These are the 12 “foreign,” or so-called transplant, producers making cars across America’s South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

I think that the unions need to realize that they have to work with the automakers to come to a fair deal; it’s better to have some form of auto industry in the US than none (at least for the workers). I also think it’s interesting to note that the US owned carmakers employ a little more than twice as many as foreign producers do; not the hundreds of thousands (or even millions) that pundits have been throwing around as of late.

However, it’s also important to realize that the US auto companies knew that they had higher labor prices due to union contracts which have been around forever, perhaps they should have looked into other avenues to lower costs and become more competitive? Maybe even spending more money on R&D and coming up with a fancy electric car (a la Tesla) or some sort of hybrid that consumers are willing to pay more for due to some sort of “I’m saving the planet” hysteria, which will allow them to exploit the so-called environmentalists and earn higher profits than they would otherwise.

So what’s the verdict? As the article explains:

There’s no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it.

I agree completely - if Detroit is going to be saved it must do so on its own, and not at the expense of the taxpayers. Giving the big automakers a bailout without a complete re-tooling of the way they do business would just result in another outstretched hand six months down the line. After that, maybe another industry or two would ask for the same thing. Government should try and stay out of the free market whenever possible, a lesson that has seemingly been unlearned over the past year or so.

From the piece:

Colombian government officials declared a state of emergency Monday, boosting their powers of arrest and money seizure, to help deal with multimillion-dollar investment scams that have targeted mostly poor investors.

I mean, wow. Rioting and a state of emergency? Just think about what would happen here if people took to the streets hardcore like that. Chaos. This also brings to light the problem that smaller countries have with enforcement of laws and even creation of laws surrounding financial protections for consumers. Let’s take a look at the Heritage Foundation’s Economic Freedom report for Colombia, specifically the Financial Freedom section:

Colombia’s financial sector is relatively large and sophisticated. Banking has undergone significant consolidation and privatization since the 1998–1999 financial crisis. The government has strengthened regulations and seized some banks for falling below solvency requirements. As of December 2006, there were 17 commercial banks: 11 domestically owned and six foreign-owned; one is state-owned. All financial institutions nationalized during the crisis were privatized or liquidated by mid-2006 except for the state-owned Granbanco-Bancafé. Foreign companies are prominent in the insurance sector, and competition has intensified since 2003. The informal credit market is extensive. Foreign investors face few restrictions in small equity markets, and renewed enthusiasm for investing in developing markets has stimulated foreign investment in Colombian equities.

Looks good, right? Until you read the corruption index below it:

Corruption is perceived as significant. Colombia ranks 59th out of 163 countries in Transparency International’s Corruption Perceptions Index for 2006. Despite significant advances in fighting corruption, criminal narcotics organizations influence the military and the lower levels of the judiciary and civil service.

Not so great. Developing countries still have a long way to go in terms of removing corruption, which I’m about 99% sure led to the current crisis they are having. SOMEONE must have known what was going on in government. People in the American government sure knew what was going on during the past few years, nobody did anything because the good times kept rolling. When they stopped, just like when Colombia’s did, problems emerged.

Grilled by lawmakers examining the causes of the financial crisis, former Federal Reserve Chairman Alan Greenspan on Thursday admitted some mistakes in assumptions about deregulation while rejecting the idea that he is personally responsible for what he termed a “once-in-a-century credit tsunami.”

Hm, so it must have been that other federal reserve board chair that lowered rates to 1% after the dot com bubble burst, allowing banks access to easy money, which they in turn lent back out to anyone and everyone, even the people that shouldn’t have been able to get a loan. Hmph. Funny how all the different Greenspan’s out there all seem to be involved in finance.

New York Times Op-Ed columnist Thomas Friedman uses his latest op-ed to connect the tragedy of Iceland’s banking system with his theories on the flat world, and hits the nail perfectly on the head. As he begins:

If you’re looking for a single example of how the globalization of finance helped get us into this mess and how it will help get us out, you need look no further than British newspapers last week and their front-page articles about the number of British citizens, municipalities and universities — including Cambridge — that are in a tizzy today because they had savings parked in Icelandic banks, through online banking services like Icesave.co.uk

This is one of the most interesting aspects of the crisis in Iceland - that so many British citizens, and public entities had large deposits in Icelandic banks, and upon hearing about the crisis they all begun attempting to withdraw funds at once. This, of course, rendered the banks unable to continue operations due to the wonderful world of fractional reserve lending.

As Friedman later discusses:

The credit crunch hits Iceland, which went on its own binge. Meanwhile, the police department of Northumbria, England, had invested some of its extra cash in Iceland, and, now that those accounts are frozen, it may have to reduce street patrols this weekend.

Then the idea of the world being flat can really be seen clearly, and Friedman makes his main point:

And therein lies the central truth of globalization today: We’re all connected and nobody is in charge.

At first, I read this and realized with horror that he was correct - a global interconnected financial system with trillions of dollars being traded back and forth in currency, derivative, stock, bond, and who knows what else markets every day. However, upon contemplating the danger of the utter lack of regulation, one is brought back to the standard “How much regulation is acceptable or not?” question.

In response to that, many European leaders have joined together to call for a “new economic order”, without explicitly discussing what that would mean. There is also the obstacle of a US lame-duck president not feeling any immediate pressure to respond to a call for new sets of regulations on the financial industry. The bottom line is that billions of dollars in transactions every day occur without regulation (think credit default swaps) and to assure the long term stability of the economy some new regulation is needed. The only question is how much, and how long after the new regulations are in place will the companies being regulated find a way around the regulations, and thus start the never ending cat and mouse game all over again…

What do you think?

In the article, the always informative Financial Times explains:

Japan’s trade balance occasionally slips into negative territory at the start of the year as production slows over its long new year holiday. But economists said August’s deficit was the first outside the month of January in 26 years, and the first on a seasonally adjusted basis since 1980.

The contraction was led by plunging sales of Japanese cars and trucks in a weak US automobile market. Exports to Europe also declined while growth in shipments to China and other Asian countries – including sales of Japanese factory equipment used in those countries’ own export industries – slowed sharply.

Why might this be happening? Well, beyond the fact that most Americans are cutting back on purchases in general, it is also much more difficult to obtain loans and other forms of credit now for purchasing these expensive vehicles. Either way, this is not good for Japan and a scene which is likely to start being repeated worldwide. As much as most people don’t like the United States, they do rely on us for our excessive consumption!

The indictment also alleges the two men concealed the fact that one of the largest investors in the hedge funds wanted out and sought to withdraw some $57 million in April. Authorities say the pair repeatedly told investors to put more money into the fund and withheld information about redemption requests. Tannin allegedly told investors on more than occasion that he was putting more of his own money into the funds, even though he never did. On May 3, Tannin told one of the hedge funds’ bank lenders he doesn’t anticipate any large redemptions.

Ouch. Sounds pretty bad. Lied, manipulated people, all that jazz. Not a nice person - but then again I wonder if this sort of thing happens more than we’d think. I’ll leave you with this quote from the end of the article, which I often find contains the article writer’s true feelings about what happened (and in this case my feelings are mirrored with the authors)

Ross Intelisano, an attorney who represents a number of hedge fund investors, says: “These are the first criminal indictments related to the subprime debacle and it’s fitting that Cioffi and Tannin who helped trigger the crisis are the first ones indicted.”

on Monday night that the central bank would “strongly resist an erosion of longer-term inflation expectations,” implying a pause in its rate-cutting campaign and, perhaps, eventual rate increases.

The best part is the use of the term “implying”. Nobody really knows what’s going on in Ben’s head. Only Ben. The media, the pundits, Wall Street, the individual investor, everybody tries to figure out which way the Fed will shift because so much is affected by every move. For instance, bond prices move in the opposite direction of rate movements.

In case you weren’t quite sure exactly how the Fed goes about protecting against inflation by raising rates, here’s a quick primer. Say the Fed sets a new target rate higher than the existing one. To achieve that rate, the Fed will sell securities to banks, who then lose capital but gain securities such as treasuries in exchange. This in turn decreases the supply of money in the economy. With less money in the economy, each dollar is worth more and therefore inflation is slowed somewhat.

The problem is that with less money available to the banks due to the draining of their reserves to buy securities, they cannot lend as much money to consumers and businesses due to reserve requirements (the percentage of banks’ customers deposits which they must hold and cannot lend out - isn’t fractional reserve lending wonderful?). This lowers the availability of money and makes entrepreneurial inclinations harder to fulfill. It also makes it harder for consumers to purchase new homes, and as we already know most banks are being a whole lot more careful about who they lend to. I hope that made sense - I just wanted to give all of you a picture of what a double edged sword trying to stop inflation can be. Good luck Ben!

As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay or repudiate. This fiscal irresponsibility has been disguised through many manipulative financial schemes (causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

How Hedge Funds Pushed the Economy Down is an audio interview on NPR, described as:

Largely unregulated by the government, the hedge fund “shadow market” has played a critical role in the housing crisis. Alex Chadwick talks to Michael Greenberger, law professor at the University of Maryland, about what hedge funds are and how the government deals with them.

British Banks start to pass round the begging bowl is a story by the venerated Economist magazine (a must read, in my opinion) about how big British Banks, who for months were saying they had no need to raise new capitol, are finally realizing they need in fact exactly that!

A few great blog pieces:

The Fed is serving the Wall Street Banks not the Republic is an absolutely fabulous article! Just read it, I’m not even going to tell you why. Do it!

Another one, Why do oil prices keep rising?, by Mish, is a great explanation of that seemingly always asked question.

Read up, stay educated, and I’ll be back again after I finish my hectic weekend! Happy Passover!

Here’s how it works: A Delaware-based limited liability company will be set up to receive, upon completion of the merger, $30 billion in various Bear holdings, such as mortgage-backed securities. The Fed will lend $29 billion to that company, which will pass all the money along to JPMorgan, Bear’s new owner. JPMorgan itself will lend $1 billion to the Delaware company. The company, managed by BlackRock ­Financial Management, will pay back the loans by gradually liquidating the assets. As a protection for the Fed, it gets paid back fully before JPMorgan gets back anything on its loan. The other sweetener for the Fed is that if there’s money left over even after ­JPMorgan gets repaid, the Fed gets it all.

Curiouser and curiouser…