Breaking News: Monday January 5th, 2008

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Wall Street Journal: Stakes in Ukraine-Russia Natural Gas Crisis Far Higher for Western Europe and the U.S. Than is Generally Understood

A top Ukrainian official warned Saturday that European customers could
see serious natural gas disruptions in about two weeks if the energy
dispute between Russia and Ukraine is not resolved, and the Russian gas
monopoly Gazprom accused Ukraine of boycotting contract negotiations. As
Russia and Ukraine traded accusations in their bitter dispute over energy
prices, four European nations -- Romania, Hungary, Poland and Bulgaria --
all reported some supply drops in natural gas Saturday. Gazprom cut off
gas shipments to Ukraine on Thursday. Then Gazprom and Ukraine initiated
dueling offensives, both trying to assure western European nations that
they were reliable energy partners and the fault lay with their rival. Russia
supplies Ukraine with natural gas and also sends 80% of its gas supplies to
Europe through pipelines in Ukraine. The stakes in the dispute are high as
Europe relies on Russia for a quarter of its natural gas needs and because
[natural gas for] heat is crucial in the biting northern European winter . . .

NY Times: Effects of Ukraine Energy Dispute Will Reach Far Beyond Russia

The fallout from a dispute between Russia and Ukraine over the price of
natural gas spread to other Eastern European nations on Saturday, as
Poland, Hungary, Romania and Bulgaria reported dwindling pressure in their
gas pipeline systems. The authorities in Bulgaria said they might have to
restrict gas use. The shortages seemed contained, though, as of Saturday
evening. Farther west, Germany, the largest consumer of Russian natural
gas in the European Union, reported no troubles. Also, Italy, a country that
lost pressure in its gas pipelines after a similar dispute two years ago, was
unaffected two days after Russia halted gas shipments to Ukraine. At issue
in the dispute, which threatens to cause heating fuel shortages in Europe
at the time it is most needed, is a system of gas trunk pipelines that is a
legacy of the Soviet Union. The pipelines pass through Ukraine, serving that
country and sending natural gas on toward customers in Western Europe.

Wall Street Journal: Russia's Financial Woes Spell Big Trouble for the U.S.

Russia faces a particularly nasty version of the global recession (at a
minimum), and perhaps an economic "perfect storm." Regardless of how
bad its economy gets, two broad political trends, each carrying profound
implications for Russia's foreign policy and U.S.-Russian relations, are bound
to emerge. The size and depth of Russia's economic problems -- and thus
the amount of political turbulence -- will depend primarily on two variables.
The first is the ruble decline . . . the second factor is oil prices. Last year,
oil revenues accounted for at least one-fifth of Russia's GDP and half of
state revenues. At $40 per barrel, the state budget goes into a 3%-to-4%
deficit. The 7%-8% growth projected for 2008 will have to be cut at to 1%
to-2% for 2009. Zero growth or contraction are distinct possibilities. Such
a predicament is most dangerous politically for a country whose population
has become used to incomes increasing 8%-10% every year since 2000 . .

Washington Post: National Debt Expected to Soar Past $3 Trillion This Year, Taxpayers to be Saddled with Huge New Interest Payments

With Barack Obama considering a massive spending package aimed at
pulling the nation out of recession, the national debt is projected to jump
by as much as $2 trillion this year, an unprecedented increase that could
test the world's appetite for financing U.S. government spending.  For now,
investors are frantically stuffing money into the relative safety of the U.S.
Treasury, which has come to serve as the world's mattress in troubled
times. Interest rates on Treasury bills have plummeted to historic lows,
with some short-term investors literally giving the government money for
free.  But about 40 percent of the debt held by private investors will
mature in a year or less, according to Treasury officials. When those loans
come due, the Treasury will have to borrow more money to repay them,
even as it launches perhaps the most aggressive expansion of U.S. debt in
modern history. With the government planning to roll over its short-term
loans into more stable, long-term securities, experts say investors are
ikely to demand a greater return on their money, saddling taxpayers with
huge new interest payments for years to come. Some analysts also worry
that foreign investors, the largest U.S. creditors, may prove unable to
absorb the skyrocketing debt, undermining confidence in the United States.

James Howard Kunstler: "The fickle public may soon turn on Obama for failing to return them to the Blue Light Special nirvana of days gone by"

To me, George W. Bush will remain the perfect representative of his time,
place, and culture. During his years in Washington, America became a
nation of clowns posturing in cowboy hats, bethinking ourselves righteous
agents of Jesus in a Las Vegas of the spirit, where wishing was enough to
get something for nothing, where "mistakes were made," but everybody
was excused from the consequences of bad choices. The break from that
mentality will be very severe, and we may look back in twelve months and
wonder how we ever fell for the whole package. The answering of that
question will occupy historians for ages to come . . .

Washington Post: Governors Urge $1 Trillion Dollar Economic Stimulus Plan

To help offset state budget cuts, a group of Democratic governors urged
the federal government Friday to pass a $1 trillion economic stimulus
package, significantly larger than the one under discussion in Congress. It
would help states compensate for cuts to education spending that could
cause long-term economic decline, as well as bolster infrastructure
projects and benefits programs for the poor, the governors from New
York, New Jersey, Massachusetts, Ohio and Wisconsin said in a news
conference. Congress is reportedly considering $675 billion to $775 billion in
stimulus spending, but the governors suggested the package must be
larger to have psychological and economic impact. The money, disbursed
over two years, would offset cuts needed to balance state budgets and
would serve as a "bridge" until 2011, by which time the governors hope the
economy will have recovered, said Massachusetts Gov. Deval L. Patrick.

Michael Lewis in the NY Times: End of the Financial World as We Know It

Americans enter the New Year in a strange new role: financial lunatics.
We’ve been viewed by the wider world with mistrust and suspicion on other
matters, but on the subject of money even our harshest critics have been
inclined to believe that we knew what we were doing. They watched our
investment bankers and emulated them: for a long time now half the
planet’s college graduates seemed to want nothing more out of life than a
job on Wall Street. This is one reason the collapse of our financial system
has inspired not merely a national but a global crisis of confidence. Good
God, the world seems to be saying, if they don’t know what they are doing
with money, who does? Incredibly, intelligent people the world over remain
willing to lend us money and even listen to our advice; they appear not to
have realized the full extent of our madness . . . We have at least a brief
chance to cure ourselves. But first we need to ask ourselves: of what?

Paul Krugman in the NY Times: "We're facing a year of economic hell . . ."

The prosperity of a few years ago, such as it was -- profits were terrific,
wages not so much -- depended on a huge bubble in housing, which had
replaced an earlier huge bubble in stocks. And since the housing bubble isn't
coming back, the spending that sustained the economy in the pre-crisis
years isn't coming back either. To be more specific: the severe housing
slump we're experiencing now will end eventually, but the immense Bush
-era housing boom won't be repeated. Consumers will eventually regain
some of their confidence, but they won't spend the way they did in 2005 to
2007, when many people were using their houses as ATMs, and the savings
rate dropped nearly to zero. What will support the economy if cautious
consumers and humbled homebuilders aren't up to the job [of doing so]?

The Economist: Threat of Bankruptcy Looming for Detroit Big Three in '09

The sense of relief in Detroit that greeted the $17.4 billion federal lifeline
thrown by President Bush to General Motors (GM) and Chrysler just before
Christmas is unlikely to last long. The terms of the bridging loans amount
to a gun at the heads of the two carmakers and their stakeholders. Unless
they use the next three months to negotiate a viable way forward, the
loans will be called in at the end of March — and bankruptcy will follow. In
effect, the deal announced on December 19th is just one step short of the
bankruptcy the carmakers have insisted is not an option. "If restructuring
cannot be accomplished outside of bankruptcy, the loans will provide time
for the companies to make the legal and financial preparations necessary
for an orderly Chapter 11 process," Mr Bush said. Dealers, bondholders,
suppliers, unions and retirees are all going to have to make sacrifices, and
with a speed and purpose that has hitherto been lacking . . .

NY Times: Auto Industry Still Coming to Grips with  Damage Done In 2008

Carmakers will close out one of the most tumultuous and miserable years
in their history Monday when they report what is certain to be another
dreadful batch of monthly sales figures . . . Over all, analysts say 2008 will
end up as the worst year for selling cars and trucks since 1992. But that
comparison does not capture how quickly business deteriorated in recent
months, as credit markets tightened and consumer confidence sank. "This
is the kind of automotive recession that, quite frankly, many of us have
never been through,” Erich Merkle, an automotive analyst in Grand Rapids,
Mich., with the consulting firm Crowe Horwath, said Sunday. "We know that
people who have lost their jobs aren’t in the market for a new car, but
even those who have jobs aren’t in the market right now, because they’re
concerned if they’ll still have a job in three, six or nine months . . ."

Seeking Alpha: Top 10 Predictions for 2009 (Gold, Interest Rates, Housing)

Nonfarm payrolls will decline by three million in 2009 and there will be
downward revisions of about one million to prior years' payrolls data as the
Labor Department grapples with its birth-death modeling once again,
publicly confessing that it has utterly failed to provide any meaningful
statistics about the labor market in real time. Health care will be the only
employment sector that adds jobs in 2009. Teenagers across the country
will become disillusioned after having lived their formative years during the
biggest financial bubble in the history of Mankind and then seeing it come
to an abrupt end as home equity withdrawals are relegated to history . . .

Bloomberg: U.S. Manufacturing Declines to Lowest Level in Sixty Years

The decline in U.S. manufacturing deepened in December as demand for
such products as cars, appliances and furniture reached the lowest level
since at least 1948, signaling further cutbacks in factory jobs and
production this year. The Institute for Supply Management’s factory index
fell to 32.4, below economists’ forecasts and the lowest level since 1980,
from 36.2 the prior month. Readings less than 50 signal contraction. The
group’s new-orders measure reached the lowest level on record and prices
slid the most since 1949. "Every component suggests that the weakness is
going to carry over into 2009,” Mark Vitner, an economist at Wachovia
Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview.

NY Times: Manufacturing Reports Show Stunning Depth of Global Downturn

From Australia to Asia and Europe to the United States, the message last
Wednesday in economic reports was clear: manufacturing continued to
slump amid the worst slowdown since the Great Depression. In the United
States on Friday, a crucial measure of manufacturing activity fell to the
lowest level in 28 years in December.  "This report indicates that the U.S.
economy was on even weaker footing than commonly believed as 2008
came to a close,” said Joshua Shapiro, chief United States economist at
MFR. "Moreover, the signal from the export orders index is the rest of the
world is there also. Hardly a signal for economic recovery anytime soon."

NY Times: Desperate U.S. Retailers Try Frantic Discounts and Giveaways

An era of desperation marketing is at hand, with stores and automobile
dealerships adopting virtually any tactic that might grab the attention of
frightened consumers. After one of the worst holiday seasons in decades,
businesses are doing whatever they can to clear their shelves and make
way for spring merchandise. Sales of 50 percent off stopped capturing the
attention of customers weeks ago, so stores are layering discounts on top
of discounts, and trying to lure shoppers with promises of giveaways, bulk
bargains and other gimmicks. "Retailers are trying everything in the book,"
said C. Britt Beemer, chairman of America’s Research Group, a consumer
research firm. "You’re seeing things like, ‘Buy one, get two free.’ That’s
just unheard of, and the item you’re buying isn’t even full price", he said.

NY Times: As Vacant Office Space Grows, So Does Crisis for Lenders

Vacancy rates in office buildings exceed 10 percent in virtually every major
city in the country and are rising rapidly, a sign of economic distress that
could lead to yet another wave of problems for troubled lenders. Banks and
other financial companies have not had the problems with commercial
properties in this recession that they have had with residential properties.
But many building owners, while struggling with more vacancies and less
rental income, will need to refinance commercial mortgages this year. The
persistent chill in lending from banks to the credit markets will make that
difficult — even for borrowers who are current on their payments —
setting the stage for loan defaults. The prospect bodes ill for banks, along
with pension funds, insurance companies, hedge funds and others holding
the loans or pieces of them that were packaged and sold as securities.

NY Times: The Unthinkable is Happening as Even Debt Collectors are Getting Hit by the Ecnomic Meltdown

Hard times are usually good times for debt collectors, who make their
money morning and night with the incessant ring of a phone. But in this
recession, perhaps the deepest in decades, the unthinkable is happening:
collectors, who usually do the squeezing, are getting squeezed themselves.
After helping to foster the explosive growth of consumer debt in recent
years, credit card companies are realizing that hard-pressed Americans will
not be able to pay their bills as the economy deteriorates. So lenders and
their collectors are rushing to round up what money they can before things
get even worse . . . Increasingly, they are stretching out payments and
accepting dimes, if not pennies, on the dollar as payment in full.  "You
can’t squeeze blood out of a turnip,” said Don Siler, the chief marketing
officer at MRS Associates, a collection company that works with the largest
credit card companies. “The big settlements just aren’t there anymore."

Bloomberg: Global Corporate Profits Will Continue Plunging in 2009, More Bankruptcies Expected

"It’s going to be a miserable ride," said Bruce McCain, chief investment
strategist at Cleveland-based Key Private Bank, which manages about $30
billion. Earnings probably won’t rebound until the end of 2009, he said. “The
market recovers, then the economy recovers, then finally the earnings
recover." Companies are battling falling consumer demand and dwindling
cash flows after banks tightened lending to cope with billions of dollars of
real-estate losses. The U.S. Federal Reserve has cut interest rates to as
low as zero percent, while governments worldwide have taken stakes in
banks and companies to prevent a collapse of the global financial system.

Wall Street Journal: More People Pulling Up to Pawnshops Driving Cadillacs

Typically, pawnshop customers have a household income of about $29,000,
according to Dave Adelman, the president of the National Pawnbrokers
Association. But operators around the country say they are seeing a surge
in new activity fueled in part by a different clientele: middle- and upper
-middle-class customers facing ravaged stock portfolios, tightened bank
credit and unexpected layoffs. In areas dogged by high unemployment and
foreclosure rates, the pawn business is especially robust. Rick LaChappelle,
owner of four pawnshops in Maine, calculates he has lent about 33% more
money this year than last. "The banking industry is not giving out money
right now," he said. "So more people are relying on second-tier lending
institutions." While some pawnshops -- like Beverly Loan Co. in Beverly Hills
-- have discreetly served the wealthy for decades, more stores, such as
Society Hill, are newly awash with furs, diamonds and other baubles from
the bubble. At places like Society Hill, transactions are up by as much as
40% in recent months. Even Beverly Loan has seen a shift in customer
patterns. "We have had so many $50,000-plus loans and more business
clients than ever before," said Chief Executive Officer Jordan Tabach-Bank.

Wall Street Journal: Slump Batters Small Business, Threatening Dreams

For many small businesses across the country, these are scary times. The
dramatic pullback in consumer spending is only the latest blow threatening
to push some strapped small businesses out of existence. Customers are
paying their bills late, cutting off cash flow, the lifeblood of small business.
Even healthy companies are being choked by the lack of credit lines and
bank loans. Others are still reeling from several years of high raw-materials
prices. In a recent survey from the National Federation of Independent
Business, more than a quarter of small business owners said the current
economic downturn is threatening their ability to survive. Nearly half of
respondents said slow or lost sales are their most immediate problem. In
the months ahead, "we are going to see businesses that were marginal go
out of business," says William Dunkelberg, NFIB's chief economist . . .

___________________________________________________________________


LATOC 2008 Year in Review: "The Year the Wheels Came Off"

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Wall Street Journal: The Hidden Role of Television in the Financial Crisis

So now we know what happens when too many people who have too few
assets buy too much house with the help of too many risky mortgage
products and too little oversight. And while there's plenty of blame to go
around -- unethical mortgage brokers, greedy bankers and irresponsible
homeowners -- one culprit continues to get off scot-free: HGTV. That's
right. The cable network HGTV is the real villain of the economic meltdown.
As the viewership reached a critical mass over the past decade -- HGTV is
now broadcast into 91 million homes -- homeowners began experiencing
deep angst. Suddenly no one but the most slovenly and unambitious were
satisfied with their houses. It didn't matter if you lived in an apartment or
a gated community, one episode of "House Hunters" or "What's My House
Worth?" and you were convinced you needed more . . . If you had any
doubts about your ability to afford such luxuries, all you had to do was look
at the 20-something couple choosing between three houses . . .

Chicago Tribune: GM to Arrange for Loans from Lenders Other than GMAC

GMAC will no longer have exclusive rights to provide low-interest loans to
people who buy General Motors vehicles, and it will stop financing  leases
under a complex deal to get federal aid for the troubled lender. GMAC LLC
disclosed the terms of the deal in a filing early Friday with the SEC. The
lender said the federal government will get 5 million preferred shares of
GMAC paying 8% interest in exchange for its $5 billion capital injection to
help GMAC avoid bankruptcy. GMAC is the financial arm of General Motors
and is responsible for making car loans and financing dealer inventories. In
the filing, GMAC disclosed that for the next two years, GM will be able to
offer financing incentives such as 0% loans through other lenders . . .

NY Times: "There's been almost no place to hide from the crash of 2008"

When the New York Stock Exchange bell rang out the year on Wednesday,
it tolled for virtually anyone with money in the stock market. The final,
grim tally only confirmed what investors had known for months: it was a
very bad year to own stocks, any stocks — indeed, one of the worst ever.
In a mere 12 months, the Dow Jones industrial average plunged 4,488.43
points, or 33.8 percent, its most punishing loss since 1931. Blue chips like
Bank of America, Citigroup and Alcoa lost more than 65 percent of their
value. The broader Standard & Poor’s 500-stock index sank 39.5 percent,
almost exactly matching its decline in 1937. All told, about $7 trillion of
shareholders’ wealth — the gains of the last six years — was wiped out in a
single year of violent market swings. But what is striking is not just the
magnitude of the declines but also their breadth. All but two of the 30 Dow
industrials, Wal-Mart and McDonald’s, fell by more than 10 percent . . .

Los Angeles Times: Investors Wondering if Market will Continue Plunging

Wall Street on Wednesday closed out its worst year in more than seven
decades, battered by a devastating credit crunch that smashed investor
and consumer confidence and fueled fears of another Great Depression.
The Dow Jones industrial average plummeted 34% for the year -- the
steepest drop since the blue-chip index crashed 53% in 1931, the second
full year of the Depression. Many broader market indexes lost more than
the Dow did in 2008 as nearly $7 trillion of the country's stock-market
wealth was wiped out. Despite widespread belief among experts that the
U.S. isn't on the verge of a 1930s-like economic collapse, the mammoth
market loss taunts the optimists. And it has left many investors wary . . .

NY Times: The Irish Economy’s Rise Was Steep, and the Fall Was Fast

. . . the Irish economy, pummeled by the most severe housing bust in
Europe, has collapsed. And the gossip around town is that Mr. Dunne,
whose brazen deal-making and Donald Trump-like lifestyle epitomized the
country’s euphoric boom, might be going bankrupt. "I grew up with nothing
and I know the value of money," he adds. "The Celtic Tiger may be dead
and if the banking crisis continues I could be considered insolvent. But the
one thing that I have is my wife and children — that they can’t take away
from me." It is not known whether Dunne will fall victim to today’s world
financial catastrophe, but there is no doubt his country has. Everything, it
seems, has grown worse here. The recession started earlier and its bite
has been deeper. Housing prices have fallen by as much as 50%. Bank
shares have plummeted by more than 90%. Unemployment is near 10% . .

Newsweek: Economic Meltdown Sends Vegas Spiraling into Identity Crisis

To live in Las Vegas is to stake your future on this enterprise — for better
or worse. For the past 20 years, it has been for better. The unemployment
rate was minuscule. Gleaming new casinos were built on "old" casinos like
so many sandcastles on a beach. Hundreds of stucco houses promised a
palm tree or a pool or both for nearly everyone with a paycheck. In Las
Vegas, average people are versed in the statistics that impress relatives
from back East and testify to the success of this enterprise: 39 million
visitors, almost 140,000 hotel rooms, 10 new schools a year. It was a
place that not only believed its own hype, but depended on it. And so, it
has been a shock as, quietly and slowly, now that everything has changed.

Washington Post: U.S. Retirees Find They're At Mercy of the Stock Market

With her inheritance tucked away in a number of stocks and mutual funds,
the former secretary settled into what she thought would be a comfortable
life in Charlottesville.  But life is no longer comfortable. The global financial
crisis has chipped away at $200,000 worth of her investments. Her small
Social Security check -- about $400 a month -- is not enough to cover her
mortgage and living expenses. "I'm totally dependent on my investments
for my income," she said. She's weathered market declines before. In
2000, she lost $800,000 and has yet to recover it all. The recent drop in
her portfolio, she said, "happened so quickly," and has been so frightening
that she sent us a passionate plea for help, one that many other retirees
might be making to their financial advisers or relatives. "I think at my age,
I have no more buffers and cannot afford another major loss," she wrote.

MSN Money: Mass Media Has Suckered Americans Into Investing in 401ks

For years, banks, brokers and insurance companies have besieged us with
marketing claims that the regular purchase of shares in public companies
would effortlessly grow in value forever.  Never mind that there have been
long periods in the past century -- such as, roughly, 1929 to 1932, 1937 to
to 1949 and 1965 to 1982 -- when this simply wasn't true. It has been valid
enough in recent consciousness, from 1982 to 2000, and with that hopeful
seed planted, the same ad whizzes who depend on our natural human
optimism to buy all manner of fluff took it from there . . . In the middle of
the 20th century, an unchecked ambition to build big projects across the
U.S. and Asia was married to the development of mass-market advertising
techniques, and the practice of persuading average people to put their
money to work in big business with little fear as to its safety was born . . .

Sydney Morning Herald: Judge Rules Madoff's Assets to be Kept Secret

The U.S. Securities and Exchange Commission, which sued Bernard Madoff
last month for allegedly directing a $US50 billion ($71 billion) fraud, is to
withhold public access to a list of his assets filed on Wednesday. A federal
judge ordered Madoff to provide the commission with an account of all
investments, loans, lines of credit, business interests, brokerage accounts
and other holdings. The court did not authorise its public disclosure, said a
commission spokesman, Andrew Calamari, who confirmed receipt of the
list. "I think one of the fears here is that much of this money may be in
offshore funds," said Professor John Coffee, of Columbia Law School, adding
the commission wanted to keep the assets secret to protect them . . .

Newsweek: "Among the city's elite, investing in Bernard Madoff's too-good-to-be-true fund became a status symbol — a costly one."

Palm Beach is ground zero of the Madoff affair. The posh sliver of land is
home to a high concentration of those bilked by the brazen alleged Ponzi
artist. Bernard Madoff maintained an 8,700-square-foot mansion north of
town, and prospected for marks at the exclusive Palm Beach Country Club,
where he was a member. I spent last week in the area — hardship duty, I
know — and it left me thinking that this is as much an anthropological story
as it is a financial one. For Madoff was able to separate so many smart-
money types from their hard-earned cash by fiendishly exploiting the
unique, clubby culture of Palm Beach, Fla. — and of the global jet set that
congregates there . . . As a result, in Palm Beach, people are defined as
much by the company the keep as by the companies they own. To really
be somebody, it's not enough simply to have a fat wallet. You have to
donate to the right charities, belong to the right club and, then, to the
exclusive club within the club. Just so, to be one of Madoff's marks, you
first had to be one of his investors — which wasn't easy . . . Many of the
Madoff's biggest investors — European industrialists, South American
socialites, well-connected U.S. business people — believed that getting him
to manage their money was like gaining admittance to a hoity-toity club.

Global Research: The American Taxpayers Will Likely End Up Footing the Bill for the Bernard Madoff Ponzi Scheme

I have acted as a professional consultant to major EC and US financial
institutions on corporate and institutional credit risk and the idea that
anyone in HSBC or Santander could authorise large investment without the
internal checks and controls being employed is almost impossible. To try
and believe that EVERY institution that invested in Madoff circumvented
their internal control procedures IS impossible . . . So there is no way that
Madoff could have been pulling a scam. It would have stood out as clear as
day to professional financial analysts, whose only job in life is to examine
the management of companies and their reports and accounts, to make