blog

California May Issue I.O.U.

Mon, 29 Jun 2009 00:53:13 +0100

6/24/2009

The state controller of California, John Chiang, warned that the state government will have to start issuing I.O.U. to its creditors, if the lawmakers fail to close the $24 billion budget gap by July 2.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said in a statement announcing that he would be forced to use I.O.U.s to pay the state's bills beginning on July 2.

California's long-standing gridlock on budget is caused by many intertwined legislative issues. To name a few, California is one of a few states that require a two-thirds majority legislative vote for new taxes or budgets. California voters are also said too liberal who passed Prop 13 thirty years ago that capped California property tax increases. Neither does the measure have a sunset clause that lets it expire, nor can be overturned by the legislature itself.

The legislative issues appear too complicated to fix now without a new state constitution. That, however, does not help the state with regards to its issuance of I.O.U. in the short term.

Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis

Wed, 17 Jun 2009 05:38:17 +0100

Another good book "Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis" has arrived at Cartoosh's Economy Bookstore for your summer reading. Below is the book review for your convenience.

From Publishers Weekly
With a passion that gives this exploration of colony collapse disorder real buzz, Jacobsen (A Geography of Oysters) investigates why 30 billion honeybees—one-quarter of the northern hemisphere's population—vanished by the spring of 2007. He identifies the convergence of culprits—blood-sucking mites, pesticide buildup, viral infections, overused antibiotics, urbanization and climate change—that have led to habitat loss and the destruction of the beautiful mathematics of the hive. Honeybees are undergoing something akin to a nervous breakdown; they aren't pollinating crops as effectively, and production of commercial American honey, already undercut by cheap Chinese imports, is dwindling, even as beekeepers truck stressed honeybees cross-country to pollinate the fields of desperate farmers. Jacobsen pessimistically predicts that our breakfasts will become... a lot more expensive as the supply of citrus fruits, berries and nuts will inevitably decrease, though he expresses faith that more resilient bees can eventually emerge, perhaps as North American honeybees are crossbred with sturdier Russian queen bees. The author, now tending his own hives, invests solid investigative journalism with a poet's voice to craft a fact-heavy book that soars. (Sept.)

Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Panic! The Story of Modern Financial Insanity

Sun, 14 Jun 2009 23:27:28 +0100

We have added a book to Cartoosh's Economy/Finance Bookstore: "Panic: The Story of Modern Financial Insanity" It's very easy to read. You'll enjoy it. Here is the review from Publishers Weekly:

Lewis (Liars Poker) takes readers on a spin through notable recent financial catastrophes including the stock markets 1987 crash, the Russian default and related failure of hedge fund Long-Term Capital Management, the Asian currency crisis, the Internet bust and the recent subprime debacle. While the collection is comprehensive and contains varied and learned commentary, the presented crises beg for more thorough treatment. Lewis is content to rehash the past with (undeniably compelling) previously published analysis by the likes of economists Joseph Stieglitz and Paul Krugman and Wall Street Journal reporters Gregory Zuckerman and Roger Lowenstein. The author wisely includes excerpts from his books and articles, including an account of his time as a trader at Salomon Brothers in the midst of the junk bond crash of 1987 and his observations on the Internet boom and bust. The narrative is certainly elegant and the arguments are on-target; the author lambastes shoddy risk management at financial firms, the foolish principles that have guided the behavior of sophisticated Wall Street traders and the common man in this current crisis, and the problems caused by the new complexities of the financial markets, but readers seeking serious solutions to our current woes will be disappointed. (Jan.)

Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

GM Filed For Bankruptcy Protection

Tue, 02 Jun 2009 22:56:24 +0100

6/1/2009

Another piece of history was made today, as General Motors filed for bankruptcy protection.

Following Chrysler's bankruptcy filing on April 30, GM's filing is the fourth-largest in U.S. history and the largest for an industrial company. The largest automaker in the U.S. has been in financial trouble, since the global economy tumbled. The company has $172.81 billion in debt and $82.29 billion in assets at the moment.

"The General Motors board of directors authorized the filing of a Chapter 11 case with regret that this path proved necessary despite the best efforts of so many," GM Chairman Kent Kresa said in a written statement.

While I don't feel like GM's bankruptcy is worth celebration, Wall Street appeared to be up-beat and saw the filing as "a new beginning for General Motors." Both S&P 500 and Nasdaq indices set the new highs of the year.

"Not-So-Bad" Report Card

Fri, 15 May 2009 21:13:53 +0100

As companies report their first quarter earnings, the school is sending home the first quarter report cards. Andy has got a "C", and is anxious about how his dad is going to react.

Turns out his dad works for Wall Street. Investors on Wall Street have been cheering about the corporate earnings for the past few weeks, not because the earnings were so good, but because the expectations were so low. Stocks rose, because all the bad earnings and economic data were seen as "not so bad" or "better than expected".

Chrysler Filed For Chapter 11

Fri, 01 May 2009 03:38:02 +0100

4/30/2009

The Dow Jones Industrial Index gave up an early gain and closed a bit lower than yesterday, after learning that Chrysler - the nation's third-largest car manufacturer - filed for Chapter 11 bankruptcy protection in New York. Chrysler decided to take such an action, after a group of creditors - many of them hedge fund managers - walked out of the negotiation meeting last night defying government pressure to wipe out Chrysler's debt.

To calm the markets, President Obama said of Chrysler's bankruptcy filing "not a sign of weakness, but one more step on a charted plan of Chrysler revival." He added, "I recognize the path we're taking is hard, but as is often the case, the hard path is the right one.

Wall Street Gave Ground to The Swine Flu Outbreak

Tue, 28 Apr 2009 05:44:11 +0100

4/27/2009

The U.S. stock market gave up some ground concerning the more virulent condition of the swine flu. It was reported that the swine flu's death count in Mexico grew to about 150 people from 100 and that cases in the U.S. doubled to about 40.

The Dow Jones industrial index fell 51.29, or 0.6 percent, to 8,025.00. The Standard & Poor's 500 index fell 8.72, or 1 percent, to 857.51. The Nasdaq composite index fell 14.88, or 0.9 percent, to 1,679.41. The Russell 2000 index of smaller companies fell 9.21, or 1.9 percent, to 469.53.

Having survived the SARS and avian flu outbreaks, I believe the world has strengthened its ability in managing the swine flu outbreak. Let's also wish the Wall Street bull all the best after his brief rest.

Glimmers of Hope for U.S. Economy

Fri, 24 Apr 2009 19:51:54 +0100

The recent rally in the stock market has been led by the very same financial sector that dragged down the market. Thanks to the modified mark-to-market accounting rules, several banks have seen much improved balance sheets and reported better than expected earnings for the first quarter of 2009.

What's the magic about "the modified market accounting rules"? Here is the excerpt from Barron's:

Dick Bove, the dean of bank analysts, now with Rochdale Securities, explains how mark-to-market accounting can thoroughly distort profits. To wit:
"Bank A sees the quality of its debt deteriorate. That means, under mark-to-market accounting, that it is able to buy the liabilities back at a discount and report a big profit.

"Bank B sees the quality of its debt improve. That means it is not able to purchase its debt at a discount because its debt has risen in price and this results in a big loss.

"In sum, the bank with weakening quality reports a profit and the bank with improving quality reports a loss. This, of course, makes no sense."

Thanks to the new accounting rules, investors on Wall Street who are hungry for good news appear to have seen "glimmers of hope" for our economy as highlighted in President Obama's speech.

Wall Street and Main Street

Fri, 24 Apr 2009 19:54:42 +0100

4/22/2009

Investors on Wall Street have observed a strong rebound starting in early March after the year-long bear market. The stock market has dismissed dismal economic data and ignored the fact that most Americans are still losing their jobs and struggling to make ends meet. Granted, the market has its own right to do so in anticipating an improved U.S. economy in the second half of the year. Although left out of the Wall Street party this time, we from the remote Main Street pray that the market is right .

Free Music Download in China

Fri, 24 Apr 2009 19:55:39 +0100

4/8/2009

After years of legal actions without success against piracy in China, the world’s biggest music record labels decided to adopt the old wisdom: "If you can't beat them, join them."

Last Monday, the record labels, including EMI, the Warner Music Group and Vivendi’s Universal Music, said they would offer free downloads of music to people in China via top100.cn - a Google's partner.

OK. That part is easy. But, do they still want to make money in China? After observing how Google rack up revenues from Internet advertising, they hope the free music download service will boost the traffic to the site and hopefully the advertising revenue. They'll have a share of the advertising profit according to the deal.

I give them credit in finally figuring out that idea. I just wish they would have tried out the same idea beyond the border of China.