240 Calls for end to Stimulus come from those who caused the Crisis - Skidelsky, Stiglitz et al

(1) Central banks "can't issue Debt-free money - a formula for inflation"
(2) Calls for end to Stimulus come from those who caused the Crisis - Skidelsky, Stiglitz et al
(3) Secret document shows Goldman Sachs bought most Credit-Default swaps from AIG
(4) No point in waiting for storm to pass: Financial carnage is structural not cyclical

(1) Central banks "can't issue Debt-free money - a formula for inflation"

From: John Craig <cpds45@bigpond.com> Date: 01.03.2010 06:52 AM

> But Central Banks can issue debt-free money if they wish.
> They can relieve the government of having to repay it.

> If only one country did this, "investors" would punish it
> by withdrawing funds, and its exchange-rate would fall.

> But given that nearly all countries are in the same situation,
> if they all took such action, exchange-rates would be unaffected.

Central banks don't have the option of issuing money freely. Increasing the  money supply like that is a formula for inflation (ie much more money trying  to buy the same goods). Germany did what you suggest in early 1920s,  generated hyper-inflation - and created room for Hitler.
    http://www.usagold.com/germannightmare.html

Reply (Peter M):

Germany's hyperinflation in the 1920s was in part deliberately created to make Reparations payments to foreign countries as required by the Treaty of Versailles. If the US ever has to repay its Foreign Debt to China & Japan, it might use the same strategy; how else can its debt be paid?

The victorious powers in World War I placed the entire blame for the war on Germany, and imposed Reparations that Germany was unable to to pay.

Germany's hyperinflation was also partly created by foreign investors engaging in short-selling - as happened with the Thai Baht in 1997, initiating the Asia Crisis.

Inflation is not a problem in a Deflationary situation, such as has occurred in many countries following the end of the Asset Bubbles.  The bubbles in share prices and real estate, which caused the crisis, were also a form of inflation - instigated by the private sector with the blessing of laissez-faire de-regulators in the seats of power. This form of inflation was not measured in the CPI.

The banks' reluctance to issue loans, since the Crisis, has lowered the money supply, requiring government intervention (Stimulus). The Stimulus has increased the amount of money in the economy, regardless of whether it is counted as debt to be repaid, or not.

The 1937 Royal Commission on Australia's Monetary and Banking systems said of the Commonmwealth Bank (now the Reserve Bank):

"it can lend to the Governments or to others in a variety of ways, and it can even make money available to Governments or to others free of any charge." (paragraph 504, p. 196).

(2) Calls for end to Stimulus come from those who caused the Crisis - Skidelsky, Stiglitz et al

Letter to the Financial Times: First priority must be to restore robust growth

Robert Skidelsky and others

Financial Times | Thursday, February 18, 2010  

http://www.skidelskyr.com/site/article/letter-to-the-financial-times-first-priority-must-be-to-restore-robust-grow/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+robert-skidelsky+%28Robert+Skidelsky%27s+Website%29#When:09:21:00Z

Sir, In their letter to The Sunday Times of February 14, Professor Tim Besley and 19 co-signatories called for an accelerated programme of fiscal consolidation. We believe they are wrong.

There is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery. The Treasury has committed itself to more than halving the budget deficit by 2013-14, with most of the consolidation taking place when recovery is firmly established. In urging a faster pace of deficit reduction to reassure the financial markets, the signatories of the Sunday Times letter implicitly accept as binding the views of the same financial markets whose mistakes precipitated the crisis in the first place!

They seek to frighten us with the present level of the deficit but mention neither the automatic reduction that will be achieved as and when growth is resumed nor the effects of growth on investor confidence. How do the letter’s signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession? To ask – as they do – for independent appraisal of fiscal policy forecasts is sensible. But for the good of the British people – and for fiscal sustainability – the first priority must be to restore robust economic growth. The wealth of the nation lies in what its citizens can produce.

Lord Skidelsky, Emeritus Professor of Political Economy, University of Warwick, UK
Marcus Miller, Professor of Economics, University of Warwick, UK
David Blanchflower, Bruce V. Rauner Professor of Economics, Dartmouth College, US and University of Stirling, UK
Kern Alexander, Professor of Law and Economics, University of Zurich, Switzerland
Martyn Andrews, Professor of Econometrics, University of Manchester, UK
David Bell, Professor of Economics, University of Stirling, UK
William Brown, Montague Burton Professor of Industrial Relations, University of Cambridge, UK
Mustafa Caglayan, Professor of Economics, University of Sheffield, UK
Victoria Chick, Emeritus Professor of Economics, University College London, UK
Christopher Cramer, Professor of Economics, SOAS, London, UK
Paul De Grauwe, Professor of Economics, K. U. Leuven, Belgium
Brad DeLong, Professor of Economics, U.C. Berkeley, US
Marina Della Giusta, Senior Lecturer in Economics, University of Reading, UK
Andy Dickerson, Professor in Economics, University of Sheffield, UK
John Driffill, Professor of Economics, Birkbeck College London, UK
Ciaran Driver, Professor of Economics, Imperial College London, UK
Sheila Dow, Emeritus Professor of Economics, University of Stirling, UK
Chris Edwards, Senior Fellow, Economics, University of East Anglia, UK
Peter Elias, Professor of Economics, University of Warwick, UK
Bob Elliot, Professor of Economics, University of Aberdeen, UK
Jean-Paul Fitoussi, Professor of Economics, Sciences-po, Paris, France
Giuseppe Fontana, Professor of Monetary Economics, University of Leeds, UK
Richard Freeman, Herbert Ascherman Chair in Economics, Harvard University, US
Francis Green, Professor of Economics, University of Kent, UK
G.C. Harcourt, Emeritus Reader, University of Cambridge, and Professor Emeritus, University of Adelaide, Australia
Peter Hammond, Marie Curie Professor, Department of Economics, University of Warwick, UK
Mark Hayes, Fellow in Economics, University of Cambridge, UK
David Held, Graham Wallas Professor of Political Science, LSE, UK
Jerome de Henau, Lecturer in Economics, Open University, UK
Susan Himmelweit, Professor of Economics, Open University, UK
Geoffrey Hodgson, Research Professor of Business Studies, University of Hertfordshire, UK
Jane Humphries, Professor of Economic History, University of Oxford, UK
Grazia Ietto-Gillies, Emeritus Professor of Economics, London South Bank University, UK
George Irvin, Professor of Economics, SOAS London, UK
Geraint Johnes, Professor of Economics and Dean of Graduate Studies, Lancaster University, UK
Mary Kaldor, Professor of Global Governance, LSE, UK
Alan Kirman, Professor Emeritus Universite Paul Cezanne, Ecole des Hautes Etudes en Sciences Sociales, Institut Universitaire de France
Dennis Leech, Professor of Economics, Warwick University, UK
Robert MacCulloch, Professor of Economics, Imperial College London, UK
Stephen Machin, Professor of Economics, University College London, UK
George Magnus, Senior Economic Adviser to UBS Investment Bank
Alan Manning, Professor of Economics, LSE, UK
Ron Martin, Professor of Economic Geography, University of Cambridge, UK
Simon Mohun, Professor of Political Economy, QML, UK
Phil Murphy, Professor of Economics, University of Swansea, UK
Robin Naylor, Professor of Economics, University of Warwick, UK
Alberto Paloni, Senior Lecturer in Economics, University of Glasgow, UK
Rick van der Ploeg, Professor of Economics, University of Oxford, UK
Lord Peston, Emeritus Professor of Economics, QML, London, UK
Robert Rowthorn, Emeritus Professor of Economics, University of Cambridge, UK
Malcolm Sawyer, Professor of Economics, University of Leeds, UK
Richard Smith, Professor of Econometric Theory and Economic Statistics, University of Cambridge, UK
Frances Stewart, Professor of Development Economics, University of Oxford, UK
Joseph Stiglitz, University Professor, Columbia University, US
Andrew Trigg, Senior Lecturer in Economics, Open University, UK
John Van Reenen, Professor of Economics, LSE, UK
Roberto Veneziani, Senior Lecturer in Economics, QML, UK
John Weeks, Professor Emeritus Professor of Economics, SOAS, London, UK

(3) Secret document shows Goldman Sachs bought most Credit-Default swaps from AIG

From: Roland Schenk <roland.schenk@singularitas.com> Date: 23.02.2010 09:29 PM

New York Fed cover up / Geithner

Secret AIG Document shows Goldman Sachs minted most Toxic CDOs

http://www.bloomberg.com/apps/news?pid=email_en&sid=ax3yON_uNe7I

Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs   

By Richard Teitelbaum

Feb. 23 (Bloomberg) -- When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency -- and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. "This secrecy is one more example of how the whole bailout has been done in such a slithering manner," says Cohan, who wrote "House of Cards" (Doubleday, 2009), about the unraveling of Bear Stearns Cos. "There's been no accountability."

CDOs Identified

The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.

The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.

The banks should have to explain how they managed to buy protection from AIG primarily on securities that fell so sharply in value, says Daniel Calacci, a former swaps trader and marketer who's now a structured-finance consultant in Warren, New Jersey. In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.

'Too Uncanny'

"It's almost too uncanny," Calacci says. "If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that's at the least unethical."

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured -- more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: "They may have been trying to shield Goldman -- for Goldman's sake or out of macro concerns that another investment bank would be at risk."

Poor Performers

Goldman Sachs spokesman Michael DuVally declined to comment.

Schedule A also makes possible a more complete examination of why AIG collapsed. Joseph Cassano, the former president of the AIG Financial Products unit that sold the swaps, said on a December 2007 conference call that his firm pulled back from selling swaps on U.S. subprime residential CDOs in late 2005. The list shows that the $21.2 billion in CDOs minted after 2005, mostly based on prime and commercial mortgages, performed as badly as or worse than the earlier subprime vintages.

A lawyer for Cassano declined to comment.

As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars," he said.

'Part of the Coverup'

Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed's secrecy has helped hide who's responsible for the worst of the disaster. "The suppression of the details in the list of counterparties was part of the coverup," she says.

E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.

"What date did you know there was a coverup?" Republican Congressman Brian Bilbray of California demanded of Geithner. Lawmakers used the word coverup more than a dozen times as they peppered Geithner with questions.

Geithner said that he wasn't involved in matters of disclosure and that his former colleagues did the best they could. In a Jan. 19 statement, the New York Fed said, "AIG at all times remained responsible for complying with its disclosure requirements under the securities laws."

The government has committed more than $182 billion to AIG and owns almost 80 percent of the company.

Document Withheld

In late November 2008, the insurer was planning to include Schedule A in a regulatory filing -- until a lawyer for the Fed said it wasn't necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.

AIG paid its counterparties -- the banks -- the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.

The New York Fed's January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.

Paid in Full

Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or "haircut."

By March 2009, responding to a request from Christopher Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, AIG released the names of the counterparty banks. In a filing later that month, AIG included Schedule A, showing bank names while withholding all identification of the underlying CDOs and the amounts of collateral each bank had collected. The document had more than 800 redactions.

In May 2009, AIG again filed Schedule A, this time with about 400 redactions. It revealed that Paris-based Societe Generale got the biggest payout from AIG, or $16.5 billion, followed by Goldman Sachs, which got $14 billion, and then Deutsche Bank and Merrill Lynch. It still kept secret the CDOs' identification and information that would show performance.

'Right to Know'

"This is something that belongs in the public domain because it was done with public money," Issa says. "The public has the right to know what was done with their money and who benefited from it." Now, thanks to Issa, the list is out, and specific information about AIG's unraveling can be learned from it.

At the Jan. 27 hearing, the New York Fed was still arguing that the contents of Schedule A shouldn't be fully disclosed. Thomas Baxter, the New York Fed's general counsel, testified that divulging the names of the CDOs could erode their value: "We will be hurt because traders in the market will know what we're holding."

Tavakoli calls that wrong. With many CDOs, providing more information to the market will give the manager a greater chance of fetching a realistic price, she says.

Jack Gutt, a spokesman for the New York Fed, declined to comment, as did AIG's Mark Herr.

Bad to Worse

Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.

"The original CDO deals were bad enough," Tavakoli says. "For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals."

Among the CDOs on Schedule A with notional values of more than $1 billion, the worst performer was a tranche identified as Davis Square Funding Ltd.'s DVSQ 2006-6A CP. It was held by Societe Generale, underwritten by Goldman Sachs and managed by TCW Group Inc., a Los Angeles-based unit of SocGen, according to Bloomberg data. It lost 77.7 percent of its value -- though it isn't in default and continues to pay.

SocGen spokesman James Galvin and TCW spokeswoman Erin Freeman declined to comment.

Documentation Needed

Ed Grebeck, CEO of Tempus Advisors, a global debt market strategy firm in Stamford, Connecticut, agrees that more digging is necessary. "You need all the documentation and more than that, all the e-mails," he says. "That would allow us to understand what went wrong and how to fix it going forward."

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he's not finished. He has begun a probe of why his office wasn't provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa's committee received from the New York Fed.

Schedule A provides some answers -- and raises questions that need to be tackled to avoid the next expensive bailout.

To contact the reporter on this story: Richard Teitelbaum in New York at rteitelbaum1@bloomberg.net Last Updated: February 23, 2010 00:01 EST

(4) No point in waiting for storm to pass: Financial carnage is structural not cyclical

From: geab@leap2020.eu <geab@leap2020.eu> Date: 25.02.2010 11:16 PM
Subject: Revue de presse NM/E2020 - Crise systemique globale

http://seekingalpha.com/article/189742-financial-crisis-what-if-carnage-is-structural-not-cyclical

Financial Crisis: What if Carnage Is Structural, Not Cyclical?

February 21, 2010    

Michael Panzner

Throughout the financial crisis, policymakers have focused on keeping things afloat until the storm passes. They've spent vast sums of taxpayer funds trying to jumpstart growth until the economy is back on track. They've encouraged people to keep the faith until businesses start hiring again.

But what happens if all those "untils" turn out to be wide of the mark? What if the carnage we've experienced so far is structural, not cyclical? If that's the case, then Americans are going to find that instead of experiencing better times ahead, they are going to be much worse off than they were -- or are.

Why? Because they've not been adjusting lifestyles and spending habits to take account of a step-change decline in living standards. And, they've not been reorienting the way they manage household finances and investments to take account of a much riskier economic and financial outlook.

In addition, many people have not been focusing strongly enough on acquiring new skills and seeking alternative careers that take account of big changes in the job market. As the following collection of articles suggests, not only is the overall employment situation likely to remain problematic for years to come, prior work experience may no longer be relevant.

"Getting Back Lost Jobs Could Take 5-Plus Years" (Associated Press)

Even with political focus on jobs, return to prerecession work levels could take 5-plus years

Job creation is stuck on an uphill treadmill.

So many jobs have been lost that the U.S. must run hard just to keep from losing more ground. Despite the election-year emphasis on job creation by both parties, the short-term outlook is bleak.

While many economists believe the recession is technically over, nearly 15 million Americans remain unemployed. Six million of them have been out of work for more than half a year.

"Despite Signs of Recovery, Chronic Joblessness Rises" (New York Times)

BUENA PARK, Calif. — Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.

"Recovery or Not, Some Charlotte-Area Jobs Are Gone Forever" (Charlotte Observer)

Experts say new economy can no longer support some jobs created during the boom, including finance.

Despite some hopeful signs, the Charlotte area's economy won't outpace unemployment anytime soon, economists warn.

Some jobs are gone forever, and those that will replace them could leave the region's lowest-skilled and least-educated workers struggling to catch up, experts say.

"Fed See Slow Job Recovery into 2012" (Journal Sentinel)

While the economy is getting better, the jobless rate is expected to remain high - possibly for years - because of financial uncertainty among households and businesses, Federal Reserve policy-makers said when they met in a closed-door session last month.

Minutes of the Fed meeting of Jan. 26-27, which were released Wednesday, show that officials think the unemployment rate this year will range between 9.5% and 9.7%, and from 8.2% to 8.5% in 2011. In 2012, the rate likely will be between 6.6% and 7.5%, the Fed panel forecast.

A "sizable minority" of the Fed policy-makers took the view that a return to more-normal growth and employment could take more than five to six years.

"The Long-Term Employment Bust" (First Things)

High levels of unemployment may last indefinitely. A number of economists (including this writer) have been warning about permanent joblessness, and the idea is now seeping into popular magazines.

More than 8 million American jobs were lost since 2007, based on the most recent revision of the overall job count of U.S. establishments. But that is not the worst of it, because the establishment survey fails to capture smaller businesses and the self-employed. By the Bureau of Labor Statistics' broadest measure of unemployment, including the forced part-time workers and so-called discouraged workers, the unemployment rate rose to 17 percent from 8 percent before the recession. That is 9 percentage points, corresponding to slightly over 12 million adults. A website called Shadow Government Statistics includes "long-term discouraged" workers defined out of the labor force by the BLS, but that alternative measure has tracked the BLS broad measure quite closely in the past few years.

There are several reasons to believe that most of these jobs never will come back. That is a less contentious statement than it might appear, because the jobs lost in the recessions since 1981 never came back. Some sectors, notably manufacturing, continued to shrink, and other sectors, such as heath care and retail, replaced them. The difference in 2010 is that it is not apparent where new jobs will come from.

"How a New Jobless Era Will Transform America" (The Atlantic)

The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.

How should we characterize the economic period we have now entered? After nearly two brutal years, the Great Recession appears to be over, at least technically. Yet a return to normalcy seems far off. By some measures, each recession since the 1980s has retreated more slowly than the one before it. In one sense, we never fully recovered from the last one, in 2001: the share of the civilian population with a job never returned to its previous peak before this downturn began, and incomes were stagnant throughout the decade. Still, the weakness that lingered through much of the 2000s shouldn't be confused with the trauma of the past two years, a trauma that will remain heavy for quite some time.

The unemployment rate hit 10 percent in October, and there are good reasons to believe that by 2011, 2012, even 2014, it will have declined only a little. Late last year, the average duration of unemployment surpassed six months, the first time that has happened since 1948, when the Bureau of Labor Statistics began tracking that number. As of this writing, for every open job in the U.S., six people are actively looking for work.