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Joined Feb 3, 2009
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Facts and Myths about the Financial Crisis of 2008

Facts and Myths of the Financial Crisis of 2008

Abstract:

“The United States is indisputably undergoing a …financial crisis and is perhaps headed for a deep
recession. Here we examine three claims about the way the …financial crisis is affecting the economy
as a whole and argue that all three claims are myths. We also present three under appreciated
facts about how the …financial system intermediates funds between households and corporate businesses.Conventional analysis of the …financial crisis focus on interest rate spreads. We argue that
such analysis may lead to mistaken inferences about the real costs of borrowing and argue that, during …financial crises, variations in the levels of nominal interest rates might lead to better inferences
about variations in the real costs of borrowing. Moreover, we argue that even if current increase
in spreads indicate increases in the riskiness of the underlying projects, by itself, this increase does
not necessarily indicate the need for massive government intervention. We call for policymakers to
articulate the precise nature of the market failure they see, to present hard evidence that differentiates their view of the data from other views which would not require such intervention, and to share
with the public the logic and evidence that burnishes the case that the particular intervention they
are advocating will …fixx this market failure.”

1. Three Myths about Quantities
The …financial crisis has also been associated with three widely held claims about the
nature of the crisis and the associated spillovers to the rest of the economy. The …financial
press and policymakers have made the following three claims about the nature of the crisis.
1. Bank lending to non…financial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by non…financial corporations has declined sharply, and
rates have risen to unprecedented levels.
Here we examine these claims using data from the Federal Reserve Board and Bloomerg

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White House Press Conference

Geithner:


” Wants to work closely with other countries”
“We are going to begin shaping the architecture for fixing the banking crisis”

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Late Afternoon Update

‘Line by Line’ the Senators are combing over the stimulus bill

WASHINGTON (CNN) — A bipartisan group of senators said Thursday they were going “line by line” through the economic stimulus bill as they try to reach a compromise on an amendment to cut some spending from the package.
Sen. Evan Bayh, D-Indiana, said there is a “backbone” to a deal, but the details were being worked out between the 12 Democrats and five Republicans at the meeting.

“It’s been a painstaking, very thorough, very comprehensive process,” said Sen. Susan Collins, R-Maine.

Republicans have objected to some provisions in the bill that they say have nothing to do with stimulating the economy.

The president stepped up his personal lobbying for the bill this week, holding a series of one-on-one meetings in the Oval Office on Wednesday with key senators still on the fence.

Obama met separately with Collins, Democrat Ben Nelson and Republican Olympia Snowe.

Collins said she went through some specific programs with the president to see which ones he would be willing to cut.

Collins said she was originally in favor of a bill that would have cost about $650 billion, but after meeting with Obama, she was convinced of the need for a proposal that would be in the neighborhood of $800 billion.

“But I will tell you, particularly on my side of the aisle, there is a vigorous debate over what the size of the package should be,” she said.

“We don’t want a package that is too small because that will end up just wasting money. On the other hand, we’re very leery of having an enormous package that would not be necessary and would just boost the federal deficit,” Collins said as Nelson nodded in agreement.

An interesting editorial on the stimulus bill

Why President Obama should heed calls for a more focused stimulus package
Today in The Post, President Obama challenges critics of the $900 billion stimulus plan that was taking shape on Capitol Hill yesterday, accusing them of peddling “the same failed theories that helped lead us into this crisis” and warning that, without immediate action, “Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.” A thinly veiled reference to Senate Republicans, this is a departure from his previous emphasis on bipartisanship. Still, as a matter of policy, Mr. Obama is justified in signaling that the plan should not be tilted in favor of tax cuts — and that the GOP should not waste valuable time trying to achieve this.

However, ideology is not the only reason that senators — from both parties — are balking at the president’s plan. As it emerged from the House, it suffered from a confusion of objectives. Mr. Obama praised the package yesterday as “not merely a prescription for short-term spending” but a “strategy for long-term economic growth in areas like renewable energy and health care and education.” This is precisely the problem. As credible experts, including some Democrats, have pointed out, much of this “long-term” spending either won’t stimulate the economy now, is of questionable merit, or both. Even potentially meritorious items, such as $2.1 billion for Head Start, or billions more to computerize medical records, do not belong in legislation whose reason for being is to give U.S. economic growth a “jolt,” as Mr. Obama himself has put it. All other policy priorities should pass through the normal budget process, which involves hearings, debate and — crucially — competition with other programs.

Also of interest Moody’s is reviewing $302.6 billion in Commercial Mortgage Debt

One final story on this morning’s turn around

NEW YORK – Investors shook off weak economic readings and placed bets on retail and technology stocks Thursday after a range of companies posted better-than-expected sales and profit reports. The Dow rose more than 1 percent after being down in the early going.

Retailers including Wal-Mart Stores Inc. and Macy’s Inc. turned in better-than-expected reports. Wal-Mart’s January sales beat Wall Street’s forecasts after the chain drew shoppers focused on necessities like groceries. Macy’s, which this week said it would slash 7,000 jobs, on Thursday raised its fourth-quarter and full-year forecasts after reporting its sales.

Tim Geithner and the treasury has announced that on Monday February 9th, 2009 they will hold a speech on the bank rescue plan.

NYSE Percentage Gainers
CRR, NED, HGG, BPO, FTB Pref, BMI, LIZ, KEI

NASDAQ Percentage Gainers

PRIMU, KLBY, SIFY, SFLY, DRCO, RNOW, CCPCN, PENN, CTRN, BBBB

Most Actives NYSE
BAC, C, GE, JPM, WFC, RIO, PFE, PBR, XOM, MS

NASDAQ Most Active
QQQQ, CSCO, MSFT,INTC, ORCL, JNPR, CMCSA, DELL. JAVA, QCOM

Unusual Volume from NASDAQ.COM

APA, TNDN, BBBB, AKAM, PENN

PPT SCREEN


Accumulation of 3
Hybrid Daily/ Weekly 10%+
Hybrid Score of 3
Relative Strength Score of 3

ALK, ANDS, AVAV, AZO, BTH, CNTF, CUB, CWT, HLTH, HMR, HOTT, MHS, MMS, NAQ, NITE, ORH, PT, ROY, SAIA, SGU, VRX, WGL

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Half Time Report

So the market has reversed a negative tape.
This is largely due to a rumor now being televised that the SEC will reverse the mark to market accounting rules.
Hats off to Barry Ritholtz who seems to be the quickest to put this together.

Semiconductor stocks,the NASDAQ, and regional banks led the charge out of the hole this morning.

NYSE Percentage Gainers:
BMI, NED, LIZ, CUB, RF, ENS, DLB, BPO, SWS, HMN

NASDAQ Percentage Gainers
PIRMU, KELBY, APSA, WBNK, CVLY, DRKO, CTRN, PENN, UFPI, SFLY

Obama is also pounding the table that stimulus needs to occur quickly.
It may also not be enough to stop the recession dead in its tracks.

Saying the United States faced a potentially irreversible economic crisis, President Barack Obama Thursday urged Congress to quickly pass a huge stimulus package as moderate senators scrambled to come up with a less expensive compromise plan.
“Each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes,” Obama said in an op-ed column in Thursday’s Washington Post. “And, if nothing is done, this recession might linger for years …. our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”
Obama’s latest warning came as a group of Senate moderates considered possible cuts to the $900 billion economic stimulus package, hoping to create a compromise that will allow them to send the rescue plan to Obama’s desk.

Unusual Volume found on NASDAQ.com shows:

APA, TNDM, BBBB, AKAM, PENN

Keep your eye on the health care sector. Phillips says the time is right to buy.

AMSTERDAM (Reuters) – With billions of euros to spend and a global recession cutting asset prices, now is the time for Dutch group Philips Electronics (PHG.AS) (PHG.N) to seek out acquisitions for its healthcare business.

Philips wants to become a more predictable company by selling cyclical businesses and expanding into healthcare and lighting; and a 1 billion euro writedown in the fourth quarter is no reason to slow the pace but to push ahead, analysts said.

A look at what was in play this morning from Yahoo

Finally, Europe finishes mixed on the day

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Is The Housing Market Showing Signs of a Bottom ? Also why has the market reversed its slide ?

As Repoted by Moody’s Economy we may see signs of a bottom soon

NEW YORK (Reuters) – U.S. housing markets from Florida to California have suffered price drops of 50 percent or more from their peak, but now, at long last, a bottom is within sight, likely in the fourth quarter nationally, according to a report from Moody’s Economy.com.

By the end of the housing downturn, nearly 62 percent of the nation’s 381 metropolitan areas will have experienced double-digit-percent declines in house prices, peak-to-trough, says the report by chief economist Mark Zandi and a team that includes Celia Chen, senior director of housing economics.

The declines will exceed 20 percent in about 100 metro areas, according to the report, scheduled to be discussed in a Webcast on Thursday. An advance copy was given exclusively to Reuters.

Despite the gloomy data, the report, by an independent subsidiary of Moody’s Corp, paints an improving picture of the housing market, which is in the midst of its worst downturn since the Great Depression and is both the source and a major casualty of the world credit crisis.

An improvement could portend a turnaround for the world’s largest economy and help stanch losses at U.S. banks, hit hard by soured mortgage securities.


In other news the market has reversed its slide on a multitude of bad news.
No news can be found yet. Some are calling this a technical bounce off the “Hogan bottom” of 7850 DOW JONES.
What is certain the NASDAQ has led the way forward.

It is also being suggested that commodities have bottomed and that may suggest that the “deflationary” spiral has stopped. Also suggesting that the stimulus already appropriated is starting to inflate the economy.

Rumors are flying around….Ritholtz has one for a market reversal

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Natty Gas sees a build of 195 bcf

Industrial demand is down and warmer temps are to be had so Natty gas is expected to hover around $4

Natty gas currently trading flat with oil down .50 cent pb @ $39.52

Also in the energy sector PSD is expected to have been acquired by Friday or Monday.

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