A Little Global Perspective

Although there's a lot of problems with our current economy, it's important to note what makes this recession different is that both the cause and the effects of it are global.

Royal Bank of Scotland Group Plc slumped by the most in two decades in London trading on concern the government may have to take full control of the bank after forecasting the biggest loss ever reported by a U.K. company.

The stock dropped 67 percent, the most since September 1988, to 11.6 pence, paring the Edinburgh-based lender’s market value to 4.6 billion pounds ($6.7 billion).

“Nationalization at zero value is implicit in the price,” said Derek Chambers, an analyst at Standard & Poor’s Equity Research Ltd. who has a “hold” rating on the stock. The stock price “is an option on the vague chance that it doesn’t get nationalized.”

RBS said today it may post a loss of as much as 28 billion pounds this year, surpassing Vodafone Group Plc’s 22 billion- pound net loss in 2006. The government offered to exchange its preference shares in the bank for ordinary stock, a move that could increase its stake to 70 percent from 58 percent.

Analysts speculated today the government may eventually take full control of the 282-year-old Scottish lender. “The market is pricing in the risk of full nationalization for RBS,” said Sandy Chen, an analyst at Panmure Gordon & Co. who has a “sell” rating on the stock. “It’s not an RBS-specific issue. The mixture of deflation and de-leveraging is toxic for bank shares.”

RBS will not be the last bank nationalized, either. So far the US is resisting nationalizing banks. I don't think that resistance is going to last much longer. The entire sector is already virtually nationalized. When TARP II fails, what then?

I forsee a government takeover of a number of banks, most likely Citigroup, before the 4th of July. We'll see. I just don't see anything Obama can do before things descend to the near-panic level.

Perhaps then the government will do something...of course by then, what will they be able to do other than printing trillions to cover the losses?

The Chessboard Ahead

Christopher Hayes at The Nation takes a swing at what the GOP is up to on Obama's stimulus package:

Oh sure, they'll oppose it. They'll say it's too expensive, that it won't work, that it will be wasteful. Some will vote against it, though given the popularity of both Obama and the stimulus itself, less than you might think.

But their heart won't be in it.

Here's my sense of their long-term strategy. This isn't based on anything other than observation and chatting around the Capitol. I think they'll let the stimulus pass and, indeed will be quite fine with it being very big. Much bigger than it is now: a trillion dollars or more. Because once the stimulus passes, Republicans are going to say: OK. We're done. Meaning: no more money. They'll point to the $700 billion for the TARP, plus the $1 trillion for the stimulus, and they'll say: we've spent all the money there is to be spent. There's no money for healthcare. There's no money for anything, really except the Pentagon. They'll run against deficits, waste and bailout nation.

Not to put too fine a point on it, but I think this is flat out wrong. Not going to happen. They'll run on burning the stimulus and burning it hard, because if they allow the stimulus and block universal health care, they lose on all fronts, period. The Right will never forgive them for allowing the stimulus through, the rest of the nation will tar and feather them if they kill health-care, and come 2010 the Democrats will actaully have a larger majority, if that's even possible (which it most certainly is.)

The long-term strategy is pretty simple: oppose everything Obama wants to do, then blame Obama when things get worse. One man's obstructionist party is another man's loyal, dissenting opposition. The problem with this is that the Chamber of Commerce business wing of the GOP wants this bailout badly, and the conservative Jesus wing of the party most certainly does not.

The practical result is the Chamber guys may...MAY...jump ship and go to Obama. If that happens, the GOP is toast. But if the Jesus wing talks the Chamber wing into staying, look out.

Odds And Evens

Back on Friday I mused when Bush's pardons were coming. We've made it through the weekend without any major ones.

Politico takes a crack at handicapping the odds of who gets off, and who faces the music. You have to give them some credit, they called Bush commuting the sentences of former Border Patrol agents Ramos and Compean at 3 to 1.

Best odds are for Scooter Libby (1 to 2) , the worst appear to be for Duke Cunningham (50 to 1).

No mention of Nameless One, Keystone Kondi, or Rover/Harriet Miers in the list however. We'll see if he's saving any more for the last minute.

Dear America:

"The largest, most wasteful project in American history by default has to be whatever the most powerful Democrat in the country at the time is trying to do. At this juncture, this means anything Obama wants to accomplish over the next four years is automatically the most egregious example of government pork ever conceived."

--John Hindraker, Power Line

Bonus verbatim stupidity: "We appear to be returning, in short, to an era more like the one in which the modern conservative movement was born. If there was ever a time when America needed an effective conservative opposition, that time is now."

I'm assuming that "effective conservative opposition" was hanging out in the same place it has been for the last seven years, leading the fiscal fight against the trillions and trillions spent on Iraq, Afghanistan, bailing out banks and AIG and giving tax cuts for the wealthy.

It should be easy to find them, just follow the screams.

In And Out

Well, if anyone was still under any illusions about what the basis of the timing of Israel's attack on Gaza was, Israel is promising to be out of Gaza "by the time Barack Obama is sworn in as President."

The official, who declined to be named, said that the withdrawal could be complete before U.S. President-elect Barack Obama takes his oath of office in Washington at noon ET Tuesday -- 7 p.m. in Israel -- though commanders have not been given that deadline.

The Israel Defense Forces said Sunday that it had begun withdrawing some troops from Gaza, and Israeli government spokesman Mark Regev said Sunday that troops would be out in a matter of days, not weeks.

Well gosh, that's nice to know. I'm sure the Palestinians will appreciate it. In fact, it's good to see the Israelis so motivated in general to show mercy and all that. Even the Saudis are getting in on the act.

Saudi Arabia will donate $1 billion for reconstruction in Gaza following Israel's deadly attacks on the coastal strip, its king said on Monday.

"I announce on behalf of your brothers in Saudi Arabia that the kingdom will offer $1 billion as a contribution under the programme proposed by this summit for the reconstruction of Gaza," King Abdullah told an Arab economic summit in Kuwait.

So, it appears with the new boss in town, everyone's eager to make a good first impression on the man.

You know, before they go back to killing each other.

More Turd Polishing For Dummies

Ahh, where would we be without the Village constantly trying to rewrite Bush's failed legacy? Today's contestant: The Independent's Bruce Anderson (trying to meet or exceed the goal of complete temporal reversal set last week by Andrew Roberts.)

But it all comes back to the Iraq War, which was a tragedy, for a reason worthy of a great tragedian. It was fought in a spirit of excessive idealism. After 11 September, the US Administration asked itself one repeated and agonised question. Why do these people hate us? The Bush team came up with their answer: because they live in failed states, which offer their young no hope in this world and thus leave them open to the temptations of fanaticism and a better deal in another world.

Baghdad was one of the foremost cities in the Muslim world. Iraq was a rich country with a large educated middle class. Yet it had become a police state and many of its ablest people had fled into exile. Moreover, Saddam had been trying to acquire weapons of mass destruction. We could not be certain that his quest had failed. So should we wait until the certainty of a mushroom cloud? It seemed that all the routes to progress in the Middle East and safety in the West led to Iraq.

There was one problem. Largely because of the malign influence of that fraud and tautology, international law, we have grown squeamish about regime change. As a result, the overwhelming desirability of regime change in Iraq had to be downplayed, and there was a further difficulty: the most unfortunate un-meeting of minds in recent public policy. After 2001, in both Washington and London, there was a split between those who knew Iraq, who were generally hostile to the War, and those who wanted war but usually knew nothing about Iraq. George Bush had little confidence in his Secretary of State, Colin Powell. Unable to sack Mr Powell, he made up for it by not listening to the State Department. Tony Blair never took much notice of his foreign secretaries.

The size of the list of people who deserve the blame for Bush's failed legacy is impressive, but the one thing all these articles have in common is that Bush himself isn't on that list, but the reality-based community is.

That's to be expected after all...it's historical parallel universe fiction at its finest, the kind that makes Harry Turtledove novels look positively orthodox.

The Kroog Versus The Zombie Banks

Zombie banks are out there, Paul Krugman explains. There's tons of banks that are only solvent right now because of the future promise of bailout billions. What's the anatomy of the undead?

To explain the issue, let me describe the position of a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.

On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets — say, $400 billion worth — are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion.

So Gotham is a zombie bank: it’s still operating, but the reality is that it has already gone bust. Its stock isn’t totally worthless — it still has a market capitalization of $20 billion — but that value is entirely based on the hope that shareholders will be rescued by a government bailout.

Why would the government bail Gotham out? Because it plays a central role in the financial system. When Lehman was allowed to fail, financial markets froze, and for a few weeks the world economy teetered on the edge of collapse. Since we don’t want a repeat performance, Gotham has to be kept functioning. But how can that be done?

Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham’s current shareholders — and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what’s now supporting Gotham’s stock price.

And the reality is much worse. "Gothamgroup Bank" up there is in terrible shape. Part of the assets it's claiming are debt owed to it by other banks facing the same zombie bank situation, so the assets it really has are far less, meaning the bank is even more insolvent than Krugman alludes to.

This in turn makes stockholders all the more confident Obama will have no choice but to to throw trillions more at the banks to keep them afloat. He has no choice. If he doesn't, the results will be more Lehman Bros.-style collapses that will threaten to become a cascade of multiple bank failures that will bring down the entire system.

That's the issue facing Citigroup and Bank of America right now. It's also the issue facing virtually every other large financial institution across the country, and a host of smaller ones. Japan went through the same problem two decades ago and for most of the 90's they were cleaning up zombie banks.

The ones in America are much, much larger. $350 billion might not be enough to clean up even a few of these banks, much less the system. But that's what Obama apparently wants to do, form a huge megabank to buy this toxic waste debt and then put the taxpayer on the hook for it, rather than bank shareholders. And it will take far more than the second half of TARP to fix this problem.

Once again, the banks are getting the best deal possible, while taxpayers are getting the worst. On the other hand, the alternative is complete financial collapse of the US economy. And frankly...the collapse may STILL happen even if Obama spends trillions to bail out the banks.

Talk about worst-case scenario.

StupidiNews, MLK, Jr. Day Edition

• Obama says that the "dream will live on" this MLK, Jr. Day.
• Across the pond, a second major bank bailout in the UK is turning into a nightmare.
  
• At Gitmo, it's still business as usual as the bad dream continues.
  
• California's Inland Empire is second only to Detroit in unemployment, causing many sleppless nights.
  
• It's the Steelers versus the Cardinals as two teams chase their own dreams of glory.