John McLeod

2009 Depression Will Be Nothing Like 1929

Managing this situation would be a lot easier if more people were up to speed on the Panic of '73. Historian Scott Nelson at W&M U seems to have a much better handle on this than the James K. Glassman crowd at The Street.

Also, there's the little problem that the reputation of fiat currencies has deteriorated, with no immediate prospects for self-discipline in money creation among central bankers.

But most dangerously, out of control military expenditure is continuing without much debate, or even discussion. I believe NATO itself has promoted economic instability to a threat level higher than Terror (whatever that is), but even they don't yet realize that the V-22 & friends are pointing more at *us* than at them.

Learning from Canada Is Not Un-American

Hi Digital,

I've been watching this from my perch in North End Halifax, and yes, it's been an amazing ride.

Did you know that the world-wide credit crunch started right on Bay Street?

Coverage of our ABCP crisis (Canada's version of Auction-Rate Securities -- ARS -- for those South of The Border) has been sporadic, but that aspect of the downturn has been truly astounding. When C$32 billion of our short-term commercial paper suddenly froze in August 2007, the banks found a quirk in local financial law and simply walked away from their commitments. The Economist wholeheartedly approved, and investors ended up providing those funds as a free subsidy to the banks for over 17 months before they even started to have access to what was left of their investments.

That little business the other day about Caisse mislaying 1/4 of the pension money for the Quebec Civil Service last year is wealth that essentially got laundered into helping make Canada #1 in financial stability.

And that's just the tip of the iceberg. Under our carefully maintained veneer of dullness, there's a lot going down in The Great White North that I would ask Seeking Alpha's readers to please continue to ignore.

On Feb 26 08:31 AM digitaldorobo wrote:

> Thank you so much for this article.
>
> We in Canada have been watching the economic bloodshed with amazement.
>
....

Fannie, Freddie and the Ballooning U.S. Balance Sheet

Nicely done. This issue has consumed the last few years of my blogging career, and in a way it's good to be close to a final resolution.

Misunderstanding the Great Recession

It is clear now that the present crisis was caused by hedonic shock resulting from a disruptive cornucopia. That is, East Asia sented sending Europe and North America massive amounts of cheap cars and manufactured goods, clothes, etc. I think it was pre-Xmas 2006 when LA & Long Beach were backed up 6-weeks deep in Bratz dolls and radio controlled cars. This destroyed the competing domestic suppliers, but caused consumers to (temporarily) feel about twice as wealthy and confident. Thus banks-gone-wild, the re-fi boom and so on.

As Professor Scott Nelson of William & Mary recently pointed out in the Chronicle of Higher Education, of all places, exactly the same thing happened in the run-up to the Crisis of 1873. Then it was American grains and manufactured goods flooding Western Europe. First the economies of their traditional bread basket (Russia & Ukraine) collapsed, while at the same time financial innovation and hedonic shock caused exuberant consumerism and a monumental building boom (that's where all those touristy piles in Vienna, Berlin, Paris and so on came from). It took about 6 years to clear.

Breaking: The Markopolos File

Even so, it's likely all the victims will be made whole. Just launder $50+ billion of TARP money through CIPC and you've achieved the perfect taxpayer funded crime. Bet it's a done deal over the holidays and Madoff is pardoned even before they spring Conrad Black.

Does Moral Hazard Apply to Sovereign Wealth Funds?

This is the third advocate for an agency debt haircut I've seen in the last month (1st Nouriel Roubini, 2nd James P. Tuthill). I believe the sticking point here is what would happen to yields over treasuries of agency debt (90bp over yesterday in the FRE bill sale heard around the world) if Paulson were to endorse Roubini's "very modest" 5 percent haircut. The rates on 30 year fixed conforming mortgages (unless Paulson himself bought the paper) would likely rise.

The Auction-Rate Security Mess: Read the Writing on the Wall

This is the first time I've seen an assertion about Dark Pools affecting ARS, or for that matter any market. I expect that we will see more and more stories about how the perfection of Romulan cloaking technology for institutional investors has wreaked subtle havoc with just about everything.

But congratulations on being first.

Several Firms Come to Defense of Fannie, Freddie

Even if FASB allows the GSEs (and heaven knows how many other sectors) to keep their QSPEs, I'm concerned about just who is on the buy-side of those $1.4+ trillion of deals Fannie and Freddie wrote. There is curiously little talk about just who is supposed to have taken on all that risk in the first place.

Fannie Mae Looks Like Hell

Tanta at Calculated Risk blog has a long detailed rebuttal to Eavis that is a must-read for anyone trying to make sense of this story.