It’s the big news in books today:
Ultra-pessimist Nouriel Roubini, an economist known for predicting catastrophe, spared nothing in his recent presentation to the House Financial Services Committee. Often scoffed at before the subprime meltdown, he’s been scarily proven right about a lot of things in the past few months. In his words:
For over a year the Fed assessment of the risks to the economy and to the financial markets was flatly wrong. The Fed argued that the housing “slump” would bottom out over a year ago; instead the housing recession got deeper and is nowhere near bottoming out; Bernanke argued repeatedly that the subprime problem would be a niche and contained problem; instead we have observed a severe liquidity and credit crunch that has spread to the entire financial system; the Fed argued that the housing recession would have no significant spillovers to the other sectors of the economy in spite of the importance of housing and in spite of the fact that housing is the main assets of most households; instead we are now observing an economy wide-recession. So to put it simply the Fed – as well as most macro analysts and forecasters - got it totally wrong in its assessment of the risks to the economy and to financial markets.
He’s nothing good to say about what economic trouble we still have left to face:
Currently the problems in financial markets are no longer merely sub-prime mortgages, but rather a whole “sub-prime” financial system. The housing recession – the worst in U.S. history and worsening every day – will eventually see house prices fall by more than 20 percent, with millions of Americans losing their homes and/or walking away from them as they have negative equity in them.
Delinquencies, defaults, and foreclosures are now spreading from sub-prime to near-prime and prime mortgages. Thus, total losses on mortgage-related instruments – include exotic credit derivatives such as collateralized debt obligations (CDOs) – will add up to more than $400 billion. Moreover, commercial real estate is beginning to follow the downward trend in residential real estate. After all, who wants to build offices, stores, and shopping centers in the empty ghost towns that litter the American West? In addition to the downturn in real estate, a broader bubble in consumer credit is now collapsing: as the US economy slips into recession, defaults on credit cards, auto loans,
and student loans will increase sharply. US consumers are shopped-out, savings-less, and debt-burdened. With private consumption representing more than 70 percent of aggregate US demand, cutbacks in household spending will deepen the recession.
In a grim twist on AA rhetoric, Roubini then gives his “12 steps to financial disaster”
1. The Housing recession takes 30 percent off of home prices. As a renter, I might be cheered by this if it weren’t going to potentially destroy the economy as we know it. As house prices were running up and friends were sheepishly admitting to how they doubled their net worth, I had the vague sense of panic that I was missing out, but I also felt like this was a phantom wealth. My friends with houses seemed to like the security of it, but fortunately for them, they didn’t try to convert it into real-world wealth through home-equity lines of credit. People who got greedy or jumped into the house-buying game late after getting caught up in the hoopla are the ones who are going to find themselves with negative equity.
2. Which is Roubini’s second point. Mortgages across the house buying spectrum were suspect, in part because they were all affected and inflated by the unmoored house prices. Credit problems
are now spreading to near prime and prime mortgages as the same reckless lending practices in subprime (no down-payment, no verification of income, jobs and assets (i.e. NINJA or LIAR loans), interest rate only, negative amortization, teaser rates, etc.) were occurring across the entire spectrum of mortgages; about 60% of all mortgage origination since 2005 through 2007 had these reckless and toxic features.
With falling prices, a huge percentage of the homes sold in those years could go underwater, and those are precisely the borrowers who are ill-equipped to cope with the setback. This is true of virtually all financial panics. The last in are usually hurt first, and hurt the worst. It’s easily justified by painting such investors as greedy, as overwhelmed by envy of the profits others were making. But really, for home buyers drawn into the market by their life circumstances (and ideology about the sanctity of homeownership—how it makes you an adult and somehow legitimizes your family) and not their investment whims, it was just unfortunate timing. An unhappy consequence of treating renters like second-class citizens.
3. Credit problems begin to afflict credit-card loans. This will create a feedback loop, with bank losses tightening credit, tight credit causing consumers to pull back, balking consumers worsening the recession, and the recession compounding credit problems.
4. Monoline insurers—the firms that back debt issuance and allow municipal and corporate creditors to represent themselves as less risky—start to fail, casting doubt on all those improved bond ratings they helped facilitate. This roils all the different institutional investors that hold the bonds, and makes them impossible to value because no one wants to buy them and thereby put a price to them. Panic begins to afflict the managers of these funds, as they can no longer tell what their asset holdings are actually worth, or how well they themselves are performing.
5. Commercial real estate begins to meltdown the same way that the residential market has. The associated securities and the banks and investors involved with them all suffer.
6. The combined weight of all these problems causes a regional bank to fail, prompting the specter of bank runs and forcing the Fed to commit to bailouts.
7. Banks’ balance sheets take a hit from ill-conceived leveraged buyouts from the credit bubble era—these loans were often overleveraged and undercollateralized, leaving banks more exposed to potential losses if the business involved fail—and we are in a recession after all.
8. Corporate defaults will begin to mount. Fear of counterparty risk will loom large, deepening the credit freeze.
Corporate default rates will surge during the 2008 recession and peak well above 10% based on recent studies. And once defaults are higher and credit spreads higher massive losses will occur among the credit default swaps (CDS) that provided protection against corporate defaults. Estimates of the losses on a notional value of $50 trillion CDS against a bond base of $5 trillion are varied (from $20 billion to $250 billion with a number closer to the latter figure more likely). Losses on CDS do not represent only a transfer of wealth from those who sold protection to those who bought it. If losses are large some of the counterparties who sold protection – possibly large institutions such as monolines, some hedge funds or a large broker dealer – may go bankrupt leading to even greater systemic risk as those who bought protection may face counterparties who cannot pay.
9. Then the “shadow banking system” will collapse.
the “shadow banking system” (as defined by the PIMCO folks) or more precisely the “shadow financial system” (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that – like banks – borrow short and in liquid forms and lend or invest long in more illiquid assets. This system includes: SIVs, conduits, money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions. All these institutions are subject to market risk, credit risk (given their risky investments) and especially liquidity/rollover risk as their short term liquid liabilities can be rolled off easily while their assets are more long term and illiquid. Unlike banks these non-bank financial institutions don’t have direct or indirect access to the central bank’s lender of last resort support as they are not depository institutions. Thus, in the case of financial distress and/or illiquidity they may go bankrupt because of both insolvency and/or lack of liquidity and inability to roll over or refinance their short term liabilities.
10. The stock market tanks; the S&P 500 loses a quarter of its value.
11. Credit spreads—a measure of risk—widen, which not only makes the Fed’s policy tool of cutting rates ineffective but also spurs a widespread liquidity crisis—in other words, people can’t get their money.
12. The liquidity problems force assets to sell at an unwarranted discount, given the assets’ underlying value. This becomes a downward spiral for all sorts of investments.
A near global economic recession will ensue as the financial and credit losses and the credit crunch spread around the world. Panic, fire sales, cascading fall in asset prices will exacerbate the financial and real economic distress as a number of large and systemically important financial institutions go bankrupt. A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems. The lack of trust in counterparties – driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities – will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbates the liquidity and credit crunch.
This is what Roubini calls the meltdown scenario. But can anyone stop it? Roubini: “most likely not.”
For the weekend beginning 29 February, Leap Day, here are the films in focus:
Semi-Pro [rating: 7]
Will Ferrell seems to have fallen into a groove as of late. Ever since Anchorman: The Legend of Ron Burgundy, his pure comedies have developed their own unique universes, worlds where the actor and his crack team of costars can play and pretend. In Talladega Nights, it was NASCAR. In Blades of Glory, it was the surreal stage of competitive figure skating. Now comes the solid Semi-Pro, a movie that perfectly mimics the debauchery and malaise of the 1970s in all its leisure suit loving, animal fur wearing, pop culture vulgarity. While not as immediately outrageous as his other onscreen turns, Ferrell fulfills the promise of the ultra-wacky premise, delivering another collection of crudities, gaffs, and expletive laced plot twists.read full review…
Penelope [rating: 5]
The trend towards “adult” fairytales has got to stop. In the last few months alone, we’ve had the stale saccharine slop of August Rush, the sword and snooze dullness of Stardust, and the one step from stupid Water Horse: Legend of the Deep. The notion of juxtaposing the whimsical against the mature is not a new one. Terry Gilliam and Tim Burton practically wrote the rulebook on such cinema. But the current movement in such storytelling seems to push the extremes of both dynamics. When the material is serious, it’s downright dark and frequently disturbing. And when it’s fanciful, it’s like potent, pixie stick laced candy floss. Now comes Penelope, a self-esteem allegory masquerading as Cinderella with a snout. Sadly, instead of exploring the far reaches of the subgenre, it sinks directly into the maudlin middle. read full review…
Other Releases - In Brief
The Other Boleyn Girl [rating: 4]
British royal history has enough black marks against it - it definitely doesn’t need this one. Crafted from Phillipa Gregory’s well regarded novel, and penned by Oscar nominee (for the excellent The Queen) Peter Morgan, The Other Boleyn Girl bobbles much of its potential. Most of the blame falls directly on the shoulders of TV director turned feature filmmaker Justin Chadwick. Not only did he hire the completely miscast leads (two Americans - Scarlett Johansonn and Natalie Portman - and one Australian - Eric Bana) as his battling noblewomen and the iconic King trying to bed them both, but he places them in a 16th century setting that’s too clean and too generic to engage our interest. Not even the typical bed hopping and political skullduggery are entertaining. Instead, The Other Boleyn Girl just sits there, going through its bodice-ripping routine like an adult education literature class discussing a Harlequin romance. While the ‘women as chattel’ message might inflame some post-modern mentalities, the overall film will likely cause more ennui than uproar.
Will Ferrell seems to have fallen into a groove as of late. Ever since Anchorman: The Legend of Ron Burgundy, his pure comedies have developed their own unique universes, worlds where the actor and his crack team of costars can play and pretend. In Talladega Nights, it was NASCAR. In Blades of Glory, it was the surreal stage of competitive figure skating. Now comes the solid Semi-Pro, a movie that perfectly mimics the debauchery and malaise of the 1970s in all its leisure suit loving, animal fur wearing, pop culture vulgarity. While not as immediately outrageous as his other onscreen turns, Ferrell fulfills the promise of the ultra-wacky premise, delivering another collection of crudities, gaffs, and expletive laced plot twists.
It’s the middle of the Me Decade and ABA basketball is dying. While the other franchises pray for a merger, the Flint Michigan Tropics and their player/coach/owner/former soul star Jackie Moon is having a ball. Sure, his team sucks, and attendance is more than lousy, but he is living his dream. Unfortunately, many of his players don’t share his outsized optimism. They feel their hope of playing professional sports slowly slipping away. When he learns that the NBA will only take four teams, Moon convinces the league to let the best record decide who goes. With his last place Tropics consistently stinking up stadiums around the country, he needs a ringer to help increase his chances. In walks Monix, a former Boston Celtics star whose career has seen better days. With his skills and experience, Moon hopes to capture fourth place. Teammates like Clarence “Coffee” Black aren’t buying the effort, however.
With a collection of period piece beats that perfectly emulate the era of Watergate and wavering morality, and a story that sticks to the standard sports underdog dynamic, Semi-Pro may seem pointless, especially to the culturally clueless. Back before the game was a Jordan and Kobe cavalcade of rock star like sports icons, the American Basketball Association attempted to enliven a seriously struggling sport. With its emphasis on offense and flash, and tendency toward tacky self-promotion (they were in direct competition with the far more established NBA), the 12 teams that made up the two competing conferences gave the three decade old guard a run for their money. An eventual merger in 1976 brought four new teams into the fold, and it is within this last act of negotiated desperation that Semi-Pro is set.
Of course, many will wonder what such a perspective brings to the film, especially when it is humor, not history, that’s important…and it’s a fair question. But what the ABA backdrop adds to Semi-Pro is a sense of inevitability, a reason for the characters to feel at wit’s end throughout the entire story. This helps sell the occasionally outrageous antics that would otherwise overpower everything. First time director Kent Alterman definitely has his work cut out for him here. Not only does he have the expectations of every Ferrell fan on the planet, but there are some die-hard fans out there that will be watching for some manner of ‘fictional’ accuracy (if such a thing is possible). Luckily, much of Scot Armstrong’s script seems to have skirted such struggles, allowing for far more effective improvising from the cast.
And it’s a strong group of performers. Woody Harrelson has been outside the mainstream for the last few years, but his turn as the over the hill Monix is a real return to form. Newcomer Andre “3000” Benjamin is also very believable as the Tropics breakout star, Clarence “Coffee” Black, while current comic sidekicks Rob Corddry, David Koechner, Will Arnet, and Matt Walsh make a nice collection of satiric satellites. There are a couple of wonderful, off the wall surprises as well. Oscar nominee Jackie Earle Haley shows up as Dukes, a pothead who wins a $10,000 Tropics contest, while Tim Meadows steals his only scene as an injured player who lets go with an unfortunate racial epithet. Together, they generate the kind of genial crassness that carries this movie beyond the standard humor hi-jinx.
Of course, Ferrell is the focus for much of the film, and it’s odd that he’s never given much to do except play the fool. There’s no family issue for him to deal with, no outer circle or sphere of influence working their way inward. Instead, he’s set up as a joke machine, a cartoon creation limited in scope and structure. Heck, he doesn’t even get the girl - Harrelson is rewarded with a relationship with underwritten co-star Maura Tierney. This may cause some in the demo no small amount of consternation. If this is a Ferrell vehicle - and it really doesn’t play like an ensemble, no matter the size of the cast - we want his antics to be more or less front and center. In Semi-Pro‘s case, they are more like slightly to the left.
Still, there is a lot of enjoyment to be had within the confines of these peculiar surroundings. Sports fans may scoff at the various stats, skills, and shots taken, but the end result remains a clever take on the material. Besides, any film that can channel The Fish That Saved Pittsburgh and Kansas City Bomber can’t be all bad. Semi-Pro may look like recycled Will Ferrell, outrageous personality and all, but there is an attention to detail and a surreal ‘70s splash that makes it all work. Like a crass Christopher Guest, this former SNL superstar has a way of making even the most unusual environ funny.The old peach basket bop - and its high flying ABA makeover - will never be the same.
The trend towards “adult” fairytales has got to stop. In the last few months alone, we’ve had the stale saccharine slop of August Rush, the sword and snooze dullness of Stardust, and the one step from stupid Water Horse: Legend of the Deep. The notion of juxtaposing the whimsical against the mature is not a new one. Terry Gilliam and Tim Burton practically wrote the rulebook on such cinema. But the current movement in such storytelling seems to push the extremes of both dynamics. When the material is serious, it’s downright dark and frequently disturbing. And when it’s fanciful, it’s like potent, pixie stick laced candy floss. Now comes Penelope, a self-esteem allegory masquerading as Cinderella with a snout. Sadly, instead of exploring the far reaches of the subgenre, it sinks directly into the maudlin middle.
Plagued by a bizarre family curse, little Penelope Wilhern is born with a pig’s features - muzzle, ears, slightly porcine chin. According to legend, only the love of one of her own - read: a rich blueblood - can break the spell. So, ever since her teens, Mother Wilhern has been trying to marry her off. Unfortunately, all the men who see her run screaming. One even takes his story to the press, and the resulting scandal embarrasses his wealthy father. Desperate to clear his name, he hires a paparazzi with a connection to the Wilhern clan to help. Their plan? Find a down on his luck aristocrat to woo Penelope, and when the time is right, snap her photo. As luck would have it, gambling addicted Max is willing to help. But when he learns that their target is a wonderful girl, not some horrible monster, his cooperation becomes questionable.
Resembling the kind of tale Aesop might spin after one too many vats of homemade ouzo, Penelope plods along on a desire to endear. All it really does is infuriate. This is the kind of movie that believes pitching all its performances somewhere between cartoonish and caterwauling results in a sense of reverie. When undersized actor Peter Dinklage is the best thing about your otherwise overwrought parable, something is wrong with this motion picture. While it’s not bad in a Larry the Cable Guy, remade J-Horror film kind of fashion, first time filmmaker Mark Palansky underachieves in a spectacular manner. Clearly devoid of the creative vision that sparks real movie magicians to their level of imagination, he merely lets the marginal script by Everyone Loves Raymond staff writer Leslie Caveny sink them both.
The first major flaw in this film is Penelope herself. As played by Ricci, she’s a sensible gal with a great personality, pretty eyes, and a slightly swinish nose. There is no attempt to make her ugly - either in façade or philosophy. She’s an unfortunate innocent who has used her malady to see beneath the surface of most everyone she meets. Yet in any Beauty and the Beast story, we need a monster - if not literally, figuratively. Penelope‘s narrative instead goes for standard villainy: a photographer with a grudge; a madwoman of Chaillot mother; a wealthy moron who believes our heroine to be a horror; a dour and dense father. Max is not a good guy so much as a welcome relief from all the mustache-twirling treachery.
It doesn’t help that Catherine O’Hara (as one hideous harpy of a mom) and Simon Woods (as the stunned suitor) use over the top as a benchmark for further acting histrionics. Both are so arch and mannered that you’re not sure whether to slap them…or slap them. Of course, a fairy tale isn’t a bastion of subtlety, but why allow a couple of stars to subvert everything you’re doing. It’s clear what Penelope could have been whenever Dinklage, Ricci, or James McAvoy’s Max is onscreen. They bring a kind of realism to this material that makes it palatable. Without their presence, we are stuck in a situation where nothing seems valid. It’s just fakery on top of fabrication. Sadly, some of the acting makes it even more counterfeit.
Palansky’s direction also doesn’t help. Clearly inspired by the work George Miller did on Babe: Pig in the City, the novice draws a multicultural, intercontinental portrait of Penelope’s world. The metropolis she lives in resembles several urban centers, while characters speak in a combination of accents (mainly between British and American). This contrasting conceit, probably used to keep the material ethereal and timeless, grows tedious after a while. Fairytales need some kind of foundation - a firm mythos, if you will - to keep the allusions sound. Without it, we begin to get lost, or worse, ask questions that don’t pertain to the narrative or the characters. Aside from clear factual fallacies (how, exactly, does one’s carotid artery end up in their nose?) and a lame denouement, the lack of such an underpinning really ruins this film.
Yet Penelope is not a complete disaster. There is a nice chemistry between Ricci and McAvoy, and the second act appearance of producer Reese Witherspoon as a disgruntled courier who befriends our heroine offers some funny moments. And there are times when the earnest quality of Penelope’s dream to be normal touches our own sense of self. But this is not the quirky feel goof farce the marketing would have you believe, nor is it a shockingly original take on the standard ‘once upon a time’ material. Instead, Penelope is as mixed as the motives of the entire Wilhern family. On the one side are a failed father and a shrill mom. On the other is their darling daughter and her optimistic worldview. Somewhere in the middle lies this lox of a movie.