Again, I digress from Web Analytics, to talk about current events outside Analytics - but which Analytics could be applied to.

I am happy to see that Conseratives and Liberals, Right and Left, Republicans and Democrats, - no one likes the $700 Billion Bailout Plan proposed by the Bush Administration - even though everyone agrees on some type of radical action needs to be taken now.

Paul Krugman’s Cash for Trash OPED in today’s New York Times displays an understanding of the current financial situation and his ability to simplify it into 4 steps (almost like the 4 stomachs of Cows); by being able to conceptualize this Wall Street Meltdown into a series of steps with sequences he’s displaying the best skills of a Web Analyst - the ability to take complex information and synthesize it into a working model.

I believe, making sense of the data, what Paul Krugman does, is the one fundamental skill all Web Analysts need - the ability to use synthesis to take a complex situation and derive insight into it.

Even if you don’t agree with Paul Krugman the $700 Billion Bailout Plan if too flawed to pass in anywhere near it’s current form, at least you can get a sense of understanding, of empowerment even, by reading his OPED on Cash for Trash.

Here’s Paul Krugman’s 4 step analytics summary of current dire economic predicament the United States is in; Krugman thinks instead of bailing out Wall Street firms at step 4, with no accountability, we should be giving them more liquidity at step 2, in return for part ownership.

I just want to point out, again, the importance of forming a “working model” of a situation from which you can then preform analysis - if you can not conceptualize a problem, then any solution (ie: Secretary of the Treasury Paulson’s solutions, for example) are little better than throwing darts at the dart board (problem), and in the dark.

” … So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

“….. The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.”

And, even arch conservative William Kristol does not like the Bush Administration’s $700 Billion financial Bailout Plan, and most conservatives don’t like it either - for much the same reasons that Krugman does not like it - it’s bailing out the wrong people and has no oversight previsions, making the Treasury Secretary too much power.  William Kristol writes in his New York Times OPED:

“… I’ve been shocked by the number of (mostly conservative) experts I’ve spoken with who aren’t at all confident that the Bush administration has even the basics right — or who think that the plan, though it looks simple on paper, will prove to be a nightmare in practice.”

Of course, Kristol wonder’s if Barack Obama or John McCain have the courage and exhibit the political will to oppose the $700 Billion Bailout Plan with the upcoming Presidential Election around the corner - what if, by opposing the $700 Billion Financial Bailout Plan the economy gets even worse, perhaps going into a deep recession, or even … a depression, then the electorate will blame what ever candidate voted against it.

On the other hand, were Barack or McCain back the current $700 Billion Bailout Plan and it fails quickly, blood would be on their hands, as well - and it could change the outcome of the election.

Using the Analytics approach I mentioned earlier in this post, the synthesis of information into a working model, so that you can then come up with insight and wisdom - the $700 Billion Bailout Plan looks too much like Authorization plan the Bush Administration floated just before it went to War with Iraq - the pressure to quickly “act” and vote - seems to be a familiar tactic that is used by this administration, to force people to act, often out of fear, against their own best interests - because they don’t realize, with the rush to act, what interests are actually being compromised.

We do need to do something quickly - but not that quickly - perhaps not even before the upcoming election .

We should, I think, work towards a solution and try to contain the damage on Wall Street and in the Global Financial Markets, but without giving the Treasury Secretary a blank check to do whatever he wants.

I also enjoyed reading Roger Cohen’s  Fleecing America in the New York Times OPED section tonight - Cohen brings another perspective - that United States is no longer the predominant Economic Super Power and that, primarily, under the Bush Administration, the bulk of what was once our Wealth, has moved off shore, to China, Russia and India. .. and the joke is on us - though Krugman was warning about this day for the last 5 years, last I counted - and the joke is on us - all of us - now that reality is setting in.

Not only that, but he somehow brings in sales for the disgusting artwork of Damien Hirst - the guy who puts dead large Sharks in formaldehyde, just like this one at the Metropolitan Museum of Art; here’s part of a story about this artwork in Time Magazine in a story tiled “A Shark’s Tale”

Damien Hirst’s pickled shark, formally known as The Physical Impossibility of Death in the Mind of Someone Living, has been presented as a three year loan by its owner, the hedge fund billionaire Steven A. Cohen, to no less a grand lady than the Metropolitan Museum of Art in New York.

And to think, this is the same Met whose trustees used to be touchy —granted, it was long ago — about admitting Picassos into the collection.”

In case you missed it, the age of America as the dominant financial power - gone.  Read this (you can agree with it, or not, but even if you don’t agree - then come up with something better to explain what’s going on):

“…. It’s that the Hirst bull market in the midst of the most convulsive week for financial markets since 1929 says something important about the global economy and America’s declining place in it. In case you missed it, Hirst sold 223 works last week for just over $200 million, well above Sotheby’s pre-auction estimate.

Oliver Barker, the auctioneer, identified the Russians as major buyers. Sotheby’s took a preview of the sale to New Delhi, where it received a number of pre-auction bids. Jose Mugrabi, a New York dealer, told my colleague Carol Vogel that Hirst is a “global artist” who can defy “local economies.”

For local, read American.

Anyway, a post script. In his piece for Bloomberg News that I’ve linked to above, Martin Gayford notes that the same Damien Hirst is asking 50 million pounds — $100 million — for his new diamond encrusted skull.

Sounds like the “diamond encrusted skull” of Damien Hirst won’t be sold to anyone around here - unless Treasury Secretary Paulson has his way and gets his and G.W. Bush’s  $700 Billion Bailout Plan approved by Congress - then maybe, maybe, some Wall Street Bank or Financial Instituion will have the money to throw at Damien Hirst and buy the diamond encrusted skull - and put it next to “The Bull” on Wall Street (Nah, maybe Goldman Sach’s will buy it with TaxPayer’s money and display the skull in their lobby.

But seriously, just about everyone thinks the $700 Billion Wall Street Bailout Plan is too flawed to pass in it’s current form.  Hopefully, the pressure to “do something now” will not be successfully exploited, as it has in the past, to stick us all with a bill we don’t want or, for a fact, need.

And while I’m at it - I said the other day I would provide an “influencer” list from Radian6 surrounding the the $700 Billion Bailout Plan - here it is.

And here’s a link to the entire file - knock yourself out - but note the Huffington Post seems to be on top of almost any political story, including this one.  Could it be the Huffington Post is “more influential” for this discussion on $700 Billion Dollar Bailout than the New York Times?  Beats me.

Finally, here’s a series of Topic Clouds from Radian6 on the $700 Billion Dollar Financial Bailout and how it varies by media:

Blogs only:

Blogs tend to focus on discussing the government “plan” to buy the distressed securities while letting the Financial Institutions that got us into this mess, off the hook.

Online Videos Only -

Online Videos focus more on the size of the Bailout - based on the Topic Cloud Meta-data:

Main Stream Media -

Twitter - Micro Media

Interestingly, the Topic Cloud for Twitter is much more useful than the others, from my point of view as it contains some of the TinyURL’s that are being shared online over the last day.  I think, and maybe Radian6 needs to figure out a way to do this - a way to work URLs into the Topic Clouds are needed, in general.

At least, here they happen, with Twitter, due to the nature of the content and the size of a micro post.

For example, the stories that are being talked about in Twitter are “Bush administration wants $700 billion for Wall St. bailout” with the “size” of the bailout being most notable - also the use of slang missing from the other Topic Clouds shown.

Forums

Well, that’s about it for this long, long post.

I expect Monday and Tuesday to be filled with a lot more turmoil as Congress and Online News Media take a closer look at the the $700 Billion Bailout Plan - but I hope we just don’t find ourselves back in 2003, when Bush called the shots and we ended up going into Iraq due to faulty information.

Paul Krugman has his doubts about it - No deal, on the main story  of a $700 Billion Is Sought for Wall Street in Massive Bailout, or 2,000 dollars for every person this year.

I’ve been getting a few readers who are critizing me for having poltical views and writing about them in a Web Analytics blog.  On the other hand, we’re whitnesses to  what appears to be the collapse of the global financial system.   Why would that be off limits to talk about in a Web Analytics blog?

Ok, so it it needs to be about Web Analytics, what are the influencers here - at least, let’s put Social Media on it, and that’s running now - it’ll be ready in a few hours.

One thing I noticed about Radian6, is that ranking news stories based on “Engagement” works better if the story is a few days old, as you need that much time to get a lot of comments on stories where a reader can leave comments.

It seems to me that we’re living in historic times, in a lot of ways, and it’s all of our responsibilities, I think, to process what is happening around us and comment on it, as we can.

More, later.

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• McCain proposes to deregulate Health Insurance - just like the Banking industry

Today the market improved to make up for most of the losses yesterday. But one point hasn’t really been said (I updated this post the following day and here’s a link to the main story in the New York Times - Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling).

I believe, and I am not alone, the financial markets are so weakened, by the sub prime mortgage meltdown and a lack of liquidity, the markets can not function without massive governent and international assistance.

Paul Krugman puts the situation in perspective in a OPED on Crisis Endgame

” ..The story so far: the real shock after the feds failed to bail out Lehman Brothers wasn’t the plunge in the Dow, it was the reaction of the credit markets. Basically, lenders went on strike: U.S. government debt, which is still perceived as the safest of all investments — if the government goes bust, what is anything else worth? — was snapped up even though it paid essentially nothing, while would-be private borrowers were frozen out.

Thus, banks are normally able to borrow from each other at rates just slightly above the interest rate on U.S. Treasury bills. But Thursday morning, the average interest rate on three-month interbank borrowing was 3.2 percent, while the interest rate on the corresponding Treasuries was 0.05 percent. No, that’s not a misprint.

This flight to safety has cut off credit to many businesses, including major players in the financial industry — and that, in turn, is setting us up for more big failures and further panic. It’s also depressing business spending, a bad thing as signs gather that the economic slump is deepening.”

I hear some politicians still claiming that the fundamentals of the market are strong. Even Congress was in the dark as to how bad things have become (see Congressional Leaders Were Stunned by Warnings)

Were the line about the Fundamentals of the Economy being strong really true, the FED would not have reversed itself and lent AIG 85 Billion dollars on Tuesday.

Also, the FED and other international central banks would not have needed to inject over 180 Billion Dollars in the world markets today.

One of the fundamental problems Republicans are running into is the belief the Free Market System can police itself is clearly wrong.

Bush is largly absent and staying out of the debate as much as he can, but it’s clear the policies that led to this massive financial failure are tied directly back to him, that’s why he has so little to say.

After all, what can he say? The fundamentals of the market are strong?

I think Bush’s handlers are having him host a visiting dignitary today. It’s said the dignitary praised Bush for surviving all the crisises of his administration, from 9/11 till the Wall Street Crash. I suppose that’s one way to look at it.

Another way to look at the last 8 years, is that G.W. Bush, and his Republician Party, were instramental in creating and prolonging almost every crisis we’ve had side he took office, and yet he managed to get re elected and survive in office for all those 8 years.

Yes, I think the glass is half fill or half empty depending ok what your point of view is.

Every so often I run accross a story that talks to me - like Read/WriteWeb's  It's Official: There Is No Bubble post yesterday

….There was nothing bubbly there, with an average PEG of 1.4.

So the next stop is the "middle 20". These are publicly traded web technology stocks with a market cap over $1 billion. In our analysis below, more than half have a PEG below 1.0, which tends to signal "bargain opportunity" to investors. (caution: of course that is only a starting point for analysis, there could be some real dogs in there). Check out this chart:

 

Actually, I work for one of the companies on the list - so, of course, it's interesting to me when someone analyzes the stock value and says it's possibly an good investment.

"…So, it is official - there is no bubble in public Internet stocks. There might be in private valuations, but that is almost impossible to analyze accurately without access to hard data on late stage VC valuations."

 Whew! Glad to hear that.  No Bubbles. here.

Considering I don't know much about Real Estate and Financial Markets I've certainly written enough about them over the last year. 

For example, late last December I wrote about Paul Krugman thinks housing prices might end up dropping by 40% in the next two-three years due to the Sub-Prime Mortgage Meltdown (which does not seem very far fetched now) and  two weeks earlier that Subprime Mortgage Crisis Spreading into the rest of the economy (which it has) while subprime lending, James J. Cramer's Bloody and Bloodier sub prime crisis had Mad Cramer's prediction the markets are going down fast and the FED has to do something.

And I thought Cramer knew what he was talking about ….. but look at this clip - makes me wonder who to trust - personally, I have no love for Bear Stearns - but how can so many people be so wrong about something as big as what's happened over the last week.

Found an interesting article in the New York Times titled - Facing Default, Some Walk Out on New Homes - about the rise of home mortgage forclosures that is being made easier by a new company called You Walk Away.

"..In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.

Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.

Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”

 

 I tried doing a Compete.com search on You Walk Away but didn't find much - must have just launched in the last few months:

And here's the keywords driving traffic to You Walk Away, according to Compete.com

By the way,  i met with Jay Meattle of Compete.com yesterday for lunch - and there's some pretty interesting stuff coming up from Compete.com, but I can't talk about it yet.

No surprise here, but Today Citigroup reported a $9.8 billion loss for the fourth quarter 2007, and is expected to announce a significant dividend cut and possible employee layoffs.  The New York Times reports Citi Posts $9.83 Billion Loss; Will Cut Jobs:

"…Citigroup said it was writing down $22.2 billion because of soured mortgage-related investments and bad loans. The bank is also cutting its dividend by 41 percent and obtaining a $12.5 billion cash infusion to strengthen its balance sheet, including big investments by its former chairman, Sanford I. Weill, and the Government of Singapore Investment Corporation.  "

But I was just thinking about how much Citibank already wrote down in the last couple of quarters:

"…For the full year, Citigroup reported that net income dropped 83 percent, to $3.62 billion, or 72 cents a share, compared with 2006 profit of $21.53 billion, or $4.31 a share. Revenue fell 9 percent, to $81.7 billion in 2007.  "

Citibank actually lost 3.62 billion dollars last year -  and it appears Citibank is staying afloat (along with much of the rest of the US services economy via the investment of foreign capital.

When I think about it, living in NYC, it doesn't really matter to street vendor, for example, who buys hot dogs (could be a New Yorker, could be a European - who cares - the money is flowing.   

For a bank, I guess it doesn't really matter all that  much who is supplying the the money influx, Saudi or Korean money is as good as any - but you have to wonder if the United States is becoming so dependant of Foreign Capital - that at some point, much of the country is going to be owned by foreign interests - including Citibank. 

According to CNN Money - in an article titled Citigroup suffers $9.8 billion loss:

"…here had been intense speculation that the company could announce major cuts to its workforce of more than 300,000, on top the 17,000 workers it said it would eliminate from its payroll last spring."

If Citigroup lays off 20,000 employees, as is feared, how will this affect the job market?  Well, I don't think it's just going to be Citibank that's laying off people - but I do see that as this slowdown, recession trickles down, it's going to severely affect local and state governments, who will also curtail services and start laying off in mass - and that is going to be what might up sinking the ship, here. 

It's not just Citibank - it's what Citibank represents - there's 10 more big banks, just like Citi, that did the same thing - what's going to happen when they reveal all their 4Q earnings?

According to Reuters - Citi likely to announce dividend cut, layoffs: report

"…The largest U.S. bank is also likely to announce more than 20,000 job cuts when it posts fourth-quarter results on Tuesday, the Journal reported, as new Chief Executive Vikram Pandit tries to cut costs."

I think, by March 2008, it will be clear where this is all going - just my gut feeling. 

No surprise - but Henry Blodget just said "U.S. Economy (is) Screwed".  "…The question now is not "will there be a recession?" but "how bad will it get?

If we're lucky we get "..three crappy quarters, regardless of what the Fed does"; if we're not lucky "…we are, well, screwed", according to Blodget.

• Plummeting housing will now drag down the rest of the economy.
• The "bad debt" problem is not just "sub-prime" folks who should never have have taken out mortgages in the first place. It includes credit card debt, "high quality" mortgages, car loans, and other leverage that have recently become a consumer way of life.

See this chart I generated from Daylife.com of 2007 article counts

Yep, Paul Krugman thinks housing prices might end up dropping by 40% in the next two-three years due to the SubPrime Mortgage Meltdown, according to a post he put on his New York times Blog today titled - Housing: How far is down?  

I'm not surprised Krugman cites a Times Article released today -New-Home Sales Fall; Biggest Drop Since 1995

 "...Sales of new homes plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector.

The Commerce Department reported Friday that new-home sales tumbled 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.

The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 percent, to a pace of 715,000."

But what caught my eye and what suggests a 40% drop in value by the time this is all done is the charts below:

 

"…Below are two pictures. The first is the CBO’s estimate of the housing-rent ratio — the ratio of home prices to an estimate of the rental rate on equivalent properties. It’s comparable to the PE ratio on stocks. What you see is that it fluctuated in a relatively narrow range until this decade, then took off for the wild blue yonder.

It would appear a drop of atleast, 40%, in the value of real estate, over all, would be needed - based on the chart above. And here's the other chart and explanation, from Krugman's blog:

"..The question you need to ask is, is there any fundamental reason why this ratio shouldn’t go back to historical norms?

Don’t tell me about how some areas with high prices are especially desirable — that was true in the 90s, too. What we need is some macro reason to believe that things have changed.

Well, one thing has changed: interest rates, including mortgage rates, are lower, in large part because of huge capital inflows from China and other countries. Here’s the chart:

INSERT CAPTION

But is this enough to justify prices anywhere near current levels? I don’t think so — for three reasons.

First, the math doesn’t work even if you look at the average: the overall cost of buying a home relative to renting has risen even taking interest rates into account (and yes, that’s true even if you use real rather than nominal rates.)

Second, the average is misleading. As I argued more than two years ago, America is really two countries when it comes to home prices: in “flatland”, where new housing can easily be built, real prices never rose much; the big rises have come in the “zoned zone,” where land and permits are constrained — and those rises have been much larger than the average, so much so that they make no sense even given a maximum allowance for interest rates.

Third, we won’t always get lots of free money from China."

Well, sounds like the Economy is going to be awfully rocky in the next year or two  - but I'm not an Economist - so maybe someone can tell me why this stuff doesn't mean much .. except, it does!

According to an article just published in the New York Times a couple of minutes ago - Fed and Regulators Shrugged as the Subprime Crisis Spread - which was just what I've been saying all along - about 75% of the blame lies of the FED for this mess, which is continuing to get worse and worse.

Further Alan Greenspan is so removed and out of it - he doesn't see himself as responsible for anything that went wrong:

"…Mr. Greenspan, hailed as perhaps the best central banker in history when he left the Fed in early 2006, is now feeling defensive. In an extensive interview last week, he adamantly disputed the assertion that he could have prevented the mortgage bust.

The housing bubble, he said, had far less to do with the Fed’s policy on interest rates than on a global surplus in savings that drove down interest rates and pushed up housing prices in countries around the world.

 "…many Fed officials counted on the housing boom to prop up the economy after the stock market collapsed in 2000."

As for his role as a regulator, Mr. Greenspan argued that the Fed was ill-suited to investigate deceptive lending practices. "

But then, why was there a "global surplus in savings"?  Where did that come from?

 "…in the present situation, while the financial measures undertaken by US authorities—the maintenance of liquidity and a low-interest rate regime—have kept the US and the world economy as a whole from falling into recession, they have also created deep sources of instability. The vast expansion of liquidity and the emergence of a global financial system, well beyond the regulation of any single authority, coupled with the ever more desperate search for yield—that is, profit—have created the conditions for a financial crisis, something to which various central bankers and financial authorities have recently referred."

Most of what I wrote, and I really don't know much about Sub Prime Mortgages, is supported by this article, which is why I'm writing about it.