Nortel goes bankrupt

There is not much to say here about this New York Times story:

OTTAWA — Nortel Networks, the Canadian telecom equipment maker, filed for bankruptcy protection from creditors Wednesday but analysts said its troubles might be too severe for it to recover and survive.

Unlike other companies, notably airlines, that have used bankruptcy protection to renew their businesses, Nortel, which began this decade as one of the world’s largest makers of telecommunications equipment, is probably headed for liquidation, several analysts said.

“I don’t think it’s going to exist,” said Mark Sue, an analyst with RBC Capital Markets, a unit of the Royal Bank of Canada.

If Mr. Sue and others are correct, the end of Nortel would be one of largest failures in the telecommunications equipment business. During the 1990s, Nortel designed and built much of the fiber optic equipment that now carries most of the Internet’s data.

Along with the company now known as Alcatel Lucent, it computerized the operation of telephone networks during the 1980s. Nortel pioneered the development of equipment and software that brought the world wireless phone networks.

Nortel’s demise would also be among the biggest business failures in Canadian history. During the zenith of the technology boom, Nortel’s market value accounted for about a third of all equity traded on the Toronto Stock Exchange.

Nortel’s shares peaked at 124.50 Canadian dollars in July 2000 in trading on the Toronto Stock Exchange. On Wednesday, Nortel closed at a market price of 12 Canadian cents, or 1.2 cents after adjusting for a stock consolidation. While the current economic slump contributed to Nortel’s decision to file for protection in both Delaware and its hometown, Toronto, the company’s problems began in 2001, when it was hit by the technology stock price collapse and became mired in an accounting scandal that led to criminal charges against three of its former executives.

Nortel’s woes went beyond finances. In the market for Internet-related equipment, Cisco Systems and others proved to be more innovative and successful.

In the heyday of the dotcom boom, Nortel was one of the biggest telecommunications companies, providing equipment and software for the wireless networks, and the internet. They were the pioneers in this field. Now companies like Cisco and Verizon have surpassed Nortel in providing such telecommunications equipment, sending Nortel into bankruptcy. I wonder how many other telecommunications companies will join Nortel as the world economy continues to slow.

Citigroup plans to split its supermarket financial services model

This is a rather interesting Marketwatch story:

BOSTON (MarketWatch) -- Following a blockbuster brokerage deal with Morgan Stanley, Citigroup Inc. is set to unveil a sweeping plan to unload several businesses and reduce its size by one-third -- moves that essentially sound a death knell for its financial-services supermarket model, according to a published report.

Citigroup announced a brokerage joint venture with Morgan Stanley late Tuesday, in what could be the first part of a major reorganization of the struggling company.

Beyond the Morgan Stanley joint venture, Citi will soon announce measures to shed two consumer-finance units and its private-label credit-card business, and step back from proprietary trading, The Wall Street Journal reported Wednesday.

Citi plans to narrow its focus to just wholesale banking for large corporate clients and retail banking for customers in selected markets around the world, according to the newspaper, which cited unidentified people familiar with the matter.

Citi shares fell more than 20% on Wednesday and closed below $5 after the company moved up the date of its quarterly earnings release to Friday. Morgan Stanley shares were down about 9% as the financial sector moved sharply lower.

Citigroup was the pioneer of the supermarket model for financial services when Citicorp merged with the Travelers Group in 1998 to become one of world's largest financial institutions. However, with mounting losses due to risky the collateralized debt obligations during the subprime mortgage crisis, Citigroup is now trying to raise whatever cash they can to cover these losses. That is why they are ripping apart the supermarket model of financial services, and have decided to concentrate their banking services with corporate clients and the ubber-rich customers. It seems to me that Citigroup is facing a SHTF situation, and they are trying to bug out.

Some more thoughts on the economy

My apologies for the lack of posting. I've been a little busy with other things, than posting. I've been watching the news, but I have not found a real desire to post on the political or economic events. Some of the events have gone beyond the three-ring circus--can you say Rod Blagojevich and the Cirque du Soleil revolving around Blagojevich's selection of Roland Burris to Barack Obama's U.S. Senate seat, or the Senate Democrats refusal to seat Burris? It seems like I'm watching a bunch of cocks strutting around with ruffled feathers over a whole crap of political nonsense. The second big political news story has been a combination of Barack Obama coming to Washington to be inaugurated into the Oval Office. I'm simply waiting for the transfer of power to take place on January 20th.

Then there is George W. Bush. He is about to leave office in the next couple of days. President Bush has given his last press conference, attended his last cabinet meeting, and has left this country's economy in the worst possible shape ever. And let us not forget that Bush has left us with a $10 trillion dollar debt, and two disastrous wars in the Middle East. President Bush has been a complete failure in the Oval Office. I'm just patiently waiting for this ass to leave Washington--to go back to Crawford Texas and clear brush, or crash his mountain bike on some godforsaken trail.

Finally, there is the U.S. economy. For the entire month of December, 2008, I posted story after story about the U.S. economy collapsing like a house of cards. There was not much of an analysis on why the U.S. economy was collapsing. In fact, you probably know, as well as I, the reasons for this collapse--the housing crash, the subprime mortgage debt, the financial crisis and bailout, the huge U.S. debt, the war in Iraq and Afghanistan draining the U.S. Treasury. It all snowballed into a huge mess. Now we're entering the second year of the recession, and things are getting worst:

WASHINGTON - The U.S. economy started the new year on weaker footing as recession-shocked Americans retrenched further, forcing retailers to ring up fewer sales and factories to cut back production.

The Federal Reserve's new snapshot of business conditions nationwide, released Wednesday, suggested the country's economic picture has darkened over the last two months. The outlook appears equally dim.

"Overall economic activity continued to weaken across almost all of the Federal Reserve's districts," the report concluded.

To help brace the economy, Fed Chairman Ben Bernanke and his colleagues have signaled that they will leave a key interest rate at record-low levels for some time.

The Fed dropped the interest rate down to 0.25 percent in December--basically zero percent. The Fed will apparently keep this rate as it meets on January 27-28, perhaps for the rest of this year. The problem for the Federal Reserve is that they no longer have any ammunition left for their interest rate cuts, and the U.S. economy continues to worsen. U.S. retail sales have dropped 2.7 percent in December, more than double what Wall Street was expecting. Pending home sales plunged by four percent to 82.3, the lowest level since the National Association of Realtors Pending Home Sales Index started recording sales in 2001. Home prices fell by a record 18 percent from October last year, showing a year-over-year decline for 22 straight months. The unemployment rate jumped to 7.2 percent in December, as employers slashed over 524,000 jobs. For all of 2008, the U.S. economy has lost a net total of 2.6 million jobs, the first time payrolls have fallen for a full year, and the most jobs lost since 1945, where nearly 2.8 million jobs were lost. Around 11.1 million people were unemployed in December. And this number does not include those who were dropped from the unemployment rolls, who have given up looking for unemployment, or who are underemployed in part-time work. The number of people working part-time has jumped from 7.3 million in November to 8 million in December. The economic news is still god-awful. When you look at all the bad economic news coming out, the continued mess of the banking system, the subprime mortgage, the housing wasteland, the increasing unemployment, it is no wonder that consumers have been cutting back on their spending. It is no wonder that retailers have had a very "red" Christmas season, and they are still suffering from poor sales and high inventories coming into the new year.

This brings us back to the Federal Reserve. With so many economic problems that the U.S. is facing--high unemployment, high federal debt, a serious recession, and a disintegrating housing and financial market, I'm not sure that there is much the Fed can do. They have cut the interest rate down to zero, however the banks are refusing to loan out money to stimulate the economy. The Wall Street banks are facing huge losses on their own balance sheets after gambling on derivative strategies tied to the housing market. And all that $700 billion in the U.S. government's bailout to the Wall Street banks have gone into shoring up the banks' balance sheets--not giving out loans to American homeowners or businesses. I do not know what else the Fed can do in this troubled U.S. economy.

So I've been watching the news, waiting for the inauguration of Barack Obama in the White House. Obama will enter into the Oval Office in less than a week. Already he has announced an economic stimulus plan, a $775 billion plan combining tax cuts with infrastructure projects, that he had hoped would pass quickly in Congress. From what I can see, Congress is in no mood for quickly passing any legislation, and the Republicans are going back to their old ways of filibustering everything that they oppose. I'm just watching and waiting.

Saturday Morning Cartoons--Popeye in Let's Celebrake

The new year of 2009 is about to begin next week. For today's Saturday Morning Cartoons, I found a very interesting Popeye cartoon Let's Celebrake. This 1938 cartoon has Popeye and Bluto strolling over to Olive Oil's place to pick her up for a New Year's evening of dancing and celebration. They are met at the door by Olive Oil's grandmother, who is staying home New Year's Eve, knitting by the fireplace. Popeye feels a little sympathetic that Olive's grandmother will be home alone, so he brings her along to the party. At the party, Bluto asks to dance with Olive Oil, while Popeye ends up trying to dance with a shaky Grandma. Wimpy then announces a dance contest with the prize being a loving cup. Who will win the dance contest? Bluto and Olive Oil, or Popeye and Grandma? I will not divulge the outcome of this contest, however, Popeye's spinach is used, and this is one of the few Popeye cartoons where both Bluto and Popeye do not get into a fisticuffs fight--where Popeye usually wins the fight over Bluto because he "eats his spinach." With that, have a Happy New Year enjoying Popeye in Let's Celebrake! From YouTube:

Hottest Christmas toy on the market? How about a doll that takes a crap!

I really do not know what to say about this Washington Post story:

So long, Betsy Wetsy. Baby dolls just got a whole lot more real.

Put her on her little pink plastic toilet. Press the purple bracelet on Baby Alive Learns to Potty. "Sniff sniff," she chirps in a singsong voice. "I made a stinky!"

This season's animatronic Baby Alive -- which retails for $59.99 -- comes with special "green beans" and "bananas" that, once fed to the doll, actually, well, come out the other end. "Be careful," reads the doll's promotional literature, "just like real life, sometimes she can hold it until she gets to the 'potty' and sometimes she can't!" (A warning on the back of the box reads: "May stain some surfaces.")

The mess made by the $39.95 Little Mommy Real Loving Baby Gotta Go Doll, ("Over 60 phrases and fun sounds!") is more hypothetical. Once she is placed on her little toilet, a magnet triggers a presto, change-o in the plastic bowl: "The 'water' in the toilet disappears, with the expected 'potty waste' appearing in its place," says manufacturer Mattel. "Your child can then flush the toilet. The 'water' will reappear, while the toilet makes a very realistic flushing sound!" And then comes the applause.

The dolls, which are being heavily advertised on television, are expected to be the season's big sellers. Since the dolls were introduced to stores this fall, managers at Wal-Mart, Target and Toys R Us have reported trouble keeping them in stock. And Baby Alive, listed as one of the Hot Toys of 2008 by Hottoys2008.com, was sold out at Wal-Mart, eToys.com and the AOL shopping site a week before Christmas.

But not everyone thinks dolls need to be this real. Some things, they argue, are better left to the imagination. This battle over whether pooping dolls are an appropriate toy is only the latest skirmish in a long war between child development experts and toymakers. Psychologists say the best toys encourage children to pretend and use make-believe (witness the fact that children often love the boxes their expensive toys come in more than the toy itself). But toymakers want to use the latest technology to make and sell ever-more realistic toys. (Baby Alive's movements are the result of sophisticated robotics controlled by the same kind of microprocessor that navigates satellites and runs nuclear power plants.)

"Retailers have bought heavily into these dolls," said Reyne Rice, trend specialist with the Toy Industry Association. "They feel that these are some of the more popular items for girls this year." Although most baby dolls are sold in the last six weeks of the year and firm sales figures won't be available until early next year, Rice said indicators look good for big Christmas sales.

A doll that takes a crap, and shows kids the wonders of potty training. Do children really want these type of dolls that show the wonders of human excrement? The WaPost story calls these dolls best-sellers, and I'm sure that the kids are anxious to have the latest toys that are heavily advertised on TV by the toy-makers as the hottest toys. My niece wanted the Hokey Pokey Elmo, for Christmas, two years ago. Santa gave her Hokey Pokey Elmo. She played with it Christmas morning, and maybe a couple of days after that, but then almost completely ignored the toy after that. She got into other toys, like My Little Pony, and Littlest Pet Shop. I think she still has the Elmo doll sitting in her closet. Looking at this Baby Alive doll, I believe it will end up in the back of the closet, along with the Hokey Pokey Elmo doll, as a $60 doll that will be played with once on Christmas morning, and then forever trashed. Then again, the marketers have found a way to cash in by hyping up this outrageous, pooping, toy, and heavily advertise it on the cartoon shows so that children could pester their parents on purchasing this "crappy" toy. It is just incredible.

Merry Christmas!

Time for some eggnog, Santa, and lots of presents! Here is a little holiday treat for Christmas, a 1940 Merrie Melodies cartoon Bedtime for Sniffles. Sniffles the Mouse attempts to stay awake the entire night, before Christmas, in an attempt to see Santa Clause. Needless to say, staying awake all night for Santa is not an easy task. Not even a good cup of hot coffee and the Good Mousekeeping magazine can help Sniffles stay awake. Will Sniffles stay awake long enough to see the Big Guy himself? Find out on YouTube:



Have a Happy Holidays!

Saturday Morning Cartoons--Gift Unwrapped

It is the last Saturday before Christmas, and let us have some holiday joy with this Merrie Melody cartoon Gift Unwrapped. This 1952 cartoon has Sylvester chasing Tweety for a Christmas morning snack, while Hector the Bulldog chases Sylvester--all of this taking place in Granny's home. Granny finds a unique way of making a Christmas peace within the house. From YouTube:

More indicators to show just how bad the U.S. economy is heading

Conference Board's leading economic indicators fell for the second consecutive month. From The New York Times.

I'm not sure what to say about this New York Times story:

A private research group’s measure of the economy’s health fell again in November and its six-month rate of decline hit the worst level since 1991.

The Conference Board, based in New York, said Thursday that its index of leading economic indicators fell for the second consecutive month, dropping 0.4 percent in November. That was slightly better than the 0.5 percent decline economists surveyed by Thomson Reuters had expected.

The index is intended to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.

Based on revised numbers, the index has decreased 2.8 percent in the six months through November, the worst drop since 1991, when the economy was in a recession.

Drops in building permits and share prices, and increases in unemployment claims, led the index lower.

The Labor Department reported on Thursday that new applications for jobless benefits fell to a seasonally adjusted 554,000 last week, from an upwardly revised figure of 575,000 the previous week. Still, the four-week moving average, which smoothes out fluctuations, increased slightly to 543,750 claims, the highest since December 1982. The labor force has grown by about half since then.

Without increases to the money supply from federal bailouts, the leading indicators’ reading would have been far worse. The recession that officially began in December 2007 continues to ravage businesses in almost every sector.

The indicators are showing just how deep this U.S. recession is heading, and it is going to take a lot of brainpower and unconventional thinking, from the Barack Obama administration, in order to get this economy back on some type of growth track.

Fake Christmas trees gaining popularity

Is it time now to purchase a fake tree?

This is a rather interesting Christmas story from MSNBC News, although I think the war between fake Christmas trees and real Christmas trees will never be resolved:

On Nov. 30, Jason Baer sent out a tweet, or message, on the social networking site Twitter announcing a milestone in his life:

"Broke down & bought a faux Xmas tree. It's nice, and I'm psyched for no needle clean-up, but still a bit apprehensive. Your experiences?"

After 18 years of buying only real trees, Baer, a 39-year old social media and e-mail consultant from Flagstaff, Ariz., decided to invest in an artificial tree for this year.

“I switched teams,” he says, still a tinge of discomfort in his voice. “This year I felt a real tree was a little too much of a hassle.”

[....]

So he went online and bought a $700 artificial tree with the lights already attached and now he’s in Christmas tree nirvana. “It took me 10 minutes to put up the tree,” he says. In the long run, he figures the decision will even save him money.

After he announced his decision Baer conducted a Twitter poll and found that the majority, 17 people, voted for a fake tree, while only eight votes came in for the real variety.

Baer’s informal survey reflects what’s been happening among Christmas tree buyers nationwide in recent years. While real trees are still the favored purchase among consumers, artificial trees are gaining ground.

In 2007, 17.4 million people bought artificial Christmas trees -- a whopping 87 percent jump from the previous year's total of 9.3 million, according to a survey conducted for the National Christmas Tree Association, whose members are farmers and retailers of real trees. Rick Dungey, a spokesman for the association, could not explain the huge jump and said it seemed to be a statistical anomaly, although the margin of error for the survey is only 3.1 percent.

While live trees are still outselling fake ones, with about 31.3 million bought last year, all signs indicate their artificial counterparts are becoming a bigger and bigger piece of the Christmas tree buying pie.

“I can tell you over the last few years we’ve seen a steady increase,” says Jean Niemi, a spokeswoman for Home Depot, referring to artificial tree sales.

So what is fueling this trend in artificial tree sales? Jeff Bischoff, creative director from the National Tree Co., an artificial tree wholesaler, believes that one of the big factors fueling the artificial tree sales is that fake trees look so much more realistic today, when compared to the real trees. “In the old days, you could tell right away they were fake, with branches that hooked on,” Bischoff said. “Today they look great.”

However Bischoff failed to take the slowing U.S. economy into account for this Christmas:

The price range for many of these trees has become more economical, under $100 in some cases. “The truth is that money is tight, and people realize Christmas trees are a luxury,” says Richard Laermer, author of “2011: Trendspotting.”

“If they can buy one this year and use it next year, why not?” he says.

Balsam Hill, one of the nation’s premiere fake-tree manufacturers, has one tree that sells for $89, but price points can go into the thousands as well.

In this economy, however, the lower-priced trees are selling better than in the past.

One Balsam Hill tree that’s selling well is a more moderately priced 6.5-foot "Blue Spruce" for $279. This year, it’s the second most popular tree sold by the company, says company spokeswoman Caroline Tuan. Last year, the Spruce didn’t even make the top five.

When you consider that it costs around $100 to purchase a live tree, then the $100 fake tree is a bargain, considering the year-after-year savings of not continuously purchasing a real Christmas tree for as long as you use the fake tree. And with this U.S. economy slowing, and people spending less on their Christmas shopping, it doesn't surprise me that more Americans are looking at the fake trees this year. But the time to purchase fake Christmas trees isn't before Christmas--it is after Christmas, when the retailers drop the prices to move their fake-tree inventory off their shelves.

Then again, the Christmas war between fake trees and real trees will continue on.

Chrysler shuts down manufacturing for a month

This is from MSNBC News:

DETROIT - Chrysler LLC said Wednesday that it is closing all 30 of its manufacturing plants for a month starting Friday as it seeks to counter the most severe downturn in U.S. auto sales in more than two decades.

By extending the traditional two-week holiday shutdown period, the struggling Auburn Hills, Mich.-based automaker can adjust production to slowing demand and conserve cash.

In a statement Wednesday, Chrysler said tighter credit markets are keeping would-be buyers away from its showrooms. The company said its dealers are unable to close sales for buyers due to a lack of financing, and estimate that 20 to 25 percent of their volume has been lost due to the credit situation. Sales in November slid 47.1 percent.

Chrysler and larger rival General Motors Corp. have warned they could run out of cash within weeks without financial aid from Washington. Chrysler has said its cash will drop to $2.5 billion by Dec. 31, the minimum needed to meet payroll, pay suppliers and run the company. It would have trouble paying bills after the first of the year.

Operations will be idled at the end of the shift on Friday, Dec. 19th shift. the earliest plants will reopen is Jan. 19, 2009. A few plants will reopen on Jan. 26.

Chrysler is seeking $7 billion in government loans as it tries to survive the recession and the worst U.S. auto sales slump in 26 years. For the first 11 months of this year, Chrysler sales are down 27.7 percent to 1.4 million vehicles from 1.9 million for the same period last year.

With the U.S. sales slump expected to continue into January, traditionally one of the slowest sales months of the year, the company has little revenue coming in and must pay suppliers $7 billion every 45 days.

Now I pretty much expected companies to reduce their operations to a skeleton crew for the Christmas holidays, however, even I'm surprised by Chrysler's move to completely shut down its operations for a month. It is actually cheaper for Chrysler to stop producing cars for a month, and not have to pay their suppliers $7 billion for that month, than to run any type of skeleton operations when they can't sell cars due to the souring economy and the frozen credit market. Chrysler can also stave off any bankruptcy decision until after Barack Obama is inaugurated into the White House, and a new Congress can take up an auto loan bailout bill.

Consumer prices fall in November

This is from The New York Times:

Consumer prices fell at the fastest rate on record in November while home construction plunged nearly 20 percent in a single month, skidding to its lowest levels in 50 years, according to new government data that shows further weakness in the ailing economy.

The Labor Department reported Tuesday morning that consumer prices fell for the second consecutive month, and at the fastest rate since the government began keeping track in 1947.

Prices at cash registers and gas pumps across the country were a seasonally adjusted 1.7 percent lower in November from the month before, led downward by tumbling energy prices, which fell 17 percent over one month as the demand for gasoline and oil eclipsed.

The core rate of inflation, excluding volatile food and energy prices, was flat for the month.

The price of gasoline plunged 29.5 percent while the cost of fuel oil fell 13.6 percent. Food and beverage prices crept up 0.2 percent in November, their slowest rate of growth all year, while clothing prices were up 0.3 percent.

The unadjusted year-over-year inflation rate was 1.1 percent, the government reported.

In just six months, economists who had fretted about out-of-control inflation as oil peaked near $150 a barrel are now warning of deflation, with prices dropping as the economy grinds into a lower gear.

“I’ve never seen the economy slam on the brakes as much as it has in the last three months,” said Bill Hampel, chief economist at the Credit Union National Association. “And as the tires are squeaking on the pavement, that’s pulling prices down too.” Meanwhile, new data showed the nation’s housing market continuing to lag. The Commerce Department reported that housing starts fell to a seasonally adjusted 625,000 in November, far below Wall Street’s expectations.

The housing starts in November represented a 18.9 percent drop from the previous month and were 47 percent lower than November 2007. New-home construction in October was revised downward to 771,000 units from an earlier estimate of 791,000.

“This is mind-bogglingly awful,” Ian Shepherdson, United States economist at High Frequency Economics, wrote in a note. “The only consolation here is that unless sales drop much further from their already fantastically depressed level, the pace of new construction is so low that inventory will fall quickly. Right now, though, housing is still a disaster area.”

Looking at this story, and looking my previous posting on the Fed's interest rate cut to zero, nobody has any money left to spend. Banks are not lending any money out to Americans for purchasing homes, or even businesses to expand. Businesses are not asking for loans to expand their production of goods, not if consumer prices for goods are falling. Retail sales have fallen for the fifth straight month, with the Commerce Department reporting retail sales have dropped 1.8 percent in November. Americans are not spending their money on Christmas shopping, while businesses are trying to push their merchandise off the shelves with deep price discounts. The construction industry is still a wasteland, considering all the foreclosed homes on the market that the banks can't sell to cover their own subprime mortgage losses. And finally, we have the U.S. Treasury giving out gobs of nearly worthless dollars to the banks, praying that the banks would lend the money out. However, the banks are hoarding this money to cover their own losses in gambling on risky investment schemes backed by over-valued subprime mortgage assets. It is like an entire house of cards crumbling into a stinking pile of crap.

Fed cuts benchmark interest rate to nearly zero

The Federal Reserve has cut the benchmark interest rate to nearly zero. From The New York Times.

This is a first for the Federal Reserve. From The New York Times:

WASHINGTON — The Federal Reserve entered a new era on Tuesday, setting its benchmark interest rate so low that it will have to reach for new and untested tools in fighting both the recession and downward pressure on consumer prices.

Going further than analysts anticipated, the central bank said it had cut its target for the overnight federal funds rate to a range of zero to 0.25 percent, a record low, bringing the United States to the zero-rate policies that Japan used for six years in its own fight against deflation.

The move to a zero rate, which affects how much banks charge when they lend their reserves to each other, is to some degree symbolic. Though the Fed’s target had had previously been 1 percent, demand for interbank lending has been so low that the actual Fed funds rate has hovering just above zero for the past month.

Far more important than the rate itself, the Fed bluntly declared that it was ready to move to a new phase of monetary policy in which it prints vast amounts of money for a wide array of lending programs aimed at financial institutions, businesses and consumers.

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the central bank said in its statement. Those tools include buying of “large quantities” of debt and mortgage-backed securities and debt issued by government-sponsored companies like Fannie Mae; commercial debt for businesses and consumer lending, and longer-term Treasury securities.

The problem I see here is that even though the Feds have cut their lending rate, to the banks, to almost zero, the banks are still not giving out loans to consumers or businesses. The banks are still saddled with bad debt from the collapsed housing market, and the soured derivative schemes that were backed by the subprime mortgages. Furthermore, the banks are getting stuck with a lot of foreclosed homes that they can't sell to cover their losses. The U.S. Treasury has given over $700 billion to Wall Street in an effort to free up the frozen credit market, however the banks are using this money to cover their own balance sheet losses, or to purchase other banks, rather than lend this money out as the U.S. Treasury had originally planned. Now we have the Federal Reserve both lowering the interest rate to almost zero, but also planning to print even greater amounts of money to dump into the market in the purchase of mortgage-backed securities and even more debt. The bottleneck here is that the banks, and Wall Street, is really hoarding all this federal money:

Ben S. Bernanke, the chairman of the Federal Reserve, has already outlined a range of unorthodox new tools that the central bank can use to keep stimulating the economy once the federal funds rate effectively reaches zero.

Those techniques include buying vast amounts of longer-term Treasury bonds, mortgage-backed securities issued by government-sponsored companies like Fannie Mae and Freddie Mac and commercial debt issued by private companies and consumer lenders.

The Federal Reserve has already introduced a slew of lending programs in its effort to revive corporate and consumer lending. Later this month, the Fed will start purchasing $600 billion worth of securities that are backed by Fannie Mae, Freddie Mac and other government-sponsored entities. The Fed and the Treasury are also introducing a joint program to buy up securities backed by consumer debt like automobile loans.

All of the new tools amount to printing money in vast new quantities, and the Fed has already started the process. Since September, the Fed’s balance sheet has ballooned from about $900 billion to more than $2 trillion as the central bank has created new money and lent it out through all its new programs. As soon as the Fed completes its plans to buy up mortgage-backed debt and consumer debt, the balance sheet will be up to about $3 trillion.

“At some point, and without knowing the timing, the Fed is going to have to destroy all that money it is creating,” said Alan Blinder, a professor of economics at Princeton and a former vice chairman of the Federal Reserve, said the central bank. “Right now, the crisis is created by the huge demand by banks for hoarding cash. The Fed is providing cash, and the banks want to hoard it. When things start returning to normal, the banks will want to start lending it out. If that much money is left in the monetary base, it would be extremely inflationary.”

The U.S. economy is straddling a razor's edge between deflation and inflation. And it all depends on when the banks want to start lending money out in the credit markets. However, the banks are afraid of lending money out because of all the losses they still have on their balance sheets due to the subprime mortgage collapse. The banks would love to have the U.S. taxpayer bail them out without any strings attached. And the U.S. Treasury, and the Federal Reserve, are willing to oblige. The U.S. economy could quickly go from a period of possible deflation to an extreme inflationary period. It all depends on when the banks are willing to lend.

And the Federal Reserve has shot its final interest-rate bolt from its quiver.

President Bush, shoes, and his failed legacy

I know that everyone has seen this video, but I do have a few comments on it. First the story of President Bush, shoes, and his failed legacy that is the U.S. war in Iraq. From The New York Times:

BAGHDAD — President Bush made a valedictory visit on Sunday to Iraq, the country that will largely define his legacy, but the trip will more likely be remembered for the unscripted moment when an Iraqi journalist hurled his shoes at Mr. Bush’s head and denounced him on live television as a “dog” who had delivered death and sorrow here from nearly six years of war.

The drama unfolded shortly after Mr. Bush appeared at a news conference in Baghdad with Prime Minister Nuri Kamal al-Maliki to highlight the newly adopted security agreement between the United States and Iraq. The agreement includes a commitment to withdraw all American forces by the end of 2011.

The Iraqi journalist, Muntader al-Zaidi, 28, a correspondent for Al Baghdadia, an independent Iraqi television station, stood up about 12 feet from Mr. Bush and shouted in Arabic: “This is a gift from the Iraqis; this is the farewell kiss, you dog!” He then threw a shoe at Mr. Bush, who ducked and narrowly avoided it.

As stunned security agents and guards, officials and journalists watched, Mr. Zaidi then threw his other shoe, shouting in Arabic, “This is from the widows, the orphans and those who were killed in Iraq!” That shoe also narrowly missed Mr. Bush as Prime Minister Maliki stuck a hand in front of the president’s face to help shield him.

Mr. Maliki’s security agents jumped on the man, wrestled him to the floor and hustled him out of the room. They kicked him and beat him until “he was crying like a woman,” said Mohammed Taher, a reporter for Afaq, a television station owned by the Dawa Party, which is led by Mr. Maliki. Mr. Zaidi was then detained on unspecified charges.

Other Iraqi journalists in the front row apologized to Mr. Bush, who was uninjured and tried to brush off the incident by making a joke. “All I can report is it is a size 10,” he said, continuing to take questions and noting the apologies. He also called the incident a sign of democracy, saying, “That’s what people do in a free society, draw attention to themselves,” as the man’s screaming could be heard outside.

[....]

Hitting someone with a shoe is considered the supreme insult in Iraq. It means that the target is even lower than the shoe, which is always on the ground and dirty. Crowds hurled their shoes at the giant statue of Mr. Hussein that stood in Baghdad’s Firdos Square before helping American marines pull it down on April 9, 2003, the day the capital fell. More recently in the same square, a far bigger crowd composed of Iraqis who had opposed the security agreement flung their shoes at an effigy of Mr. Bush before burning it.

In one sense, I almost feel sorry for President Bush. Here is a man who doesn't fully understand the significance of the shoes being thrown at him, nor does he understand the enormous amount of death and destruction he has brought upon the Iraqi people. President Bush still believes he will be vindicated by history for his sending the U.S. into this war. And yet, this shoe-thrower, Muntader al-Zaidi, has become a hero in the Arab world for expressing the Iraqi peoples' anger against the U.S. occupation. The American people still oppose the U.S. war in Iraq by a clear majority of over 60 percent. President Bush's disapproval ratings are still hovering around 70 percent, while President-elect Barack Obama's approval ratings are hovering at around 68-to-75 percent. And let us not forget how the entire world celebrated Barack Obama's victory in the U.S. presidential race. President Bush disgraced himself when he gave the order to invade Iraq. He disgraced himself with the failed U.S. occupation of Iraq, the failed reconstruction of Iraq, and now this shoe-throwing incident which clearly shows how he cannot even travel anywhere in the world without being exposed to protestation and derision. I do not think he even understands the contempt that the world has for him, considering how he made such a terrible joke about the shoe size. In around 34 days, George W. Bush will leave the Oval Office, and Barack Obama will be sworn in to clean up the entire mess that Bush left us with his failed legacy. I almost feel sorry for President George W. Bush.

But then again, with the terrible crap that Bush has left this country in, I do not.

Tuesday Music Video--You Know My Name by Chris Cornell

It has been a while since I've posted a music video. And with the new James Bond movie Quantum of Solace coming out, perhaps it is time to go back to the days of Casino Royale and Chris Cornell's You Know My Name. From YouTube:

Interest rate reaches zero on 4-week Treasury bills

This is just another amazing MSNBC story:

WASHINGTON - Interest rates on four-week Treasury bills fell to zero in Tuesday's auction, as investors still sought the safety of government securities without any return on their investment.

The Treasury Department says it sold $32 billion in four-week bills at an interest rate of zero percent. That meant investors were willing to earn no return at all on their money as long as they cold park it in the safety of Treasury securities.

The rate was down from an interest rate of 0.04 percent at last week's government auction of four-week bills.

So investors are more than happy to put their money into T-bills that will offer no return for their investment, rather than risk the money into other types of stock and bond investments. This tells me that investors are scared of what is happening in the U.S. economy, and are not willing to take any sort of risk on anything. I wonder if this is a short-term holding pattern until January, 2009, when we leave the failed Bush administration for a new Barack Obama administration. Investors may just be parking their money for the holiday season, until they learn what President-elect Barack Obama's plans are for recovering the contracting U.S. economy. Still, this says something about just how bad this U.S. economy has gotten, and at how many people are simply waiting for the transition of power within the Oval Office.

Craig loses bid to withdrawal guilty plea

We've got even more fun with political scandals. It appears that Idaho Senator Larry Craig will not be able to withdrawal the guilty plea for soliciting gay sex in the Minneapolis airport men's room. From MSNBC.com:

MINNEAPOLIS - Idaho Sen. Larry Craig has lost his latest attempt to withdraw his guilty plea in the Minneapolis airport men's room sex sting that effectively ended his Senate career.

A three-judge panel of the Minnesota Court of Appeals on Tuesday rejected the Republican's bid to toss out his disorderly conduct conviction.

Craig still has the option of appealing to the Minnesota Supreme Court, and he said Tuesday he was considering future options.

Craig was arrested June 11, 2007, by an undercover police officer who was conducting a sting operation against men cruising for gay sex at the Minneapolis-St. Paul International Airport.

He quietly pleaded guilty to the misdemeanor and paid a fine, but changed his mind after word of his arrest became public that August. Craig insisted he was innocent and said he was not gay. His attorney argued that the police officer misconstrued Craig's foot-tapping, hand movements and other conduct.

But the case brought widespread ridicule and effectively ended his political career.

Craig lost several GOP leadership positions in the wake of the scandal, and the Senate Ethics Committee said in February that Craig had brought discredit on the Senate. The committee members said they believed he was guilty, and that his attempt to withdraw his plea was just an effort to evade the legal consequences of his own actions.

He did not seek a fourth term in last month's election. He will be replaced in January by Idaho Lt. Gov. Jim Risch, a Republican.

Craig's attorney, Billy Martin, argued before the appeals court in September that there was insufficient evidence for any judge to find him guilty.

In its 10-page opinion, the appeals panel said that Craig failed to show that Hennepin County District Judge Charles Porter abused his discretion by denying his petition to withdraw his plea. Porter had said the plea was "accurate, voluntary and intelligent, and ... supported by the evidence."

Tuesday's opinion also said Craig failed to show that the state's disorderly conduct law was unconstitutionally overbroad.

"I am extremely disappointed by the action of the Minnesota Court of Appeals," Craig said in a statement. "I disagree with their conclusion and remain steadfast in my belief that nothing criminal or improper occurred at the Minneapolis airport." He said he and his attorneys were reviewing into the possibility of further appeals.

So does this mean that Craig will appeal to the Minnesota State Supreme Court? I guess that Larry Craig is desperate for not having his reputation destroyed by having gay sex in the men's room. Guess what Larry, you wanted to have gay sex, so now you can pay the consequences for soliciting such gay sex in the airport bathroom.

Illinois governor arrested on corruption charges

This is the big political news story for today. Apparently Illinois Governor Rod R. Blagojevich was arrested on corruption charges for selling President-elect Barack Obama's U.S. Senate seat to the highest bidder. And there were even more corruption charges against Blagojevich. From The New York Times:

CHICAGO — Gov. Rod R. Blagojevich of Illinois was arrested by federal authorities on Tuesday morning on corruption charges, including an allegation that he conspired to effectively sell President-elect Barack Obama’s seat in the United States Senate to the highest bidder.

Mr. Blagojevich, a Democrat, called his sole authority to name Mr. Obama’s successor “golden,” and he sought to parlay it into a job as an ambassador or secretary of health and human services, or a high-paying position at a nonprofit or an organization connected to labor unions, prosecutors said in a 76-page affidavit by the United States Attorney’s office in the Northern District of Illinois.

He also suggested, the affidavit said, that in exchange for the Senate appointment, his wife could be placed on corporate boards where she might earn as much as $150,000 a year, and he tried to gain promises of money for his campaign fund.

If Mr. Blagojevich could not secure a deal to his liking, prosecutors said, he was willing to appoint himself.

“If I don’t get what I want and I’m not satisfied with it, then I’ll just take the Senate seat myself,” the governor said in recorded conversation, prosecutors said.

Federal authorities recorded Mr. Blagojevich speaking with advisers, fundraisers, a spokesman and a deputy governor, using listening devices placed in his office, home telephone, and a conference room at the offices of a friend, the affidavit said. In its detail, it paints a vivid picture of influence peddling and bare-knuckle politics inside the Blagojevich administration, evoking the heyday of Chicago’s political machine.

At an appearance to address climate change, Mr. Obama said he had not had any contact with Mr. Blagojevich (pronounced bluh-GOY-uh-vich) or his office, and did not know about any machinations involving the Senate seat. He said it was a “sad day” for Illinois, but declined to comment further.

The charges against Mr. Blagojevich are part of a five-year investigation into public corruption and allegations of “pay to play” deals in the clubby world of Illinois politics. In addition to the charges related to Mr. Obama’s Senate seat, they include accusations that the governor worked to gain benefits for himself, his family and his campaign fund in exchange for appointments to state boards and commissions.

For example, according to the affidavit, Mr. Blagojevich discussed whether he could strip a Chicago children’s hospital of $8 million in state money after a hospital executive declined to make a $50,000 contribution. He also discussed withholding state assistance from the financially struggling Tribune Company, which owns The Chicago Tribune, unless the newspaper dismissed unfriendly editorial writers.

Mr. Blagojevich’s chief of staff, John Harris, was also named in the complaint. After a brief appearance in federal court Tuesday afternoon, Mr. Blagojevich, dressed in sport clothes and tennis shoes, was released on a $4,500 cash bond. An official at the governor’s office had no immediate comment on Tuesday.

An artist's drawing shows Illinois Governor Rod Blagojevich he stands in front of U.S. Magistrate Nan Nolan (L) at the Dirksen Federal building in Chicago, Illinois December 9, 2008.
(Verna Sadock/Reuters)

At a news conference on Tuesday, Patrick J. Fitzgerald, the United States Attorney for the Northern District of Illinois, said that Mr. Blagojevich had gone on a “political corruption crime spree,” and that his actions had “taken us to a truly new low.”

“The conduct would make Lincoln roll over in his grave,” Mr. Fitzgerald said.

He added that the complaint “makes no allegations about the president-elect whatsoever.” In one passage of the complaint, Mr. Blagojevich is quoted cursing Mr. Obama in apparent frustration that “they’re not willing to give me anything except appreciation.”

I'll be honest, there is not much else to say here, except that Blagojevich got caught with his hand in the cookie jar. And he is going to pay for that cookie with federal corruption charges. Now the big question is who will appoint a replacement for Obama's U.S. Senate seat? Under Illinois law, Blagojevich has sole authority to select a replacement for Obama's U.S. Senate seat. It certainly cannot be Blagojevich, who was arrested on corruption charges stemming from selling Obama's Senate seat. The Illinois Republican Party has called for Blagojevich to resign from his governorship. The president of the Illinois State Senate, Emil Jones, is planning to call the state senate back into session to write a law in order to schedule a special election for Obama's U.S. Senate seat. This story will be staying in the news for the rest of the holiday season.

More job losses expected

I don't know what else can be said on yesterday's 533,000 job loss in November. This MSNBC story provides a few more interesting statistics, and the economists' stunned reaction to the huge job loss:

Friday’s report showing the biggest monthly job loss in 34 years confirmed forecasters' worst fears that the decline in the U.S. economy accelerated in November, after the financial system seized up and consumers hunkered down. As the government scrambles to break the downward spiral, some economists are predicting the unemployment rate is headed substantially higher through next year.

Since the start of the recession in December 2007, the economy has lost 1.9 million jobs, lifting the number of Americans out of work to 2.7 million. At 6.7 percent, the jobless rate has now risen 2.3 percentage points since it bottomed in March 2007.

Graph showing monthly U.S. jobs lost for 2008. From MSNBC News.


Most sectors of the economy are now losing jobs, including manufacturing, construction, financial firms, retailers, and the leisure and hospitality industries. Only government, education and health services managed to post job gains.

Friday’s report also slashed another 200,000 jobs from the numbers already reported for September and October — a sign that the economy was hit harder than first reported when the credit crunch deepened.

Economists, who had been expecting a loss of some 350,000 jobs last month, were stunned by the news, describing the report as “horrendous,” "horrific" and “eye-poppingly bad.”

“We’re scrambling around here for historical parallels,” said Robert Barbera, chief economist at ITG, an investment advisory firm.

I do not think there is a historic parallel to what the U.S. economy is now experiencing, and that probably includes the Great Depression. There are huge, structural problems within the U.S. economy--the housing collapse and the subprime mortgage meltdown, the non-existent credit market, the huge amount of foreclosed homes that banks have on their books--with more on the way, the Wall Street meltdown in CDOs and other investment securities based on home mortgages, the huge amount of both government and personal debt that Americans have accumulated,the ongoing wars in Iraq and Afghanistan that are adding even more debt to the U.S. government. It is almost like the U.S. economy was a car that slammed into a brick wall at 75 miles an hour--there is not much left to see except wreaked steel, plastic, and the bodies of displaced American workers. Naroff Economic Advisors president Joel Naroff calls the latest job numbers, "shocking," saying that "Companies are sharply reacting to the economy's problems and slashing costs. They are not trying to ride it out."

And it is only going to get worst. Going back to the MSNBC story:

What makes the latest data so worrisome is that they point to an economic decline that is picking up speed.

“The economy is now locked in a vicious downward spiral in which employment, incomes and spending are collapsing together,” said Nigel Gault, chief U.S. economist at IHS Global insight.

Consumers also are taking a hit to their finances as the collapse in housing prices and the rise in foreclosures that tipped the economy into recession show no signs of abating.

American consumers are saddled with debt. First there is the subprime mortgage debt that Americans took on during the housing boom. With the housing crash, one in 10 Americans have a mortgage that is either in foreclosure, or at least a month behind on their payments at the end of September, resulting in a record 1.35 million homes in foreclosure for the third quarter. The percentage of auto loans that fell behind by 60 days or more rose to 15.9 percent in the third quarter, according to the credit reporting agency TransUnion. American families carry an average credit card debt of around $8,000. Americans are drowning in debt. And this has forced the lenders to tighten the credit market:

As consumers struggle to keep up with existing debts, lenders have cut credit card limits and tightened up on extending new loans, which has further crimped spending. The collapse of the stock market has wiped out trillions of dollars of personal wealth, forcing consumers to try to increase savings to make up for those losses.

All of which is accelerating the pullback in consumer spending – the main engine of the U.S. economy that accounts for roughly two-thirds of gross domestic product. Consumption dropped 3.7 percent in the third quarter; the spending pullback is expected to worsen during the holiday season that retailers rely on for the bulk of their profits. Gault expects consumer spending to shrink by 4.7 percent in the fourth quarter.

Economists already have begun comparing the current downturn to the back-to-back recessions of 1980-1982. The unemployment rate peaked at 10.8 percent then after the government pushed interest rates to high double-digits to try to break a decadelong inflationary spiral.

“You had interest rates that soared, the credit system shut down, and everything stopped,” said Barbera. “That's what this (jobs) number says, and that's what it suggests for the GDP numbers."

Before Friday’s jobs data, economists had expected GDP to contract at a sharp 4 to 5 percent rate in the current fourth quarter. Barbera said the latest data indicated the drop could be more like 8 percent.

As businesses pull back and lay off workers, Americans who have lost their jobs will be unable to pay off their credit cards, car payments, and home mortgages, resulting in a further tightening of the credit market, further reduction of consumer spending, and a further downward spiral of the U.S. economy. Could we really see a GDP contraction of 8 percent for the fourth quarter? Looking at what has been happening in the U.S. economy over the past month, I'm seriously wondering if that could be true.

We will have to see.

Saturday Morning Cartoons--Tom and Jerry in The Night Before Christmas

It is time to start the Christmas season with this classic Tom and Jerry cartoon, The Night Before Christmas. The two stars continue their cat-chases-mouse theme in the first part of the cartoon, but then both set aside their antagonisms for peace and goodwill on that Christmas night. This cartoon was released into theaters on December 6, 1941, the night before the Japanese attacked Pearl Harbor, sending the U.S. into the Second World War.

Here is Tom and Jerry in The Night Before Christmas. From YouTube:

Foreclosures soar to a record 1.35 million

There is not much more to say on this CNN.Com story:

NEW YORK (CNNMoney.com) -- A record 1.35 million homes were in foreclosure in the third quarter, driving the foreclosure rate up to 2.97%, the Mortgage Bankers Association said Friday.

That's a 76% increase from a year ago, according to the group's National Delinquency Survey.

At the same time, the number of homeowners falling behind on their mortgages rose to a record 6.99%, up from 5.59% a year ago, the association said.

This means that one in 10 borrowers in America are either delinquent or in foreclosure.

Many of those troubled borrowers are in California and Florida, which have among the highest delinquency rates in the nation.

The weakened economy and mounting job losses are expected to push these numbers even higher. And that will likely affect homeowners with prime, fixed-rate mortgages, which make up the vast majority of loans and have so far held up fairly well. Until now, much of the housing market's problems were concentrated in the subprime, adjustable-rate market, where homeowners with weak financial backgrounds got loans they ultimately couldn't afford.

"We have not gone into past recessions with the housing market as weak as it is now, so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past," said Jay Brinkmann, MBA's chief economist.

[....]

The number of homes going into foreclosure in 2008 is on track to hit 2.2 million, Brinkmann said.

All I can say is WOW! Just WOW! We are still not at the bottom of this bad housing market.