Tuesday, July 07, 2009

While We're Waiting...

...for the other shoe to drop, or for me to get on with the analysis of China, I thought I would divert myself, and hopefully others, with the following items from the daily papers:

1.Those of you, us, who think overproduction-- not to be confused with underconsumption-- is the source of capital's current, and repeating, predicament will be interested in the NYT article on Micron and the semiconductor industry, available at: http://www.nytimes.com/2009/07/06/technology/business-computing/06micron.html?_r=1&ref=technology
A couple of juicy bits:
"The seeds of the industry's current financial straits were sown in 2006 and 2007, when memory makers went on a capital spending binge to expand capacity, said Jim Handy, a director of objective analysis, a chip industry research firm. "It takes two years from spending before capacity reaches full volume production, so the onset of the overcapacity was in early 2008, two years after the 2006 spending spree commenced...
As a result of the upheaval, the industry's capacity has shrunk about one-third, although some of that will eventually return..."
And my personal favorite:
"This is a horrible, terrible business that no one should be in, the way it's organized currently... You get some incremental profits for a little while, then everybody moves in and there's oversupply again."
Gee, sounds like something we could say about all of capitalism, doesn't it?
2. Stop Me If You've Heard This One Before. From the 6 July Financial Times:
Barclay's Capital has come up with an innovative way of reducing capital costs and capital requirements of their banking operations. In a burst of originality, BarCap decided to pool assets from several client into a secured financial product [which means backed by collateral] to be rated by a credit rating agency and then sold to other investors.
BarCap protested that no, no this new product was not the same-old, same-old CLO, CDO, ABS type of junk as before, because in this product, there was no securitization of new lending, just the securitization of the already existing assets on the bank's books.
So...so the assets [loans,debts] that the banks originally spun-off their books in order to maintain capital requirements; that they were then forced to back onto their books after values of the underlying assets plummeted and everybody was a counterparty and everybody was ready to sue, will now be packaged into special investment vehicles, rated by Moodys or S&P, and sold to ...
Oh, there's a sucker born every minute I guess.
Here's what I think the banks will try-- to spin these derivative products into the Treasury's TALF-PPIP program that has been such a stirring failure. In this way, the banks won't have to record a loss on the market-value of the underlying assets, and everybody get's to pick the public's pocket again.
7 July 2009
address all comments to: sartesian@earthlink.net

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