Replies to post #53057 on Zeev's Turnips Patch-No Politics (ZEEV)

[Joe Stocks]

Thanks for posting Noland's essay. I thought this was an interesting point he made.


"today’s extraordinary global backdrop increasingly places the U.S. financial sector directly in harms way. It has no alternative than to perpetuate the Great Mortgage Finance Bubble, but this entails the unending creation of massive amounts of non-productive, volatility-inducing, economic distorting debt. Regrettably, previous Credit excess has made profitable U.S. productive investment largely a thing of the past. Not only have distorted investment flows throughout Asia created enormous over-capacity, inflating U.S. wages and other costs have priced the U.S. out of the global manufacturing marketplace. And this will prove a rather tough structural sticking point for the inflationists. To sustain a level of household income growth necessary to support inflating (largely mortgage) debt levels only widens the competitive disadvantage of U.S. producers and fosters further manufacturing atrophy. While they don’t realize as much, the inflationists are fighting a losing war – fighting fevers with ice baths."

[sylvester80]

December 6 – Bloomberg: “California must trim $10.2 billion in spending as the most populous U.S. state seeks to eliminate a deficit equal to one-quarter of its budget, Governor Gray Davis said. Davis announced spending cuts over two years, including $3.2 billion from schools and $1.8 billion from road-building accounts. California’s deficit is expected to exceed $21 billion by the end of the next fiscal year...”

December 5 – Bloomberg: “Connecticut Governor John Rowland in a televised speech said he plans to raise income taxes on people who make more than $1 million and that he may cut $100 million of aid for cities and towns to help close the state’s $500 million budget deficit. The speech, carried by several Hartford TV stations, comes on the eve of Rowland firing 2,800 state workers, about 6 percent of the state workforce.”

December 4 – Bloomberg: “Massachusetts’ budget deficit could exceed $2 billion next year, the worst fiscal crisis since the 1930s, said Eric Kriss, the chief budget officer of governor-elect Mitt Romney”

December 3 – Bloomberg: “Illinois’ $12.9 billion of municipal bonds may be downgraded, Moody’s Investors Service said, citing widening budget deficits and rising health care costs.”

December 3 - Dow Jones (Christine Richard and David Feldheim): “National Century Financial Enterprises’ default Monday on asset-backed bond payments underscores growing concerns about potential weak spots in the more than $2 trillion asset-backed market (ABS). Market participants say the NCFE fiasco has raised questions about who’s ultimately responsibly for ferreting out fraud in highly complex asset-backed transactions, many of which carry the highest possible rating of triple-A.” An ABS analyst was quoted: “This is not just an example of a deal going bad. This is a call to action for the ABS market so that it doesn’t happen again.” Also from the article: “Moody’s, the only rating agency that has continued to rate NCFE transactions, is reviewing issues it hopes will allow the agency to catch any future NCFE-type situations earlier.” From a Moody’s executive: “We need to see if National Century is an isolated incident, or if there could be problems with other transactions and other asset classes. We are having discussions with trustees to see what they believe is their role in potentially finding these types of misdeeds. Do they have a fiduciary responsibility beyond their administrative role and how will it affect our ratings if they don’t?” From the article: “If trustees aren’t looking behind the numbers, said (the Moody’s exec) it’s possible that ‘we will require an additional party to find potential problems in the transaction or we may require more credit protection in the transaction.’ Moody’s also is looking at the conditions under which non-investment grade rated or unrated companies should be able to issue top-rated debt.”
..........

http://www.prudentbear.com/creditbubblebulletin.asp

[sylvester80]

Great link. Thanks.