Daily Update: Phase Two: Economy Takes A Rest

"The steel mills, big suppliers to many sectors of the economy, are shutting 17 of the nation’s 29 blast furnaces — a startling indicator of how quickly output is declining as corporate America struggles to adjust to the spreading crisis."

(N.Y.Times)

It would seem we are now entering phase two of a three phase process whereby the United States (and the world) fall into deep recession. The official numbers are not in yet, but it's all but obvious that the current path will be passing by some bleak territory. Phase one consisted of the crafty mortgage lending that led to structural fallout--still with us--and the efforts to restore liquidity. We are of the opinion that such efforts will ultimately show slow success, in that the financial entities that need to be functioning, will be functioning, with few large scale collapses going forward.

The second phase consists of the rest of the economy adjusting to reflect the credit crunch and falling demand, and primarily in the form of layoffs and descending commodity prices. Just today a friend called, employee in a small medical business run by a husband and wife team; the wife was particularly panicked and reading a lot of books about world doom, evil central banks, collapsing societies and the merits of stockpiling gold. She gave a kind of heads up, assuring our friend of her job's stability, unless, situations changed. "Do you have people who, you know, own land, or people you can stay with?" asked her boss and McCain supporter bizarrely.

It's a particularly excited time for those whose main mental pursuits have consisted of predicting world collapse year after year, hoping coincidence knights them with wisdom. They are probably at climax right now, though reality will not prove as dire as their veiled hopes. The stockpiled gold will not soar into the stratosphere and render them king of the mountain in some long awaited new world structure.

In our third phase, (any good theory needing phases to sound compelling), the layoffs that are starting to roll now and that will continue on into 2009 will push us into a new massive wave of home foreclosures.

Barring some presidential wackiness, everything will right itself, or rather, reset itself to more normal valuations. Not sure exactly how that will happen, but should it not happen, then we will be quite worried indeed.

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The Middle East, however, is ready for doom. Or, according to this article, impervious to it. Is it Islamic banking? Is it the light of the true view of God? Is it oil?

"So far, Gulf countries have contended they are largely insulated from the crisis circling the world, in part because of an oil money cushion they built during years of high oil prices."

(CNN)

I don't know, but I am thinking that the same forces at work everywhere will not take a vacay in Dubai, and as oil prices continue to drop, certain Middle Eastern nations won't fare so well. Which means it's good they are ruled by kings who can pretty much make the complainers shut up when the banks start foreclosing on everyone's second vacation tent. No doubt they too need an Obama, who in their version would be a Bill Smith and rumored to be connected to peace mongers and the secret choice of evil America.

The Washington Post gives us an even rosier view, suggesting that Middle Eastern hubs are seeing a rise in Americans hoping to work there. Fresh off of layoffs and laying waste to the American financial scene, they are looking for a fresh start. Apparently, while French (ha French!), Brits and Swiss are being hired, there are fewer Americans actually on the ground. Something about our reputation:

"Those who seek to move here will have to overcome a number of stereotypes about Americans, people here warn: that Americans don't know very much about the world, that their style in business negotiation tends to be too aggressive, that they demand high salaries and that they have trouble adjusting to life overseas."

(Washington Post)

We remain completely sure that if McCain manages to pull off his current job interview (uhm, just work with us here), Palin will be able to change the perception that Americans don't know anything about the world. "When Putin's head looms over your horizon..." she will tell Dubai during her first visit to the Emirates, inspiring confidence all around.

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Meanwhile U.S. choppers may or may not be doing someting in or near the Syrian border that is annoying the Syrians. If we were kind of left wing we would raise our eyebrows and call pre-election shenanigans. But we've never been the type to think any American president would do such things merely to tilt the electorate: in broader policy, perhaps, but in battlefield decision, no. So another shenanigan-free incident.

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As government continues to tweek its purpose for the $700 billion bailout funds, there are no shortage of folks who are calling for direct help of the homeowner. Of course weeding out the worthy from the "were not gonna help you" is a near impossible and time consuming task. The Washington Post reports that:

"Now, more than 30 percent of properties in the foreclosure process are owned by someone with a different address, indicating the home is likely owned by an investor, according to foreclosure listing service RealtyTrac Inc."

In other words, a good portion of the folks falling into trouble do not deserve any assistance at all unless it truly is the government's task to insure all of our investment decisions against the risk of loss.

Further, the article points out that a huge number of homeowners owe more than their homes are worth, and one must ask the question, again, if it's the government's job (meaning the taxpayers) to assist those who made bad investment decisions, even if the home is their primary residence. Would this create a precedent, or would this wave of home buyers and investors be uniquely rewarded for faulty financial decision making?

"Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody's Economy.com."

(Washington Post)

The article shows several complications that make structuring a bailout for the homeowner challenging. Indeed it is far simpler, and probably wiser, to shore up the financial institutions, regulate them better, and assume that many of the homeowners will be beyond reach. It's won't be politically popular, which tells you it's probably the right path.

Palin Mooses it Up on Saturday Night Live

You have to admit that Sarah Palin is one attractive woman. I was fighting that realization while up in front of the television waiting for her to appear on Saturday Night Live. The show, when non-political, is particularly unfunny, but every now and again you get a smidgeon of something amusing. So tonight I was amused at how our future pretend vice president can appear on a comedy show (looking quite smashing actually), but fail to find time to appear in front of serious journalists, particularly the ones on the Sunday morning political news shows who ask hard questions.

Instead Palin stood around looking lovely, and trying to appear the good sport, capable of laughing at herself despite failed attempts to rip the electorate in half plus one with her bare intellect. Deep into the show, she appeared at the "Weekend Update" desk as Amy Poehler did an Alaska rap. It was sort of funny, but there was something also disconcerting about seeing Palin bopping her head (and looking good again) to rap music, amd with the knowledge that she has used every negative theme in the book to portray the black candidate as someone to fear.

She did no heavy lifting, and was pleasant, and how can one really lose when using the white people rapping theme as a way to trivialize oneself into a likeable person? But still, she loses walking this path, bobbing and weaving and making her "groovy face" to the rythm.

Read more at the N.Y. Times, Huffington Post and L.A. Times:

Later in the show, Palin made an appearance on "Weekend Update," telling
co-anchors Seth Meyers and Amy Poehler that she wasn't going to do the piece they had rehearsed because she was afraid it was a bad idea for the campaign.

Instead, Poehler got up and rapped the song that Palin supposedly was going to perform, chanting: "McCain got experience, McCain got style, but don't let him freak you out when he tries to smile. Because that smile be creepy, but when I'm VP, all the leaders of the world gonna finally meet me."

Smiling, the governor nodded and swayed to the beat.

(LA Times)

Daily Update: McCain Appeals to Joe, Obama Appeals to America

Last night we found ourselves at Hofstra University on Long Island... not literally, but with the two candidates. My friends, what a debate that was...if one was looking for something rather medicinal to lull the eyeballs into a closed position. McCain came out a bit feisty, though the rampant phoniness rather overwhelmed his few cogent points; this was particularly apparent when he tried to suggest that Obama was running a dirty campaign, and that various attacks had been hurtful to John himself. Obama sounded like the adult, advising John in so many words to suck it up and be a politician (and further, focus on important issues). Given that everyone knows McCain was the chief baker of mud pies, and chief flinger of nonsense, McCain's attempt to spin the truth was astonishingly bold (in all the wrong ways).

While McCain asked Obama to disavow the words of another congressman (which Obama had already done in writing), McCain never found it necessary to apologize for the rather jabbing tongue of the Pythoness (his own vice presidential nominee), who has either implied or stated that Obama was any number of unsavory things. There is no equivalence between implying that your opponent is old and erratic and implying that your opponent is a terrorist, and especially if the sole truth is that Cain is in fact old, and quite often erratic as he lurches from one thing to another.

And who is this Joe the plumber that McCain kept talking to? We could do for a little less Joe, and a little more of America.

"Joe, I want to tell you, I'll not only help you buy that business that you worked your whole life for and I'll keep your taxes low and I'll provide available and affordable health care for you and your employees. And I will not stand for a tax increase on small business income."

(Huffington Post)

Why do I think this whole Joe as stand in for America will somehow blow up in Cain's face? And why do I think Joe will never be getting his business anytime soon if he was betting on getting bank financing?

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And in other parts of the world:

Stocks continued their plunge, which will have the actual effect of convincing the average casual viewer that the government bailout was a waste. This is unfortunate given the complexity of what has occurred. The only thing we know for sure is that if the financial system manages to stabilize, the real economy will continue to slink to the bottom, and on the whole people will become more cynical. It would be nice to see a nice bi-partisan effort to explain in detail the scope of what is involved, whether we are talking the money markets, credit default swaps, securitization, or the many mortgage firms now gone bust.

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The Republican National Committee intends to pull out of Wisconsin and Maine, focusing its efforts on the states it can actually win.

The party's independent ad operation is doubling its budget to about $10 million and focusing on crucial states such as Colorado, Missouri, Indiana and Virginia where Democrat Barack Obama has established a foothold, according to a Republican strategist familiar with presidential ad placements.

Florida and North Carolina have also been in the RNC ad mix. Pennsylvania is the only Democratic leaning swing state apparently left in the party's ad campaign.

Obama continues to outspend, though we remind that he is spending voluntary money as compared to McCain's use of taxpayer funds:

Flush with money, Obama is outspending the joint efforts of the Republican Party and the McCain campaign by more than 2-1.

Daily Update: Kim Jong IL Awesome Weekend Edition

Their continues to be no positive end in sight to the financial problems hitting the United States and the world, though we suspect that since we have put the economic system into the operating room, potential structural stability is not too far away. The day to day economy will continue to unravel into the next year, but we won't be worried that our bank will suddenly collapse, putting our $100 bucks in jeopardy (onto FDIC books).

But things are not quite so bad all over. For example, if you are a North Korean dictator, isolated in your world, you had an awesome weekend. You are no longer part of the Axis (of Evil) and a terrorist sponsoring state. Come out of the cold and into the ample bosom of American trust Dear Kim Jong-Il. Some people might say this is too much carrot, not enough stick, or cart before the horse. We suspect Bush is anxious to get progress on the record in his waning days.

"President George W. Bush struck North Korea from the terrorism list this
weekend after Pyongyang agreed to allow inspections to verify a nuclear
declaration that the Stalinist state made earlier this year. "

(FT)

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While we are not actually looking for news that bolsters vice presidential candidate Sarah Palin, this AP article in U.S. News proves rather nit picky in title. "Palin has mixed record as fiscal conservative," it tells us, though in reading the details we are impressed with how she handled Alaska's budget. We can argue over her choice in leaving the town of Wasilla in debt, but the citizens did approve the bonds and tax increases for the sports complex. In other words, her choices in aggregate seem to be fiscally responsible and in tune with voter interests. (Though she is still far too superficially prepared to be a breath away from leading the nation).

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In the interests of fairness, we will engage in some anti-Obama analysis. His rise has been amazing, and contrary to the concerned warnings of Hillary (that white people would be too racist to vote for him), he has managed to stay competitive. Which makes us wonder how this "that one" (to quote Cain) has managed to perform so well. Hmmm. McCain was never strong on the economy, and here, in time for the election, the entire financial system is falling apart? Coincidence? Or are dark forces in the Democratic Party manipulating the system to put a black man in office and introduce socialism to this great land?

Further evidence of dark conspiracies afoot? Over on Huffington Post, outpost of all things liberal and Obama, there are reports of an Obama monkey doll being waved at a Palin rally. Of course this is not what it seems, but rather, Democratic Party plants in the audience secretly making the crowds at Palin and Cain rallies appear more anti-monkey than they might possibly be. Of course when the truth comes out, it will be too late under the Obama Socialist state. So go head and shake your monkey. Curous George indeed!

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24 Hours and then?:

As world leaders and bankers gathered in Washington for the weekend Group of Seven and global financial body meetings, Dominique Strauss-Kahn, International Monetary Fund managing director said: “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

Josef Ackermann, head of Deutsche Bank and chairman of the Institute of International Finance, representing nearly 400 of the world’s largest banks, said the next 24 hours was a ”critical moment” for the world financial crisis. ”If we miss this opportunity we will have more deterioration” in markets, he said.

(FT)

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The bipartisan legislative committee reported announced that Palin had violated ethics laws:

The investigation said she violated Alaska Statute 39.52.110(a) of the Alaska Executive Branch Ethics Act, which states, "… each public officer holds office as a public trust, and any effort to benefit a personal or financial interest through official action is a violation of that trust."

When asked for her thoughts on the matter, Palin, resplendent in a fashionable pair of self designed rose colored glasses, spoke forth with the type of honesty we expect from the McCain campaign:

Palin said she's happy the report affirmed her right to fire Monegan. But shesaid she still doesn't think she abused her power like the report says she did. In fact, she said she considered herself vindicated.

In a briefconference call with press reported by the Anchorage Daily News, Palin said,"I’m very, very pleased to be cleared of any legal wrongdoing … any hint of any kind of unethical activity there. Very pleased to be cleared of any of that."

(CBS)

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A (catty) fish story featuring John McCain from the New York Times:

Vietnamese sell catfish to United States. United States catfish growers get angry, push to block the Vietnamese catfish, called Pangasius. "You can't call that catfish," say North Americans trying to protect their market. McCain thinks all catfish are brothers, pushes for Vietnamese catfish to be free to be catfish in North America, to no avail. Bill passes in 2001, reserving catfish name for American born channel and other catfish. U.S. farmers later win anti-dumping petition. Pangasius turn to Europe. Europe eats lots of Pangasius. It's yummy. Vietnamese happy. U.S. farmers still hurting with high production costs. China decides to step into the business. China adopts American catfish to sell back to Americans as catfish. Everyone is afraid.

The moral of the story? Don't ignore China if selling catfish.

If there is one point of common ground for Vietnamese and American fish
farmers, it is a dread of the world’s largest aquaculturist: China. Chinese
researchers now travel the world in search of species that will thrive on their own farms and have developed aquaculture programs for both North American channel catfish and Vietnamese Pangasius. Here, all questions of names and standards crumble under China’s drive to sell at the cheapest price.

McCain and "That One's" Excellent Townhall Adventure

It was an interesting town hall debate, where McCain proposed a spending freeze, while also offering up, rather out of the blue, a proposal to buy all the individual homeowner's mortgages at great cost.  That home suggestion was probably his big effort to try to turn things around: a dangled carrot for the economically gullible. Which homeowners will get relief, and who would distinguish between the deserving and the undeserving?

Packed in between those two proposals, is a lot of, uhm, incongruity.  If spending is frozen, where will the money come from to buy the mortgages?

Also, don't know if Meg Whitman, formerly of Ebay, is the solution to our financial problems, despite McCain tossing her name into the potential treasury secretary mix. (We also know good and well, once in power, he would not choose Ms. Whitman).

We are not sure either candidate gained a lot of ground. Well actually, McCain certainly gained no ground. He talked a lot in that faux sincere voice, sucking up to the audience with a bunch of "thank yous" and "my friends".  McCain also exhibits a rather proprietary relationship with all things military as well, as though that relationship bestows infinite wisdom. We won't get into McCain referring to Obama as "that one."  It was probably accidental disrespect.

Daily Update: We Are All Suffering Now Edition

Well, it seems Europe, and Germany in particular, is not immune from the economic willies after all, and thus Germany is following the lead of Greece and Ireland in insuring all bank deposits.

Germany’s guarantee of its private savings — worth about 500 billion euros,or more than $700 billion— followed the news that a group of banks had pulled out of a deal to provide 35 billion euros, or $48.2 billion, to rescue the largeGerman mortgage lender, Hypo Real Estate.

(N.Y. Times)

This was soon followed late in the European night by another proposed deal to rescue Hypo.

Germany's government and financial regulators last night agreed to a second
bail-out package for Hypo Real Estate after the abrupt failure of a first
attempt to rescue the property lender.

(FT)

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Blax Alternate's complete and comprehensive vice presidential debate coverage:

Near start of debate:

Palin: Hey, can I call you Joe or Frank so that later in the debate I can use it in a hokey comeback line?

Biden: Sure. ("She looks like Bambi with those eyes. I want to kiss her like Obama kisses Jill").

Near end of the debate:

Biden: And that's why under McCain blah blah blah blah blah.

Palin: Oh NO! Say it ain't so, JOE! (I'll save 'Frank-ly my dear I don't give a damn for later', and I think I will wink to the cute man standing behind that thing pointed at me that almost looks like a studio camera.)

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As California goes, so goes the nation often enough. And as we may observe, financially speaking, Cali is going to pot, and Massachusetts is hard on their heels. Since the short term credit markets are sort of taking a vacay, California is speculating that $7 billion might be needed real soon; Massachusetts is still in the "What would you do if I did something bad and need help" phase of thinking through it sources of help. What they need, exactly, is still open to speculation. Can New York and Florida (facing a budget deficit of $1.4 billion) be far behind?

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Here is where the N.Y. Times tells us it's the end of the world we know it, the end of an era.

“It’s the beginning of the end of the era of infatuation with the free market,” said Steve Fraser, author of “Wall Street: America’s Dream Palace,” and a historian. “It’s the end of the era where Wall Street carries high degrees of power and prestige. And it’s the end of the era of conspicuous displays of wealth. We are entering a new chapter in our history.”

If we are true students of human nature, this shaky "era" will replaced by an entirely different era doing largely the same sort of thing (making money), but in different plumage. In an effort to be first, or profound, people rush to make judgements (like success or failure in Iraq) on what events mean before all the facts roll in.

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Iceland doing it for/to themselves:

Geir Haarde, prime minister,on Sunday met banking executives, including Hreidar Mar Sigurdsson,chief executive of Kaupthing, the country’s biggest bank,to discuss measures to ease the crisis, which has seen the Icelandic krona depreciate significantly and led to the quasi-nationalisation of Glitnir, the country’s third largest bank.

(FT)

Buffett Explains How the Stupid and the Smart Converge on Immutable Theory

“Three hundred million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently,” he said. “Lending was done based on it, and everybody did a lot of foolish things.”

(N.Y. Times quoting Warren Buffett on Charlie Rose from an interview last week)

That pretty much sums it up. Despite credit expert Jim Grant (and interviewer Steve Kroft, and bumbler Andy Rooney) blaming Wall Street for all problems on 60 Minutes this past Sunday, one can actually put the blame everywhere, and find an irrationally rational, and non-criminal, basis for much behavior in the mortgage boom.

To assume that housing prices will continue to rise is natural in that it conforms to human hopes and expectations. Everyone from the stupid to the smart accepted that theory like it was immutable, and thus, most actions following that one irrational assumption were quite plausible.

The Washington Post has a nice little piece that kind of demonstrates the point (in Ireland!):

"I have never seen property values in my life go down, and they just took a nosedive," said Finn, a father of four. He said if the economy had not turned sour, he would be sitting on multimillion-dollar profits from luxury property sales. Instead, he said, he has millions in debt.

European Rescue Collapses, American Misery Loving European Company

It seems like just yesterday, or last week, when the German finance minister was saying bold things about the fall of the United States as a financial superpower, as though the U.S. was an island alone, sinking into the abyss.

But apparently that was a bit of idle verbal finger pointing:

The scale of the financial storm was brought home when, during the summit, the German bank Hypo Real Estate (HRE) announced that a planned 35-billion-euro (48-billion-dollar) buy-out had collapsed.

A consortium of banks was to have led the biggest rescue in German history and its failure could wreak havoc when financial markets reopen on Monday.

Germany's Interior Minister Wolfgang Schaeuble has warned that the financial crisis could have political repercussions, noting how Adolf Hitler rose to power after the 1929 Wall Street crash.

"The consequences of that depression was Adolf Hitler and, indirectly, World War II and Auschwitz," the minister was quoted as saying in Der Spiegel's latest edition to appear Monday.

(AFP)

Goof up financially in America, and you get perhaps, an Obama. Make the same mistake in Germany and well, Hitler reborn.

Lesson from this? Don't point fingers when you can't afford to have them bitten off.

Biden-Palin Debate: Those Who Ignore the Past are..... (fill in the blank).

I've just spent the past hour and a half watching Senator Joe Biden debate Alaska Governor Palin. As I type, the pundits (on ABC) are calling it a wash, and that each candidate performed adequately enough to satisfy their own supporters and changed no minds.

My gut tells me that Ms. Palin, strategically holding her disabled child at the end of the debate (and why isn't he in bed?), will have been persuasive to some remarkably stupid people. There is an audience out there who will listen to her folksy talk and feisty manner and say, "Hot damn, that's just what we need to clean out Washington." This type of voter will ignore policy detail, ignore the larger arguments that Biden was presenting--that McCain's policies are not any different from Bush's, and that under Bush, we are in a heap of trouble on many fronts--and they will feast on the idea that Palin is like them. (They will also manage to ignore the fact that Republicans have not delivered on all those social issues they run their campaigns on).

Palin managed to perform to training and habit, using diversion into personal ancedote when detail proved too complicated. She also managed some well placed compliments in an effort to neuter any sort of attack from Biden. Biden, wisely, avoided ripping her head off for her special combination of ignorance and gusto. So much of what was said in the debate was the McCain camp's effort to short circuit the process of critical thinking. It was imagery over substance, as though the repetition of the words "soccer mom" or "folks" might carry more weight than policy integrity.

The best example of diversion was Palin's suggestion that looking at the history of the Bush administration was somehow akin to dwelling in the past and not being forward looking. "Say it ain't so Joe" said Palin, at her folksy contrived best, attempting to counter the wisdom being tossed in her direction; that ignoring the past is the perfect way to relive it, mistakes and all.

Additional Thoughts on Palin:
1) Can't pronounce nuclear.
2) I rather doubt McCain will be pleased that Palin and Biden came to the exact same policy position on gay rights.
3) What war has McCain actually won? Palin said he had won some.