Prudent Chile Thrives Amid Downturn – WSJ.com

As the savings swelled above $20 billion — more than 15% of Chile’s economic output — Mr. Velasco faced growing pressure to break open the piggy bank. In September, protesters barged into a presentation by Mr. Velasco, carrying an effigy of him and shouting, “The copper money is for the poor people.”

The 48-year-old Mr. Velasco, wary that a flood of copper income could generate lending and consumption bubbles, stood his ground, even as the popularity of the center-left government withered. Latin American history, he cautioned, was full of “booms that had been mismanaged and ended badly.”

via Prudent Chile Thrives Amid Downturn – WSJ.com.

Great story about how the finance minister did the right thing and saved for a rainy day, saving his country from the fate of many developing countries in these hard times.

Forecast 2009: Deflation and Recession – John Mauldin

A worthwhile read from The Big Picture:

Predictions 2009

Let’s

close with some predictions. Ten out of ten analysts in the recent Barron’s forecast saw stock prices rising 10-20% this year. For reasons I outlined last week, I think we could see a tradable rally in the next few months, but at the very least test the lows this summer, if not set new lows. Earnings are going to be far worse than any analyst’s projections I have seen. And earnings drive stock prices.

via Deflation, Deleveraging, and the Stimulus Effect | The Big Picture.

New Credit Card Regulations

Victory: new rules Kill Credit Card Industry’s Most Abusive Practices

• No more raising rates on existing balances
• No more double-cycle billing.
• Any payment above the minimum must automatically apply to the part of the balance with the highest interest.

Credit Crunch: AMEX Cuts You Off Unless You Show Them Your Tax Returns.

This after I’ve never missed a payment or been late in any way across any credit line. I called back again, got someone in the US finally, explained what was going on, and that I was stuck in Los Angeles on vacation, and that I don’t carry another card. I carry my AMEX because it’s the card I use for everything. I told them that I was 3000 miles from home, and that I couldn’t even go out and have a good time while I was here. I asked why American Express didn’t inform me of this, didn’t send an email, or a letter asking me to provide financial documentation. No answer, no explanation.

They didn’t seem to care.

My Take

First, these regulations are going to reinforce the current trend of shutting down credit lines and raising rates on weaker borrowers. It will be herald as tough regulation as the people most at risk from these practices are having their credit cards shutdown and rejected from new lines of credit.

The honest situation is that without these money making tactics it doesn’t make sense to give credit cards to most people. There is too much risk to give someone making 40k a year a 10k line of credit if you can’t adjust the rate on balances based on credit quality. Expect the next round of complaining to be “VISA shut down my card even though I was no where near the limit!”

These regulations are also going to lead to extensive changes in the structure of revolving debt securitization.

Second, I’ve heard sob stories like the one above before. American Express is notorious for locking down its Charge Card accounts based on odd spending habits with little warning. This person complains that they want to see his tax information even though he hasn’t missed a payment on any line of credit and always pays his balance in full each month. He also admits that he is running much larger charges all of a sudden and another person is paying a portion of his bill (indirectly). Then he complains that he is screwed on vacation because they shut down his line of credit and he is stuck with no money.

Things just dont add up to me. If you’re charging the amount claimed (roughly 90k spend) then why doesn’t he use some of the cash that he has to have laying around to spend on your vacation. American Express is not accepted everywhere (far from it), so surely he has another credit card (VISA) that could be usedwhile things get solved.

Finally, the Amex Platinum is a charge, not credit, card so income and assets play a huge role in purchasing power extended. Amex watches your credit statements like a hawk and will aggressivly protect themselves. Why would you be surprised that they would flag your account when there are no signs that your income has increased and yet you suddenly start charging 50% more a month on the card?

I suspect there is more to this story than what has been published. There always is.

Rick Bookstaber: Should we keep the Big Three on life support?

Sometimes it is best to let the patient die. At least if the patient is a company. A company can be resurrected, and enjoy a new life no longer stricken by the debilitating weaknesses that left it lingering at death’s door. Weaknesses like encumbering labor agreements, pension liabilities and health care obligations.

via Rick Bookstaber: Should we keep the Big Three on life support?

Against the Gods: The Remarkable Story of Risk

I recently finished Against the Gods: The Remarkable Story of Risk by Peter Bernstein. A surprisingly engaging book about the development of the knowledge of statistics and ultimately risk. Yes, I said an engaging book about statistics and risk. Peter does a great job explaining how we developed an understanding of statistics, how that developed in to game theory, strategy, risk management, and ultimately the transfer of risk through derivatives. Written in ‘95 it does not contain any analysis of the crisis we’re currently undergoing, but he does have some points that seem appropriate for our current situation. I would recommend this to anyone with an interest in mathematics, history, and especially the history of knowledge. Mr. Bernstein is able to paint the path of not just the development of statistics and risk, but how we approach and understand the world around us. I highly recommend it.

The Mishkin Case for the Bailout

From the NYTimes:

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.

The rest of the article goes toward making a case that the bailout is needed to avoid another great depression. While I don’t beleive that, I do fear the social effects of credit tightening.