Good economic news! + metalworking

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Unka' George: I was involved in a GAO audit of positions at the Kwajalein Missile Range. My wife was a secretary at another group on the base and the same thing happened to her. The audit team checked my organization (I was in charge of a group of Civil Servant Engineers that were monitoring the contractors operating the range) to see if it's existence was justified. One of their key measurements was, and I'm not BSing, I watched it, they measured the volume of our closed and locked file cabinets. I told them to ask me what my groups goals for the year were; and to apply the questions to other groups that they were auditing. They refused. The Army was in charge and my boss a Lt. Colonel had never given any of us any direction or suggestions other than be "Pro-Active". It this audit team was any indication of the watchdogs that we are going to have over the way the "Stimulus" Bill is spent, we are going to see a whole bunch of inefficient wasting of taxpayer's money. I watched a $750Million dollar contract get mishandled by the Army. I know. I wrote the scope of work for that contract. As a result of the Army's screw up the winning contractor could receive the bonus fee if he just asked for it. There were nocontract clauses specifying contractor performance required to earn the fee.. I don't know about you but I forsee a real circus.
Stu Fields
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On Sat, 14 Feb 2009 15:23:33 -0800, "Stuart Fields"
A Roman circus where the lions eats the profits?????
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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So what? If we had just done nothing, let the government do nothing but sit on it's hands the Depression would have been over real quick? We should have just left it to business and the private sector to bring us out of the Depression? I can't say I've heard anyone say that, even the most simple minded fool. After all, most people think it was the private sector that brought us the Depression to begin with. Thinking that having the government stay out of it when the country was going into the worst economic period in its history is just plain stupid. This idea that the government can't do anything right and is the cause of our problems is crap. Well, it's true if republicans are running the government. Then you're right everything they touch they turn to shit. It's the opposite when they are where they belong...in the minority.
Hawke
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On Sat, 14 Feb 2009 23:13:01 -0800, "Hawke"

---------------- You need to check the historical record. Both the Republicans and Democrats in the 1932 elections ran on platforms calling for a balanced budget and were worried about inflation. This was the general wisdom and assumptions of the times.
Both Hoover and Roosevelt in the first stages of his administration tried to deliver on these promises. They cut Federal spending, increased taxes and duties, and restricted the FRB from buying securities in open market operations to restrict/avoid any increase in the money supply, as well as retaining the gold standard.
The effect was to amplify and exacerbate the disaster we now call the Great Depression, by further depressing spending.
Although most of the stock market losses were paper, huge amounts of real liquidity/capital had disappeared in the stock market crash, and a very real money panic / liquidity crisis resulted. This was not so much directly from the crash/market, as the side effects when the holding companies and investment trusts created as a result of the stock bubble collapsed.
The governmental actions of both the Hoover and early Roosevelt administrations simply made things much worse. This is indeed a case where the economy would have been better off if the government had done nothing, rather than exactly the wrong things, or the "right" things in a wrong way, e.g. the Reconstruction Finance Corporation.
It appears accurate to criticize the Roosevelt administration for not knowing what they were doing, but then no one else knew what to do either, in the sense of correcting the problems, other than trying to treat the worst symptoms such as setting up soup kitchens to avoid mass starvation and food riots.
Roosevelt's strength was that he would try something, and if it didn't work, go on to try something else, rather than keep beating a dead or dying horse.
We are extremely lucky to have the FDIC as this has avoided the money panic that occurred after the 29 crash.
It does however appear that several of the structural problems that amplified and injected the '29 market crash into the real economy are again at work such as grossly ineffective /inefficient corporate structure and governance [e.g. GM, Chrysler], grossly ineffective/inefficient bank/quasi bank structure and governance [e.g. BoA, Citigroup, AIG], and the wide existence of financial structures subject to chain reaction collapses such as large loans with covenants. As many of the corporations, particularly in commercial real estate, are closely linked, a default/bankruptcy in one major loan may well trigger a covenant breaches in a whole series of major loans, as a result of a series of asset/collateral losses. This is a very unstable situation.
It also appears that there were again huge amounts of stocks purchased on credit. Not so much by individuals through brokerage margin accounts this time, but by the hedge funds, using borrowing "under the radar" of the SEC, and other regulatory agencies. The feed-back effect is still the same: when stock prices drop, the hedge funds must sell their stocks to cover their loans, which causes further price drops.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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You should be aware that there's a book that's acquired a lot of positive reviews, which is now the cornerstone of the argument that FDR extended the Depression by mean of his policies. This has now become the basis of an entire right-wing posture arguing that the Depression was a result of liberalism.
Gunner et al. quote it from time to time, but I've looked into it and I'm sure they haven't actually read it. They have read the blog comments about it, and it's now their gospel.
To analyze that argument requires some pretty deep knowledge of economic history, and there is no chance whatever that the righties here understand what the argument is or what they're talking about. But I just thought you should be prepared. If you get a response, it probably will be a URL pointing to the book or to someone's comments about it.
-- Ed Huntress
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On Sat, 14 Feb 2009 13:08:47 -0800, Gunner Asch
<snip>

<snip> Unfortunately, you are most likely correct.
The public can't even get a consistent, even if not completely honest, answer of how bad just the toxic home mortgage backed SSCDOs are, with the commercial mortgage backed SSCDOs set to roll a second tsunami, quite likely *larger* than the sub-prime/alt-A one across the financial flood plain in a few months, even as the banksters and broksters [combination of banker/broker and gangster] remain in denial and party on [on our credit card].
Mean while the Detroit three soap opera continues. Class -- can anyone define "triage?" http://en.wikipedia.org/wiki/Triage
As Galbraith points out in his popular history "The Great Crash of 1929" there were several waves that swept through the stock market on the way down, first the day trippers, then the lone wolf smart guys, then the securities firms, and then the underlying businesses/banks, as one levee or firewall was breached after another, as reality swept through the market, and the pyramid collapsed.
(Amazon.com product link shortened) You most likely can get this from your local library. Very good/easy read, although it makes your hair stand up as you see the parallels between the 1929 crash and the 1960 debacle, during which Galbraith was writing] and compare these with today's new items. Example: compare the 1929 "investment trusts" with the 2008 "hedge funds"
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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(Amazon.com product link shortened)
I bought the book. Arguably the 1929 investment trusts were of different natue than today's hedge funds, most of which do not try to simply buy stocks on margin.
Today's hedge funds seem to be doing very similar things to each other, though, such as statistical risk arbitrage (buying private issue bonds and shorting treasuries) or long/short stock buying where they are all long the same things and short the same things. This may also end up badly for them.
i

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Hard to say if we have bottomed or not. The stock market has stayed fairly level during the last three months. Nucor is up about 10% in the last three months. GE is down about 25%. Danaher is flat.
The housing markets vary a lot depending on where you are and how hot the market was. As Ed said the housing market is stable in his neighborhood in NJ.
My guess is that we are near the bottem, but are likely to not move up much anytime soon. The local government is looking at raising taxes, which will keep a damper on things. The same thing will happen all around the country, but will be worse where the government expanded in accordance with Parkinsons Law. Or at least it corrolary. Government expands to spend all the tax revenues in boom years and raises taxes during any busts.
Dan
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On Sun, 15 Feb 2009 06:38:03 -0800 (PST), " snipped-for-privacy@krl.org"

Housing in California continues to drop like a stone down a hillside.

We have a second wave of subprimes coming do in the next several months from what I understand, and a credit card implosion on the horizon as people who have been funding their shotfalls on their cards all hit the absolute limits and go into default
Ive been told by someone who is very very smart on the subject..that we wont hit bottom until 2010 or early 2011.
I hope he is wrong...but so far..he hasnt been.
Gunner

"Upon Roosevelt's death in 1945, H. L. Mencken predicted in his diary that Roosevelt would be remembered as a great president, "maybe even alongside Washington and Lincoln," opining that Roosevelt "had every quality that morons esteem in their heroes.""
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I have been wrong often, but I would think that 2010 is a reasonable estimate.
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wrote:

The bottom for whom? We are stumbling along the bottom right now Ig, at least as far as I'm concerned. Foreclosures are beginning to moderate and job losses will taper off over the next quarter. In fact, mortgages that reset are providing a stimulus effect of their own as payments drop.
Equities will bump along between 8 and 9 thousand and the S&P 500 will decline to 670 or so but neither are very important at this point. Most of the gas is out of the tank today. Private equity is starting to get itchy and once regulatory reform surfaces in Congress we ought to see things pop. Tim Gietner is going to be federalizing the banking system throughout 2009/2010. This "stress test" stuff is just eye wash that will be used to explain and justify that course of action to the American public.
The bush administration never understood the value in explaining their activities, they even resented the implication that they ought to do so, and it's something that Gietner learned and has always been an Obama strength. Americans quit following Bush because he was a poor leader on the one hand and his admionisration produced a nearly unmittigated string of disasters on every front. America didn't follow Bush the Leader into hell, they were mislead there over the course of eight years and were dragged kicking and screaming at the end.
For better or worse, in three weeks the new administration has rolled out Federal policy through the Treasury and Fed totalling three trillion dollars and gotten an eight hundred billion dollar social spending bill through Congress which is only a start. No countries were invaded, no lives lost and if that isn't leadership of a very high order, I don't know what is. That's the real reason I see this as the actual bottom. All that remains is for the detritus to settle and that ought to be complete no later than September.
JC
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For employment.

I admire the specificity of your predictions, but I am afraid that they say more about the forecaster than about the future. It is a very difficult to predict matter.
I consider many of those things to be unknowable, and work based on that assumption.

The stress test is applying reasonable valuation to bank assets to determine which ones really are insolvent.

We'll see. Keep in mind that there are other countries involved, the assumption of continued willingness of foreigners and US investors to buy Treasuries may be questioned, and so on. If the Treasury bubble bursts in a bad way, we may see a lot more trouble.
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wrote:

Sure. Not much choice in the matter<g> and I'm not predicting a smooth transition in every case. The Gunner's of the world are just going to be toast. Uneducated, semi-skilled labor has finally ratcheted itself down to the point of being quaint. There isn't anything personal in that assesment, reality and the markets are speaking for themselves. GM is a perfect example. They have finally become small enough to fail without making a crater and that is probably what will happen one way or another. Who, after all, needs buggy whips - even high tech ones? Those will end up unemployed, possibly chronically so.

I can tell you for a fact that the Japanese have pledged a trillion dollars and we have agreed to help them drive down the value of their currency to the point where their production for export gets real relief. That's first hand. Savers that they are, they have the cash and then some and after their 90's debacle, they are anxious to the point of fearful desperation.
JC
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On Sun, 15 Feb 2009 12:33:50 -0800, "John R. Carroll"
<snip>

<snip> This appears to be a very short sighted and provincial view of the world.
The continued production of "real" goods with "real" "value added" depends heavily on the Gunners of the world, keeping things running, an operational replicator not having yet been invented [and even then someone will have to be available to keep the replicators running].
There is additionally the problem of the definition of "education" and "skills." For the "Gunner's of the world" these are very real, albeit not learned in college, and are of the type that puts dirt under your fingernails.
It can be plausibly argued that GM's and Chrysler's problems are in the main not caused by their Gunner's, who have had to [physically and metaphorically] hay wire and racer tape everything in sight to keep the plants operating , but rather the "suits w/ MBAs and clean hands" responsible for the marketing strategies, product developments, and financial decisions that are about to put an entire American economic sector into chapter 7.
In other areas, the "grunts" that did the work at WaMu, Citi, BoA, AIG, etc. did not cause the problems.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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wrote:

The current generation of folks that make thinjgs work resemble a guy who infrequently posts here as "Anthony". Well educated, technically adept, and hard working.
Anything that can be fixed with the bang of a wrench is either headed for a musuem of the scrap heap. Well, there are collectors and recreational guys.

Thirty years ago maybe. Not today, and certainly not in the future.

That class of labor was something broomed in the seventies George. At least at the skilled level.
JC
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wrote:

They need them in China. Eventually, maybe, in Africa.
-- Ed Huntress
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On Sun, 15 Feb 2009 11:38:12 -0800, "John R. Carroll"

Sounds like more FDR bank holiday.

I hope you are right -- see other positing in this thread for my contrarian view that things are about to get even more "interesting," and the reasons.

Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Sun, 15 Feb 2009 10:09:04 -0800, Gunner Asch
<snip>

<snip> ------------------ While there may indeed be a second wave of sub-prime/alt-A defaults, the big tsunami on the horizon appears to be the wave of commercial real estate defaults, especially shopping plazas.
Not only has there been a substantial downturn in retail activity, but almost all commercial real estate mortgages are short term ( 3-5-7 year periods common) with a balloon at the end that are now coming due. The problem is that even the viable projects are having extreme difficulty "rolling their notes over," with much higher interest required when these can be refinanced at all, which in turn makes the currently viable projects into cash sinks and zombies with negative cash flow.
You also appear to be correct about the credit cards, and the recent moves by the banks, many of whom got TARP rescue money, to raise credit card rates to loan shark levels, and other wise restrict terms such as increasing minimum payments, have not helped things. While this may generate a few more dollars now, it has generated huge amounts of ill-will, makes consumer default/bankruptcy even more likely, and further restricts consumer spending, on which so many hopes are based.
A third item of major size, albeit far behind real estate mortgages, are vehicle loans. A significant fraction are "upside down," with far more owed on the vehicle than it is worth, especially as these were extended term loans of 48 months or more. Additionally many of these were "zero" or below market rate loans, with the provision that if any payments were missed/late, the interest rate resets to above market, indeed usurious, levels, which is yet another "kick in the head" to the consumer that just lost their job, along with the credit card "squeeze." A complicating factor are the large number of expiring car leases, where the residual value of the vehicle is far below the assumption that was made when the lease was signed. In this case the leasor eats the shortfall, but in many cases these were the captive finance arms such as GMAC and Chrysler Credit, which are in trouble anyhow.
All of these, plus many more such as student loans, form the basis for huge number of [take a deep breath here] "synthetic structured collateralized debt obligations," or CDOs which are not only the major components of toxic "assets" causing the banking troubles, but which are about to become even more "toxic." When this is combined with the Credit Default Swap [CDS] "default insurance" (derivative) liabilities, very significant problems can easily be projected, far beyond current levels.
This will only exacerbate the following situation -------------------- Large U.S. banks on brink of insolvency, experts say By Steve Lohr Published: February 13, 2009
Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking.
A sober assessment of the growing mountain of losses from bad bets, measured in today's marketplace, would overwhelm the value of the banks' assets, they say. The banks, in their view, are insolvent.
None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the U.S. government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.
But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department's plan outlined this week. <snip> --------------------- http://www.iht.com/articles/2009/02/13/business/13insolvent.php
FWIW -- this also appears to be the case for large numbers of European banks.
A major complicating factor, both in Europe and the US, is the inability or unwillingness of the financial institutions to "come clean" about their assets and liabilities, which in the past has generally caused the regulators to seize control, determine the facts, and clean-up or liquidate as required.
Indeed, Germany appears to be in the process of doing this with one of their largest banks. http://www.reuters.com/article/privateEquity/idUSLF29732920090215?feedType=RSS&feedName=privateEquity
While overdue, this action will trigger the CDS derivatives, and as the Hypo bank stock/notes are some of the "assets" for other banks, hedge funds, and venture capital pools, many in the US, this may well trigger another cascade of defaults, when these are written down to market [i.e. zero].
The global financial system is far too incestuous, interconnected, and arcane/baroque for stabilty/safety.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Sun, 15 Feb 2009 14:46:39 -0600, F. George McDuffee

One simply drives around So. California to see literally thousands of closed strip malls, empty Targets, empty commercial properties of all sorts...that have been empty for a number of years. Perhaps here and there one may find a nail or cigarette shop open in an otherwise empty plaza. Office buildings everywhere have banners proclaiming Space Available.
One could make a decent living in So Cal simply printing "For Lease Commerical Property" signs
And this has been getting worse for at least 10 yrs
Gunner
"Upon Roosevelt's death in 1945, H. L. Mencken predicted in his diary that Roosevelt would be remembered as a great president, "maybe even alongside Washington and Lincoln," opining that Roosevelt "had every quality that morons esteem in their heroes.""
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On Sun, 15 Feb 2009 16:11:33 -0800, Gunner Asch
<snip>

<snip> ==============And what was the solution? Why to build more office parks, malls, etc.
It is exactly these types of properties where the loans are now coming up for renewal. As indicated, most commercial real estate is financed with relatively short term loans, 3-5-7 years. In many cases these are "interest only" loans with no set amount of principal amortization.
There are two problems:
(1) That the current owners [the developers are most likely long gone] will not be able to roll over the loans and will go into default. This however is a paperwork problem only, in that they have not been a "going business" for several years.
(2) That the banks will roll-over the loan to keep it from becoming "non-performing" on their books, continuing to conceal the actual status. This appears to be what did in large numbers of Japanese banks which have impressive amounts of "performing" real estate loans on their books paying 1/2% interest or less.
The major danger is an honest bank examiner will take one look at the loan portfolio, and declares the bank insolvent.
A second, perhaps even more dangerous situation, is where these loans goes into default en mass, but rather than being on the banks' books, have been bundled as collateral for a CDO, tanking the value of the entire CDO, which may be yet another bank's or pension funds "asset," resulting in yet another "daisy chain" of asset valuation collapses.
Extensive commercial foreclosures will also have a negative impact on the local property taxes/valuations, which California cannot afford, but which are likely to occur anyhow.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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