"King of the Dung Hill" Goldman (Government) Sachs Rules & Rides Herd On Taxpayers

Having predicted the ultimate victory of Goldman Sachs over all adversity, today's headlines were anticlimactic. Nouriel Roubini's figures though hold the keys to the kingdom. And you thought "change" meant the taxpayers no longer being taken regularly to the cleaners? Get clued in by the Goldman Sachs CEO here (h/t to Mark Hoback, a phenomenal writer at The Aristocrats). (Emphasis marks added - Ed.)

"I wasn't worried for a minute," beamed Goldman Sachs CEO Lloyd C. Blankfein, pleased for his company to be back on the golden brick road and reporting a 3.44 billion dollar profit in it's second quarter, only one month after paying back 10 billion dollars in Federal aid. "I knew the American people would never let us down. There is this strong love/hate dynamic they have always had with their Corporate Overlords. They know that sometimes the pendulum swings one way, and sometimes the other, but as long as we own the pendulum, I don't guess it really makes a whole lot of difference, does it?" "Some folks would say that it's the luck of the draw that Goldman Sachs came out of the financial meltdown smelling like a rose, and to them I would say 'you're absolutely right'. I guess we were just lucky to have placed our previous CEO Hank Paulson in a position where he could have at least a little positive influence on our future as the Bush Treasury Secretary.

And boy, were we ever lucky that he was the guy in charge of nationalizing all those bad loans. That was extra special lucky, just like the fact that so many of our good friends like Timmy Geithner and Larry Summers are a part of President Obama's exciting new change administration. But of course you know the old saying - the more things change, the more they remain the same." "You know, a lot of people said that Goldman Sachs was too big to fail, and they were absolutely correct in their assertion. That's an enviable position to be in, and one we have no intention of giving up, and which, thankfully, nobody is trying to make us do so. That's why I'm willing to say that if this whole economy should go to hell, we'll still be right here, King of the Dung Hill." "Bottom line, though, is that we owe the American taxpayers a huge debt of gratitude, and we know it. That's why we're putting up a picture of them in our corporate headquarters. In the mens room, right above the urinals."

Nouriel Roubini in the Global Economonitor tells the current tale of two cities (or reality states). (Emphasis marks added - Ed.)

Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.

But these raw figures on job losses, bad as they are, actually understate the weakness in world labor markets. If you include partially employed workers and discouraged workers who left the U.S. labor force, for example, the unemployment rate is already 16.5%; even temporary employment is sharply down. Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses as economies suffer from problems of insolvency, not just illiquidity, and as the fiscal stimulus programs are too small and not labor intensive enough. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically.

Moreover, many employers, seeking to “share the pain” of the recession and slow down the rate of layoffs, are now asking workers to accept cuts in both hours and hourly wages. Thus, the total effect of the recession on labor income of jobs, hours and wage reductions is much larger.

Other indicators are suggesting a protracted period of job losses and a persistently high unemployment rate even after the recession is over. The average duration of unemployment is not at an all time high in the U.S. Many manufacturing sectors are on a secular decline (autos, etc.) and employers are shedding jobs on a permanent basis; employment in the previously bubbly sectors (housing and related housing/real estate services, banking and financial services) is falling sharply and will not recover for a long time. The process of offshore outsourcing of both blue collar and white collar jobs is still in full swing. A lot of the job losses in the U.S. and in other advanced economies are structural rather than cyclical; many jobs will never come back.

Read the rest here.

And try not to weep.

Suzan __________________

My Man Nouriel (Roubini)

Nouriel Roubini, with whom I have lately fallen in hot (intellectual) love, has some first-rate economic/financial analysis to share with us:

Central banks around the world have undertaken a number of measures to forestall deflation and lift the global economy out of economic slump and credit crisis. Aside from traditional monetary policy tools such as official interest rate cuts and relaxations in reserve requirements, central banks have resorted to alternative unconventional tools. Quantitative easing has begun in the epicenters of the credit crisis, U.S. and Europe, who may be joined by other central banks as they too head towards zero interest rates in leaps and bounds (Sweden moved the most in the developed world by 175bp in one shot). With monetary policy transmission broken by the unwillingness of the private sector to lend or borrow, central banks have had to scurry for alternatives to rate cutting in order to restore markets. They set up an alphabet soup of liquidity facilities that lend funds or purchase assets, offered guarantees on deposits and loans, and established currency swap lines, in addition to a host of fiscal stimulus packages announced by governments.

He then asks the question: are "the pieces now in place to prevent global stag-deflation?" (which, by the way, is a most relevant concern), and answers it by saying:

It is too soon to tell. So far, money market and commercial paper markets have shown tentative signs of easing. But elsewhere in the private sector credit market, tensions remain as asset prices move shambolically and de-leveraging drags on among households, banks and businesses. Though money supply has grown, the velocity of money has slowed despite the flood of liquidity from central banks and official interest rates effectively at or near zero. In other words, we have fallen into a liquidity trap. Such a blow to consumer demand makes deflation in 2009 a real possibility.

You may be bored or just too financially overwhelmed to appreciate the rest of his lucid thinking on what lies ahead, but it's really important to your future financial success (unless you've already got your bonus from one of the bailed-out entities), and since I like you a lot, here's some of my favorite Roubini goodness:

Leading the global effort against the credit crisis/recession/deflation are the Federal Reserve and the ECB. Since the start of the crisis, the Fed and ECB have cut a cumulative 425bp and 175bp, respectively. Other central banks in both the developing and developed world have been more aggressive in cutting rates but they started from a higher base or began easing late. In addition to rate cuts, the Fed and ECB have used more targeted measures, setting up new liquidity facilities, asset purchasing programs and currency swap lines, as well as bailing out systemically critical firms and broadening the range of collateral and extending the term of funds lent out at special facilities. . . . The Fed began paying interest on reserves deposited at the Fed to allow for essentially limitless balance sheet growth. At the same time, the ECB began offering unlimited cash at its weekly auctions. As a result, the Fed and ECB's balance sheets have exploded. Despite liquidity raining down on the financial system from the Fed and ECB, the financial fires have yet to be extinguished. Yes, money market rates are off their peaks and the commercial paper market contraction has bottomed. But a lack of confidence among lenders in potential borrowers (and a lack of confidence among potential borrowers given the profit or income outlook) and falling asset valuations has stymied significant easing in market interest rates, such as for mortgages and car loans. Rate cuts and quantitative easing notwithstanding, it seems the threat of a liquidity trap is looming on the U.S. (and the EMU). Central banks still have ammo left to shoot their way out of the trap and forestall deflation. One option is debt monetization: inflating away the public debt from sharp fiscal expansion to stimulate the economy. Bernanke recently brought up the option of Federal Reserve purchases of longer-term Treasuries and agency debt. In the U.S., private demand continues to fall sharply as does the string of awful economic and financial news. The latest employment report surprised on the negative side (with the largest payroll decline since 1974) and job losses are bound to keep mounting. U.S. GDP is expected to shrink 4% or more in Q4 2008 and the contraction is expected to continue throughout 2009. Orthodox and unorthodox monetary policy measures are certainly needed but they have to be accompanied by a significant stimulus on the fiscal side to support aggregate demand. The great retrenchment of the private sector balance is already under way and the new U.S. administration is getting ready to make the largest investment in infrastructure of the last 50 years. The details of the size and content of the stimulus package are not available yet. However, there seems to be a general consensus that a package of $300-$400bn dollars is a lower bound to keep the economy moving. Let’s make some back of the envelope computations. The depreciation of the U.S. stock of housing goods brings serious negative wealth effects. According to our computations a 30% fall in home prices peak to trough (and U.S. home prices might very well fall more than that) could result in a negative wealth effect that could subtract up to $400-$500bn from private consumption over time. In the same fashion, a painful rebalancing process that would bring to U.S. saving rates back to the levels of a decade ago (around 6%) would be compatible with a decline in consumption of almost $1 trillion. It is welcome news that the stimulus package will most likely be in the $500-700bn range and that it will target productive investment in infrastructure, public services and green technology. However, a fiscal stimulus will not prevent a severe recession at this point – the U.S. economy is officially already in recession since Q4 2007 – but will make the recession shorter and less severe than it would otherwise have been. The EU Commission’s ‘recovery plan’ to be adopted during the EU summit on December 11-12 envisages a fiscal stimulus of around 1.5% of EU GDP or €200bn (approx $260bn). Most of the money will be drawn from national budgets, with EU countries asked to contribute €170bn (approx $221bn) or 1.2% of the EU's GDP. The rest – around €30bn (approx $39bn) or 0.3% of GDP – would come from the EU's own budget and the European Investment Bank (EIB). While some large member states such as the UK and France would like to see a larger common effort to maximize the economic impact and reduce cross-border leaks, Germany looks back at 10 years of hard structural adjustment and highlights the need for each country to keep its own house in order. The same dynamic is also blocking a Common European Bond, which was recently rejected by ECB president Trichet.

Read more here. Suzan ______________________