Heading for depression- America suddenly in deep recession? – Goldman heading for its first but not last loss

Bernanke and Paulson screwed with Geithner the global financial system by not acting timely and decisively as they had a little chance to change the fate of the enrolling disaster 18 months ago as they even claimed everything is contained. As the Treasury needs to borrow monstrous amounts of money to finance all the bailout programs Bernanke wants to buy them – thats kind of a conundrum as the left arm sells the right will buy – they might get the next ‘Nobel Price’ for extraordinary achievements in the field of economic wonder – its close to walking over water.
They might think since it worked for Japan it will work again – the only people absolutely happy about all this are the Chinese as they hold over 1 tril. in Dollars and US bonds – hence they win double as the Dollar has gained and the bonds as well. Us Taxpayers will pay a heavy price as the Bonds will collapse at some point and produce besides losses for the holdings high interest rates overall.

Excerpt Bloomberg

‘Bernanke-san’ Signals Policy Shift, Evoking Japan Comparison

By Scott Lanman

Dec. 2 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke signaled he’s ready to dig deeper into the central bank’s toolkit after cutting interest rates almost as much as he can, opening the door to a shift by policy makers this month.

Bernanke yesterday said he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.” Even so, reducing the rate is “certainly feasible,” he said.

Policy makers may decide at their next meeting Dec. 15-16 on the details of carrying out such a shift, which might resemble the “quantitative easing” strategy the Bank of Japan pursued in 2001-2006 after driving interest rates close to zero. The Fed chief’s readiness to rely more on adding reserves to the banking system prompted JPMorgan Chase & Co. economist Michael Feroli to refer to him as “Bernanke-san” in a note yesterday.

The world can be be happy to get away with whatever kind of recession but the odds are rather pointing to a depression as all this disaster unfolds with a jobless rate of 6,5 % – now as the economy heads for serious job losses and will likely rise above 10% imagine what kind of losses the banks have to face with their regular balance sheets. so far the were wiped out with parts of their exotic investments. So just double or triple the next loss rounds and aid programs so at the end of the day the world need to put up another 20 tril. at least to catch the falling knives and the only remedy is to declare bankruptcy by governments or print insane amounts of money.

Excerpt from Bloomberg

Recession in U.S. May Be Just Beginning as Job Losses Mount

By Steve Matthews and Timothy R. Homan

Dec. 2 (Bloomberg) — The U.S. economy, now officially in recession, may be in the midst of the longest slump in the post- World War II era as job losses mount and credit dries up.

The economic slump began in December 2007 when payrolls reached a peak, the business cycle dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts, said yesterday. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

“We’re going on 12 months already, and we’re just getting started,” said Stephen Stanley, chief U.S. economist at RBS Greenwich Capital in Greenwich, Connecticut. “We’re looking at some pretty severe numbers for the fourth quarter, and the first quarter of 2009 will be pretty bad as well. The economy isn’t going to turn around definitively until the credit markets unclog.”

The NBER designation means the U.S. was the first country to have slipped into a contraction. While definitions differ, the economies of both the euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

Will be interesting to see if Goldman will survive as they have plenty things in there balance sheets which will be worthless at some point. almost all big shot investment banks have closed there prop trading units which produced the majority of goldman profits in recent years. Hedge Funds are in a deep contraction and in my opinion less then 25% of Hedge funds will survive but it could come down to even 5% in 2 years from here – banks will basically be state owned – but Goldman might turn out a bit different but to realy have a grip on that one needs to take a deep look at their real balance sheet – which I could not in order to evaluate the loss potential.

Excerpt from WSJ

Goldman Faces Loss of $2 Billion for Quarter

known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

[Into the Red]

Though analysts and investors already were bracing for Goldman’s first quarterly loss since it went public in 1999, the pessimism has grown sharply. “The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before,” said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks.

On a day when financial stocks fell sharply, Goldman’s shares plunged $13.23, or 17%, to $65.76 in New York Stock Exchange composite trading at 4 p.m. The stock is down 69% this year.

One area that is thought to have given Goldman particular problems in the just-ended quarter is its “book” of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center.

Goldman also is facing write-downs on its 2006 investment in Industrial & Commercial Bank of China. Goldman had made nearly $2 billion in paper gains on this investment at one point. But ICBC’s stock fell by almost 28% in the Goldman’s fiscal fourth quarter, and this alone could result in a write-down of about $700 million.

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~ by behindthematrix on December 2, 2008.

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