MaxedOutMama

Already retrenching as they try to cover $221.8 billion in losses and writedowns, European banks also stand to be hurt more than most if emerging markets goes sour, said Stephen Jen, chief currency strategist at Morgan Stanley in London.

European banks lent $3.5 trillion to these economies, compared with $500 billion from the U.S. and $200 billion from Japan, according to his estimates. Those in Austria and Spain were particularly exposed, he said. Three quarters of loans to China and India originate in Europe.

At the same time, U.K. Prime Minister Gordon Brown said today the IMF is running out of cash and China and Persian Gulf oil-producing nations should pay into a new fund to help eastern Europe.

``The IMF has $250 billion available,'' Brown said. ``This may not be enough. We need a multilateral solution. The big surplus countries are in a position to help the most.''

Citigroup Inc., HSBC Holdings Plc and seven other banks are still seeking buyers for $6 billion of loans to Investment Corp. of Dubai, more than two months after underwriting the debt for the state-owned holding company.

Demand for Dubai loans has dried up on investor concern that the worldwide credit crunch will hurt the Persian Gulf state's ability to finance itself. Dubai's government-controlled companies owe at least $47 billion, more than the emirate's 2006 gross domestic product, according to Moody's Investors Service.

Your "dream house" now comes with a free Mercedes or BMW, or at least a few gold coins. In some cases, even a small flat is being thrown into the deal for those eying premium segment bungalows.
...
The promoter of Ashiana Housing, Rohit Modi, said they had started an apartment project at Rs 2,100/sq ft on NH 58 in Ghaziabad. Till six months back, apartments at these places were quoting at upwards of Rs 3,000/sq ft.

Not only this, many developers are reducing the floor size of the flats from 2000 sq ft to around 1,200 to 1,500 sq ft. This translates to a fall in the price of a three-bedroom apartment from Rs 60 lakh to around Rs 30 lakh.

The country's huge trade surplus plunged 94% in September from the same month in 2007 as exports continued to lose ground and imports again surged.
...
Growth did contract in the June quarter, but the flagging export performance and weakening industrial production figures are suggesting even more strongly that the economy contracted in the September quarter.

China's government will pump $19 billion into Agricultural Bank of China and remove most of its $120 billion of bad loans, paving the way for the lender to restructure and sell shares to the public.

The cash injection will be announced today, a bank official with knowledge of the matter said, declining to be identified before the announcement at 3:30 p.m. A unit of China's sovereign wealth fund will take a 50 percent stake in the bank and China's finance ministry will hold the rest, the person said.

China will raise export rebates on a range of products including textiles, toys and medicines next month to support the world's fourth-largest economy as the deepening global slowdown hurts demand for Chinese goods.

Tax rebates on some shipments of textiles, garments and toys will be increased to 14 percent and those on some plastics exports will be lifted to 9 percent, the Ministry of Finance said today on its Web site. The adjustment, which starts on Nov. 1, will apply to 3,486 items which account for a quarter of taxable exports, the statement said.
...
Half of the country's toy exporters went out of business in the first seven months of the year because of rising production costs and the increase in the value of the yuan, the customs bureau said last week. A quarter of Hong Kong-owned businesses in the Pearl River Delta manufacturing hub in southern Guangdong province may go bankrupt because of the global financial crisis, the Federation of Hong Kong Industries said yesterday.

President Cristina Fernandez de Kirchner will unveil a new pension fund plan at 4 p.m. New York time today, the country's social security administration said in a statement. Fernandez will nationalize the system, giving the government control of $29 billion in retirement accounts, La Nacion reported, citing government officials it didn't identify.

Fernandez has struggled to raise cash to cover growing financing needs as the global financial crisis drives down prices on the country's commodity exports and erodes demand for higher- yielding, developing-nation debt. The government's borrowing needs will swell to as much as $14 billion next year from $7 billion in 2007, RBC Capital Markets, a Toronto-based unit of Canada's largest bank, said in a report today.

China's economy expanded 9% in the third quarter after growing 10.1% in the second, according to data released Monday by the National Bureau of Statistics.
...
Citi Investment Research analyst Lan Xue forecast further declines in Chinese stocks, saying there was as a greater than 50% chance China would tip into deflation, excluding food prices, next year.

The only surprise here is that Obama’s advisers announced this now. Having EPA regulation GHGs under the Clean Air Act means dramatically higher costs for energy (85% of our energy comes from coal, petroleum, and natural gas). Obama would require over 1.2 million medium to large buildings to get permits because they emit GHGs.
* 1 million mid-sized to large buildings–this includes 10% of all churches, 1/5 of all food service businesses, half of the buildings in the lodging industry, and 92,000 health care facilities.
* 200,000 manufacturing operations
* 20,000 large farms

This plan also means that a lot of farms will need permits from EPA to stay in business. According to the Department of Agriculture:
According to the Department of Agriculture the following will need permits:
* Dairy facilities with over 25 cows
* Beef operations with over 50 cattle
* Swine operations with more than 200 hogs
* Farms with more than 500 acres of corn

This is just a taste of how far reaching this plan is

It is entirely unclear at this point what sort of MACT standard would be placed on which sources for purposes of controlling GHG emissions, what such controls would cost, and whether such controls would be effective. However, complying with MACT standards with respect to GHG emission controls likely would place a significant burden on States and localities, manufacturing and industrial facilities, businesses, power plants, and potentially thousands of other sources throughout the United States. As the draft explains, section 112 “appears to allow EPA little flexibility regarding either the source categories to be regulated or the size of sources to regulate…. EPA would be required to regulate a very large number of new and existing stationary sources, including smaller sources…we believe that small commercial or institutional establishments and facilities with natural gas fired furnaces would exceed this major source threshold; indeed, a large single family residence could exceed this threshold if all appliances consumed natural gas.”

Compliance with the standards under section 112 is required to be immediate for most new sources and within 3-4 years for existing sources. Such a strict timeline would leave little to no time for emission capture and reduction technologies to emerge, develop, and become cost-effective.

The highest insured unemployment rates in the week ending Sept. 27 were in Puerto Rico (5.3 percent), California (3.2), Michigan (3.2), Nevada (3.2), Oregon (3.2), New Jersey (3.1), South Carolina (3.0), Pennsylvania (2.9), the Virgin Islands (2.8), Arkansas (2.7), North Carolina (2.7), and Rhode Island (2.7).

The largest increases in initial claims for the week ending Oct. 4 were in Ohio (+7,217), California (+6,003), Michigan (+5,661), Florida (+4,253), and Alabama (+3,471), while the largest decreases were in Texas (-21,249), Louisiana (-5,461), Mississippi (-1,108), Washington (-809), and Kentucky (-525).

The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year. The Heritage Foundation's Center for Data Analysis estimates that by 2011, under the Obama plan, an additional 10 million filers would pay zero taxes while cashing checks from the IRS.

The total annual expenditures on refundable "tax credits" would rise over the next 10 years by $647 billion to $1.054 trillion, according to the Tax Policy Center. This means that the tax-credit welfare state would soon cost four times actual cash welfare. By redefining such income payments as "tax credits," the Obama campaign also redefines them away as a tax share of GDP. Presto, the federal tax burden looks much smaller than it really is.

The political left defends "refundability" on grounds that these payments help to offset the payroll tax. And that was at least plausible when the only major refundable credit was the earned-income tax credit. Taken together, however, these tax credit payments would exceed payroll levies for most low-income workers.

``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

Iceland's foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won't trade the krona and suppliers from abroad are demanding payment in advance. The government has asked banks to prioritize foreign currency transactions for essentials such as food, drugs and oil.

The ramifications of Iceland's misery are probably more serious than people realize. The country's bank assets are more than 10 times greater than its gross domestic product, so the government clearly cannot afford a bailout. This is going to be a large default, affecting many parties. In the United Kingdom alone, 300,000 account holders face sudden loss of access to their funds, and the process for claiming deposit insurance is not entirely clear.

But there's a broader concern. With European governments turning down his appeals for assistance, Iceland's prime minister, Geir Haarde, warned last week that it was now "every country for itself." This smacks of the financial autarchy that characterized defaulters in the financial crisis in Asia in the late 1990s. Similarly, when Argentina defaulted on its debt in 2001-'02, politicians there faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia after the crises of 1998, local enterprises and banks took the opportunity of the confusion to grab property, then found ways to ensure that courts sided with them.
...
In addition, we're now likely to see substantially more defaults and credit panics in smaller countries and emerging markets. After Iceland's fall, every creditor to other nations with large deficits and substantial external debt must be looking for ways to reduce its exposure. The obvious risks include much of Eastern Europe, Turkey and parts of Latin America. Russia's difficulties show that seemingly solvent countries can be high-risk: While the Russian central bank has gold and foreign exchange reserves of $556 billion, the private sector has recently built up an estimated $450 billion of debt. Creditors don't want to roll over the debt, so the government is using its reserves to do it. It has already ordered $200 billion channeled through state banks to companies repaying debt. If oil prices fall, a seemingly highly solvent country could quickly look nearly insolvent. Some other rising stars, such as Brazil and even India, may have similar problems.

In order to provide broad access to liquidity and funding to financial institutions, the Bank of England (BoE), the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank (SNB) are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets.

The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded. The Bank of Japan will be considering the introduction of similar measures.

Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets.

Federal Reserve Actions
To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.

These arrangements have been authorized through April 30, 2009.

Abstract: Explaining movements in daily stock prices is one of the most difficult tasks in modern finance. This paper contributes to the existing literature by documenting the impact of geomagnetic storms on daily stock market returns. A large body of psychological research has shown that geomagnetic storms have a profound effect on people's moods, and, in turn, people's moods have been found to be related to human behavior, judgments and decisions about risk. An important finding of this literature is that people often attribute their feelings and emotions to the wrong source, leading to incorrect judgments. Specifically, people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions. Misattribution of mood and pessimistic choices can translate into a relatively higher demand for riskless assets, causing the price of risky assets to fall or to rise less quickly than otherwise. The authors find strong empirical support in favor of a geomagnetic-storm effect in stock returns after controlling for market seasonals and other environmental and behavioral factors. Unusually high levels of geomagnetic activity have a negative, statistically and economically significant effect on the following week's stock returns for all U.S. stock market indices. Finally, this paper provides evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.

Many housing market observers have become concerned that house prices have grown too quickly of late, and that prices are now too high relative to per capita incomes. Prices will likely stagnate or fall, the argument goes, until they are better aligned with income. This idea is often formalized in the housing literature by asserting a long-run equilibrium relationship between house prices and fundamentals such as income, population, and user cost. The validity of this assumption has important implications for how we model house price dynamics. If the assumption is accurate|so that house prices and fundamentals are cointegrated then the error-correction specifcations of Abraham and Hendershott (1996), Malpezzi (1999), and Capozza et al. (2002) are appropriate.

In this paper I have used standard tests to show that there is little evidence for cointegration of house prices and various fundamentals at the national level. I have also shown that bootstrapped versions of more powerful panel-data tests, applied to a panel of 95 U.S. metropolitan areas over 23 years, also do not find evidence for cointegration. This does not mean that fundamentals do not affect house prices, but it does mean that the level of house prices does not appear to be tied to the level of fundamentals. Thus, the levels regressions found in the literature are likely spurious, and the associated error-correction models may be inappropriate.

I'm with Alex Castellanos on CNN who said that we just learned that McCain wants to buy everyone a house and Obama wants to provide everyone health care. And we're a country that's broke.

We're in deep trouble.