12/13/2010 –

Banks Desperate for Profits Seek Out Risky Credit Card Customers Yves Smith – Banks, having trashed their once-sound model for the credit card business, are back trolling to find credit junkies, albeit of a somewhat safer type than the ones that blew up on them in the credit crisis. So per an article in the New York Times, the banks are back trying to build up their credit card businesses, which had become a major source of bank profits. Unfortunately, have trained a whole generation of customers to expect no-fee cards, they’ve made it well nigh impossible for themselves to go back to a more prudent pricing model. But never fear. The card issuers claim to be wiser and thus better able to make more discerning choices among risky borrowers, such as “strategic defaulters” versus “first time defaulters” versus “sloppy payers”. But how reliable can these credit score and payment history analyses be? We’ve only had two years or so of the “new normal”. The subprime crisis illustrates the perils of extrapolating from unduly short time frames. Now admittedly, the banks are building in more protection for themselves in the form of annual fees and high interest rates. But the flip side is, independent of the terms the banks put in place is that uptake on its new card offers are very likely to be subject to adverse selection.

Less Than a Full-Service City – More than 20% of Detroit’s 139 square miles could go without key municipal services under a new plan being developed for the city, with as few as seven neighborhoods seen as meriting the city’s full resources. Those details, outlined by Detroit planning officials this week, offer the clearest picture yet of how Mayor Dave Bing intends to execute what has become his signature program: reconfiguring Detroit to reflect its declining population and fiscal health. Yet the blueprint still leaves large legal and financial questions unresolved. Mr. Bing’s staff wants to concentrate Detroit’s remaining population—expected to be less than 900,000 after this year’s Census count—and limited local, state and federal dollars in the most viable swaths of the city, while other sectors could go without such services as garbage pickup, police patrols, road repair and street lights.

NASA: 2010 Meteorological Year Warmest Ever – The 2010 meteorological year, which ended on 30 November, was the warmest in NASA’s 130-year record, data posted by the agency today shows. Over the oceans as well as on land, the average global temperature for the 12-month period that began last December was 14.65˚C. That’s 0.65˚C warmer than the average global temperature between 1951 and 1980, a period scientists use as a basis for comparison. The 2010 meteorological year was slightly warmer than the previous warmest year, the 2005 calendar year, when the average temperature was 14.53˚C. In 2010, temperatures measured over land alone were also the warmest ever, with instruments showing a December-November average of 14.85˚C. Combining this warming with above-average ocean temperatures led to the global average of 14.65˚C. November brought frigid temperatures to certain areas of Europe. But the data, compiled by the NASA Goddard Institute for Space Studies in New York City, show that, globally, last month was the warmest November ever recorded, nearly 0.96˚C warmer than the 1951 to 1980 average for the month.

Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011 – Detroit has been bankrupt for years. It simply refuses to admit it. Detroit’s schools are bankrupt as well. A mere 25% of students graduate from high school. Yet, in spite of hints and threats from mayors and budget commissions, and in spite of common sense talk of bankruptcy, Detroit has not pulled the bankruptcy trigger. In a futile attempt to stave off the inevitable one last time, Mayor Bing’s latest plan is to cutoff city services including road repairs, police patrols, street lights, and garbage collection in 20% of Detroit. City officials suggest this will not shrink the size of the city. Perhaps it won’t shrink Detroit on Google Maps. However, Bing’s plan would effectively surrender 20% of the city to gangs and the homeless. Would you want to live in one of the gang war-zones that his plan would create? Would you want to live in a bordering neighborhood or in a bordering city?  Bing’s plan cannot and will not work and I believe Detroit will, sometime in 2011, file for bankruptcy. If so, expect massive turmoil in municipal bonds.

Pimco Total Return Among Biggest Losers as Bond Rally Fizzles – Bill Gross’s Pimco Total Return Fund, the world’s largest mutual fund, was the second-biggest decliner among the largest U.S. bond managers in the past month as clients pulled money for the first time in two years amid a selloff in Treasuries.  The $250 billion Pimco Total Return fell 3 percent in the 30 days through Dec. 8, trailing all but one of the 10 largest bond mutual funds, which lost an average of 2 percent, according to data compiled by Bloomberg. Only the $33 billion Vanguard Inflation-Protected Securities Fund declined more, falling 3.9 percent in the period. Benchmark 10-year Treasuries had their biggest two-day slump since September 2008 this week after tax cuts, signs of an economic recovery and asset purchases by the Federal Reserve fueled expectations inflation will accelerate. The losses may surprise investors who poured $267 billion into fixed income funds this year through October, ignoring warnings by Gross that the 30-year bond rally may have run its course.

Has progress been made in fighting DDoS attacks? – As the distributed denial-of-service attacks spawned by this week’s WikiLeaks events continue, network operators are discussing what progress, if any, has been made over the past decade to detect and thwart DoS attacks. Participants in the North American Network Operators Group (NANOG) e-mail reflector are debating whether any headway has been made heading off DDoS attacks in 10 years. The discussion is occurring while WikiLeaks deals with DDoS attacks after leaking sensitive government information, and sympathizers launch attacks against Mastercard, Visa, PayPal and other significant e-commerce sites.

Reconsidering Japan and Reconsidering Paul Krugman – The New York Times is doing a series on Japan, which the Times describes as an examination of "the effects on Japanese society of two decades of economic stagnation and declining prices." Reading the series is about as cheery a task as rubbernecking at a car wreck on I-95, but, unfortunately, the Times series simply repeats the "conventional wisdom" about Japan put out by the same economic experts who have been wrong on most of the big economic issues over the past two decades. How, then, should we regard a country that has 5 percent unemployment, health care for all of its people, the lowest income inequality and is one of the world’s leading exporters? This country also scores high on life expectancy, low on infant mortality, at the top in literacy, and low on crime, incarceration, homicides, mental illness and drug abuse. It also has a low rate of carbon emissions and is doing its part to reduce global warming. In all of these categories, this particular country beats both the US and China by a country mile. Doesn’t that sound like a country from which Americans might learn a thing or two about how to get out of the mud hole in which we are stuck?

 Financial arms race underway in Washington – When it comes to money in politics, the new normal is already on vivid display. It could be seen last week in posh restaurants and corporate townhouses on Capitol Hill, where politicians held fundraisers at a record pace. It was evident at Washington’s blue-chip law firms, where campaign finance lawyers began work setting up new political committees to collect unlimited donations. It was apparent in the halls of Congress, where lawmakers swapped strategies about how to contend with muscular interest groups looking to take them out. The unusually intense December bustle is the product of this year’s elections, where spending surged to $4 billion in sharp-edged campaigns across the country — a record for a midterm. Those who survived already are plotting how to deal with the attacks next time. There is no down time. Even the most entrenched incumbents — including many Republicans, who could face left-leaning independent attacks in 2012 — feel compelled to go into permanent campaign mode, further impinging on the already limited time lawmakers spend on policymaking and constituent service.

Federal Judge to Rule on Health Law’s Constitutionality – A Virginia federal judge is expected to rule Monday on whether the Obama administration’s health law violates the Constitution, opening a new stage in the administration’s defense of its biggest legislative achievement.The ruling by District Judge Henry E. Hudson is perhaps the most significant so far among a slew of state-based legal challenges to the law, which also faces attack by newly resurgent Republicans in Congress. More than 20 federal lawsuits have been filed against the health overhaul since President Barack Obama signed it in March.  While the cases differ somewhat, they largely rest on the argument that Congress lacks constitutional authority to require most Americans to carry health insurance or pay a fee. The Obama administration counters that three clauses of the Constitution gave Congress the power to put the requirement, known as the individual mandate, in the law as part of regulating how people pay for health care.

The Peak Oil Crisis: The Future of Government – As we all know by now, a new crowd has descended on Washington vowing to make everything right again by cutting taxes, reducing the size and the role of some parts of the government. Above all the folks are committed to getting government regulation off our backs so that free enterprise, the entrepreneurial spirit, merchant capitalism, or what have you can flourish as it did in the past. What all those calling for reduced government fail to grasp, however, is that 200 years of cheap abundant fossil fuel energy has transformed this country into something completely different. Take food as an example, 200 years ago, some 90+ percent of us were involved in its raising or otherwise procuring food — or we would simply not eat. Now, thanks to cheap fossil fuels, less than 3 percent of us are engaged in agricultural endeavors and I suspect only a fraction of our "farmers" still have all the requisite skills to feed themselves and their families in the style to which they have become accustomed. Take away the diesel for the tractors and farming is going to become mighty different. Has anyone yoked an ox lately?

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