Retailers call for action to prevent 'ghost towns'

Retailers have urged the Government to provide them with more assistance to keep shops occupied, as Whitehall unveils a £3m initiative today to try to prevent high streets from becoming ghost towns during the recession.

Hazel Blears, the Community Secretary, will also unveil provisions to help local people or entrepreneurs temporarily convert empty shops into community projects or businesses, such as local art displays, to avoid high streets being boarded up. The provisions include special planning application waivers, standard interim-use leases, and temporarily leasing shops to councils that will allow the shops to get makeovers.

Experian, the information services company, believes that 15 per cent of high street shops, or 135,000 outlets, could be left empty by the end of the year, as retail administrations and financial woes force retailers to close stores.

But the British Retail Consortium (BRC) said the way to prevent high streets becoming ghost towns is to remove burdens and help retailers survive in them. Stephen Robertson, director general of the BRC, said: "Art displays are not the answer for empty shops. We agree that vacant premises blight town centres. But contriving schemes to fill them with other users is tackling the symptom while ignoring the cause." He singled out property costs as a key burden. Mr Robertson said: "Rather than offering empty shops for uses that are rates-free, wouldn't it be better to reduce the rates burden for struggling retailers?"

The BRC won a victory for its members on 31 March when the Chancellor, Alistair Darling, modified plans to introduce a 5 per cent increase in business rates. As a result, business rates increased by only 2 per cent from 1 April, with the remaining 3 per cent rise being spread over the next two years, under new legislation unveiled by the Government.

However, prior to Mr Darling's U-turn, the BRC had called for the Government to freeze new business rates and reverse its policy on empty property relief, which was scrapped in April last year.

At a seminar in Stockport today, Ms Blears will say: "Empty shops can be eyesores or crime magnets. Our ideas for reviving town centres will give communities the know-how to temporarily transform vacant premises into something innovative for the _community ... and stop the high street being boarded up."

Entrepreneurs have begun many successful businesses from empty premises, such as Romy Fraser who started Neal's Yard Remedies from a disused warehouse in 1981.

Source: The Independent

Is This the Bottom? (Jim Rogers Video)

Jim Rogers is a legendary investor known for his ability to predict major long term trends in financial markets. Jim trades and invests in commodities, stocks, futures and currencies in stock exchanges in 5 continents.

Jim Rogers discusses the state of the world economy and looks ahead in this April 13th interview with Bloomberg.

Part 1 of 3


Part 2 of 3


Part 3 of 3

HSBC faces crisis over US credit cards

HSBC faces a meltdown at its US credit card operations where around $50bn (£34bn) has been lent to people with poor credit histories, say analysts.

Write-offs at the credit card arm of HSBC Finance Corporation (HFC), formerly Household, a sub-prime lender, could double to $10bn in 2009, according to brokers. Fears are growing that the bank could be forced to ask shareholders for more cash, on top of the £12.5bn it raised during its recent rights issue designed to bolster its balance sheet.

Analysts at Société Générale said that the strong take-up of the share offer did not necessarily "translate into smooth sailing for HSBC over the next couple of years" as it faced the prospect of rising bad debt and sour loans. The bank is not yet out of the woods, added SocGen.

Of particular concern are loans outstanding at HFC's credit card business, which stood at $49.6bn last year - representing around two-thirds of all HSBC credit card loans. The HFC credit card operation wrote off $5.4bn in bad or doubtful loans in 2008, according to the annual report, but made a profit of $520m. But analysts say that the profit will be wiped out this year and the offshoot will plunge into the red.

HSBC refused to comment on the speculation but said the HFC provisions "would be impacted by factors such as US unemployment and wage growth".

There is no suggestion that HFC's problems will push HSBC as a whole into loss - its businesses outside the US are highly profitable. But the bank, led by Stephen Green, has admitted that its purchase of Household for $15bn in 2003 has destroyed about $10bn of shareholder value.

Last month, the company unveiled a rights issue, slashed the dividend and disclosed that group profits had more than halved to $9.3bn. At the time, HSBC insisted that the proceeds of the cash call were not designed to plug an existing capital shortfall, but would give the bank a competitive advantage over rivals. But two weeks later it announced 1,200 redundancies as part of a review of operations to make it more efficient.

Leigh Goodwin, an analyst with Fox-Pitt, Kelton, said the job cuts were in response to a decline in demand for mortgage and savings products.

At the time of its annual results in March, HSBC chief executive Mike Geoghegan said HFC would stop making loans to new customers. It is also shutting 800 HFC branches in a move to shrink its exposure to the US housing and sub-prime markets.

Dissident shareholder Knight Vinke has demanded that the bank walk away from its HFC investment. It has also flagged up concern that the $34bn difference between the book and market value of HFC would have to be closed at some point, as it doesn't believe that US house prices will recover in the near future. But HSBC has queried Knight Vinke's assessment of the financial strength of HFC.

Source: Guardian

Gordon Brown has lost all moral authority

So this is the way New Labour ends - in a shower of immorality. Sure, the expenses scandals were bad enough, but Brown could wriggle out of those; promise a review; and wait for the revelations to appear about Tory and Lib Dem MPs. But Damian McBride and "Smeargate" is something else; something altogether more final. The public is getting its clearest glimpse yet into the workings of the Brown machine. And it's a grim sight.

It's always puzzled me how Brown has managed to perpetuate the "son of the manse" shtick. Read any biography of the man - I'd recommend Tom Bower's - and the truth is clear: his is a political career built largely on gangsterism and deceit. Yet there's always been this abiding impression that he's just industrious ol' Brown, getting on with the job. That's why the ad-men could produce those "Not Flash, Just Gordon" posters in 2007, and why he could take over from Blair with excited talk about "no more spin".

But now that the inner circle of bruisers, opportunists and freaks has been properly exposed, all that lies shattered. Even though Brown almost certainly didn't know about the McBride emails, his reliance on this grubby operation makes him guilty by association. And, on the back of recent scandals and ahead of scandals yet-to-come, his claims to moral authority are finally being revealed for what they are: an illusion.

Strategically, this leaves the PM floundering. It's been suggested that a central plank of his post-G20 approach was to "inject a moral dimension into the debate". But how can he manage that now? Can he really lambast the Tories for "not caring" about the unemployed and the dispossessed, when one of his closest advisers spent time trying to sow false rumours about George Osborne's wife and Cameron's medical history? Well, he can try; but I doubt it will have quite the same impact. And, in turn, that leaves a moral dimension for the Tories to occupy.

In short: if - when - Brown loses the next election, the events of yesterday will be a contributing factor. Guido, take a bow.

Source: The Spectator

Gordon Brown has lost all moral authority

So this is the way New Labour ends - in a shower of immorality. Sure, the expenses scandals were bad enough, but Brown could wriggle out of those; promise a review; and wait for the revelations to appear about Tory and Lib Dem MPs. But Damian McBride and "Smeargate" is something else; something altogether more final. The public is getting its clearest glimpse yet into the workings of the Brown machine. And it's a grim sight.

It's always puzzled me how Brown has managed to perpetuate the "son of the manse" shtick. Read any biography of the man - I'd recommend Tom Bower's - and the truth is clear: his is a political career built largely on gangsterism and deceit. Yet there's always been this abiding impression that he's just industrious ol' Brown, getting on with the job. That's why the ad-men could produce those "Not Flash, Just Gordon" posters in 2007, and why he could take over from Blair with excited talk about "no more spin".

But now that the inner circle of bruisers, opportunists and freaks has been properly exposed, all that lies shattered. Even though Brown almost certainly didn't know about the McBride emails, his reliance on this grubby operation makes him guilty by association. And, on the back of recent scandals and ahead of scandals yet-to-come, his claims to moral authority are finally being revealed for what they are: an illusion.

Strategically, this leaves the PM floundering. It's been suggested that a central plank of his post-G20 approach was to "inject a moral dimension into the debate". But how can he manage that now? Can he really lambast the Tories for "not caring" about the unemployed and the dispossessed, when one of his closest advisers spent time trying to sow false rumours about George Osborne's wife and Cameron's medical history? Well, he can try; but I doubt it will have quite the same impact. And, in turn, that leaves a moral dimension for the Tories to occupy.

In short: if - when - Brown loses the next election, the events of yesterday will be a contributing factor. Guido, take a bow.

Source: The Spectator

Economy will be over worst by October, says Alistair Darling

The British economy will be over the worst of the downturn in six months, Alistair Darling will declare in his Budget.

The Chancellor is set to forecast that the economy will halt its fall in the last quarter of the year, which starts in October. He will predict a return to growth at the turn of the year, with a recovery well underway by the time of the next general election.

The outlook will draw political accusations of over-optimism, since some forecasters are much more pessimistic. The National Institute of Economic and Social Research this week suggested that economic growth may not resume until 2012.

However, some independent economists believe the Treasury position is credible: nearly half the City analysts polled this week by Reuters said the UK economy will at least stabilise in the last three months of the year, and some predict growth will resume then.

Despite bleak economic data and rising unemployment, government insiders say there are some reasons for cautious optimism, including last week's Bank of England credit survey suggesting banks are preparing to lend more to families and companies in the months ahead.

Some economists also expect the US economy to pull out of its recession in the second half of the year. President Barack Obama has said he sees "glimmers of hope" for a recovery.

And the Organisation for Economic Co-operation and Development said on Friday that although all major economies are suffering a major contraction, there are some "tentative signs of improvement" in the rate of decline in France and Germany.

The forecast of resumed British growth may be the only optimistic signal in an otherwise gloomy Budget. Mr Darling is set to accept that during a year-long contraction that started last year, the UK economy shrank by more than 3 per cent, the sharpest fall for a generation.

Faced with an ever-growing hole in the public finances, he will also announce long-term tax rises and spending cuts to try to balance his budget over the next six years.

There will be few eye-catching giveaways, although Whitehall discussions are continuing about offering a £2,000 "scrappage fee" to people trading in used cars for new models.

Despite reports that the Treasury has rejected the proposal by Lord Mandelson, the Business Secretary, sources said over the weekend that the plan remains "on the table".

In his last forecast at the pre-Budget report in November, Mr Darling predicted that growth would resume from the third quarter, which begins in July.

Although the Chancellor has since admitted that he understated the severity of the recession and will have to increase his estimate of the depth of the slump, in the Budget he will only move his prediction of renewed growth back by three months.

The Treasury is signalling it believes the British downturn could be 'V'-shaped, a steep fall followed by a relatively quick rebound. Stephen Timms, a Treasury minister this week signalled the Government expects growth to resume this year, adding: "The question is when in the second half of the year."

Signs of economic recovery around the New Year are vital to Gordon Brown's fragile hopes of winning a general election next spring.

Labour strategists also believe the party must appear optimistic about the future, accusing the Tories of "talking Britain down".

However, even if headline figures like gross domestic product are improving by then, unemployment - which lags behind economic growth - may still be rising as the Prime Minister goes to the polls.

Source: The Telegraph

Lloyds bank staff ‘puts frighteners’ on debtors

Bank staff are harassing customers with talk of home repossessions and blacklists.

LLOYDS Banking Group staff are intimidating victims of the recession who have fallen behind on loan payments, an investigation by The Sunday Times has found.

Workers at Lloyds debt recovery department were secretly tape-recorded saying they would “put the frighteners on” and “f***” customers who owed the bank money.

The bank staff are incentivised by bonuses and some claimed to be representing a solicitors’ firm, while others pressured customers with repeated calls that left them in tears. Customers were told they would not even be able to obtain a Blockbuster video shop card if they failed to pay back their debt.

The employees would appear to be in breach of the Banking Code, which pledges to customers that banks “will be sympathetic and positive” when dealing with people in financial difficulties.

The tactics were witnessed by an undercover reporter who worked at the bank’s debt recovery office in Hove, East Sussex, for more than three weeks.

Andrew Mackinlay, the Labour MP, said he would be raising this newspaper’s findings in the Commons next week when he is due to speak in a adjournment debate on debt collection. “The current rules on the collection of debt are inadequate and need to be reviewed because they are not being enforced properly,” he said. “There need to be severe financial penalties if companies are found to be harassing customers and treating them badly.”

Lloyds said last week that it would investigate the findings. Sally Jones-Evans, director of collections and recoveries, said: “We do not condone behaviour that breaks our policies and procedures. Our first action is always to gather the facts, but we take action where these [inquiries] substantiate improper behaviour.”

Lloyds is 65%-owned by the taxpayer after receiving billions of pounds of government aid. The bank prides itself on customer service and recently ran television adverts claiming: “Every day we are helping millions of customers get where they want to go in life.”

The undercover reporter began her job as trainee telephone debt collector in mid-March. At the induction, her trainer, Martin, suggested his own bank might share some of the blame for the large number of defaulting customers. They had fallen into debt, he said, because of “bad management of money, a change of circumstances or possibly irresponsible lending”.

The reporter was assigned a mentor, Sebastian, who told her about a recent case of an 85-year-old man who had been granted a £10,000 loan by Lloyds and had only a meagre pension to pay it back. “What were the branch thinking?” he said, before adding: “Bank lending - probably one reason why there’s a bloody recession going on right now.”

The trainers emphasised that the job was not just about retrieving money. They stressed that people should be given realistic repayment targets. But would it work in practice?

The first signs were not encouraging. The salary for a telephone collector is just under £16,000 a year but up to £750 a quarter can be earned from bonuses, awarded for meeting performance targets. Points are given for the amount of money retrieved and the number of calls in an hour. It is in the collector’s interest to make quick calls and persuade customers to pledge large repayments.

The collectors were told to ask for a bank debit or credit card payment for the outstanding amount. The trainer made clear that the credit cards could not be from Lloyds, to ensure the debt would be shuffled away from the bank. The customer, on the other hand, could end up paying higher interest.

Support groups such as National Debtline and the Citizens Advice Bureau (CAB) say it is wrong to shuffle debt in this way. But it appears to be industry practice. Last week the British Bankers’ Association (BBA), which represents the main banks, claimed the customer might have a credit card charging a lower rate of interest.

On the third day of training the reporter and fellow trainees were sent onto the main floor to practise their technique. One of the trainees listened into a call in which a woman was crying on the phone and begging Lloyds to stop calling her.

A collector called Becky was dealing with another distraught woman who said her case was being handled by a debt organisation. She asked Lloyds to approach the organisation. However, after putting down the phone, Becky said she would not deal with anyone else and she would have to keep ringing the woman.

The Banking Code says banks should “liaise with organisations that are giving the customers advice/support”.

The repeat calls were upsetting. Elaine Molloy, a nurse, said she had been called six times a day at work, which she said made her “stressed and upset”. One man said he had been contacted by Lloyds 10 times despite repeatedly telling the callers the person they were seeking was no longer there.

The trainers said a certain amount of pressure could be put on customers. Homeown-ers could be reminded about repossession and others told that they may be credit blacklisted. One line often used by phone operators was: “[You] wouldn’t get a Blockbuster video card, it’s that serious.”

The reporter was training to work in early collections, dealing with people who had defaulted recently. Nearby was late collections, which dealt with people in arrears for five months or more. They used different tactics to get the bank’s money back. Although they are employed by Lloyds, they told customers they were from Sechiari Clark & Mitchell (SCM), the bank’s solicitors. One was overheard saying they would forward details from the conversation to Lloyds.

A spokeswoman for Lloyds said some of the late collection team operated under the SCM name because they were dealing with cases just before legal action was initiated. However, when speaking to our reporter, one phone operative said it was useful to pretend they were not from Lloyds “because we can blame Lloyds for a lot of stuff”.

Last week Nick Pearson, of Baines and Ernst, which helps people organise their finances, said phoning in the name of solicitors was “custom and practice in the industry”.

The early collection department could, if it acts appropriately, put customers on the road to financial recovery. On the other hand, those who fail to keep up their repayments may end up in the recovery department where there are more serious consequences such as court action and credit blacklisting. Because many of the repayment schedules proved unrealistic, customers were more likely to be passed on to recovery, with an impaired record.

This is not helped by the performance target system that is run in the office. Experienced operatives were expected to collect as much as £1,055 an hour.

It gave the operatives an incentive to set monthly repayment plans for higher amounts, which counted towards their target and their bonus. The rush to reach the targets meant that some operatives did not take time to examine customers’ finances to calculate what they could realistically afford.

Martin acknowledged the problem when addressing the new recruits. “It will be tempting because you get bonuses by collecting more money. Some people are stats-driven and do whatever it takes to collect money but that’s what we are trying to get away from,” he said.

The reporter witnessed the results of this system. One woman could barely pay her bills with her benefit payments of £180 a month and yet she had been put on a repayment plan that she could not afford.

The target system made some operatives very pushy. The reporter overheard one operative saying they would “put the frighteners” on a customer who had defaulted on their repayment schedule for the third month running.

One experienced operative explained to the reporter that keeping the phone calls brisk was one of the tricks of the trade. “Short and sharp - the best way to f*** someone, get their money,” he said.

The recipients of his calls were often left bruised. In a five-day period in the run-up to Christmas, five people were reduced to crying down the phone, he said.

Other operatives had clearly worked out their own system for reaching targets. One team leader boasted that he used to collect £7,000 a day before he became a manager. He described how he and a colleague used to block customers’ bank accounts and cards if they looked like they were not going to make the repayments.

“If they’re not going to pay it, then we’ll try and cancel stuff. We used to put blocks on accounts, everything. Loads of times we did that . . . lucky we didn’t get caught.”

One woman regularly collected more than £200,000 a month, according to Sebastian, the mentor. “Some people here tell me that they’ve listened to calls and she was just putting promises [payments] for accounts she wasn’t even agreeing on. I don’t know why they don’t do anything about it,” he said.

Charities and advice groups such as the CAB, the National Debtline and Baines and Ernst say the problem of setting unaffordable repayment plans goes on throughout the industry. “Lloyds are not alone in this,” Pearson said.

Last week Lloyds defended its collection department, saying that it had been scrutinised by an independent body at the end of last year and was found to be complying with the Banking Code.

The review concluded that “customers were treated positively and sympathetically and were not put under pressure to enter unaffordable repayment plans or to increase offers of repayment where they were unable to do so”.

Lloyds also defended its bonus system, saying that money recovered accounted for only a third of the factors making up the award. It said all repayment plans had to be affordable.

Insight: Claire Newell and Jonathan Calvert

‘It’s horrendous, I’ve never been treated so badly’

According to the Banking Code, customers in financial difficulties should approach their bank early. “We will do all we can to help you to overcome your difficulties,” it states.

But that’s exactly what two families say they did with Lloyds Banking Group and they say they were severely let down.

Elaine and Paul Molloy from Cheshire were struggling to pay the mortgage after a temporary rift in their marriage. “When we went into the bank and said we’d got a problem, they said there’s nothing they can do for us until we go five months behind in the mortgage payments,” Paul Molloy said.

Now they are now back together, their debt has grown to arrears of three months, which they can no longer repay and they now fear they will lose their home of 11 years.

Elaine Molloy, a nurse, says she is being harassed by the collection team. She said: “It’s horrendous, I’ve never been treated so badly by the bank and I’ve been with them since I was 17. I get six calls a day [from the collections department]. They were ringing me at work. I get dead stressed out and upset at work when they call, which doesn’t help my job, looking after patients.”

The family of Alan Wells in Swansea suffered a dramatic drop in their income when his overtime was cut because of the economic downtown. Finding himself £900 worse off a month, the construction worker approached Lloyds for help paying back a debt of £350.

“I was told there was nothing they could do for me. They told me it had to be ‘critical’ before they would help me,” he said.

Source: The Times

George Soros on Bloomberg 10-04-09 (VIDEO)

Part 1



Part 2

Barclays faces tough iShares questions

Barclays is likely to face more tough questions from shareholders over its decision to sell iShares after the buyer said it would look to float the exchange-traded funds business as soon as stock markets recovered.

CVC Capital Partners, the private equity group that has agreed to buy iShares for $4.2bn (£2.9bn), said it would be a good candidate for a stock market initial public offering. The highly profitable business is the world's top provider of exchange-traded funds, which allow investors to track share indices.

Jonathan Feuer, head of CVC's new financial services team, said: "As a market leading company with attractive growth potential, it is a very attractive flotation candidate . . . people that invest in shares are likely to want to invest in iShares too."

The iShares sale will help Barclays shore up its balance sheet and avoid turning to the UK government for capital. Barclays' shares rose 12.5 per cent to 177½p on Thursday's announcement of the deal amid a broad rally in banking stocks. The bank's shares have risen three-fold since their January lows.

Investors may grumble that the bank is hurriedly selling one of its best assets at a depressed price, especially if CVC floats iShares quickly for a big profit.

Bob Diamond, Barclays' president, is set to pocket $6.9m in cash from the sale of iShares.

As head of Barclays Global Investors, the bank's fund management division, Mr Diamond is one of the beneficiaries of a compensation scheme that has given BGI employees shares and options over as much as 10.3 per cent of the division's equity.

BGI is expected to distribute the cash from the sale to its shareholders in the form of a dividend. Barclays stressed that Mr Diamond was not involved in the iShares sale negotiations. The deal values iShares at about 10 times its pre-tax profits of £288m in 2008.

The business increased assets under management by 10 per cent to £226bn last year, even as BGI's assets fell. Barclays' directors are up for re-election at the bank's annual meeting this month. Some big shareholders have expressed frustration over the board's decision last year to raise £7bn of expensive funds from Middle Eastern investors.

Source: FT

Five Hundred Russian Banks to Go Bust in 2009

Professional bankers expect a quick liquidation of hundreds of banks at the end of forthcoming summer. Most of the banks will be closed due to their small capitals and because of the clients that will not be able to pay off their debts.

Alexander Turbanov, the head of the Deposit Insurance Agency, said that the number of banks will decrease in Russia during the second half of the year.

The number of banks, which received no profit as of January 2009, tripped in Russia, a review of the Bank of Russia said.

Specialists of the Association of Russian Banks also said that some 200 banks will not be able to see the year 2010 in: they will not be able to meet the net worth requirements of the Bank of Russia.

Bankers say that there are about 50-100 zombie banks in Russia, which either service the interests of only several companies, which own those banks, or exist only on paper. Their liquidation under the conditions of the crisis is inevitable.

The government may lose up to one trillion rubles as a result of the process. Banks may need these funds by the end of the year, if the amount of bad loans will make up ten percent of all loans. If it is going to be 20 percent, the price to maintain the surviving banks will skyrocket to two trillion rubles.

Source: Pravda

Robert Reich: Why We're Not at the Beginning of the End, and Probably Not Even At the End of the Beginning

Nice article by Robert Reich who severed as Labour Secretary under Bill Clinton until 1997.

***************************************
Are we at the beginning of the end? Mortgage interests are now so low (the average rate on 30-year fixed mortgages was 4.87 percent Thursday, slightly higher than the 4.78 percent last week, but still the lowest level since 1971) that President Obama has begun urging Americans to refinance their homes so they can save money and start spending again. Presidential aide Larry Summers says the country is likely to see positive economic signs in the next few months. Wells Fargo Bank rallied stocks and surprised analysts Thursday when it predicted a strong $3 billion first-quarter profit, citing surging mortgage originations. And executives at the nation's biggest three banks -- JPMorgan Chase, Bank of America, and Citigroup -- say their operations were (at least by some measures) profitable in the first two months of this year, mainly because a resurgent debt market and equity trading lifted earnings in the investment banking divisions.

But we're not at the beginning of the end. I'm not even sure we're at the end of the beginning. All of these pieces of upbeat news are connected by one fact: the flood of money the Fed has been releasing into the economy. Of course mortage rates are declining, mortgage orginations are surging, and people and companies are borrowing more. So much money is sloshing around the economy that its price is bound to drop. And cheap money is bound to induce some borrowing. The real question is whether this means an economic turnaround. The answer is it doesn't.

Cheap money, you may remember, got us into this mess. Six years ago, the Fed (Alan Greenspan et al) lowered interest rates to 1 percent. Adjusted for inflation, this made money essentially free to large lenders. The large lenders did exactly what they could be expected to do with free money -- get as much of it as possible and then lent it out to anyone who could stand up straight (and many who couldn't). With no regulators looking over their shoulders, they got away with the financial equivalent of murder.

The only economic fundamental that's changed since then is that so many people got so badly burned that the trust necessary for consumers, investors, and businesses to repeat what they did then has vanished. Yes, banks will lend to highly trustworthy borrowers, and the low-hanging fruit of highly trustworthy borrowers is the first they'll pick. But there's not much of this kind of fruit to go around. And yes, some consumers will refinance and use the extra money they extract from their homes to spend again. But most will use the extra money to pay off debt and start saving again, as they did years ago. Most consumers continue to worry about their jobs, and for good reason.

Some of the big banks will claim to be profitable, but don't bank on it. Neither they nor anyone else knows what their assets are really worth. Besides, the big banks are sitting on over $500 billion over taxpayer equity and loans. Who knows how they're calculating profits? Most importantly, there's still a yawning gap between the economy's productive capacity and what it's now producing, and absolutely nothing will turn the economy around until that gap begins to close.

I spent the better part of an hour yesterday evening debating Larry Kudlow on his CNBC program, along with Arthur Laffer and two other financial analysts, all of whom were sure that the stock market had hit bottom and was now poised for a major recovery. I admire cockeyed optimism, and I understand why Wall Street and its spokespeople want to see a return of the bull market. Hell, everyone with a stock portfolio wants to see it grow again. But wishing for something is different from getting it. And cockeyed optimism can wreak enormous damage on an economy. Haven't we already learned this?

Source: Robert Reich

Gerald Celente Radio Interview (09-04-2009)

Gerald Celente discusses the economy on the Jeff Rense Program.

Part 1 (10min)


Part 2 (10min)


Part 3 (10min)


Part 4 (10min)

William K. Black Criticizes the Bailout Plan

William K. Black, professor of Law and Economics at the University of Missouri and author of "The Best Way to Rob a Bank is to Own One" discusses his criticism of Tim Geithner's bank rescue plan.

London office vacancy rate soars to over 10 million square feet

Approximately 11.9pc of City offices are vacant – equivalent to 10 large city towers – up by a tenth already in 2009 and more than double the 5.2pc prior to the onset of the credit crisis in 2007, as increasing numbers of businesses collapse or downsize.

It is first time since 2004 that empty office space has breached the 10m sq ft mark, according to research by property agent NB Real Estate.

The slump is placing immense pressure on rents, which have now fallen 27pc in the past year from an average of £65 per sq ft to £47.50.

Increasing supply through the completion of new developments is hastening the fall in rents, although the situation is even more dire in the West End. The failure of a large number of hedge funds, many of which are based in the area, has pushed rents down 37.5pc to £75 per sq ft.

Alan Dornford, managing director of markets at NB Real Estate, said: "Sentiment-wise this has probably been the toughest quarter in the leasing market.

"Many landlords have been aggressively adjusting the rents they quote but in isolation this will not stimulate a recovery. A broader recovery relies on confidence returning to the employment market."

Source: Telegraph

How to Lose Your Shirt in Banking

The study out of Harvard and Princeton arguing against the official story line about firesales underpricing toxic assets is now coming under fire from those who think the authors are too pessimistic about asset values.

Megan McArdle at the Atlantic's Business blog raises two objections.

If toxic assets aren't underpriced, we're all in "big, big, BIG trouble."
The market prices for toxic assets don't reflect reasonable expectations of cash flows.
Her first objection isn't really so much an argument as a lament. The correct response is simply: Yes. We are in big trouble. Some of our big money center banks are insolvent. But just because something is very bad news doesn't mean it isn't true.

The second objection is more substantive. We hear a different version of it all the time: real estate isn't going to zero, so therefore securities backed by real estate can't go to zero. This makes sense only if you don't really understand how complex the collateralized debt market got during the boom years. Because once you understand this, it's pretty obvious that even though most mortgages will continue to perform, lots of real-estate based assets held by banks can go to zero.

How To Make An Asset Backed Security

Let's ilustrate this with an example of an asset backed security built on home loans. (We're borrowing the example from the excellent Acrued Interest blog.) These weren't exotic credit products. In fact, for most of the years building up to the crash, HEL ABS (as they were known in the business) was the dominant credit product. In 2005, something like $400 billion were issued. At the time, JP Morgan Chase was urging clients to buy this stuff by saying the pricing was "cheap" because of "irrational fears" over a housing bubble.

So let's say our imaginary bank, CitiMorganAmerica, decides it wants to sell HEL ABS built from mortgages with $100 million face value. One of the first things it does is cut this up into tranches to reflect the risk and price points of various customers. For simplicities sake, we'll just pretend that there are only three tranches. (In reality, there could be dozens of tranches).

Senior: 5.75% coupon, $80 million
Mezzanine: 6.50% coupon, $15 million
Subordinate: 8.00% coupon, $5 million
The reason the lower tranches get bigger coupons is that they are riskier. They only receive interest payments after the tranche above them have received all interst payments they are due. Each tranche below senior receives principal payments only when the tranche above them has been full paid off. Any short fall hits the lowest level first.

Here's where things start to get scary. If just 5% of the mortgages in that HEL ABS default, the subordinate tranche is worth zero. We're just about at 5% national default rate for all mortgages right now. Default rates on more recent mortgages are even higher. Fortunately, the ratings agencies were pretty good about this level of stuff so the Mezz and Sub investors knew they were getting riskier products, and only the senior deal would be rated AAA.

How To Make A CDO

Now lets see what happens when we build a CDO on these types of deals. CitiMorgan America takes $1 billion and buys the Mezz and Sub tranches of 50 HEL ABS deals that are built just like this. It slices up the CDO just like it did the earlier deal.

Senior: 5.45% coupon, $800 million
Mezz: 6.00% coupon, $120 million
Sub: 8.00% coupon, $40 million
Equity: $40 million
These pay out just like the ABS, a waterfall filling up each bucket before anything gets paid to the next level down. The top tranche of this CDO can be rated AAA even though it is built out of already subordinated debt. You see, even though it is technically subordinated debt, there are so many underlying mortgages spread out across the country that the odds of systemic defaults materially affecting the cash flow would have been viewed very remote. After all, what are the odds that defaults will suddenly tick up all around the country?

How To Lose Your Shirt

See the problem? Here you have $1 billion of assets that can be devastated by a small increase in the default rate. If defaults climb to just 5% for the underlying mortgages, the cash flows will drop 25% as the portion of the CDO built from the Sub HEL ABS stops paying. Everything but the senior portion of the CDO gets wiped out.
If the losses on the mortgages rise to just 10%--high defaults from those bubble years from 2005, lower than expected recovery rates from foreclosures on houses with falling values, cram downs--even the most senior piece will lose 30% of its value.

In short, structured debt can rapidly decline in value even though the underlying assets don't decline as much. The benchmark index of the market for securities backed by home loans shows that the AAA tranches for deals made in 2007 are valued at about 23% of their original value. The lower tranches show losses greater than 97%. Some of this may no doubt reflect a bit of irrational fear and illiquidity. But claiming the overwhelming majority of these losses aren't real is just wishful thinking.

Source: Business Insider

(VIDEO) The Close : April 7, 2009 : BEAR ATTACK

BNN speaks to Nouriel Roubini, professor of economics, New York University's Stern School of Business and Eric Sprott, chairman and CEO, Sprott Asset Management.

CLICK HERE FOR VIDEO

Market bear Roubini sticks to dour forecasts

There's still bad news ahead for the U.S. economy and the bear market for stocks is not over yet, according to a prominent economist who foretold much of the current turmoil.

Nouriel Roubini, a professor at New York University's Stern School of Business and chairman of economic research firm RGE Monitor, said on Tuesday that he expected more dour macroeconomic data and problems in the banking and housing sectors, as well as pressures on consumers.

Big stimulus packages will eventually slow the rate at which economies contract, but that will take time, he added.

"There will be a light at the end of the tunnel somewhere down the line, later rather than sooner," he said at a Toronto news conference, which took place ahead of a Sprott Asset Management event entitled "A Night with the Bears."

Roubini, who made a name for himself by sounding early warning signs about housing bubbles and credit crises, earlier told Canada's BNN television that he still believed the recent market upturn represented a bear market rally, and not a change in sentiment.

"Macro news, earnings news and financial shocks are going to be worse than expected and that's why I believe this is still a bear market rally," he told BNN.

Markets logged four straight weeks of gains until this week on optimism that unprecedented interest rate cuts and billions of dollars of stimulus will eventually fight off the worst global downturn since World War Two, and on upbeat comments from U.S. banks on their performance so far in 2009.

The fact that some indicators did not match pessimistic expectations was also a positive factor, as were last week's pledges by world leaders to do more to fight the crisis.

But Roubini played down the rally.

"I am more a realist than a pessimist. I'll be the first one to call for the bottom of this economic contraction, recovery of the market when I see a sustained economic and therefore financial recovery," he said.

Meredith Whitney, chief executive of Meredith Whitney Advisory Group, said stabilization in the banking sector would hold the key to a turnaround. Whitney, one of Wall Street's most bearish bank analysts, has forecast another rough year for banks as they shed assets to raise capital.

"It's not just the banks that have to stabilize their own lending it's that they have to make up for the void of the shadow banking industry that has been shut down since the summer of 2007. We've got a ways to go," she said.

Canadian banks have largely shrugged off the severe banking troubles south of the border.

But commodity prices have fallen sharply from the peak of last summer and the Canadian auto sector is hurting badly.

"The fundamentals of the (Canadian) economy are robust, but when the U.S. sneezes the rest of the world catches a cold," said Roubini. "This time around the U.S. is not just sneezing, it's a severe case of pneumonia and the biggest trading partner next door is Canada."

Sprott Asset Management's Eric Sprott said his pessimistic view on the economy is based on the "overleveraging of the banking system."

"When we look at the systemic financial system we're in -- and it affects every country in the world including Canada -- I think staying bearish is the route to go," he told BNN.

Source: Reuters

Willem Buiter: "Non-Negligible" Risk of Default by US and UK

Willem Buiter takes no prisoners, In his latest post, "The green shoots are weeds growing through the rubble in the ruins of the global economy", he dispatches the idea that recovery is around the corner (citing Carmen Reinhart and Kenneth's latest paper on the resolution of financial crises) and points out that the fiscal state of affairs in the US and UK will become sufficiently strained (even making the usual allowances for Keynesian stimulus) so as to make default a possibility (but recognize that Buiter is not saying it is likely). The easiest way to default, however is via inflation, but that also has the nasty side effect of "taxing" all domestic savers, not just the unfortunates who owned government paper. So the fact that Buiter even mentions explicit default is telling.

Buiter also believes that the imbalanced nature of stimulus measures – more than is optimal from countries under financial stress like the US and UK, too little from countries with balance of payment surpluses (China, Japan, Germany) means growth once the acute phase of the crisis is past will be lower than it would be with a better response. He is also critical of the Fed's version of quantitative easing and is dubious that the commitments at the G20 to provide $1 trillion to the IMF will come through.

He also, in passing, says (without mentioning his name) that Simon Johnsom may be correct in his view that the government is captured by the finance sector, not merely by subscribing to their world view, as he has argued before, but in the mercenary sense.

From Buiter:

Willem Buiter

Publish at Scribd or explore others: Magazines & Newspape literature History

Source: Naked Capitalism

Consumer Credit Only Beginning to Fall

The Fed released preliminary February data for consumer credit, which doesn’t include mortgage debt.

Bloomberg:

The pace of borrowing by U.S. consumers fell in February as fewer Americans sought credit to make purchases amid what may become the worst recession in seven decades.

Consumer credit fell by $7.48 billion, or 3.5 percent at an annual rate, to $2.56 trillion, the Federal Reserve said today in Washington. Credit increased by $8.14 billion in January, more than previously estimated. The Fed’s report doesn’t cover borrowing secured by real estate…

As you can see in the chart above, consumers have built up a mountain of debt over the last 20 years.

(Click to enlarge)

Note in particular the growth of securitization. According to the Fed, “these balances are no longer carried on the balance sheets of the loan originators.”

What Alan Greenspan and so many others toasted as The Great Moderation, was nothing more than moving risks off balance sheet.

Risk didn’t disappear, it was just moved. Originators cared little about the quality of their loans because they were packaging them into securities to be sold to investors. Securities were rated AAA so investors felt protected. Default rates were low so who was going to argue?

But of course default rates were low. The avalanche of liquidity allowed consumers to rollover/refinance at every turn. Remember analysts talking about “the resilient consumer” back in 2005-2007? It’s easy to be resilient if credit is limitless.

For the economy to recover, consumers need to repair their balance sheets, which means debt has to be paid down or written off. The ride up the credit mountain sure was fun. The ride down won’t be.

Source: Option Armageddon

U.K. GDP Drops 1.5% as Recession Resembles 1979, Niesr Says

The U.K. economy shrank 1.5 percent in the first quarter as the recession increasingly resembled the one that started in 1979 when Margaret Thatcher took power, the National Institute of Economic and Social Research said.

The drop in gross domestic product followed a 1.6 percent decline in the last three months of 2008, Niesr, whose clients include the U.K. Treasury, said in London today. Consumer confidence last month matched the lowest level in at least four years, Nationwide Building Society said in a separate report.

Unemployment is rising at the fastest pace in three decades, pushing Prime Minister Gordon Brown to redouble his efforts to revive economic growth before the next election. The Bank of England will probably keep the benchmark interest rate unchanged at a three-century low of 0.5 percent in its monthly decision tomorrow.

“The output fall so far is very similar to that of the recession that began in the summer of 1979,” Niesr said in a statement. “If the 1980s profile were followed, output would continue to decline for up to another year and it would take two further years before the level of output enjoyed at the start of 2008 would be reached again.”

Niesr still said that there’s no “obvious reason” why the recession will follow the course of the one in the early 1980s.

Thatcher succeeded James Callaghan as U.K. prime minister in May 1979 following the so-called Winter of Discontent, when car workers, truck drivers and trash collectors went on strike.

Job Cuts

Unemployment jumped the most since 1971 in February, the government’s statistics office reported March 18. Royal Bank of Scotland Group Plc said yesterday it will cut up to 4,500 back office jobs in Britain to save money.

“Feelings about the current labor market have weakened,” Nationwide Chief Economist Fionnuala Early said in a statement. “Further reports of job losses are likely to have affected consumers’ views of this.”

Nationwide’s index of consumer confidence slipped to 41 in March, matching January’s four-year low, from 43 the previous month. Two-thirds of Britons said there are few jobs available, the mortgage lender’s survey showed.

The number of permanent staff appointments by job consultants fell further in March, though at the slowest pace in six months, KPMG and the Recruitment and Employment Federation said in a separate report today.

“The availability of permanent and temporary jobs in the U.K. continues to decline, salaries are being reduced and the pool of available candidates is rising further,” Mike Stevens, a partner at KPMG, said in a statement. “Recovery might take longer and be more protracted than many hope.”

Chancellor of the Exchequer Alistair Darling presents his next budget on April 22. Brown, whose governing Labour Party trailed the opposition by 13 percentage points in an April 6 poll, must call an election by mid-2010.

Bank of England Governor Mervyn King last month took the unprecedented step of cutting interest rates close to zero and buying government bonds with newly created money to stimulate the economy. All except two of the 62 economists in a Bloomberg survey predict policy makers will keep the key rate unchanged at 0.5 percent tomorrow.

Source: Bloomberg