Bailouts.

Falkenblog pulls a gem from a Washington Mutual press release from 2001:

In connection with its merger with Dime, Washington Mutual recently established a ten-year, $375 billion community commitment which targets funding to low- and moderate-income borrowers, and minority borrowers, as well as direct investments and other forms of support in communities where the company operates…

Not sure if many would think, at this point in time, that this was such a great idea.  Falkenblog looks at this in the context of future government funds being distributed in the form of bailouts.

If the entire banking sector was making these pledges, how, possibly, could one actually meet this objective without creating a huge system of favors, with vested interests at every level (government, business, nonprofit, regulatory, academic)? More importantly, how could it not end in a huge number of bad loans? That it took so long to implode is the most amazing thing.

I suspect that with this kind of money flowing out of Washington, we are creating a vast, dysfunctional patronage system that will create a nightmare of make-work jobs that will be around until I’m dead.

Friday Quote

Never shall I be able to give God enough to set him down in my books as a debtor.

– Cosimo Medici

The Dollar

From today’s WSJ, U.K. Pound Serves as Omen for Dollar, which covers many of the issues discussed here previously.  Essentially, the British pound is getting pounded. In the meantime, the US Dollar is doing well because, among other reasons,

Unlike the pound, the dollar is being buttressed by its unique status as the world’s reserve currency and the vehicle for transactions in U.S. financial markets, including Treasury bonds. That means investors often seek out the dollar as fears rise, sometimes in spite of their concerns about the U.S. economy.

However, there is concern about how long that status will last.

While the dollar continues to benefit from its unique position in financial markets for now, it is far from clear that the resilience will last. “Right now the market is beating up on the pound, but at some point it will look for something else to pick on,” says Paul Mackel, a currency strategist at HSBC in London.

The fact that the Federal Reserve stands ready to use a host of unconventional measures to flood the economy with liquidity in an effort to stimulate growth “could hurt the dollar quite badly” later this year, he says.

Not to mention the planned fiscal stimulus which will only add to the Federal Reserve measures.

Trying to be helpful, the WSJ also provides Stocks for a Weak Dollar.

The Dollar

Yesterday Brad Setser wrote, Should the US worry about the drop in foreign demand for US long-term assets?.  He pulls a graph from the Treasury that tracks long-term capital inflows to the US.

Mr. Setser’s concern however, is for a stronger dollar, arguing that “the US needs to be able to rely at least in part on net exports for growth”. At the end of that article he does question, as has frequently been done here, what will the cross country financing paradigm look like after things settle down.

Moreover, the current account deficit is going down not up, largely because of the fall in oil prices. That — together with the world economy’s broad-based weakness — seems to mitigate against a near-term dollar crisis. No one right now wants to see their currency appreciate. Not when exports are falling across the board.

At the same time, it is risky to finance a large external deficit with short-term debt. Even for the US. If the US deficit starts to head back up again — as, for example, the effect of the recent fall in oil prices wears off and a large fiscal stimulus in the US stimulates the world economy — without a shift in the composition of inflows, there would be cause for concern.

That just highlights a bigger issue, one that I don’t think has been settled: How will the world’s remaining current account deficits be financed in the post-crisis world? Right now, they are in some sense being financed by the unwinding of all the pre-crisis bets. And by running down existing stocks of foreign assets. But that process cannot last forever …

The Scariest Economic Chart.

From East Coast Economics, what Todd Sullivan ha termed the “Scariest Economic Chart”.

Follow the link for a good explanation.

On the topic of inaugural addresses.

If this sounds like it is from another time, that’s because it is,

“While a Treasury surplus is not the greatest evil, it is a serious evil. Our revenue should be ample to meet the ordinary annual demands upon our Treasury, with a sufficient margin for those extraordinary but scarcely less imperative demands which arise now and then. Expenditure should always be made with economy and only upon public necessity. .… It will be the duty of Congress wisely to forecast and estimate these extraordinary demands, and, having added them to our ordinary expenditures, to so adjust our revenue laws that no considerable annual surplus will remain. We will fortunately be able to apply to the redemption of the public debt any small and unforeseen excess of revenue. This is better than to reduce our income below our necessary expenditures, with the resulting choice between another change of our revenue laws and an increase of the public debt.”

Benjamin Harrison
Inaugural Address
Monday, March 4, 1889

Bailouts

In another Clusterstock piece today, Joe Weisenthal cites a Research Recap report that surmises the anticipated fiscal spending by the federal government will most likely benefit blue-collar workers more than white-collar workers (US Unprepared for Double-Digit Unemployment Rate),

“While New Deal-inspired infrastructure spending will help to reduce unemployment among blue collar workers, and redress decades of underinvestment in public works, it leaves one major challenge unaddressed: unemployed middle-class professionals. Most of these individuals have had little experience of unemployment, and may face significant challenges in retraining. New Deal-model retraining programmes are unlikely to help them.”

This parlayed with another article recently on ABC News, Some Debt-Laden Gradutes [sic] Wonder Why They Bothered With College.  The article describes how many college students end up pursuing degrees only to find that after school those degrees do not give them a substantial edge in their intended careers.  Not to mentioned being saddled with debt.

But in today’s economy, where so many overqualified people are competing for fewer jobs, the promise of a big payoff from a college diploma can be misleading.

For some students such as Rachele Percell, it has turned out to be a total disappointment. She’s the first one in her family to go to college and said she’ll probably be the last. Earlier this month, struggling to make ends meet, Percell moved out of her New Hampshire apartment and is upset about taking a step back.

“I didn’t plan to go move back in with my mother,” she said. “I feel like I have to sponge off my family now.”

Perhaps the crux of the issue is that there are simply too many middle-class professionals.  The idea that many students have of getting an education in general liberal arts studies and then parlaying that into a professional career seems somewhat overwrought.   In the article, for example, Kris Alfred complains that his degree in Theater is not yielding a high paying job.

The question then is why is this happening?  Perhaps it is parents or guidance counselors that are leading students astray.  Or perhaps it is because a career in a trade seems to be looked down upon in society.  Either (or any) way, it does appears that perceptions are changing and will change further if the Research Recap predictions come to light.

In the meantime, some recommendations from Suze Orman,

Orman said it’s often smarter to acquire specific marketable skills at a community college, a technical school or by working as an apprentice for a business, making yourself more employable without piling up a mountain of debt.

Playing By The Rules is For Saps

Following up the post here a few weeks ago,  Playing By The Rules is For Saps, John Carney at Clusterstock comes up with a great newspaper advertisement from a few years ago.  The ad states “Perfect Credit is For Losers.  Perfection is boring.  Live your life.“

Carney comments,

On its face, this ad looks ridiculous. But ask yourself: aren’t we proving that the guys who wrote the copy were exactly right?

Musings

From the AP,

California’s controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money.

If someone/something/the government takes money that belongs to you, then refuses to give it back, isn’t that stealing?  Granted, in this case, it’s state sanctioned, but still.

Friday Quote

When illusion spin her net, I’m never where I want to be.
And liberty she pirouette,  when I think that I am free.

-Peter Gabriel, Solsbury Hill