Tuesday, November 11, 2008

Roundup: November 11


Bond markets were closed today for Veterans' Day. Interfluidity is white hot on AIG -- today's must read. Robert Reich writes in a similar vein about the difference between bankruptcy and bailouts. We direct you toward Willem Buiter's top-notch piece on AIG from yesterday.

American Express has received emergency approval to become a bank holding company, presumably to gain access to the bailout. FT Alphaville reviews credit card companies' woes. The WSJ summarizes the beneficiaries of the Treasury's bank share purchase program so far.

Fannie and Freddie have announced an accelerated loan-modification program for mortgages with high LTV that are over 90 days delinquent, aimed to bring payments down to 38% of borrowers' net income. Fannie Mae's 10-Q filed yesterday (they reported a $29bn loss) included the warning that the $100bn of funding from Treasury might not be enough to keep them afloat. They are predicting home price declines of 9% nationally in 2008, but say there is "increasing uncertainty about the actual amount of decline that will occur." Citigroup is offering to modify up to $20bn of mortgages it services where borrowers' payments exceed 40% of their income, and has halted foreclosures on 16k mortgages. The NYT looks at Mountain House, CA, a town where 90% of homeowners are underwater on their mortgages.

General Growth Properties (which owns malls in Las Vegas and elsewhere) says it may default on $1bn of debt that comes due at the end of the month. Las Vegas Sands said it would suspend construction in Macau. DHL is closing its US business and cutting 9500 jobs. Homebuilder Toll Brothers says it is seeing record low homebuyer demand. And Downey Financial, which originates option-ARMs, says it may fail. The high end of the US real estate market isn't moving.

Chinese inflation cooled to 4% (a 17month low, lower than expectations)-- assuaging concerns that infrastructure spending would overheat an already inflating economy and perhaps giving the Chinese monetary authorities room to cut rates further.

The Central Bank of Russia has allowed a 1% ruble depreciation against its USD-EUR basket peg -- the central bank still has $485bn of reserves to mount a defense of its currency peg if necessary, and has threatened banks with penalties if they move to increase their forex holdings. There are fears in the marketplace that the central bank will use its reserves to create two-way volatility if the currency comes under attack, hoping to hit speculators with margin calls and force shorts to cover. Fitch has downgraded the Ruble and several other emerging market currencies. The depreciation sent the Micex down another 10%. Sberbank's retail clients withdrew RUB80bn of deposits in October, 2.5% of the bank's total deposits. Withdrawals will be exacerbated by the uncertainty surrounding the Ruble. The IHT asks whether the new Russian state airline, Rusair, created to absorb the assets of domestic airlines as they fail, one-by-one, will be able to reorganize and fix the state of air transport in Russia. Meanwhile, a letter in the WSJ demonstrates more common sense than Sarkozy and Brown have put together.

Total retail sales in the UK were down 0.1% YoY, with home sales at their weakest since the Royal Institute of Chartered Surveyors survey began in 178. Nationwide says the UK mortgage market will contract by 80% this year.

Sweden's Carnegie investment bank, the region's oldest and largest, was nationalized yesterday and is likely to be broken up and sold.

Truck Trends takes a look at executive compensation in Detroit; Obama reportedly pressured Bush yesterday to move on a bailout for the auto companies. There are rumors Bush has told Congressional Democrats he would approve a bailout in exchange for the Colombia free trade pact. Ironically, GM may be ineligible for the $25bn low-interest government loans ostensibly meant to help Detroit build fuel-efficient cars, but widely seen as a shadow bailout, because of clauses in the DOE's draft rule insisting that recipients be "financially viable."

Harvard has warned that its endowment results will necessitate spending cutbacks at the world's richest university.

Kenneth Rogoff thinks "super-sizing" the IMF wouldn't be good for the world.


IRIN says the SADC's statement on the situation in the Congo is toothless -- SADC is unable to deploy a "credible military force" to enforce the international agreements it demands both parties to the conflict observe. Michela Wrong wrote in the Observer this weekend on the "arbitrary quality" of Western media attention to Africa.

Robert Mugabe will form a government in Zimbabwe unilaterally. Armed riot police are patrolling the streets of Harare. The NYT is right, for once, in its editorial about the shameful behavior of the SADC and Mugabe. Of course, only five leaders of the fifteen countries in the SADC bothered to show up to the summit, at which responses to the crises in Zimbabwe and the DRC were supposed to be given. The MDC will meet on Friday to decide its next move. It is rightly fearful that joint control of the Home Affairs ministry will mean nothing, and that Zanu-PF will control the police and army apparatus. Meanwhile, the UN World Food Program is running out of money to feed the 4 million Zimbabweans it supports, and is cutting rations.

Time asks if we're seeing a Chinese New Deal. The FT asks whether an infrastructure plan will be enough to stimulate the Chinese economy, saying that the Chinese government neglects supporting domestic consumption at its own peril.

Iraq has passed a reduced budget of $67bn, after falling oil prices lowered projected revenues. The Iraqi government has called the changes proposed by the U.S. in the revised SOFA not enough to remedy concerns about Iraqi sovereignty. Dec. 31 is the deadlines for the SOFA to be passed. Today marked an important day in the military world of Iraq, as the Sunni military group Sons of Iraq was transferred from the U.S. Army's oversight to the largely Shia Iraqi Army. If the military forces of Iraq are ever to keep control of the country, the Army will need to accept both Sunni and Shia in positions of power; this is an important and easily overlooked step for the occupation.

CFR has a good overview of the reasoning behind the meme proposed by the IEA, among others, that the fall in oil prices is a short-term phenomenon, as a variety of factors exacerbate the production shortages which may result from underinvestment in exploration and development in the next two years. China and Iraq have signed a $2.9bn oil development deal.

The Washington Post says Obama will likely try to pursue a more regionally-oriented strategy in Afghanistan, perhaps keeping Defense Secretary Robert Gates on for a year after Bush leaves office. General Petraeus is already beginning to regionalize the strategy at the Central Command despite the best efforts of the Bush Administration to confound him, so this is a hopeful sign.

The Majlis is displeased by Ahmadinejad's letter congratulating Barack Obama, with Iranian lawmakers criticizing the president's repeated amateurish attempts to unilaterally open dialogue with US presidents.

A White House Office of Urban Policy may be in the works.

Mexico has hedged "almost all" of its oil exports at prices between $70 and $100, reports the FT.

Miriam Makeba RIP.


Neighborhoods with extensive green space show a much smaller (less than 70% of the average) disparity in health care between richer and poorer inhabitants, according to a study of 41 million pre-retirement UK citizens. This another argument in favor of reducing impermeable surfaces in urban areas; eliminating useless pavement and replacing it with small areas of greenery not only improves biodiversity and stormwater runoff, but it also improves the health of the people living in the are.

The Southern Ocean may be at a tipping point for acidity; further absorption of CO2 will reduce the pH of the water further, resulting in the destruction and extinction of marine populations (particularly of crucial plankton) with calciferous shells. Previously, this tipping point was thought to reside around 550ppm atmospheric CO2e, but it turns out that most marine animals with calcium shells reduce the size of their shells in winter, making them more vulnerable in winter to a more acidic ocean.

Despite not being a member of the EU, Iceland will join the ETS in the near future.

The Alaskan permafrost may contain as much as twice the amount of stored carbon as previously thought, but the study is preliminary.

Detroit Diesel has reached another milestone in the development of SCR (Selective Catalytic Reduction, a way of reducing NOx emissions from engines) for smaller powertrains like trucks. SCR is widely used in power plants.

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