The Gulch Gallery Blog

Don Simmons · at 8:11 AM

Bond Insurers Face Downgrade Despite Call for Delay

By Charlie Gasparino, On-Air Editor | 29 Jan 2008 | 04:29 PM ET

Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.

Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.

Insurer Ambac
AMBAC Financial Group Inc
ABK

12.93 1.80 +16.17%
NYSE
Quote | Chart | News | Profile | Add to Watchlist
[ABK 12.93 1.80 (+16.17%) ] has received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA
MBIA Inc
MBI

15.98 1.13 +7.61%
NYSE
Quote | Chart | News | Profile | Add to Watchlist
[MBI 15.98 1.13 (+7.61%) ] hasn't been downgraded.

The ratings agencies realize they're walking a tight rope -- if they downgrade the insurers, they could expedite their demise. On the other hand, if they follow New York's request and don't downgrade, they're in essence violating their duty to downgrade bonds on objective criteria.

Moody's downplayed the likelihood of striking a deal with New York, however. A spokesman for the ratings agency confirmed that Moody's has had conversations with the Insurance Department, but said "we don't forbear on our ratings" based on talks with government officials.

Standard & Poor's had no comment.

The New York State Insurance Department has hired Perella Weinberg Partners to advise on developing a bailout of the bond insurers, a spokesman for the department said on Monday.

As CNBC reported last week, banks that met with Insurance Superintendent Eric Dinallo asked him to hire an outside financial advisor.

Sources told CNBC that New York is considering one of two approach as a bailout plan: either a line of credit that bond insurers could tap as needed, or a deal that would deal with each insurer on an individual basis.

Bond insurers, who guarantee more than $2 trillion of securities, have suffered write-downs of bonds and derivatives linked to subprime mortgages. The losses are big enough to potentially trigger ratings downgrades, forcing some investors to sell securities guaranteed by the bond insurers.

Last week, New York State Insurance Superintendent Eric Dinallo met with banks to encourage them to put up cash to support bond insurers.

Perella Weinberg is looking at ways to protect policyholders of the major bond insurers.

http://www.cnbc.com/id/22900574/from/ET/

Don Simmons · at 8:07 AM

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae9fpMDpfR4c&refer=home

UBS AG LOSES 14 BILLION

Jan. 30 (Bloomberg) -- UBS AG, Europe's largest bank by assets, reported a record loss after about $14 billion of writedowns on assets infected by subprime mortgages in the U.S.

The fourth-quarter net loss of 12.5 billion Swiss francs ($11.4 billion) was almost double what analysts surveyed by Bloomberg were estimating, and brings the total decline for the year to about 4.4 billion francs, the Zurich-based bank said today in a statement. UBS publishes its official results on Feb. 14.

``The damage is enormous,'' said Dominique Biedermann, director of Ethos Foundation in Geneva that holds UBS shares worth about 80 million francs. ``It wipes out profit and shows that an inquiry is needed to make sure it doesn't happen again, and eventually whose responsibility this is.'' Biedermann has called for an independent audit of the bank's controls.
UBS posted its first annual loss since the company was created through a merger a decade ago, with the fourth-quarter drop exceeding the records reported earlier this month by Citigroup Inc. and Merrill Lynch & Co. The collapse of the U.S. subprime mortgage market has led to more than $130 billion of losses and markdowns at securities firms and banks since June.

UBS reported about $12 billion of losses directly linked to the subprime market and an additional $2 billion for positions related to the U.S. residential market. The company said its so- called Tier 1 capital ratio, a measure of financial strength, was 8.8 percent as of Dec. 31.

Don Simmons · at 11:35 AM

Texas Municipal Retirement System cities brace for shortfall's impact

As state system faces shortfall, some may cut benefits, raise tax rates

January 24, 2008
By ELIZABETH LANGTON / The Dallas Morning News
elangton@dallasnews.com

A state pension fund used by more than 820 Texas cities – including most of those in North Texas – faces a $1.7 billion funding shortfall. And fixing the situation will force some cities to raise taxes, cut future retirees' benefits or both.

Although cities won't receive definitive numbers until April, some expect to face double-digit increases in their contribution rates to the Texas Municipal Retirement System beginning next year. That's the equivalent of adding millions of dollars in expenses to their annual budgets – and multiple cents to their property tax rates.

"This gives me a headache," Duncanville City Council member Johnette Jameson said during a briefing session on a potential $2 million increase in the city's annual payment to the fund. "You just feel like you're stuck between a rock and a hard place."

TMRS, created by the Legislature in 1947, is the pension provider for most Texas cities, though Dallas, Fort Worth, Bedford and some others maintain their own plans. The system covers more than 45,000 employees and retirees in North Texas and more than 130,000 statewide.

Not 'going broke'

Overseers of the $17.8 billion pension fund say it is not in jeopardy, and have asked city officials to help quash such rumors.

"TMRS is not 'going broke,' and no retiree benefits are in danger," TMRS said in a Dec. 10 e-mail bulletin to member cities.

TMRS, which has always invested conservatively, has not experienced the investment failures that have hurt private and other government pension funds. Rather, the shortfall is due to changes in actuarial procedures, the methods used to predict how much money the fund will need to make promised payments, said executive director Eric Henry.

TMRS had considered the changes for at least two years. Mr. Henry, who took over in June, said they call for cities to pay in advance for retirees' future cost-of-living increases. The overall cost to cities hasn't changed, he said, but they are being asked to pay more of the total sooner.

Municipal employees in the system make contributions – 5 percent to 7 percent of their salaries – and their cities match or exceed that amount. In return, the employees are guaranteed monthly payments in retirement. The setup differs from that of a 401(k), in which benefits may be higher or lower, depending on how much and how successfully participants invest during their working years.

Older cities hit hardest

The impact of the changes on individual cities will depend on factors such as payroll growth, the size and age of the workforce, benefits and workers' length of service. Young, small, fast-growing cities are less likely to be hit hard; officials in Little Elm and The Colony, for example, expect minimal or no increases. Older, larger, more established suburbs – Garland, Carrollton, Farmers Branch and Duncanville, for example – anticipate big bills.

City Manager Kent Cagle predicted that Duncanville's payments could double. The additional $2 million a year would be the equivalent of adding 8 cents to the property tax rate, he said.

Farmers Branch faces an increase of about $1 million annually, the equivalent of 3 cents on its tax rate. But finance director Charles Cox said the city would do all it could to avoid raising taxes.

"We're trying to be as fair as possible to existing employees and retirees, but at the same time we have to be fiscally responsible," he said.

One alternative to raising taxes may be cutting future benefits.

"What this is forcing is a very difficult discussion between employers and employees about what are appropriate benefits and what are acceptable costs," Mr. Henry said. "Our role is to make sure that the benefits that have been promised are soundly funded."

The situation puts city councils, which must balance the needs of employees and taxpayers, in a difficult position, Carrollton City Manager Leonard Martin said.

"No one is pleased to find out the funding of your pension system is not what you've been told all these years," unless the change is in your favor, he said.

'Impossible situation'

Paul Nicholson, executive director of the Texas Pension Review Board, the state agency that oversees public retirement systems, called it "an impossible situation."

"I know the cities are unhappy. They should be," he said. "We do hear the anger and frustration. Many cities are beside themselves. But what if ... [TMRS] hadn't caught it? How much worse could it be?"

At the end of 2006, TMRS was 82 percent funded under the old actuarial method but just 74 percent funded under the new one. Pensions funded above 80 percent are generally considered financially sound.

Mr. Nicholson said TMRS has handled the shortfall in the best way possible – by openly communicating with its cities and members.

"Historically, should this have gone differently? Probably," he said. "But it has happened, and they are dealing with it."

Automatic renewal

The biggest burden will fall on cities that offer annuity increases, similar to cost-of-living adjustments, and updated service credits, which account for salary increases later in employees' careers. Both tend to increase payments to retirees.

Historically, cities renewed those benefits annually, and TMRS considered them optional. But about 15 years ago, TMRS gave cities the choice of having the benefits renew automatically until cities acted to turn them off.

More than two-thirds of cities adopted the automatic renewals, and 90 percent of TMRS members are covered by them. The benefits have become an expected part of retirement packages, Mr. Henry said.

"No one expected all the cities would keep them," he said. "It's clear now that they are what we call committed benefits, and we must look at the future liabilities."

Several city officials said TMRS, under its former leadership, sold the automatic renewals to them by saying they would add no cost.

"It wasn't until a number of years later that the actuaries looked at it and said, 'We really aren't doing this correctly,' " said Mr. Cox of Farmers Branch. "And boom – all of a sudden folks have to come up with all this money."

Said Mr. Martin of Carrollton: "Some of these changes probably would not have been done if we'd known how much it really cost."

Former TMRS executive director Gary W. Anderson, who retired in October 2006, said that public pension funds are generally in good shape and that he didn't want to be drawn into a debate about what should have happened when.

"Things happen that require you to make course adjustments along the way," he said. "Changes to actuarial assumptions occurred on more than one occasion over the years. That's an ongoing process, and that's something all pension funds have to do to remain financially viable."

Help isn't enough

TMRS will offer cities some help adjusting to the changes. The fund traditionally avoided stocks, which can have wide price swings, in favor of more stable bonds. But its board recently approved moving 12 percent of its holdings into equities, which fund managers expect will increase earnings and therefore reduce cities' contributions.

TMRS also plans to allow cities that face contribution increases of more than 0.5 percent to pay their additional liability over 30 years instead of the standard 25. Those cities can also phase in their higher payments over eight years.

City officials say those measures could help but probably wouldn't eliminate the need for changes to their pension plans. Many North Texas cities plan to hire consultants to review TMRS' figures and recommend solutions.

Retirement plan changes made by cities would not alter what employees have already earned or reduce payments received by current retirees. But if cities eliminate cost-of-living adjustments, their current retirees would no longer see annual increases.

"I think the employees and the retirees are going to be up in arms if the ... [cost-of-living adjustments] go away," said Duncanville council member Ken Weaver.

Mr. Martin said he wants Carrollton employees to have a solid retirement, but that it won't be the Mercedes of plans.

"They'll have a good solid Ford or Chevy that will fire up every day and serve them well, but it won't have the chrome knobs," he said. "Everybody's got to feel the pain. It's not just the taxpayers feeling the pain."

TEXAS MUNICIPAL RETIREMENT SYSTEM
•Created by the Legislature in 1947, it began operating in 1948.

•It is underfunded by $1.7 billion, not because of bad investments but because forecasting changes indicate that the fund will need more money to make promised pension payments.

•It has 821 member cities, ranging from the tiny (Blue Ridge, in Collin County) to the large (San Antonio).

•The system covers more than 130,000 employees and retirees.

•Catching up on funding will require increased contributions from many cities. The impact will vary depending on factors such as workforce size and age, workers' length of service, and whether a city has opted for the equivalent of annual cost-of-living and other adjustments for retirees. Older, larger, more established cities are likely to be hit hardest.

•To hold down their costs, some cities may choose to reduce future retirees' benefits.

•The fund has invested mainly in bonds but recently decided to move 12 percent of assets – and possibly more later – to stocks. The hope is that the expected higher long-term return on stocks would reduce the burden on cities.

SOURCE: Texas Municipal Retirement System

http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/012508dnmetpensionwoes.29186b6.html#

Don Simmons · at 4:22 PM

Realities of monoline rescue attempt sink in

By Aline van Duyn, Saskia Scholtes and Michael Mackenzie

Published: January 24 2008 22:08 | Last updated: January 24 2008 22:08

In spite of a welcome ray of hope in the form of regulatory efforts to push for a potential cash injection from banks, sentiment in the bond insurance industry was once again clouded on Thursday by a realisation that a solution might not be imminent.

Hopes that banks might cough up some cash to plug holes left in the balance sheets of bond insurers such as Ambac and MBIA, which miscalculated the risks associated with assets backed by subprime mortgages, pushed their shares up sharply on Wednesday.

On Thursday, however, the euphoria subsided somewhat, not least because there was still a lot of detail to be ironed out and it was far from clear how many banks would back such a scheme.

Ambac’s shares fell 6.8 per cent by midday in New York to $12.77 and MBIA’s shares fell 13.2 per cent to $14.42.

Eric Dinallo, the New York State Insurance Superintendent who held talks with banks on Wednesday and has urged them to come up with as much as $15bn of cash for the bond insurers, made it clear no plan was ready to be announced.

“Clearly it is important to resolve issues related to the bond insurers as soon as possible,” said Mr Dinallo in a statement on Thursday. “However, it must be understood that these are complicated issues involving a number of parties and any effective plan will take some time to finalise.”

As the behind-the-scenes discussions continued on Thursday, and as bond insurers also continued to talk to potential equity investors such as private equity firms, another bond insurer lost its coveted triple-A rating.

Security Capital Assurance ditched its plans to raise $2bn in fresh capital, leading Fitch Ratings to slash its triple-A credit rating to single-A. This is not likely to be the end of the story – Fitch warned it may cut the ratings further. SCA’s shares were down 26.7 per cent at $2.78.

“[This] reflects the significant uncertainty with respect to the company’s franchise, business model and strategic direction; uncertain capital markets; the company’s future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the [bond insurer] market overall,” Fitch said.

Fitch, which has taken a more negative stance on the ratings of bond insurers than rivals Moody’s Investors Service and Standard & Poor’s, was clearly not anticipating an imminent cash shot from banks. The downgrade of SCA follows a cut of Ambac’s rating to AA by Fitch last week.

The worry is that other rating agencies may follow suit, and that the widespread loss of triple-A credit ratings could lead to losses for banks and other financial institutions with exposure to some of the over $2,000bn of debt guaranteed by bond insurers or hedges in which they are counterparties.

A bail-out could reduce these concerns, which have been hanging over the entire equity market. News of the talks about a capital infusion led to a powerful rebound for US stocks on Wednesday after a five-day losing run and on Thursday helped power the biggest gains in European stocks for almost five years.

“It would remove a lot of counterparty concerns that are hurting the financials,” said Doug Peta, strategist at J&W Seligman.

Some analysts said it was too early to say whether such a plan to bail out the monolines was feasible.

“Scepticism about a bail-out lies along three lines: whether the banks can overcome competing interests, whether the banks can actually afford the $15bn, whether the $15bn is enough,” said TJ Marta, fixed income strategist at RBC Capital Markets. Some analysts speculated that the banks might be forced them to raise additional capital, such as from sovereign wealth funds, given the constraints on their capital.

The problems for bond insurers, of which MBIA and Ambac are the largest, stems from their move into structured finance. Historically, bond insurers have guaranteed payments on debt borrowed by municipalities in the US. By allowing lower-rated entities to essentially piggy-back on the insurers’ triple-A credit ratings, for a fee, municipalities were able to sell their bonds to investors who only wanted top ratings.

Structured finance, which includes guaranteeing payments on bonds backed by other debt, some of it in turn backed by assets such as mortgages, has turned out to be riskier than their traditional municipal business, with higher rates of default. The scale of losses associated with such collateralised debt obligations (CDOs) is still not clear, and estimates have continued to rise in recent weeks.

This has led to shortfalls in capital needed to preserve triple-A credit ratings, and a crisis in confidence which has made it made it hard for MBIA and Ambac to get new business.

In a back of the envelope calculation, Geraud Charpin, analyst at UBS, said that a downgrade from triple-A to double-A would lead to an extra $10bn of higher counterparty risk at banks. Mr Charpin based this on the assumption that the insurers guaranteed about $2,200bn of debt, of which probably around $1,000bn is non- municipal debt.

“Of course, the writedown would be heavier in case of a complete failure [which would void the guarantee and force a full mark-to-market pricing of the securities],” Mr Charpin said. “At this stage we are not sure who already made appropriate – preventive – writedowns and who did not. It is possible the overhang of additional writedowns in bank books was overestimated by the market.”

Working out answers to these questions is now key, but not easy. One of the problems is that the level of losses associated with mortgage-backed assets is not yet known. Many analysts are now factoring in worst-case scenarios in terms of losses – a few weeks ago many only ascribed a low chance of that being the case.

Nigel Myer, analyst at Dresdner, said investment banks might be prompted to back a bail-out if they believe losses could be worse than currently expected.

“If structured finance valuations can be maintained and that market kept open, the cost of injecting new capital may be less than the writedowns that would otherwise be incurred should a [bond insurer] fall below double-A, which we believe to be a critical threshold,” he said. “Could a sweetheart deal within the industry work – we think it could, but the odds are against it because the incentive for each player is to stay out while others take part.”

http://www.ft.com/cms/s/0/8c8e20d8-cabb-11dc-a960-000077b07658.html

On a related note...over at CalculatedRisk:

http://calculatedrisk.blogspot.com/2008/01/egan-jones-monolines-need-200-billion.html

Don Simmons · at 8:42 AM

The Fed did not panic

Posted by Ambrose Evans-Pritchard on 23 Jan 2008 at 17:39

Let us scotch one foolish and dangerous notion already gaining acceptance. Those who accuse the Fed of acting out of panic in slashing rates 75 basis points on Wednesday do not grasp the seriousness of the situation.

The move was imperative to prevent a grave financial crisis spiralling into disaster. The threat of a melt-down in the $2.4 trillion market for US municipal bonds had suddenly moved from possible to imminent. No monetary authority could ignore such risks.

As skittish markets showed today, more will undoubtedly be required, and soon. But at least the US authorities are facing up to the predicament that they created in the first place by fixing the price of credit artificially low for year after year, and failing to regulate banks, derivatives, and structured credit with a minimum of common sense.

“Central banks have lost control,” said George Soros to the chastened elites in Davos today, so humbled from the hubris of last year.

Not yet, perhaps, but the banks have certainly come a little too close to losing control. Both the European Central Bank and the Bank of England may yet do so, trapped by their inflation orthodoxies and mandates.

The trigger for the Fed action was the move on Friday by Fitch to strip the US monoline insurer AMBAC of its `AAA’ rating, with the mounting risk that the rating agencies would soon downgrade its bigger peer, MBIA.

Why does it matter? Because they have guaranteed a large part of that $2.4 trillion bond market.

If they lose their AAA ratings, all the bonds that they have insured will lose their ratings pari passu. This would force a large number of pension funds and institutions under strict investment rules to sell their bonds, setting off a cascade of sales with no obvious buyers in sight.

The effect could easily have been – and may still be – a second lethal leg to the credit crisis, with vast losses. This could all too quickly lead to a run of bank failures.

Do not be fooled by the fall in three-month dollar LIBOR rates. These had not fully returned to normal last week. They reflected the drastic change in expected interest rates, as priced by the futures markets.

The contracts were already pricing in huge rate cuts within three months. Adjusted for this, LIBOR had not really eased.

No doubt the Fed had a mix of fears. The “financial accelerator” was moving into a very ugly mode. The ABX index measuring subprime debt – and used as a benchmark for bank write-offs – had begun to plunge again, nearing 13 cents on the dollar for some BBB debt and 26 cents for A grade.

Even the AAAs were down as low as 60 cents for some vintages. S&P last week raised the expected default level on 2006 subprime debt from 14pc to 19pc. Citicorps said it was raising loss reserves on auto debt and credit cards. The noose was tightening fast.

If there was any doubt about the gravity of this crisis, it ended on Monday when the entire universe of global equities went into free-fall, with German stocks off 8pc and Japan’s Nikkei suffering the worst two-day fall in seventeen years.

The Fed action is not to everybody’s taste. Stephen Roach, the head of Morgan Stanley Asia, was blue in the face from righteous wrath in Davos today.

“Policy-makers are reaching back to the same play book that created this mess in the first place. They’re saying we are there to clean up after bubbles burst first rather than to prevent them. It’s a dangerous, reckless and irresponsible way to run the world’s largest economy.’’

“We have a market-friendly Fed injecting a lot of liquidity in the system which will set us up for another bubble economy. Excessive monetary accommodation just takes us from bubble to bubble to bubble.”

I have much sympathy for this view. The Fed has been “asymmetric” for much of the last fifteen years, standing back as asset prices overheat but then interviewing to prevent a proper liquidation to purge the excesses. Indeed, I would go futher, blaming them for actively stoking those bubbles in the first place.

But the time for tough-love is when the economy is humming along a little too fast, not when it is in the midst of a grave crisis. Calvinist monetary discipline at this point would wreak havoc, and possibly endanger the political stability of several countries (in Europe, if not in the US).

The best we can hope to do is right the ship slowly, and turn a blind eye to moral hazard for now. It is not pretty. It means a lot of pin-stripe villains and leverage louts in the City will escape their condign punishment.

But as Fed governor Frederic Mishkin put it recently, we cannot chastise whole societies to keep the moralists content.

Yes the banks will soon be able to play the carry trade again, borrowing short to lend long. It cleanses the balance sheets.

Money rains like manna from Heaven. Profits loom again and the new cycle starts.

That will be the moment for society to settle its scores with the credit clowns. Not now.

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/december07/thefeddidnotpanic.htm

Don Simmons · at 8:22 AM

Reprinted from Cayman Net News
caymannetnews.com

Letter: Spread of avian flu by drinking water
Published on Tuesday, January 22, 2008

Dear Sir,

There is a widespread link between avian flu and water, e.g. in Egypt to the Nile delta or Indonesia to residential districts of less prosperous humans with backyard flocks and without central water supply as in Vietnam.

Avian flu infections may increase in consequence to increase of virus circulation. Transmission of avian flu by direct contact to infected poultry is an unproved assumption from the WHO. Infected poultry can everywhere contaminate the drinking water. All humans have contact to drinking water. Special in cases of small water supplies this pathway can explain small clusters in households.

In hot climates and the tropics flood-related influenza is typical after extreme weather and natural after floods.

The virulence of the influenza virus depends on temperature and time. If young and fresh H5N1 contaminated water from low local wells, cisterns, tanks, rain barrels or rice fields is used for water supply the water temperature for infection may be higher (at 24°C the virulence of influenza viruses amount to 2 days) as in temperate climates (for “older” water from central water supplies cold water is decisive to virulence of viruses: at 7°C the virulence of influenza viruses amount to 14 days).

Human to human and contact transmission of influenza occur - but are overvalued immense. In the course of influenza epidemics in Germany, recognized clusters are rare, accounting for just 9 percent of cases e.g. in the 2005 season. In temperate climates the lethal H5N1 virus will be transferred to humans via cold drinking water, as with the birds in February and March 2006, strong seasonal at the time when drinking water has its temperature minimum.

The performance to eliminate viruses from the drinking water processing plants regularly does not meet the requirements of the WHO and the USA/USEPA. Conventional disinfection procedures are poor, because microorganisms in the water are not in suspension, but embedded in particles. Even ground water used for drinking water is not free from viruses.

In temperate climates strong seasonal waterborne infections like the norovirus, rotavirus, salmonella, campylobacter and - differing from the usual dogma - influenza are mainly triggered by drinking water, dependent on the water’s temperature (in Germany it is at a minimum in February and March and at a maximum in August). There is no evidence that influenza primarily is transmitted by saliva droplets.

In temperate climates the strong interdependence between influenza infections and environmental temperatures can’t be explained by the primary biotic transmission by saliva droplets from human to human at temperatures of 37.5°C. There must be an abiotic vehicle like cold drinking water. There is no other appropriate abiotic vehicle.

In Germany about 98 percent of inhabitants have a central public water supply with older and better protected water. Therefore, in Germany cold water is decisive to the virulence of viruses.

Dipl.-Ing. Wilfried Soddemann
Free Science Journalist

Don Simmons · at 5:30 PM

World economic situation serious: IMF

http:// www.news.com.au

ALL developed countries are suffering from the slowdown in the US putting the world economy in a serious situation, IMF Managing Director Dominique Strauss-Kahn said overnight.

His comments came after world stock markets fell sharply and demand for safe-haven bonds and currencies soared on fears a slowdown in the US economy would be worse than expected.
”The situation is serious,'' he said. ”All countries in the world are suffering from the slowdown in growth in the United States, all countries in the developed world.''

He warned that emerging market growth could also be dragged down by the outlook in the US.

”Fortunately, emerging markets continue to have strong enough growth and will continue to drive global growth. Nevertheless, it is not impossible that it may have an effect even on emerging market countries, that growth is weaker than forecast.''

US markets were closed on Monday for a holiday, but US stock index futures were down sharply, suggesting investors were pessimistic about the outlook for US stocks.

Investors in Asia and Europe were carrying through from last week's concern on Wall Street that a $US150 billion fiscal stimulus proposed by President George W. Bush would not be enough to stop the US economy falling into recession.

”It seems financial markets did not appreciate the package put forward by President Bush,'' Mr Strauss-Kahn said.

”We see that the markets did not react positively to the proposals that were made.

”It shows that in the United States the debate is becoming quite pointed on the risks and therefore on the need to try to ward them off by monetary policy, but not only that,'' he said.
___________________________________________

This is not the time to panic, but surely is a time to be vigilant! You can start here

Don Simmons · at 10:54 AM

America is in for major changes coming down the pike. Get ready.

http:// www.kunstler.com

January 14, 2008

[by James Kunstler]

The dark tunnel that the US economy has entered began to look more and more like a black hole last week, sucking in lives, fortunes, and prospects behind a Potemkin facade of orderly retreat put up by anyone in authority with a story to tell or an interest to protect -- Fed chairman Bernanke, CNBC, The New York Times, the Bank of America.... Events are now moving ahead of anything that personalities can do to control them.

The "housing bubble" implosion is broadly misunderstood. It's not just the collapse of a market for a particular kind of commodity, it's the end of the suburban pattern itself, the way of life it represents, and the entire economy connected with it. It's the crack up of the system that America has invested most of its wealth in since 1950. It's perhaps most tragic that the mis-investments only accelerated as the system reached its end, but it seems to be nature's way that waves crest just before they break.

This wave is breaking into a sea-wall of disbelief. Nobody gets it. The psychological investment in what we think of as American reality is too great. The mainstream media doesn't get it, and they can't report it coherently. None of the candidates for president has begun to articulate an understanding of what we face: the suburban living arrangement is an experiment that has entered failure mode.

I maintain that all the "players" -- from the bankers to the politicians to the editors to the ordinary citizens -- will continue to not get it as the disarray accelerates and families and communities are blown apart by economic loss. Instead of beginning the tough process of making new arrangements for everyday life, we'll take up a campaign to sustain the unsustainable old way of life at all costs.

A reader sent me a passle of recent clippings last week from the Atlanta Journal-Constitution. It contained one story after another about the perceived need to build more highways in order to maintain "economic growth" (and incidentally about the "foolishness" of public transit). I understood that to mean the need to keep the suburban development system going, since that has been the real main source of the Sunbelt's prosperity the past 60-odd years. They cannot imagine an economy that is based on anything besides new subdivisions, freeway extensions, new car sales, and Nascar spectacles. The Sunbelt, therefore, will be ground-zero for all the disappointment emanating from this cultural disaster, and probably also ground-zero for the political mischief that will ensue from lost fortunes and crushed hopes.

From time-to-time, I feel it's necessary to remind readers what we can actually do in the face of this long emergency. Voters and candidates in the primary season have been hollering about "change" but I'm afraid the dirty secret of this campaign is that the American public doesn't want to change its behavior at all. What it really wants is someone to promise them they can keep on doing what they're used to doing: buying more stuff they can't afford, eating more s#!tty food that will kill them, and driving more miles than circumstances will allow.

Here's what we better start doing.

Stop all highway-building altogether. Instead, direct public money into repairing railroad rights-of-way. Put together public-private partnerships for running passenger rail between American cities and towns in between. If Amtrak is unacceptable, get rid of it and set up a new management system. At the same time, begin planning comprehensive regional light-rail and streetcar operations.End subsidies to agribusiness and instead direct dollar support to small-scale farmers, using the existing regional networks of organic farming associations to target the aid. (This includes ending subsidies for the ethanol program.)

[i]Begin planning and construction of waterfront and harbor facilities for commerce: piers, warehouses, ship-and-boatyards, and accommodations for sailors. This is especially important along the Ohio-Mississippi system and the Great Lakes.[/i]In cities and towns, change regulations that mandate the accommodation of cars. Direct all new development to the finest grain, scaled to walkability.

This essentially means making the individual building lot the basic increment of redevelopment, not multi-acre "projects." Get rid of any parking requirements for property development. Institute "locational taxation" based on proximity to the center of town and not on the size, character, or putative value of the building itself. Put in effect a ban on buildings in excess of seven stories. Begin planning for district or neighborhood heating installations and solar, wind, and hydro-electric generation wherever possible on a small-scale network basis.

We'd better begin a public debate about whether it is feasible or desirable to construct any new nuclear power plants. If there are good reasons to go forward with nuclear, and a consensus about the risks and benefits, we need to establish it quickly. There may be no other way to keep the lights on in America after 2020.

We need to prepare for the end of the global economic relations that have characterized the final blow-off of the cheap energy era. The world is about to become wider again as nations get desperate over energy resources. This desperation is certain to generate conflict. We'll have to make things in this country again, or we won't have the most rudimentary household products.

We'd better prepare psychologically to downscale all institutions, including government, schools and colleges, corporations, and hospitals. All the centralizing tendencies and gigantification of the past half-century will have to be reversed. Government will be starved for revenue and impotent at the higher scale. The centralized high schools all over the nation will prove to be our most frustrating mis-investment. We will probably have to replace them with some form of home-schooling that is allowed to aggregate into neighborhood units. A lot of colleges, public and private, will fail as higher ed ceases to be a "consumer" activity. Corporations scaled to operate globally are not going to make it. This includes probably all national chain "big box" operations. It will have to be replaced by small local and regional business. We'll have to reopen many of the small town hospitals that were shuttered in recent years, and open many new local clinic-style health-care operations as part of the greater reform of American medicine.

Take a time-out from legal immigration and get serious about enforcing the laws about illegal immigration. Stop lying to ourselves and stop using semantic ruses like calling illegal immigrants "undocumented."

Prepare psychologically for the destruction of a lot of fictitious "wealth" -- and allow instruments and institutions based on fictitious wealth to fail, instead of attempting to keep them propped up on credit life-support. Like any other thing in our national life, finance has to return to a scale that is consistent with our circumstances -- i.e., what reality will allow. That process is underway, anyway, whether the public is prepared for it or not. We will soon hear the sound of banks crashing all over the place. Get out of their way, if you can.

Prepare psychologically for a sociopolitical climate of anger, grievance, and resentment. A lot of individual citizens will find themselves short of resources in the years ahead. They will be very ticked off and seek to scapegoat and punish others. The United States is one of the few nations on earth that did not undergo a sociopolitical convulsion in the past hundred years. But despite what we tell ourselves about our specialness, we're not immune to the forces that have driven other societies to extremes. The rise of the Nazis, the Soviet terror, the "cultural revolution," the holocausts and genocides -- these are all things that can happen to any people driven to desperation...

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Thursday, January 31, 2008

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Egan Jones: Monolines Need $200 Billion in Capital

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US unveils new driver's license rules

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