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Tuesday, April 27, 2010
Carl Levin, Still Outraged Over Goldman's "Big Short", Announces New Amendment Going After Conflicts-Of-Interest (GS)
Carl Levin, Still Outraged Over Goldman's "Big Short", Announces New Amendment Going After Conflicts-Of-Interest (GS): "
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If there's one thing we've learned today, one thing, it's that Michigan Senator Carl Levin REALLY doesn't like the fact that Goldman Sachs (GS) could have had positions that were directionally opposed to its clients.
He's been talking about it all day, from his opening soliloquy to his late-night questioning of Lloyd Blankfein, which is running well over 3 hours.
Levin is making perfectly clear that the point of this hearing is to bolster the case for financial reform, and he's even talking about new amendments -- specifically he promises a vague amendment that would go after this conflict of interest and go after the ratings agencies (a class of companies that are basically untouched under the current incarnation of Dodd).
We really don't know exactly what he has in mind.
Whatever he plans, hats off to Levin. He is a monster and while others have long left the building, he's been there the whole day.
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See Also:
- The New York Times Can't Link To POLITICO's Carl Levin Article Because It Uses The Word "Shitty"
- Dear Carl Levin, This Senator Knows How To Drop The S-Bomb
- Carl Levin Going Off The Rails, And Goldman Is Winning This First Round
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Rosenberg: Even If The Economy's Back, Future Recessions Are Coming Faster And Harder
Rosenberg: Even If The Economy's Back, Future Recessions Are Coming Faster And Harder: "
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In his daily note, Gluskin-Sheff economist David Rosenberg makes an important observation about the frequency of recessions.
Namely: The gap between them is getting shorter and shorter.
Nobody would ever dispute that the U.S. economy has managed to see its
government spend its way into some sort of statistical recovery — though it is
more evident in the output and sales data than in the income data. Look at the
largesse — a 0% policy rate, a $2.3 trillion Fed balance sheet loaded up with
mortgages, a $1.4 trillion fiscal deficit loaded with bailouts and freebies and
accounting changes that have allowed the banks to mark-to-model their way
back towards earnings heaven. If the economy was not recovering without
Uncle Sam’s generosity, then that would truly be a big story.
But Mr. Market at some point will have to confront the future. The time gap
between recessions is shortening now — we went 10 years from 1990 to 2000,
then 5 years from 2002 to 2007 and the next recession, following this pattern,
is likely going to occur within the next 2-3 years. And, unlike the start of the last
recession when the government had so many arrows in its quiver, there are
none today to help lift the economy again.
Going into the 2007 downturn, the budget deficit was $160 billion. There was
ample room for fiscal stimulus. The funds rate was 5.5% and could be cut
550bps — now it is at 0%. The Fed’s balance sheet could be allowed to triple
without reviving inflation expectations — good luck the next time around.
He seems to be throwing in the towel on this recession, and its potential to be 'the big one.'
Perhaps the downturn that really shakes the foundation (the equity culture, the
view that we can spend more than we make to perpetuity, etc) is the next one
because the policy response, by definition, will just not be there to turn things
around. Not something to worry about today, but the day of reckoning is coming.
What we see in the crystal ball is not only the limited response the government
will have on hand to deal with the next downturn, but that it will likely start with
the economy never getting back to full employment. Recall that for the first time
ever, the U.S. economy in 2007 slipped into recession without having first swung
into excess demand terrain (when inflation pressures are burgeoning), which is
why it didn't take long for deflation risks to come to the forefront. Imagine how
intense the deflation pressures will be in the next go-around as the recession
begins with a much higher unemployment rate, a much lower capacity utilization
rate, and a more constrained government response.
We can understand that this is far beyond a market mindset that is fixated on
next month’s nonfarm payroll release and the coming quarter’s earnings reports
— but the primary trend, which is deflationary, is hardly going to be broken by
current reflationary policies than was the case from 2002 to 2007 when credit
growth and asset prices surged. It was a great five years for the beta trade, but
it ended in tears. So will this whippy rally, even if not currently recognized by the
majority of market pundits who will get you into safety as quickly heading into
the next turndown as they so successfully did in late 2007.
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Another Looming Market Risk: Talk Of Tax Hikes About To Come Fast And Furious
Another Looming Market Risk: Talk Of Tax Hikes About To Come Fast And Furious: "
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Ok, we lied. There's one more risk beyond the Fed meeting that you need to be wary of. It's tax hikes.
Well... talk of tax hikes. Headline risk.
How come?
Because the President's working group on deficit reduction is getting into full swing, and it's a sure thing that the team will propose tax hikes as part of the equation to solve the deficit problem. Now, that doesn't mean Congress is actually going to the tax hikes.
The path of least resistance -- deficit spending -- seems like the way forward for now. But there's going to be a ton of talk about a VAT and other measures to gain revenue.
OMB chief Peter Orszag wrote the following today to kick off the organization's work:
The President formed the National Commission on Fiscal Responsibility and Reform because he believes that the path to fiscal stability begins with bi-partisan cooperation. Today, the Commission met with the President and held its first meeting, where I joined them to discuss the Nation’s unsustainable fiscal trajectory and the importance of the task before them.
Recognizing the fiscal future that we face, the Administration has taken major steps to restore fiscal responsibility. The President’s Budget includes more deficit reduction than proposed by a President in any budget in over a decade; by 2015, it would cut the deficit from 5 percent of GDP to 4 percent of GDP. Furthermore, the comprehensive health insurance reform we have just enacted represents an unprecedented effort to address the forces underlying rising health care costs, and is projected to lower future deficits by more than $100 billion in the first decade and by more than $1 trillion in the next.
More must be done, however. The Commission is charged with recommending measures to reduce the deficit to about 3 percent of GDP by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers — a key measure of fiscal sustainability. The Commission is also tasked with proposing policies to meaningfully improve the long-run fiscal outlook.
Here's the kicker:
The options to further reduce the deficit may not be popular, but they are necessary. Success will require a commitment from both parties to engage in constructive and honest dialogue, and I look forward to working with the Commission in the weeks and months ahead.
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See Also:
- Bernanke: Path To Fiscal Salvation Requires Slash And Burn On Entitlements And Higher Taxes
- CHART OF THE DAY: Your Parents Would Be Stunned At The Taxes You're Paying
- US Fiscal Policy: Unless We Raise Taxes Or Cut Spending, We're Screwed
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Mike Milken's Excellent Presentation On Our Pathetic History Of Foreign Oil Dependence
Mike Milken's Excellent Presentation On Our Pathetic History Of Foreign Oil Dependence: "
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
Source: Milken Institute
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Financier Mike Milken opened a panel featuring Ted Turner and T. Boone Pickens with a rousing presentation on foreign oil dependence. (via Paul Kedrosky)
U.S. presidents have promised and failed to increase energy independence since the 1960s.
If we've hit peak demand -- and American industry slows down -- then energy independence may finally be possible. But at what cost victory?
Don't miss...
The 12 Oil Leaders Who Have The U.S. On Its Knees
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MAP OF THE DAY: There's A LOT At Stake If The PIIGS Collapse
MAP OF THE DAY: There's A LOT At Stake If The PIIGS Collapse: "
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Its now clear that the European debt crisis could take a huge chunk of the euro zone with it. Greece, Portugal, and Ireland are already in tough debt positions, while larger states like Spain and Italy might soon be.
What this could mean is the end of the currency union, as states are forced to depart because they can't inflate their currencies to pay down their debt. While that approach would have its own problems for members, it could end the reach of the euro zone and significantly damage the European project all together.
Here are the results if Greece, Portugal, Ireland, Spain and Italy were to depart (using 2008 data):
GDP: 32% of all Euro zone GDP (subject to changes in euro valuation)
Population: 132,355,572 million people, 40% of the population of the euro zone.
Blue states represent euro zone members, light blue are euro zone candidates.
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