview. Posted on Counterpunch: http://www.counterpunch.org/2015/10/...neoliberalism/

[don]

Re: The Northern Peso Strikes Back...

Bernanke Tries to Rewrite the Financial Crisis in New Book

By Pam Martens and Russ Martens: October 6, 2015

Former Fed Chair Ben Bernanke: What Did He Know and When Did He Know It

Will the American people ever get an honest writing of the 2008-2009 Wall Street collapse? If you think it is to be found in the new book released on Monday by former Fed Chairman Ben Bernanke (which we seriously doubt you are thinking) you will be disappointed.

What you will find in Bernanke’s book are photos of his grandparents, a photo of the Time Magazine cover with himself named “Man of the Year,” a photo of Bernanke with the masterminds of the repeal of the investor protection act known as Glass-Steagall (Robert Rubin, Alan Greenspan, Larry Summers), a photo of the grand double staircase in the Federal Reserve building, and so forth.

What you will not find is an honest accounting of how the Fed allowed Citigroup to grow into a financial Frankenstein and then quietly and secretly shoveled trillions of dollars into the firm to keep it afloat.

You won’t find any of that because on March 3, 2009, former Fed Chairman Ben Bernanke testified under questioning from Senator Bernie Sanders that “the Federal Reserve lends to healthy firms on a collateralized basis…” In reality, Citigroup was a financial basket-case at that point. Its stock closed that day at $1.22. It would take a court battle launched by Bloomberg News and legislation pushed by Senator Bernie Sanders to unearth from the Fed the fact that it had funneled over $16 trillion in cumulative loans to save the financial system. Citigroup was the largest recipient of those loans, with a take of over $2.5 trillion cumulatively, on top of $45 billion in TARP funds and over $306 billion in asset guarantees.

Bernanke’s account in his new book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, attempts to resuscitate the bogus scenario that it was the collapse of Lehman and AIG that set the crisis in motion, not mega banks weakened by lax regulation by the Fed and the repeal of the Glass-Steagall Act, a decision supported by the Fed. (Lehman Brothers, an investment bank, and AIG, an insurance company, were not overseen by the Federal Reserve at that time.)

Sheila Bair, head of the FDIC during the crisis, has already revealed that Citigroup was far from a healthy institution when the Fed was secretly shoveling $2.5 trillion in cumulative loans into the firm, many at below 1 percent interest rates. Bair wrote in her own book, Bull by the Horns, the following:

“By November [2008], the supposedly solvent Citi was back on the ropes, in need of another government handout. The market didn’t buy the OCC’s and NY Fed’s strategy of making it look as though Citi was as healthy as the other commercial banks. Citi had not had a profitable quarter since the second quarter of 2007. Its losses were not attributable to uncontrollable ‘market conditions’; they were attributable to weak management, high levels of leverage, and excessive risk taking. It had major losses driven by their exposures to a virtual hit list of high-risk lending; subprime mortgages, ‘Alt-A’ mortgages, ‘designer’ credit cards, leveraged loans, and poorly underwritten commercial real estate. It had loaded up on exotic CDOs and auction-rate securities. It was taking losses on credit default swaps entered into with weak counterparties, and it had relied on unstable volatile funding – a lot of short-term loans and foreign deposits. If you wanted to make a definitive list of all the bad practices that had led to the crisis, all you had to do was look at Citi’s financial strategies…

What’s more, virtually no meaningful supervisory measures had been taken against the bank by either the OCC or the NY Fed…Instead, the OCC and the NY Fed stood by as that sick bank continued to pay major dividends and pretended that it was healthy.”

The Fed had also stood by and allowed Citigroup to hold massive amounts of Structured Investment Vehicles (SIVs) off its balance sheet in the Cayman Islands. Bair wrote in her book: “For reasons that still today remain a mystery to me, they were allowed by their regulators – the Fed and the OCC – to keep the investments off balance sheet…” Citigroup was not required to hold capital or reserve against those assets to absorb losses.

Bair exposes the likely reason that Citigroup was bailed out – it would have been a major embarrassment to the U.S. in foreign markets if Citigroup had failed because Citigroup held only $125 billion in U.S. deposits with the vast majority of its deposits being owned by foreigners – much of that without insurance on the deposits. The low base of U.S. deposits was in spite of Citigroup listing $2 trillion in assets on its balance sheet and $1 trillion off balance sheet.

Digging through archived Fed data, we previously reported that Bernanke and the Fed had gotten a heads up about Citigroup’s condition as early as August 2007. That was more than a full year before the failure of Lehman and the bailout of AIG. On August 20, 2007, the Fed quietly took an unprecedented action. It gave Citigroup an exemption that would allow it to funnel up to $25 billion from its FDIC insured depository bank to mortgage-backed securities speculators at its broker-dealer unit. The Fed notes in this letter that the bank “is well capitalized.” (Federal Reserve Exemption to Citigroup to Loan to Its Broker-Dealer, August 20, 2007)

Bernanke does concede this in his book: “I did agree with Sheila [Sheila Bair] that Citi was being saved from the consequences of its own poor decisions.” He also quotes a revealing email he received from Bair about the condition of Citigroup. Bair wrote: “Can’t get the info we need. The place is in disarray. How can we guarantee anything if citi can’t even identify the assets.”

In the video linked below, Senator Bernie Sanders gets to the core of the hubris at the Fed. (Sanders is now running for President on a platform that includes the restoration of the Glass-Steagall Act.) Sanders wants to know the names of the banks that received over $2 trillion from the Fed in loans. (That number would grow to $16 trillion when the Fed was forced to cough up an honest accounting by the courts, legislation and an investigation by the General Accountability Office.) Sanders also asks Bernanke how it can be that the Fed is loaning money to the big banks at almost zero percent while they continue to charge credit card customers – the very taxpayers who lent them their money — as much as 25 or 30 percent interest.

Finally, Sanders asks Bernanke: “Do you think that repeal of Glass-Steagall was a tragic mistake.”

Bernanke responds, “No, I don’t think so.”

Adam Posen Calls Financial Stability Oversight in U.S. “a Mess”; Speech Goes Missing

By Pam Martens and Russ Martens: October 5, 2015

Adam Posen Testifying Before the Senate Banking Committee, July 8, 2015

Last week we wrote about the invisible hand’s removal of a negative paragraph on the financial industry from the Pope’s speech before a joint session of Congress and some bizarre shenanigans with Fed Chair Janet Yellen’s highly anticipated speech in Amherst, Massachusetts. This past Saturday, Adam Posen, the President of a powerful think tank, the Peterson Institute for International Economics, delivered a speech at a conference sponsored by the Federal Reserve Bank of Boston, calling the U.S. Financial Stability Oversight Council (FSOC) “a mess.” That speech has gone missing from online access.

FSOC is the body created under the Dodd-Frank financial reform legislation of 2010 to reassure the American people that Wall Street would never again be able to take the U.S. economy, the financial system, and the housing market to the cleaners and then get a multi-trillion dollar bailout. FSOC is chaired by the U.S. Treasury Secretary, Jack Lew (an alumnus of the biggest bailout recipient, Citigroup), along with the heads of every other major U.S. financial regulator.

According to Bloomberg Business, in his conference remarks on Saturday, Posen also said that what individual financial institutions are able to do with discretion from regulators was “huge.” (That two of the mega banks in the U.S., JPMorgan Chase and Citigroup, admitted to criminal felony counts in May for rigging foreign currency markets along with other banks and that serial findings of collusion among the mega banks in multiple markets has now achieved epic dimensions, Posen’s comments would hardly seem an overstatement.)
The New York Times added more gravity to Posen’s remarks with this quote from him at the Saturday conference: “The current U.S. institutional setup is likely to fail in a crisis and will do less to prevent a crisis than it should, and we are likely to suffer from this.”

There are two places one would expect to find such a remarkably candid speech. At the official conference site where other speeches are posted or at Dr. Posen’s official page of speeches and publications at the Peterson Institute. We could not find the speech at either site, nor could we find it elsewhere on the Internet.

The speech by the controversial President of the New York Fed, William (Bill) Dudley, which was also delivered at the conference and throws a lot of cold water on Posen’s positions, is readily available just where one would expect it to be.

Dudley, who was himself the subject of a Senate hearing last November for hubristic regulation, offered these comforting words to the conference audience:

“…we should take considerable solace from the fact that we have made the financial system more resilient to shocks. We may not be able to anticipate the next area of excess. But with higher capital and liquidity requirements and the use of stress tests to assess emerging vulnerabilities, I think we are much better placed than we have been in the past.”

No one who is paying attention believes “we are much better placed than we have been in the past.” Wall Street has simply been allowed, once again, to hide the extent of its excesses and abuses under the nose of its lapdog regulator, the New York Fed.

This is not the first time that Posen has had some choice words about the Financial Stability Oversight Council. In testimony before the Senate Banking committee on July 8 of this year, Posen had this to say:

“I would be remiss in my duty to this Committee, however, if I did not point out that other countries can legitimately expect better US behavior and practice to emerge from international regulatory coordination as well. Our regulators, supervisors, banks, and other financial institutions did not cover themselves in glory with their practices in the run-up to the financial crisis of 2008-10. At a minimum, having the US financial regulators and supervisors be confronted with international questions and standards should reduce the cognitive capture of that community by a set of blinders, as I have argued played a critical role in causing the US financial crisis…

“Arguably, the domestic Financial Stability Oversight Council [FSOC] within the US is if anything primed to be more biased towards lowest common denominator or group think leaving gaps in the US financial regulatory framework than the international Financial Stability Board [FSB]. So, the FSB is a useful check and occasional corrective to the US FSOC process.”

In other words, the U.S. financial system needs an international nanny because we only have wet nurses on this side of the pond.