Daily Digest - July 7

• The Solution...Is The Problem (H/T TrueNorth)
• Paul Krugman: Heading Right Back To The 1930's, But With More Stimulus?
• Report: Subprime and Alt-A Loss Severity Hits 64.7% in June
• Inflation: Multipart Video
• The Collapse of Government: It's No Longer Coming, It's Here
• Fractional Reserve Banking Gets a Bad Rap? Patrick Brown on Two Beers With Steve
• Majority of Americans Say Focus on Deficits
• ISM Non-Manufacturing Index Shows Contraction in June
• Failing Upwards: The Wall Street White House
• They're At It Again - Securitization

Economy

The Solution...is the Problem (H/T TrueNorth)

(Super charts and tables in PDF)

"As we hope the breakdown above has revealed, the future solvency of the United States as a
nation state is currently in jeopardy. It is in far deeper trouble than the mainstream press cares
to admit. There are simply not enough new buyers of debt on this planet to support the
spending programs of the United States government - and it appears that current holders of
debt are beginning to sell. Because it is impossible to balance the budget from outside sources
of capital, the only source of funds left for the US, in all reality, is continued money printing."

Paul Krugman: Heading Right Back To The 1930's, But With More Stimulus?

Krugman's answer, not surprisingly, is more stimulus ...

Report: Subprime and Alt-A Loss Severity Hits 64.7% in June

Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. ...

Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.

Inflation, Multipart Video

The Collapse of Government: It's No Longer Coming, It's Here

Oh, we still pretend but the collapse is in full progress at this time. As a nation we have already begun to default on our debts – that’s what “Quantitative Easing” is all about – a bankrupt nation who can no longer finance her debts and resorts to printing money using it in a circle of currency devaluing all the while talking up our “strong dollar policy.” It’s so ridiculous that a 4th grader could see through that scam. Yet we pretend, but we won’t be able to much longer as the collapse has already begun.

Fractional Reserve Banking Gets a Bad Rap? Patrick Brown on Two Beers With Steve

Our conversation centers around a forum posting he put up on the 'bad rap that Fractional Reserve Banking gets'. A somewhat contrarian viewpoint to what I believed to be a flawed system.

 Majority of Americans Say Focus on Deficits

The latest New York Times/CBS News Poll finds a majority of Americans supporting deficit reductions rather than increased spending. When asked if the government "should spend money to stimulate the economy, even if it means increasing the deficit," 41 percent agreed, compared to 52 percent who said the government "should not spend money to stimulate the economy and should focus instead on reducing the deficit." Seven percent of those polled had no opinion.

ISM Non-Manufacturing Index Shows Contraction in June

"The NMI (Non-Manufacturing Index) registered 47 percent in June, 3 percentage points higher than the 44 percent registered in May, indicating contraction in the non-manufacturing sector for the ninth consecutive month, but at a slower rate.

Failing Upwards: The Wall Street White House

• Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs.

• Jacob Lew, Chief Financial Officer of Citigroup Alternative Investments Group, as Deputy Secretary of State
(Lew’s dept. lost $509 million in the Q1 2008)

• Michael Froman, Citigroup, Deputy National Security Adviser for International Economic Affairs. Froman was formerly Chief of Staff to Robert Rubin at Treasury, before following him to Citi.

• Froman’s deputy, David Lipton, ran Citi’s global country risk management effort.

• Lewis Alexander, Citigroup’s chief economist and now Counselor to Treasury Secretary Timothy Geithner

• Neal Wolin, President and COO, Hartford Insurance Company, Property and Casualty Group now Deputy Treasury Secretary (Hartford received $3.4 billion in TARP funds).

• Gary Gensler, Goldman Sachs partner, now Chairman of the Commodity Futures Trading Commission Note: It was Gensler who was a key proponent (as Clinton’s Assistant Secretary of Treasury) in pushing the Commodity Futures Modernization Act of 2000.

• Mark Patterson, Goldman Sach’s lobbyist, now Treasury Chief of Staff

• Linda Robertson, Enron lobbyist, Chief PR Federal Reserve

Defenders of the Status Quo!

They're At It Again - Securitization

Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks’ balance sheets, in the latest sign that financial market innovation is far from dead.

The schemes, which Goldman insiders refer to as “insurance” and BarCap calls “smart securitisation”, use different mechanisms to achieve the same goal: cutting capital costs by up to half in some cases, at the same time as regulators are threatening to force banks to increase their capital requirements.