EU-DIGEST

Is Britain's Stimulus Plan a Wise Move? - by Mark Scott

The economic picture in Britain—Europe's second-largest economy—is getting ugly. The country's GDP growth has started to slow, unemployment levels have risen at their fastest rate in almost two decades, the value of British real estate has fallen 15% in the last year, and the pound has lost a quarter of its value against the dollar since midsummer. To bolster confidence, Britain's Prime Minister, Gordon Brown, already has poured billions of Pound Sterling into the country's financial-services industry. Now, his attention has turned to the wider economy. The country's public finances—already facing a roughly 4% deficit—will come under additional strain as policymakers take on more debt to jump-start lagging consumer spending. As a result of the new stimulus package, public borrowing will top £118 billion ($178.6 billion) next year, equivalent to approximately 8% of Britain's total GDP. To pay for these extra costs, experts figure taxes eventually will have to be increased and government spending slashed.

"We've never had a package like this before in light of the huge structural deficit we currently find ourselves in," says Geoffrey Wood, professor of economics at City University's Cass Business School in London. "An increase in public spending could be ill-advised to help strengthen the economy."

Labels: Bailout, Britain, Economy, EU

Trickle Down economics was (and still is) a Trojan Horse - by David Stockman

"The most important issue is that, even if you take the Reagan “Trickle-Down” policy at face value it’s still horribly flawed as a policy that will provide economic growth that benefits everyone. There is no realistic way for "Trickle-Down" economics to work and increase the income of the working classes of America. In fact I am certain that the developers of the theory of "Trickle-Down" economics were fully aware of this and that "Trickle-Down" has in fact worked as intended. This means that the intent behind implementing "Trickle-Down" was to benefit the wealthiest Americans at the expense of working class Americans. "Trickle-Down" hasn't failed, as many modern economists have suggested, it has succeeded in its goals, which is the increase of economic inequality and the shift of a greater portion of America's wealth into the hands of the wealthiest Americans.

The general economic policy of "Trickle-Down" that was put in place by Reagan has gone fundamentally unchanged since it was adopted by the country in the 1980s. The claim of Reagan was that "all boats would rise" by giving huge tax cuts for the wealthy. This did not happen. The majority of boats stayed the same or sank, while only between 5% and 1% of the boats actually rose. The effects of "Trickle-Down" policy are evident. As would be expected from the policy, the largest beneficiaries of the "Trickle-Down" system have been the wealthy.

Note EU-Digest: The trickle-down theory, which is supported neither by theory nor evidence continues to be applied by the governments in the US and Europe. It does not work and needs to be abandoned today, rather than tomorrow.

Labels: Bailout, Reaganomics, Trickle Down, US Economy

US Economy - Uncle Sam Pumps Up CitiGroup

The federal government stepped in Sunday night to bail out Citigroup and restore confidence in the financial system, promising to protect the banking giant against losses on hundreds of billions of dollars worth of troubled assets. The U.S.Treasury guarantees the bank against losses on $300 billion of its riskiest assets and injected another $20 billion in capital.

Labels: Bailout, Citigroup, US Economy

Automakers bailout: Why the Dems' Drive to Aid Detroit is Stalling Out - by Jeff Haynes

Although they have presided over the largest expansion of the U.S. government since the Johnson administration, the GOP has apparently reached its line in the sand when it comes to economic bailouts. Senate Majority Leader Harry Reid Monday introduced legislation asking that $25 billion of the $700 billion bailout fund Congress approved in September be redirected for use by General Motors, Ford and Chrysler in the hopes of helping the faltering industry avoid going under, but Republicans immediately balked at the idea. "It does no good for taxpayers to pour $25 billion into the car companies and find that a year later that money has been spent and yet nothing has changed to diminish their obligations. Where will they get the next $25 billion? And the $25 billion after that?" Senator Jon Kyl, an Arizona Republican, said on the Senate floor. "The reality is that they've got to change the way that they're doing business in order to, I think, warrant asking taxpayers for anything."

Note EU-Digest: why don't the automakers request Shell, Mobil and Exxon to bail them out? After all they were the ones who enjoyed the benefits of the gas guzzling cars Detroit produced.?

Labels: Automotive Industry, Bailout, EU, US

Deregulation fails big time

Thoughtful people have warned of approaching economic disaster for some time, and these thinkers included professional economists. The recent noble prize winner Paul Krugman quickly comes to mind. Editorialists who regularly mocked Krugman's writings have grown quiet lately. But you really didn't need advanced degrees in economics to see the present mess coming. All that was required was some understanding of human nature, specifically the nature of the right-wing financiers who apply great influence on the American government. Greed drives them; moderation is repugnant. When deregulation became official government policy, when the upscale operators were no longer restrained by statutes or security guards, it was inevitable they would gorge themselves sick. They regard the American public as a dog regards a garbage can. They must be called off; they never quit voluntarily.

Note: EU-Digest: Even after we saw most of the stock market listed shares rise quickly again when governments around the world pumped billions of cash into what is basically a defunct Global financial and banking system, you can be sure the euphoria won't last. Unfortunately the present bail out plans applied are still based on the belief that a deregulated "trickle down" economic theory works.It does not. What really matters is to improve the financial health and economic status of the consumer.

When the consumer stops or slows down on his or her spending habits, for a variety of reasons, including unemployment, the party basically ends for the corporations supplying the goods and services to the consumer. No matter how much the government pumps into the financial system. Right now this is exactly what is happening. What is required are government funded programs which stimulate job creation or at least programs that are a mixture of corporate bailouts and economic rescue plans for the lower and middle class. A study by Acxiom, a data collection company in Little Rock, Arkansas, estimates that 19 percent of US households are "digging in" by dramatically tightening their belts, while 48 percent are maintaining the status quo on. Whit Andrews, vice president at Gartner, Inc. the world’s leading information technology research and advisory company, concludes: "a financial era is ending. The age of conspicuous consumption is over, and the age of conspicuous frugality starts now".

Nicolas Sarkozy, Angela Merkel, Gordon Brown, Barrack Obama and a few other enlightened politicians understand that capitalism needs an urgent overhaul and have been saying so.The formula is simple: job creation = spending power = economic growth. Unfortunately moving the "fat cats" from the strategic positions they presently hold will be a herculean task.

Labels: Asia, Bailout, Barack Obama, deregulation, Economy, EU, John McCain, US

Why The Bailout Won't Work - by Pat Barron

The decision by the U.S. government to bailout the banking system is consistent with its Keynesian interpretation of how an economy works, why it stops functioning efficiently, and the methods required to restore its productive capacity. Keynesian theory burst upon the world in the mid 1930s at the height of the Great Depression. Free market capitalist economies, say the Keynesians, are prone to overproduction. Modern industrial techniques allow capitalists to produce more with fewer people, throwing masses of workers on the streets and destroying their financial power to purchase industry's goods.Since the workers can no longer afford to purchase the massive amount of industry's production, factories shut down, throwing even more workers on the streets and destroying even more purchasing power. The free-market economy goes into a death spiral of rising unemployment and rapidly dropping demand for goods. Prices plummet as demand falls, forcing more and more businesses into bankruptcy. The only way to break this calamitous cycle is for government to intervene by increasing demand for goods. It can deficit spend, enforce higher wages for workers, prosecute businesses that dump cheap goods on the economy, and similar actions to bring demand back into equilibrium with supply. Government is the key actor, for only government has sufficient purchasing and regulatory power to counter free market capitalism's inherent weaknesses.

Labels: Bailout, US Economy

Europe Unifies Over Bank Deposit Guarantees - by Tom Gjelten

Europe Unifies Over Bank Deposit Guarantees - by Tom Gjelten

Against the background of the US financial crises, the European Union finance ministers who met in Luxembourg on Tuesday were able to reach one agreement: All EU countries now have to insure bank deposits up to 50,000 euros (about $68,000), and countries that want to can insure up to 100,000 euros. The finance ministers also agreed on "principles" EU governments should follow when providing new capital for their distressed banks. But the action falls short of the financial rescue plan adopted last week in the United States.

Labels: Bailout, Bank Deposit Guarantees, EU Economy

Poll indicates bailout doesn't help average Americans - by David Goldman

The government said last week's $700 billion financial bailout was necessary to help Wall Street and Main Street alike, but most Americans don't think the plan was intended to benefit them, according to a survey released Tuesday. In a CNN/Opinion Research Corp. poll, only 40% of Americans think the legislation was an attempt to rescue the economy in order to help ordinary taxpayers. Instead, 53% saw the bill as mostly a bailout for Wall Street."By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country," President Bush said last week after the House voted 263 to 171 to pass the measure. But taxpayers weren't buying it. The survey of more than 1,000 Americans, conducted Oct. 3-5, found that 59% thought the bill would treat taxpayers unfairly. Almost as many - 52% - thought the bill would waste money.

Note EU-Digest: both presidential candidates - Obama and McCain supported the bailout, which has voters now worried on which side of the fence they stand.

Labels: Bailout, Polls: Perceptions, US Economy

German bank Hypo Real Estate (HRE)announces collapse of 35 billion euro rescue

German bank Hypo Real Estate (HRE) said Saturday that a planned 35-billion-euro (48-billion-dollar) rescue had fallen through after the banking consortium involved pulled out of the deal. The rescue bid was the biggest in German history and came after HRE was sucked into the global financial turmoil through its inability to refinance debt, one of many high-profile European emergency cases in the past two weeks. HRE said in a statement that a consortium of German banks taking part in the rescue had "refused to provide liquidity lines" and that it was seeking new measures.

Labels: Bailout, EU, EU Economy, Germany, HRE

US economic meltdown -The Bailout : The mother of all Government scams

The US House of Representatives on Friday passed a modified version of the $700 billion Wall Street bailout bill which it had rejected on Monday. What changed their minds? In one word: fear, says New York Times business columnist Joe Nocera.

Without holding any meaningful hearings or public discussions and listening only to those most responsible for the economic disaster, Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson, Congress abdicated its responsibility to the American people Individuals working for Wall Street finance, insurance and real estate companies and the companies’ political action committees have contributed more than $47 million to the campaigns of Senator Obama (three of top five sources) and Senator McCain (top five sources), both of whom voted for the bailout. More to the point, Wall Street has contributed more than $1.1 billion dollars to congressional candidates since 2002. Nine of the top ten House recipients of Wall Street “largesse”, who each received an average of $1.5 million, are on the financial oversight and taxation committees.

Locking out most members from all discussions, the congressional "leadership" emerged from their back rooms with legislation that grants Secretary Paulson the ability to spend at least $700 billion to "take such actions as [he] deems necessary" ... " to promote financial market stability. Entrusting tremendous political and financial power (and a ton of borrowed money that taxpayers will have to repay with interest) into Paulson’s sole discretion, members of Congress must have been aware that, prior to his cabinet appointment in 2006, Paulson worked for 32 years at Goldman Sacks, one of the Wall Street firms that stands to benefit greatly from his "actions."

Paulson, who cashed out his Goldman stock valued at $575 million to become the Secretary of Treasury (without having to pay any taxes on the sale), earned more than $53 million in pocket change during just his last two years at Goldman Sacks for innovations such as a new line of "Mortgage Backed Securities." Gambling more than a trillion dollars on risky subprime second mortgages, Paulson cleverly converted them into AAA-rated "secure" investments by purchasing guarantees from the American International Group.

“The $700 billion bailout for Wall Street is driven by fear not fact. This is too much money in too short a time going to too few people while too many questions remain unanswered. Why aren’t we questioning the underlying premise of the need for a bailout with taxpayers’ money?” Kucinich asked from the House floor Monday. “Why have we not considered any alternatives other than to give $700 billion to Wall Street? Why aren’t we asking Wall Street to clean up its own mess? Why aren’t we passing new laws to stop the speculation, which triggered this?aren’t we putting up new regulatory structures to protect investors? How do we even value the $700 billion in toxic assets?”

Labels: Bailout, Henry Paulson, US Economic Meltdown

President Bush signs historic financial rescue plan into law - by Jeanne Sahadi

After two weeks of contentious and often emotional debate, the federal government's far-reaching and historic plan to bail out the nation's financial system was signed into law by President Bush on Friday afternoon.

Lawmakers who voted against the bill warned that "being stampeded" into voting the bill through would be a serious mistake. "Wall Street is so hungry for the $700 billion they can taste it. To get it they need to ... create panic, block alternatives and herd the cattle. We ask Congress not to rush. Defeating this bill today isn't the last step. It's the first step in passing a good bill," said Rep. Brad Sherman, D-Calif., before the vote.

Rep. Marcy Kaptur, D-Ohio, who has called for the FDIC and SEC to use their powers to ease the credit crisis, said, "Pray for our Republic. She's being placed in ... very greedy hands."

To see how your representative in Congress voted on this click on this link

Labels: Bailout, US Economic Meltdown

US Economic Meltdown: Grand Theft America

Industrial capitalism is eroding and kleptocracy is replacing it. If the system is saved it will only be temporary, and an even greater financial crisis will emerge.The world as we know it is changing. Industrial capitalism. The entire global economic system. Interconnected. What affects one nation touches others. If the troubled country is America it reaches everywhere, and if the crisis is great enough, the disease may be fatal and human wreckage catastrophic. Precisely the current dilemma that world leaders and financial experts are scrambling to figure out. Desperate to contain, and not sure what, if anything, can work. How did this happen and why?

The result of unfettered capitalism's fatal flaw - unbridled greed in a rigged system that rewards the few at the expense of most others. First an explanation of how it works. Free-wheeling, "free market" Chicago School fundamentalism the way economist Milton Friedman championed it in his 1962 book "Capitalism and Freedom" and taught it to students for decades. He believed that government's sole function is "to protect our freedom both from (outside) enemies....and from our fellow-citizens." Preserve law and order. Enforce private contracts. Protect private property and "foster competitive (unregulated) markets." Everything else in public hands is "socialism....blasphemy." Not to be tolerated.

As for Paulson's plan, here's what the Financial Times writer Martin Wolf said on September 23. He called it "not a true solution to the crisis." It doesn't address the "fundamental problem." It's "neither a necessary nor an efficient solution. It is not necessary because the (Fed can) manage illiquidity through its many lender-of-last resort operations. It is not efficient because it can only deal with insolvency by buying bad assets (overpriced junk) at far above their true value, thereby guaranteeing big losses for taxpayers and providing an open-ended bail-out to the most irresponsible investors."

Labels: Bailout, Grand Theft, US Economic Meltdown

US House leaders optimistic for bailout bill - Manipulation - Marketing and Fear Factor overcome reality - by Richard Cowan and Donna Smith

U.S. House Democratic leaders expressed optimism Thursday that a revised $700 billion financial industry rescue bill passed by the Senate will clear the House of Representatives, which rejected the bailout earlier in the week and rocked financial markets worldwide. "We're not going to take a bill to the floor that doesn't have the votes. I'm optimistic that we will take a bill to the floor," House Speaker Nancy Pelosi, a California Democrat told reporters. Both Pelosi and Hoyer said it was likely the House would not try to amend the Senate-passed bill, which also raises bank deposit insurance to $250,000 from $100,000 and includes a package of about $150 billion in tax breaks for renewable energy, businesses and individuals.

Pelosi said time was of the essence to restore confidence in U.S. financial markets and any changes would mean the bill would have to go back to the Senate, where it would take a number of days to bring it up for another vote.

Note EU-Digest - what is the big rush now after Republicans and Democrats have been sitting on their hands for months doing absolutely nothing to curb the present crises. Impoprtant is to stay cool and not be "dazzled" by fear and manipulation.

Labels: Bailout, Fear, Manipulation, US Economy

US Senate to vote on bailout bill tonight - calling this bailout a good thing by any other name still means helping the "fat cats"

In a surprise move to resurrect President Bush’s $700 billion Wall Street rescue plan, Senate leaders slated a vote on the measure for Wednesday — but added a tax cut plan already rejected by the House. Majority Leader Harry Reid, D-Nev., and GOP Leader Mitch McConnell of Kentucky unveiled the plan Tuesday. The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000, as called for by the two presidential nominees only hours earlier. The move to add a tax legislation — including a set of popular business tax breaks — risked a backlash from House Democrats insisting they be paid for with tax increases elsewhere.

Note EU-Digest

This move by the US Senate is another tactic to force this unpopular "give the government a blank check" bill of 700 billion down the throat of the US population. Democrats and Republicans should scrutinize this vote very closely and note the names who voted against or for it, so come November they can vote accordingly. This move by the Senate is also seen as a tactic to force the Congress to reverse their earlier vote. If Democratic and Republican Senators really listen to their voters this bill in the Senate shall also not pass.

Labels: Bailout, Democrats, Republicans, US Senate

Thomas-Jefferson -"When patience has begotten false estimates of its motives, when wrongs are pressed because it is believed they will be borne, resistance becomes morality."

For the complete report from Bloomberg.com/EU-Digest click on this link

"Fire Bernanke ? - There he goes again" - Fed `Rogue Operation' Spurs Further Bailout Calls - by Craig Torres

A month after the Federal Reserve rescued Bear Stearns Cos. from bankruptcy, Chairman Ben S. Bernanke got an S.O.S. from Congress for more help.This time to prop-up the student loan lenders.

``It is appalling where we are right now,'' former St. Louis Fed President William Poole, who retired in March, said in an interview. The Fed has introduced ``a backstop for the entire financial system.''. Critics argue that the result will be to foster greater risk-taking among investors emboldened by the belief that the government will bail them out of bad decisions. The Fed's loans to Bear Stearns were ``a rogue operation,'' said Anna Schwartz, who co-wrote ``A Monetary History of the United States'' with the late Nobel laureate Milton Friedman.``To me, it is an open and shut case,'' she said in an interview from her office in New York. ``The Fed had no business intervening there.'' There are already indications that investors perceive the safety net to be widening as a result of the actions by Bernanke, 54, and New York Fed President Timothy Geithner. The Bear Stearns bailout and an emergency facility to loan directly to government bond dealers triggered a decline in measures of credit risk for investment banks and for Fannie Mae, the Washington-based, government-chartered company that is the nation's largest source of funds for home mortgages.

``If there is a public purpose in lending to investment banks, and taking dodgy mortgage securities as collateral, then it is a question of degree about other potential lending,'' Vincent Reinhart, former director of the Fed board's Division of Monetary Affairs, said in an interview. ``That's the consequence of crossing a line that had been well established for three- quarters of a century.'' Note EU-Digest: Reading Fed-watcher William Fleckenstein's new book, "Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve," you get the feeling that for 18 years America's banking system was run like a "new age" hippy commune, by a Ayn Rand free spirit who believed "anything goes." Now the Fed's run by a college professor and Fleckenstein says he's "in over his head." Except this is the real world, a $13 trillion economy in a $48 trillion world, not a college seminar on economic theory.

In 1807 Thomas Jefferson said to M. deStael, "When patience has begotten false estimates of its motives, when wrongs are pressed because it is believed they will be borne, resistance becomes morality." It is time for the people to take destiny in their own hands and clean up the mess, greed and inequality this so-called "Global Free Market Economy" has brought the world.

Labels: Bailout, Ben Bernanke, Revolution, Thomas-Jefferson, US Economy

EU finance ministers say no to safety net in EU for banks paid by tax payers

After a decade of talking about how to react if banks operating in several European countries veer toward collapse, EU finance ministers on Friday agreed on some ground rules that could see governments share the cost of an unlikely rescue. European Central Bank President Jean-Claude Trichet made it very clear that many national central bank governors had emphasized the danger of giving banks any kind of potential safety net paid for by taxpayers. "The idea of sharing the burden at the international level is even considered by some as something which is far away from the present possibilities," he said.

The text of the EU finance ministers agreement says regulators do not aim to prevent bank failures.

The agreement also specified "The objective of crisis management is to protect the stability of the financial system ... and to minimize potential harmful economic impacts." - "The management of an ailing institution will be held accountable, shareholders will not be bailed out and creditors and uninsured depositors should expect to face losses," it said. This agreement comes less than a year after Northern Rock bank in Britain stumbled toward insolvency and went to the Bank of England for help. That led to the nation's first bank run in more than a century. European finance ministers said government assistance would always be a last resort and there was no guarantee of help. Private sector solutions will always come first, according to the document, and a government rescue "will only be considered to remedy a serious disturbance in the economy. "European banks are increasingly making cross-border acquisitions, deals that have been strongly encouraged by EU officials who say it will boost competition and reduce costs. Italy's UniCredit leapt into Europe's top 10 lenders by buying Germany's HVB three years ago, while Spanish bank Santander, Franco-Belgian counterpart Fortis and Royal Bank of Scotland recently won a joint bid for the Netherlands' ABN Amro. This wave of consolidation raises the risk of a failure big enough to ripple across two or more European nations, speeding up ten years of regulators' discussions.

"What's ten years in Europe-land?" the EU's top financial services official, Charlie McCreevy, told The Associated Press. "Financial turmoil has sharpened the focus. It's now time to do something".

Labels: Bailout, ECB, EU Economy