Economy and finance links
China, Europe, Canada...
In a nutshell, we're watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win.
Sunshine doesn't hurt after all. Bank shares leapt Wednesday despite the Federal Reserve's detailed disclosure of who got $3.3 trillion of emergency lending during the crisis. That is hardly what investors might have envisaged, given dark warnings from the Fed that such disclosure could endanger financial institutions. The central bank released the data only because of a provision in the Dodd-Frank financial-overhaul bill.
True, it will take time for investors to comb through all the gory details of about 21,000 transactions by multiple emergency Fed lending facilities. And some details may leave firms with egg on their face: Goldman Sachs, which insisted it would have survived the crisis without government assistance, tapped one special Fed facility 84 times to borrow nearly $600 billion in overnight money. Morgan Stanley tapped the facilities more than 200 times.
The Federal Reserve, forced by Congress to release details on trillions of dollars' worth of loans made during the financial crisis, disclosed the breadth of its lending to U.S. businesses desperate to raise cash and the surprising degree to which it supported struggling foreign banks in the worst days of 2008 and 2009.
The lending, most of which has been paid back, represents the Fed's most aggressive intervention in the economy ever, and included loans to stalwart industrial companies such as General Electric Co. and Verizon Communications Inc. Though the Fed has been credited with helping prevent many banks and firms from collapsing as credit markets stopped functioning, critics also say the Fed overreached and the latest disclosures could open new fault lines.
The scale of the Fed's lending was widely known. In all it funneled $3.3 trillion worth of credit to different parts of the economy and financial system through an array of different programs during the crisis. But the specifics of who got the money hadn't been known.
Over the last few economically stagnant months, a new explanation has emerged for why businesses are reluctant to hire more workers and otherwise gear up for recovery.
The reason, you see, is "uncertainty." The idea seems to be that Washington's will-they-or-won't-they dithering over extending the Bush tax cuts, the advent of healthcare reform, financial reform, etc., etc., etc., has unsettled the business landscape so horribly that decision makers are huddled under duvets, gnawing their knuckles in fear and bewilderment.
This argument raises a number of important questions. The first is: When did American business leaders turn into such wusses? This nation spent three decades facing the threat of nuclear annihilation from the Soviet Union. That was uncertainty, and it hovered over the most prosperous period in our history. Now CEOs are crabbing about not knowing if their top marginal federal income tax rate will stay at 35% or rise all the way to 39.6.
In an op-ed round robin hosted by The Times' editorial board last month, a USC business professor listed among the uncertainties killing confidence that "businesses don't know what will happen to interest rates."
But businesses never know what will happen to interest rates, any more than I know who'll be in the next Super Bowl. No one who knows what will happen to interest rates has to run a business at all; he can just sit back and play the bond market with perfect knowledge, and become the richest person in the world.
Ireland, Please Do the World A Favor And Default
The alternative title for today's entry is: Ireland, please drive a stake through the heart of the vampire banks which have the world by the throat. The entire controlled demolition of the Eurozone's finances can be summed up in one phrase: privatize leverage and profits, socialize losses and risk.
The basic deal is this: protect the bank's managers, shareholders and bondholders from any losses, while heaping the socialized losses and risks on the taxpayers and citizens.
While there are murmurings of "forcing bondholders to share the pain," any future haircut will undoubtedly be just for show, while the Irish pension funds are gutted to bail out the banks.
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