Roundup: November 4

Markets

The Treasury is considering buying stakes in a wider range of non-bank financial companies, the WSJ reports, perhaps including GE Capital and CIT. The much-ballyhooed reverse auctions for "illiquid" assets look likely never to happen, with the TARP set to buy distressed assets directly from financials, making it clear that the talk of moral hazard and of avoiding transfer payments that surrounded the push to enact the TARP was so much hot air. Treasury expects to have to borrow $550bn to fund its operations in Q4.

Libor continues to ease. The Reserve Bank of Australia cut benchmark interest rates by 50bp, to 5.25%. Brazil's Itaú will buy Unibanco in an all-stock deal to create Latin America's new largest bank, with $260bn in assets. The ECB has come out in favor of a European central clearinghouse for CDS. HSBC said it was unlikely to pass on the full benefit of an anticipated cut in UK interest rates (the BOE meets tomorrow and Thursday) to consumers, while Abbey, a UK mortgage lener, has increased rates by 50bp in advance of the cut. Financial disintermediation -- but not because of illiquidity or funding pressures. France has threatened to seize banks if they do not expand credit to business.

US light vehicle sales numbers came in yesterday -- auto sales fell 31.9% in October YoY, with sales at GM down more than 45% YoY. EconomPic has a cute visualization.

The Chinese government has been giving out back pay to workers from failed companies, as the global recession threatens to derail China's growth. Nouriel Roubini points out the risk of a "hard landing" in China if growth slows. China's minister of public security, Meng Jianzhu, has warned that police must avoid inflaming protests and riots as the number of "mass incidents" grows. Time's China blog highlights the threat unemployment poses to the government.

Willem Buiter argues that fiscal stimulus in the US and UK will have the unintended consequence of boosting the rest of the world's aggregate demand - but will do little for the domestic economy in either country. Instead, countries like China, Germany, and the Gulf states could use fiscal stimulus to mitigate the business cycle globally. But we look set for "too little in the aggregate and too much in the wrong places."

Time has a few grim anecdotes from the Russian economic crisis.

Derivative Dribble runs a piece on CDS, saying the insurance model is the wrong way to understand the swaps market (and might explain why monoline insurers did so poorly when they tried to participate).


World

The US presidential election is today. The NYT carries an interactive graphic of the geographical distribution of each candidate's fundraising. An NYT editorial looks at the last-minute regulatory changes President Bush is trying to push through. He seems to want to do as much damage as possible in these last days. The Boston Globe calls for the next president to make a statement by immediately closing Guantanamo. (The WSJ runs a shameful apologia for our secret prisons.) There is chatter New Jersey Governor John Corzine (ex-Goldman) would be Obama's treasury secretary.

Taiwan and China have signed a series of unprecedented high level agreements on issues like direct flights, postal service, and food safety -- a major step towards wider normalization of relations between the mainland and the country it still officially views as a breakaway province.

Francois Grignon and Fabienne Hara write in the European WSJ on the state of affairs in the Democratic Republic of the Congo and the failure of Kinshasa and Kigali to live up to their obligations under existing accords.

President Zardari has complained to the US and General Petraeus about drone strikes in the tribal areas around the Afghan border. Destabilizing the Pakistani government in a time of national crisis is likely to cause grave and lasting damage to the position of the US in Afghanistan. Le Monde Diplomatique is less than hopeful for the future of this Pakistani government, confronted on all sides with vast problems. The US should do its part to develop a democratic ally in the Afghan war, not to destabilize it.

Botswana's Ian Khama is calling for Zimbabwe's presidential election to be rerun as allegations surface that the power-sharing document was altered. Morgan Tsvangirai says he will attend the SADC summit in SA this weekend even if he does not receive a new passport. The RBZ has introduced new banknotes as promised (ZWD100k, ZWD500k, and ZWD1mn=$6), the 24th new note issue this year. (Inflation in the country is almost impossible to measure.) Zimbabwe sold 4 tons of stockpiled ivory yesterday for $450k.

The U.S. may accept some of the proposed edits to the Status of Forces Agreement for Iraq, after reports yesterday that the U.S. would seek a UN mandate to remain if the SOFA was unacceptable.

Sixty refugees from the Horn of Africa were found dead on a beach in Yemen after being thrown overboard by smugglers.

SADC observers say that the disputed elections in Zambia were credible and transparent.