Hong Kong? Phooey!

The next big city to be rocked by crumbling financials may not be New York, Charlotte, or San Francisco, but Hong Kong.

“It’s a perfect storm,” John Hartley, head of White & Case’s Asia bank finance and restructuring practice, said in an interview in Hong Kong. “There’s a large amount of refinancing coming up, and capital is retreating with banks retracting lending and private equity and distressed opportunities funds facing redemptions.”

Banks are curbing lending as shrinking earnings increase the risk companies will be unable to repay their debts. New loan agreements in Asia-Pacific excluding Japan dwindled to $4 billion this year from $32 billion in the same period a year earlier, data compiled by Bloomberg show. The global default rate on speculative-grade debt will peak at 16.4 percent in November, worse than in the Great Depression, according to Moody’s Investors Service.

The tie-up will focus on insolvencies with a “center of gravity” in Hong Kong, including businesses from throughout Asia with holding companies in the city, according to Laracy Gall founder Nick Gall. The International Monetary Fund said last month that developing Asian economies will grow by 5.5 percent this year, the slowest pace since 1998, when the region was racked by its own financial crisis.

Corporate insolvencies started rising in Hong Kong last year after falling since 2003, according to the Official Receiver’s Office. The situation is likely to worsen, with the city’s central bank warning more than HK$100 billion ($12.9 billion) of syndicated loans will mature this year, risking defaults if companies are unable to refinance the debt.

With the credit crunch meaning super-leveraged Asian tigers can't refinance their massive debt, these companies are going to go under in a tsunami that will wipe trillions from the books.

This is a global event, folks. When this tidal wave hits, everyone else is going to be drowning in their own red ink, meaning recovery handouts from the rest of the world will be nil. The result? So many major players knocked out at the same time that the entire global system will crash...and rebooting it will take years if not a decade or more.

We're Not In Kansas Anym...Wait We Are?

A major budget showdown is shaping up in another broke-ass state, this time it's Kansas.

State tax refunds, Medicaid reimbursements and payments to local schools are all on hold because of a political showdown between Kansas legislative leaders and Gov. Kathleen Sebelius.

The Kansas Finance Council was to meet at 1 p.m. today to vote on whether to borrow $225 million from healthy state funds to cover expected payments to schools, state workers and taxpayers. The state did the same thing last December when it ran into a cash-flow problem.

But Republican leaders said they wouldn’t authorize the new loans until Sebelius, a Democrat, signs legislation designed to erase the state’s current year budget deficit. That bill, passed Thursday, cuts statewide school funding by $32 million and makes millions more in cuts to other state agencies.

State officials are scrambling right now to determine what the cash flow problem will mean. Budget director Duane Goossen said it’s likely to mean a delay in tax refunds, state employee pay, reimbursement to Medicaid providers and school districts.

While the No-Publicans may be stonewalled nationally, in red states like Kansas they still control the purse strings, and they're exacting a gruesome toll upon Democrats on a state level.

Then again, basically all state governments are in trouble in one form or another and are facing massive budget cuts in 2009 and 2010. Republicans are screaming that services need to be cut just at the time they are needed the most to pick up the slack in system. They're also screaming for cuts in education, too...I wonder why that is?

[UPDATE] Kansas may have serious problems, but they're nothing compared to the fact California's state government is on the brink of disintegration.

“It is a dramatic time,” said Darrell Steinberg, the State Senate’s president pro tempore. “The solvency of the state is on the line. It is really quite a system where the fate of the state rests upon the shoulders of a couple of members of a minority party. The system frankly needs to be changed.”

In the meantime, motorists are met with “closed” signs at Department of Motor Vehicles offices two days a month, environmental programs are left unattended, piles of dirt mark where highway lanes are to be built to ease the state’s infamous traffic congestion, school systems mull layoffs and counties prepare to sue the state for nonpayment of bills.

Last week, Mr. Schwarzenegger and the four legislative leaders concurred on a series of bills that included $15.1 billion in budget cuts, $14.4 billion in tax increases and $11.4 billion in borrowing, much of it subject to voter approval.

The Senate Republican leader, Dave Cogdill, said he thought he had all the votes needed to get the deal done in each house. But on Sunday, two Republican senators — Dave Cox, who was originally thought to be the last vote needed, and Abel Maldonado, whom Mr. Schwarzenegger had been able to woo into voting against his party in the past — said they would reject the plan.

If there's no deal in California soon, Obama may have to step in.

Dear America:

"My completely objective opinion is that after four weeks and one stimulus package with a train in it, Barack Obama is the really just the worst President ever because he delegates everything to the qualified experts he has rather than being a real man like Dubya was and let Rush Limbaugh run the party. Pussy."

--Bill Kristol, Weekly Standard

Quagmire

WaPo correspondent Tom Ricks talks about why we'll still be in Iraq after the Obama administration.

Many of those closest to the situation in Iraq expect a full-blown civil war to break out there in the coming years. "I don't think the Iraqi civil war has been fought yet," one colonel told me. Others were concerned that Iraq was drifting toward a military takeover. Counterinsurgency expert David Kilcullen worried that the classic conditions for a military coup were developing -- a venal political elite divorced from the population lives inside the Green Zone, while the Iraqi military outside the zone's walls grows both more capable and closer to the people, working with them and trying to address their concerns.

I'm not 100% sure if I buy this. While I can certainly see Iraq not being strong enough to maintain stability on its own, the real power in Iraq is coming from Iran (which is why Obama's overtures to Iran have been excellent news.) If Iran can be convinced to be a positive influence in stabilizing Iraq, then we can make serious headway towards a lasting peace in the region.

If we don't, Iran will continue to foment rebellion in Iraq. The key to winning Iraq, where "winning" means "a stable country with a working government" is in fact in Tehran, not Baghdad.

Having said that, Petreaus and Odierno will never leave the country. On the other hand, we really do have much larger problems to worry about right now here in the US.

Zandar's Thought Of The Day

The Kroog:

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

Once again, I wonder how long it will be (and which party will propose it first) that a war should be used as the ultimate employment stimulus package. I don't think Obama would ever do something like that personally despite all the paranoia over his national service plan. On the other hand I can easily see the GOP pushing for this, especially when military recruitment is already on the way up in this lousy economy.

Called Out On The Carpet

I don't often agree with "Democratic Strategist" Paul Begala (Strategist is short form for Village Partisan Hack, and they puke up talking points for both sides on the teevee) but there are times when being a partisan hack is useful, and that's in calling out the other side on being stupid.

Gov. Mark Sanford of South Carolina took umbrage at my writing that his approach to the economic crisis is to do nothing. I'll deal with his "ideas" in a moment, but first let me make a modest proposal:

If Republican politicians are so deeply opposed to President Obama's economic recovery plan, they should refuse to take the money. After all, if you think all that federal spending is damaging, there are easy ways to reduce it: Don't take federal money.

Gov. Sanford can lead the way. South Carolina should decline to accept any federal funds for transportation, education, health care, clean energy or any of the other ideas President Obama is advocating to fix the economy. And the rest of the GOP can follow suit.

It's such a hammer-on-skull obvious idea that it takes an obvious partisan to come up with it, but there you are. No district represented by a Republican should take any of the stimulus money, and no state with two GOP Senators that opposed the measure should either. They should immediately send it back to Washington and use it to pay down the national debt.

I love this idea. I think the Democrats should run with it all the way to the end zone to the point the wingnuts start thinking it might be a good idea if the GOP actually did this. Please, please, please let the hard-liner right-wing Taxen Cutten Uber Alles guys come out and say "But we think in a real sense that Mr. Begala's idea has merit."

No, I don't expect anyone in the GOP to do this. But when they don't, having both the left and the right calling them out as hypocrites on it would be really useful to the argument that the GOP is just generally full of crap.

Fiscal Responsibility Only Applies To, Um, Not Us

Digby reminds us again why Republicans should never be allowed near anything important. Ever. Period.

From the "why are we listening to them?" files:

The reconstruction effort, intended to improve services and convince Iraqis of American good will, largely managed to do neither. The wider investigation raises the question of whether American corruption was a primary factor in damaging an effort whose failures have been ascribed to poor planning and unforeseen violence.

The investigations, which are being conducted by the Special Inspector General for Iraq Reconstruction, the Justice Department, the Army’s Criminal Investigation Command and other federal agencies, cover a period when millions of dollars in cash, often in stacks of shrink-wrapped bricks of $100 bills, were dispensed from a loosely guarded safe in the basement of one of Saddam Hussein’s former palaces.

Former American officials describe payments to local contractors from huge sums of cash dumped onto tables and stuffed into sacks as if it were Halloween candy.

Think about that. The people who are now keening over "reckless spending" are the same ones who blindly sent pallet-loads of shrink wrapped hundred dollar bills to a war zone and didn't bother to keep any records. Now we find out that much of it found its way into the pockets of the people who were dispensing it. Gosh, what a surprise.

Americans can visualize a pallet of shrink wrapped blocks of hundred dollar bills going to a war zone and being used to bribe the crap out of Sunnis in Anbar, you know.

That kind of thing is especially poignant now, after the person visualizing Cubic Yard Of Benjamins(tm) has lost their job.

Plan N And The Sunday Shows

In a "wait, what?" moment on the Sunday shows this week, it wasn't an Obama administration spokesperson or Democratic Party legislator that brought up Plan N, but Republican Lindsey Graham.(h/t TPM)

Now, when Lindsey Graham starts sounding like Roubini, something's wrong. I'm not sure what his game here is, but I suspect this is a test balloon by the GOP Senate. We know the Democrats have been saying time and time again we can't nationalize the banks from a political standpoint, Obama's reason that there are just too many US banks for the so-called "Swedish Solution" to work.

Now, if Lindsey here has suddenly become a convert to logic, that's one thing. But I strongly suspect this is just GOP contrariness for the sake of being contrary. Remember the GOP plan: We're counting on the Obama economy to fail. Obama having to semi-nationalize the banks, while unavoidable in the long run, is still going to cause him to take a political hit and a serious one.

The plan here is to set up Obama as a failure, and have him take the blame for the banks going under when he does it. On the other hand, it's entirely possible the banks are telling their GOP buddies that an orderly bankruptcy now is better than a crazy, forced one later (ask GM about how that works.) And, there is a populist movement on the left for Plan N as well. Graham's public admission may mean there's a growing movement on the right to implement Plan N as well.

It may mean the GOP is now amenable to this, in which case it's time for Obama to set Plan N in motion.

StupidiNews, President's Day Edition

• Illinois Republicans are calling for Roland Burris to step down as Senator amid perjury allegations.
• Venezuelans have approved scrapping term limits for President, paving the way for Hugo Chavez.
• Some job seekers in Charlotte are "dumbing down" resumes in order to not appear overqualified.
• Obama will not appoint a "Car Czar" but an auto industry task force to determine the fates of GM and Chrysler.
• Online crooks have cleaned the state of Utah out of $2.5 million.