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Easy Money May 8, 2008

Posted by davidzweig in Uncategorized.
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Listening to talk radio, it’s tough not to be struck by the fact that almost all the advertisements deal with different permutations of economic misery. Direct marketers are no fools; they may be the sharpest advertisers in the world, so when they say to “call now” for debt consolidation, to liquidate that “unwanted insurance policy,” or scare up a tort for some past real or imagined workplace injury, you know times are tough.

The latest one is particularly sad. Some old coot has lost almost all his retirement and now has bills due. Great news! He can call Ross Jardine, put his last few dollars in play and why, in just a few days “make more money than my retirement counselor made in the last 10 years!”

Of course there is another outcome, but we don’t go into that. It’s sad.

On another radio matter, California has a referendum, #98 this year, that has two parts. The radio ad has the best pathetic senior citizen voice I have ever heard, talking about how this proposition will prevent government from coming in and taking over her property (eminent domain). Who could argue with that?

She doesn’t mention the other piece of Prop 98 the selfsame proposition that ends rent control…enabling a landlord to come in and take over….

How about having the same heart-rending senior talk about the eviction notice after living in the same apartment for 60 years, paying $75 rent, and now having to live in an Amana crate?

The issue is not whether rent control or eminent domain is good or bad, but the utter deceptiveness practiced by all sides of these propositions. There out to be a low.

The Washington Consensus May 8, 2008

Posted by davidzweig in Uncategorized.
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Academy Fellow Hazel Henderson has frequently decried the export strategies that underpin the so-called Washington Consensus. Also at the Milken conference (cited in the post below), Marc Gunther describes an economist attaching some fascinating numbers to the situation. The declines Ricardo Hausmann mentions are major contributors to the geopolitical problems that are now washing up on the shores of developed nations, the US chiefly among them.

Richardo Hausmann, an international development expert at the Kennedy School at Harvard, noted that all of the world’s 24 rich industrial countries had their peak per capita income since 2000; they are, despite fits and starts, growing their economies. But only 58% of the 112 developing countries have had their peak per capita income in the 21st century. Others peaked in the 1960s, 1970s or early 1980s, often because they relied on an export product that fell out of favor. “Most growth collapses coincide with export collapses,” he said. Countries need to aim for more “sophisticated” export packages to insure against commodity price fluctuations.

50, 40, or 30 years of decline. Wouldn’t that take a toll?

Are banks people-worthy? May 8, 2008

Posted by davidzweig in Uncategorized.
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Marc Gunther is one of the best business writers around, and Muhammad Yunis is, reputationally, one of the best human beings around.

Here’s a great piece of reframing. In covering the Milken International Conference in LA in late April, Gunther says Yunus “stole the show.

Instead of worrying about whether “people are credit-worthy,” Yunus told the group, we should ask whether banks and other credit institutions are “people-worthy.” He talked about how Grameen recently began making loans to beggars, giving them about $10 or $12 each so they could but and then sell candy, snacks or small toys as they go from house to house. About 11,000 of them have been turned from beggars into door-to-door salesmen, and another 90,000 or so “are in the process of closing down their begging division,” he said.

“It will take them a bit of time,” he joked. “After all, begging was their core business.”

Futures Trading: Out of Control? May 6, 2008

Posted by davidzweig in economics, ethics, food, Oil.
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Indian politicians are almost quaking about civil unrest due to inflation, particularly as it applies to food. India already has banned futures trading on rice and wheat, and is actively considering suspending all trading on contracts for other foodstuffs as well.

As with the housing bubble/securitization collapse, the role of financial speculation ought to be under intense scrutiny. Economics textbooks will tell you that futures play a valuable part in helping producers hedge their potential losses due to price swings. If that were all futures did–help dampen the extremes of the market and make life more secure for producers–we’d be much better off. But any tool can be a weapon, and futures trading is likely wreaking much more havoc than benefit. It’s a lot like the mortgage speculators who haven’t a clue who or what is behind the loans they’re slicing and dicing. How far we’ve strayed from the good old savings and loan! How many of these arriviste wheat futurists have ever driven a combine?

As with municipal bond auctions, mortgage securitization and underwriting, wise guys (a different kind of mafia) got involved and perverted entire classes of financial instruments. In all these markets, to what extent did they inroduce abnormalities? In no case do we really know. How much are they distorting the market now? Again, we don’t know. Who is doing this? We’re not exactly sure. Where will they take the market? We haven’t a clue.

We do know that millions are suffering. From an ethical perspective, driving up the cost of food and oil causes mass misery. It raises the odds of political unrest in a world that sits on dry kindling without the speculators’ flipping lit matches for fun and profit. One suspects at this very moment that speculators reap obscene profits from financial dealing that is well past the inflection point of any positive benefit.

India’s crackdown on the financial markets sound like the banal proposal to suspend of U.S. gas tax–political theater of zero positive value that stalls realistic solutions to serious problems. Around the world, countries are banning and taxing food exports, taking more supply off the markets. In the long run, this cannot be  good.

The world would sleep more safely tonight if we could cancel speculators out of all these equations. We cannnot.

Hunger is Big Business May 3, 2008

Posted by davidzweig in Uncategorized.
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Cargill and other firms are making big profits by forward trading of contracts for grain, while hunger, one of the four horsemen of the apocalypse, is appearing all over the world. This is normal market behavior.

The price of oil, up $4 a barrel today, is also inflated by financial manipulators. By how much? We don’t know. Just as we didn’t (and still don’t) know how much bad collateralized assets are out there. But the prices of food and fuel, heightened by speculators, are pushing the world inevitably closer to war. Is this the indication of a well functioning system?

Profit increase for some of the world’s largest grain traders

Company Profits 2007 (US$ million) Increase from 2006 (%)
Cargill (US) 2,340 36%
ADM (US) 2,200 67%
ConAgra (US) 764 30%
Bunge (US) 738 49%
Noble Group (Singapore) 258 92%
Marubeni (Japan) 90* 43%*

Stevedores Mount the Moral Barricade May 3, 2008

Posted by davidzweig in Africa, china, ethics, Uncategorized.
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Last week in Durban, South Africa, dockworkers refused to unload a ship filled with Chinese weapons destined for Zimbabwe. Trivialized to obscurity by rampant neo-liberalism, unions and altruistic political gestures seem like something from another age, perhaps a fulmination by John L. Lewis, or like any day in France.

The Chinese communists who stuffed the ship of death have embraced capitalism with the vehemence and amorality typical of that government whenever it elects to pursue a goal. The notion of sending guns to Zimbabwe is utterly repugnant, but there’s a yuan to be made. Unseen hand, and all that. In contrast, one cannot help but admire the humanity of the South African dockworkers, who saw a rand not to be made.

Earlier this week, stevedores on the Oakland, California docks shut down the entire facility as a one-day protest against the Iraqi occupation. (It’s not a war; the war ended six years ago on the U.S.S. Abraham Lincoln. The Iraqis, however, did not appear in their dress uniforms to sign a formal surrender document.)

Globalization, for all its benefits, also encourages, and even dignifies the race to the bottom. If you’re out to win this race, best to knife the cords of humanity from your saddlebag; ethics weigh a man down. Speaking of ethics, most politicians aid and abet the race. In such a system, human beings can become widgets stripped of moral prerogatives; in a down economy, many people will do bad things to save a bad job. A man falls the furthest from the bottom rung of Maslow’s ladder.

Do these two actions signify a trend? No. But there is something noble whenever people take a stand, and it will be well worth watching to see if workers elsewhere in the world follow suit.

The Real Story in New Orleans April 30, 2008

Posted by davidzweig in Uncategorized.
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Last week, Presidents George Bush and Felipe Calderon, Prime Minister Stephen Harper, and the heads of 30 corporations (e.g., Ford, Chevron, Wal-Mart, GE from the US) from their three countries met in New Orleans to do behind closed doors what most used to call the public’s business.

How could all that political and corporate throw-weight meet in the same time and place, and no one knew? Anticipating Google by a few centuries, Bishop Berkeley told us that if no one saw it, it didn’t happen. (We do know why no one cared: American Idol was down to 32 finalists.)

As is now customary, the PR handlers threw the bloodhounds of 21st century journalism a piece of rancid meat, and 4th Estate went baying off in precisely the wrong direction. Under the diversionary headline, “Bush Uses Trade to Boost New Orleans,” the Fox coverage was representative: the lede had to do with the venue and the Bush’s administration’s asseverations that it’s doing a heck of a job rebuilding the city; meetings were described as “diplomatic” but never “secret” or “business-related”; the story made no mention of those 30 CEO’s standing behind the drapes in the back of the room; and a lot of the coverage had to do with the readiness of the Crescent City for such a convocation two years after the clockwork precision of the Katrina response.

The 31 men (and two women) convened under the auspices of the North American Competitiveness Council (NACC), an official tri-national working group of the Security and Prosperity Partnership of North America (SPP), which was set up two years ago to “increase security and to enhance prosperity among the three countries through greater cooperation.”

While the group’s deliberations are secret, its PR flaks are touting “regulatory harmonization.” Expect to hear the term more often. Harmonization, as practiced lately at the US federal level, generally means choosing the lowest common denominator across conflicting regimes, in order to maximize corporate profits. We’ve seen it in energy and pollution standards, workplace safety rules, pesticide regulation, labor law, and more. The SPP is described as a convenient way for corporations to make their wishes known to North American governments and the militaries. Think of the Macy’s Santa, except after store hours, and with no line. And the wishlist gets shredded. And you pay for the toys. To the extent any of this is true (and how would we know? It’s secret!), that pesky public NAFTA agreement becomes something of a sideshow for Obama, H. Clinton, and McCain.

How true is it? [Click “More” to continue] (more…)

The Mouse That’s Roaring April 25, 2008

Posted by davidzweig in automotive, Energy.
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Fiat’s new 500 model won Europe’s 2008 Car of the Year award, and it was probably richly deserved. The car is based on the classic post-war 500 Topolino (little mouse), a stylish two-seater that rivaled the VW Beetle in people’s hearts, minds, and garages.

FiatGroupSpA happens to be headquartered in the basket-case country of western Europe, and this makes its financial turnaround all the more remarkable. These days, the just-reported 14% jump in profit and 13 consecutive quarters in the black are amazing statistics for any car company.

Bravi!

FiatInterior

Hooray for Ford! Detroit News, Get Some Clues April 25, 2008

Posted by davidzweig in Energy.
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I suppose the only thing worse than being in the newspaper business these days, is being in the newpaper business in Michigan.

The state is thoroughly depressed, and not just economically. Unlike Ford Motor Company, whose CEO Alan Mulally continues to work his magic by embracing reality, the Detroit News remains as mired in the Permian Age as does Ford’s crosstown rival. (Hint: it makes Buicks.)

An editorial “New fuel economy rules unfair to auto industry” in the April 23 edition says it all. Nevermind the standards are decades overdue, and might be decades delayed as were their predecessors in the late 1970s. The illogic and unreality behind the editorial, which speaks for certain automakers and definitely for certain chairmen of the House Energy Committee, is appalling.

If the car industry had adopted the same can’t-do attitude in 1941, we’d all be driving Volkswagens now.

“General Motors has said meeting the 2020 fuel mandate could add $6,000 to the price of a vehicle and require a shift to more hybrid vehicles, while Ford has said it expects to change its lineup to include smaller and lighter vehicles.”

My comment: good on you, Ford! The Explorer not sustainable? Do ya think?

“As the experience of the last few months and the oil shocks of the 1970s have demonstrated, gasoline prices are far more effective than fuel economy rules in shifting consumer demand toward more fuel efficient vehicles.”

Gas consumption has fallen, but not nearly enough. We’ll get a gas tax passed in this country only when the last molecule of shale oil is wrung from deposits under West Palm Beach, Florida. Until then, we had better have a different Plan A.

“The federal government instead continues to draw a bead on the auto industry and is doing nothing to ensure that there will be a market for the smaller, lighter vehicles its fuel mandates will require if gasoline prices decline from their current levels.”

Time to shed the victim mindset, and make a high mileage car that people want to buy.

“Nor has Congress adopted language that would pre-empt states such as California and more than a dozen others from imposing even stiffer fuel economy standards on the industry — balkanizing the auto market and adding even more costs. The administration should make it clear that there will be one national fuel economy standard set by the federal government — not a number of different states.”

A canard, because these states want to impose a single common standard. The states, led by a Republican governor, are acting precisely because the current temporary occupants of the White House will not act. If the Detroit News had not endorsed the current president back in 2000,  perhaps they would not have to take this silly position in 2008.

“In nominal terms, national gasoline pump prices are at record highs, though adjusted for inflation they are below 1979 levels. And analysts note that the relatively high gasoline prices are causing motorists to cut back on driving and gasoline consumption, prompting some to suggest a return to $3-a-gallon prices.”

This is risible. If Americans drive less, it doesn’t mean Chinese and Indians are likely to follow suit.  Chinese citizens bought almost 9 million cars last year, a 21% year-over-year jump. They are now the world’s second-largest car market.  A return to rickshaws doesn’t seem likely just because Detroiters are hurting. No, they will buy up that slack oil supply.  It would certainly be tidy to have a tax on gas guzzling cars, wouldn’t it? Or feebates, as Amory Lovins has suggested.

Until the mugwumps “get it”, the world will continue to leave them behind. Whining about a return to the past won’t change the future.

The Voice of Experience April 13, 2008

Posted by davidzweig in economics, financial crisis.
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The following post appeared earlier this month at www.mortagedailynews.com. As the three presidential candidates debate over who is more “out of touch,” it’s worthwhile to hear from someone who is in touch. And, listening to the political drivel being pumped out about people in trouble, the honesty is touching

I’m a mortgage broker located in GA. and I do not feel like Hope Now  [the mortgage workout program] is the answer. I feel bad for these families but I am just as guilty for writing those loans you want to help people get into a home but I never understood why charge such a high interest rate when its apparent they already had credit issues, we use to crack joke among fellow workers that if you had a pulse bear sterns would give you a loan the only way I believe hope now will work is for everyone to turn the cheek the other way put everyone in this situation on a 6-6.5 % interest rate fixed for 30 years and forgive the lates and behinds if the wall street investors don’t want to loose all there money then put the lates on the back of the loan in long term they will make money still and not loose there investment even on a 200 thousand dollar house doing this they will still make$255085.82 on there money we need to swallow it and start over before any more people from construction, to builders and plumber and electricians and financial career people continue to loose there jobs and in turn loose there house. It does not have to be this difficult.