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Links 3/22/12

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Marmageddon: New Zealand runs out of unique spread AP

Something not wholly uninteresting happened the other day at the EFSF Yanis Varoufakis

Corruption threatens China’s future Ed Chancellor, Financial Times. True but why does no one make the same observation about the US?

The Dallas Fed Is Calling For The Immediate Breakup Of Large Banks Business Insider (furzy mouse)

How the German Economy Became a Model Der Spiegel

Ox Carts and No Coffee Building a Monastery the Medieval Way Der Spiegel

The ex-FBI informant with a change of heart: ‘There is no real hunt. It’s fixed‘ Guardian (hat tip reader May S)

Obama to order expedited action on Keystone pipeline’s southern piece The Hill (hat tip Lambert)

Study finds no link between oil drilling, gas prices AP

Speculation Responsible for Portion of Oil Price Run-Up, But Administration Looks Elsewhere for Solutions Dave Dayen, Firedoglake

Determinants of banking system fragility: A regional perspective VoxEU

JPMorgan Joins BofA in Cutting Mortgage Traders Bloomberg

House Subpoenas MF Global’s Assistant Treasurer O’Brien Jesse

SUV Burning Spurred Internal Debate at DHS on Its Role Regarding Occupy, First Amendment Activity Truthout (hat tip Lambert)

Soviet Leader: Chernobyl Nuclear Accident Caused the Collapse of the USSR George Washington

Bolivia has transformed itself by ignoring the Washington Consensus Guardian (hat tip reader May S)

Afghan villagers say shootings were revenge Christian Science Monitor (hat tip reader May S)

Israel ‘turning blind eye’ to West Bank settlers’ attacks on Palestinians (hat tip reader May S)

Supply side economics and human nature mathbabe

Antidote du jour (hat tip reader furzy mouse). This cat has a future in banking:

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71 comments

  1. Lil'D

    On the corruption story,
    similar to the way USD is the tallest midget, the US has corruption problems, but they tend to be less severe than elsewhere. That is good for US competitiveness. However, point taken, the levels of corruption have been skyrocketing. I’ll try to dig up some game theoretic papers I recall that illustrate the presence of tipping points.

    I think the gist is that when only a small percentage behave corruptly and there are real penalties for being caught, the bulk of the populace continues to abide by the rules. But a combination of visible, widespread corruption without punishment leads to petty corruption everywhere.

    1. dirty rat

      But in the US abuse of function and trading in influence have been institutionalized (so much so that the Convention Against Corruption only requires parties to consider criminalizing this conduct, as a concession to US culture.) This is a pathology that’s broader and more pernicious than retail corruption. You can model retail corruption as friction. Abuse of function and trading in influence might be better likened to some of the patterns that induce collapse in cellular automata, because they change the behavior of the system rather than impeding it. Getting shaken down by petty officials is one thing. Our elite looting is different and most likely terminal.

    2. Lambert Strether

      My nightmare is when cooruption seeps down to, say, code enforcement in my small town. Might as well pack it in, at that point. The only thing that saves us is that a lot of people still believe and act as if Civics 101 is still in effect (which it is for them, I guess). It would be interesting to see materials on tipping points (though studies would be more interesting than models).

      1. John L

        Push up from the bottom. Get involved with your local government. Go to meetings, ask questions. Daylight is the best disinfectant.

          1. Aquifer

            Actually, I think the local level is where a lot of them get their start, kindergarten for krooks. I learned all the “basics” about how and who in a Town i lived in about 20 years ago. Realized that nothing that goes on at state or federal level doesn’t already go on at local level, just on a smaller scale ….

          2. John L

            True both. Even our local diking district of a couple hundred people was corrupted by self dealing good ol’ boys. Got them out though. One crook at a time.

      2. LucyLulu

        The murder investigation, or more accurately, lack of investigation, of Treyvon Martin is a prime example of corruption at the local level. Is it on the rise though, or at the same levels as seen historically? It definitely happens though, both at state and local levels, and seems to get less publicity and public oversight. This is concerning in light of the push to move programs from the federal to the state level for administration.

        There was an article posted in the links section 2-3 days ago that looked at corruption at the state level and included some local examples of corruption. Lambert, your state got an F, so you have reason to be concerned, not that any of us should feel safe. The article pointed out, rather counter-intuitively IMO, that less populated regions seemed to be more prone to corruption. The article said that the “everybody knows everybody else” atmosphere leads to a false sense of security and perception that measures to prevent corruption are not needed.

        http://www.iwatchnews.org/2012/03/19/8423/grading-nation-how-accountable-your-state

      3. Glen

        I’ve seem this slow creep of corruption show up in my workplace. Overall, the effect, besides being somewhat demoralizing, is vastly increased cost and a general promotion of people most willing to cheat, lie and steal. Probably not good for the long term prospects of the company, but currently a good way to get ahead at work.

  2. Jim Haygood

    From Michael Pettis’s essay:

    ‘[Japan's] economic growth had been positive in the first half of the “lost decade”, but after the government raised consumption tax in 1998 any momentum vanished.’

    ‘How can Japan reduce its debt? I am hearing Tokyo is planning to raise taxes further, especially consumption taxes, and to use the proceeds to pay down the debt.’

    Oh yeah, that should work well! After hiking the consumption tax from 3% to 5% in 1998 sent the Japanese economy lurching directly into recession, why not try the same thing again and expect a different result this time, in a much harsher global backdrop?

    Like the U.S. Federal Reserve with its ‘print till you puke’ policy, the Japanese government is a one-trick pony (or mule, if you prefer) that will just keep banging its fool head against a brick wall till its thick skull cracks.

    Gambatte kudosai!

    1. scraping_by

      A sales tax is always regressive, taking more from the less affluent. This is old news. But you can’t say that these days without someone hearing you promoting progressive taxation, which makes you one o’ them dern soc’lists.

      Or, to economists, unscientific. Or, to the Tea Party, a terrorist. Or, to hate radio, a slut. Or, to Fox News, one of Those People. Or…

      1. justanotherobserver

        I mentioned the transaction tax at work one day and couple of people didn’t spend even a fraction of a second to think about whether or not it was a good idea before they started yelling and screaming about it.

        the vast majority of people are idiots, even when they have a relatively high IQ.

        or maybe especially then.

  3. kravitz

    Eric Schneiderman’s latest…

    Steven J Baum, firm agree to pay state $4 million
    http://www.buffalonews.com/business/article775177.ece

    “New York Attorney General Eric T. Schneiderman will announce this morning that Steven J. Baum P.C., Pillar Processing LLC, Baum himself and the firm’s former managing partner, Brian Kumiega, agreed to what Schneiderman called the “largest foreclosure law firm settlement in the nation related to improper legal filings.”

    1. Hugh

      $4 million to buy their way out of forgery on an industrial scale and innumberable frauds on the court. This is just more Schneiderman kabuki. Both the firm and many of those working there, including all of its top management, should be doing prison time on felony counts.

      1. kravitz

        And of course, no admission of wrongdoing.

        While having found of doing wrong.

        We appear to have a difference in definition.

          1. Jessica

            4 million dollars is a fraction of what the perp would have spent on legal fees if we had a functional justice system to charge him appropriately.

  4. Susan the other

    Yanis Yaroufakis. News about the ECB printing up a trillion Euro in order to shore up all the banks with infusions of cash if they in turn will fund the EFSF. And the announcement that all EZ states will now pay the same interest rate on their bonds. Not sure why the EFSF is even still there except to make it look like the politics will happen someday and until that day the ESFS is kind of like an escrow account for transferring money. I wonder if the ECB/ESFS can take on munibonds from various cities. In light of yesterday’s (Golem XIV) speculation that German banks are holding one Tr Euro of bad debt and above that all the banks are sharing (more?) bad debt between them, it is no surprise that the ECB does like the Fed. The next move for the ECB will be to buy up European mortgages and issue some sort of bonds backed by them. Or have they done that already? I wonder if the Europeans have the same title problems associated with fraudulent securitization, or sloppy securitization, that we have. CDSs are the big bad debt that the EZ banks are holding against each other. And soon they will do like BAC did with its toxic crap. Take it out of the private banking system and plunk it in a taxpayer backed account. So they will have to use the ESFS for that too.

    1. Jim

      I’m surprised that so many of you are giving the ECB a pass in its quest to socialize the losses of the South. The German voter was explicitly promised that this would never occur.

      Explicity.

      But since it’s Germany, it doesn’t matter.

      Well, I stand with the German on this issue.

      Let’s have the German voter cast a ballot on a referendum.

      Let’s have every country vote on it.

      A United States of Europe, based in Berlin, with a legislative body in which the North is overrepresented.

      The official language will be German, taught in every school.

      Any country that supports the referendum becomes part of the US of Europe.

      Would Greece support it? A permanent fiscal transfer from the North to the South, of about 6% of GDP, and in exchange Athens would be a mere state capitol, and every Greek would have to learn German.

  5. MacCruiskeen

    Gorbachev and Chernobyl: Chernobyl contributed to the end of the USSR, but not exactly for the reasons he says. Aside from being financially and environmentally very costly, the poor handling of the situation by Soviet authorities was politically costly. Ukrainians turned away from Moscow and strengthened the movement for Ukrainian independence. And no Ukraine meant effectively no USSR.

    1. Jim

      The end of the USSR was precipitated by the collapse of oil prices. The USSR used extraordinary (one-off) revenue on operating expenses, thinking that there would be no end to the gravy train.

      When oil prices collapsed, so did its hard currency flows. But its needs were just as high.

      Something had to give.

      1. MacCruiskeen

        Oil prices weren’t the only reason, but it was a real big issue for them. As you say, oil exports were an important source of foreign reserves, which they needed. Oil money was probably the only way they could have survived the Brehznev years.

          1. MacCruiskeen

            Sure, Brezhnev was the corruption poster child; that’s why he needed the energy resources of Siberia.

  6. Susan the other

    Business Insider: Dallas Fed’s Fisher calling for the break up of the TBTFs. Nice to hear this straightforward argument, but also disconcerting. We all know the bigs have really screwed things up but to break them up now means that they would have to fess up to all their phoney accounting and that wouldn’t just break them up, it would dissolve them like the wicked witch.

    Also saw this in BZ Insider: article by Bruce Judson. Prosecute the bankers and the banks for felonies and do it now. That is where we should start. It would lead to some serious bank downsizing not based on audits, but on criminal operations. Isn’t it all about controlled demolition at this point?

    1. MLS

      “but to break them up now means that they would have to fess up to all their phoney accounting and that wouldn’t just break them up, it would dissolve them like the wicked witch.” – Susan

      Frankly Susan, I don’t see how this is a problem.

    2. Glen

      Honestly, I don’t expect one guy complaining on the FOMC to effect any real change. This policy is being driven by Geithner and Bernanke, and as was pointed out in the comments at BI, this policy is to benefit DC (continue the TBTF/Fed/US debt circus), not the people of America.

      We are either on course to another crash or a couple of decades of decline to a third world nation with nukes. Too bad, in my opinion, the 2008 crash was an opportunity missed (by Obama) to move America in a better direction, real capitalism, more opportunity for all.

      The on the ground American economy cannot come back until the yoke of the FIRE sector is removed.

  7. John L

    Excellent links.

    Germany, Bolivia – socialism, it works! Would not work in the US at present. We are, or we have been conditioned to be, too selfish and too short term in our thinking. One paycheck from bankruptcy, one lottery ticket from the 1%.

    1. aet

      So gpood policies ought tnot to be attempted, because you think they ‘wouldn’t work in America’?

      An idea has just occurred to me, as I contemplate your comment, as to what it IS that is really “wrong with America”.

      It’s how Americans like you think about change, and its possibility.

  8. citizendave

    Regarding Bolivia has transformed itself by ignoring the Washington consensus, I always enjoy reading about the success of Evo Morales, and how the people of Bolivia are reducing the wealth disparity by bringing the poorest citizens into the economy. And they “…nationalised hydrocarbons, electricity, telecommunications and mining…” Hmmm. I hope the US doesn’t go mucking about in Bolivia. It sounds like they are doing OK.

    1. Susan the other

      I like the analogy they used: trying to change the engine of a car while it is moving. To create GDP based on national well being and a healthy environment. And reversing illogical privilege almost voluntarily.

      1. citizendave

        To create GDP based on national well being and a healthy environment. – StO

        In “What’s the Economy For, Anyway?” the authors suggest a better way than GDP to measure progress: GPI – Genuine Progress Indicator. GDP just counts money spent, so a car crash helps GDP, with tow trucks and repairs, etc. A Genuine Progress Indicator would count just those things that contribute to greater well-being.

  9. Diogenes

    Marmite is definitely an acquired taste. Having grown up in Philadelphia, when first opening the little packages in the UK, I anticpated the taste of apple butter. More like anchovies.

  10. Hugh

    Speculation in oil probably accounts for about 50% of its price, not 15%. I’ve been writing about such speculation for 5 years now. It’s interesting how discussing this issue has gone from nowhere to, well, actually being discussed. But it’s important to note that no real action has been taken to curb this speculation, and there is nothing on the table currently that would eliminate it.

    And nothing much may happen again. There is ongoing speculation that sets a floor to high oil prices, and then there are these speculative binges. The usual course of these is a big push in price. Eventually public anger grows. Officials let off some rhetoric and a symbolic flourish (if the binge is really big). The speculators ease off before anything real happens. Prices fall, though usually not back to initial levels. And in a few months this cycle is repeated.

    1. aet

      I likre artificially high prices, as it makes the subsequent crash in prices more interesting.

      Boom and bust.

  11. Hugh

    Obama’s actions to speed up permitting for the southern leg of the Keystone pipeline. It is entirely in keeping with his modus operandi. It’s not like he is opposed to the northern leg to Canada. Rather he got boxed in by the Republicans who put time restraints on that deal which he couldn’t meet. Signing on at that point would likely have sparked lawsuits which would have tied up the project for years. So he nixed the northern leg for now. But it is an election year so he went ahead with pushing the southern leg to gain some votes, although let’s face it I doubt that he has any chance to win in any of the states involved. And the northern leg? A decision can be safely made on it after the election.

    So once again we are seeing that Obama never really gives up on his agenda. He always, always, comes back for another bite at the apple. Something to keep in mind when it comes to his other issues, like slashing Social Security.

    1. abelenkpe

      Yeah you’re right! We should vote republican. Social Security stands a much better chance at not being cut with them in charge.

      1. tom allen

        There’s Dr. Jill Stein of the Green Party. There’s Stewart Alexander of the Socialist Party. There are alternatives to the Good Cop and the Bad Cop, you know.

        Or maybe you don’t.

        1. Binky Bear

          Republicans like it when you do that. It saves them the cost of donating money to the greens like they did in Washington State in 2000, and again anywhere or anytime they need to split off votes from the opposition.

          In reality your choices are, as the joke goes, Bongo Bongo or death. Death by Bongo Bongo is a preferable alternative to just the Bongo Bongo? Your call.

          1. lambert strether

            Whigs like it when Democrsts give money to the Republicans….

            The parallel is exact, no?

          2. tom allen

            But lambert, you have to be realistic. Major revolutions in US politics only occur every 80 years or so.

            1770s, 1850s, 1930s, ____. Oh, drat, there’s math involved. :-P

            And oddly, they go leftward each time. With a little prodding and a lot of work, that is.

      2. Walter Wit Man

        Actually, you’re right that we are better off with Republicans if we want to protect Social Security.

        President Bush and the Republicans’ privatization efforts were stymied by the Democrats. The Democrats, being in opposition, had not choice but to pull the lever and send live electricity to the third rail when the Republicans touched it.

        With Obama and the Democrats in charge it is much more likely they will have cover to enact deals, as Obama almost succeeded in doing last summer.

        And actually, Obama has the same goal as Boehner and Ryan and the gang . . . he wants to cut Social Security, Medicare, and Medicaid.

        You’ve been tricked my friend into blaming the Republicans for your political parties’ sins. Your party is the party of cutting Social Security.

        Vote Democrat if you want to cut Social Security.

        1. Walter Wit Man

          And not that voting Republican will protect Social Security . . . it won’t.

          But voting Democrat won’t help either. It will actually speed up the demise of Social Security.

          Wake up folks. Obama already tried to cut Social Security. Hugh is right. His intentions are clear. The rich bankers didn’t have to suffer any cuts, but the little people will have our retirement pensions cut.

          Why am I paying almost 13% into something I will never get? I’m paying for tax breaks for rich pricks and getting suckered.

          Fuck the Democrats. They’re evil bastards that are just as heartless as the Republicans.

          No.

          They’re WORSE.

          They pretend they’re helping you then plunge the knife in and then ride off with the loot while claiming to be the compassionate ones.

          1. tawal

            Right. The difference between democrats and republicans is that republicans stab you in the back whereas democrats stab you in the front.

    2. LucyLulu

      Dumb question here. Is the southern leg of the Keystone pipeline of any value if the northern leg isn’t built too?

  12. Economystic

    er, (Help me out here Lambert) AT LEAST CATS DON’T STEAL US BLIND IN BROAD DAYLIGHT, and then lie, buy off the cops, etc. etc.

  13. abelenkpe

    Corruption threatens China? Why doesn’t anyone say this about the US? Is there someplace on the planet where one wouldn’t be tempted to say that?

  14. Schofield

    No coincidence that gas prices should be rising in a Presidential election year against the background of the Saudis pumping out more oil to make up for the shortfall but the Republicans having a weak Presidential candidate.

    1. aet

      It is no coinincidence that gas prices are rising while there are trade sanctions on Iran and Iraq lies in ruins.

      Idiots!

  15. Klassy!

    The FBI informant story…my god. I don’t know who is more credulous and corrupted– the financial press or those covering national security.

    1. aet

      Money IS security.

      Haven’t you learned anything from the TV , radio, movies, music, books and big city newpapers?

      They all agree about that!

  16. Max424

    “Economists at the Federal Reserve Bank of St. Louis estimate that Wall Street speculation … [accounted] for 15% of the increase in oil prices over the last decade”

    Yeah, that sounds about right. I see speculation as a thin layer of icing on the petroleum cake. The autonomous oil industry analyst Chris Nelder agrees:

    http://www.smartplanet.com/blog/energy-futurist/scoring-the-rhetoric-on-obamas-energy-policies/430

    And you could make a good case the icing isn’t near thick enough. In other words, Mr. Market can’t identify his ass from his elbow, because Mr. Market is too euphoric all the time to appraise the real dangers that are lurking out there … is so fucking high on profit optimization it is impossible for Him to price in the true reality of anything.

    Consider: In 2006, two pick-up truck/bombers attacked four sulfur towers located in the Abqaiq oil processing facility in Saudi Arabia. Thankfully, the pick-up attack was thwarted, and both driver/terrorists were shot dead.

    But, if the attack had been successful, and the towers destroyed, market analysts were in complete agreement that world oil prices would have doubled, overnight.

    Interesting.

    Now, what would happen, if say, the Mullahs of Iran got pissed off that they were being bombed by Israel –or the US, or whomever– and responded by blowing up, not just four lonely Saudi sulfur towers, but the entirety of the Kingdom’s petroleum exporting infrastructure, which they could EASILY do?

    What would happen to world oil prices then?

    Note: Another US carrier –the venerable Enterprise– is right now steaming toward the Persian Gulf, to form an unprecedented threesome with two sister carriers already there. I wonder if Mr. Market is aware of this, and is pricing it in?

    1. Glen

      I think that speculation into oil and other commodities is entirely understandable when central banks around the world are in a financial war to devalue their respective currencies.

      What I wonder at is how much is just “financialization” i.e. the FIRE sector imposing it’s “vig” on the real market.

    2. aet

      “I wonder if Mr. Market is aware of this, and is pricing it in?”

      That is called “speculation”.

      And as to “Mr Market”, do you remember ever hearing the following line –

      “You shall have no other gods before me.”

      Now where did I read that?

  17. scraping_by

    RE: The Afghan shootings.

    Our soldiers are up front when they can be: “Nobody wins an occupation.” Noting that the Occupy movement isn’t opposed to the population, isn’t supporting an elite, and isn’t armed to the teeth.

    The Great Game that requires puppet governments, and those puppet government require outside force to stay in power, has only losers. Beware of those who think losing less is winning.

  18. kevinearick

    Apples, Horses, & the Hangman

    Apple is just another parasitic corporation being employed to build hysteria across the event horizons. It’s a short, locking the system into financial fusion. Most enter the income horizons as a matter of course. Some enter with an exit plan, but lie to themselves when the exit door appears. Lies beget lies exponentially. How many times must you see hysteria before you recognize its characteristic deployment in the empire wave?

    Apple is just the Trojan Horse, as is building a pipeline from Canada to the Gulf, to export non-viable economics. The hoarders always attempt to release their horde after it “suddenly” becomes irrelevant, just as the fascist denizens always get their necks broke, same sh**show, different dress. Funny, what’s happening over at FedEx, which is cannibalizing USPS. What does explicit job creation look like on the margin?

    You can’t buy love, but you can buy the majority, which becomes addicted to its own lies the first time it passes the exit door, which is usually the entry door, to prisoners dilemma, the false assumption of its constitutional character, consumption redefined as investment, haters of haters learning to become the hated. Inside the empire, life is TV, a time wasteland that appears relevant until it doesn’t. What happens when the gravitron stops and there is no floor?

    Apple is now the TBTF posterchild.

  19. George Bailey

    RE: Dayen’s piece on the impact of speculation on the price of oil.

    Thanks for highlighting this.

    The Fed has quantified the amount speculation in oil markets has cost consumers, which everyone suspected. The Fed confirmed that productive consumers of commodities are paying rent to the speculators. That rent is a tax on hard strapped consumers and businesses, a drain on economic activity.

    If Chris Cook is right about the mechanics of the manipulation then those numbers are probably understated. Worse yet the rents may be locked in for a very long time. Worse still, a portion of those rents will accrue to gov’t backed ‘banks’.

    The leaders in that speculative trading space are none other than GS and MS, who’ve dominated the space for the last 25 years, plus JPM.

    GS and MS,who are not ‘commercial banks’, by anyone’s reckoning, are arguing that these businesses are exempt from the Volcker Rule’s proprietary trading restrictions, and should be left unmolested by regulators. But they are commercial banks,in name only, by virtue of their 9/08 conversion to Bank Holding Companies. Basically the Volcker rule is intended to provide some protections to ‘commercial banks’, who take deposits and recirculate those deposits into the productive economy.

    If MS & GS succeed in convincing the regulators that they are indeed exempt, (their argument is specious, but technically clever), JPM will also be exempt and the speculation will continue with the full faith and credit of the US gov’t behind them.

    Link to Chris Cook’s series

    http://www.nakedcapitalism.com/2012/03/chris-cook-spikes-and-speculation-in-the-oil-market-%E2%80%93-flash-crash-part-deux.html

    (Follow this link (sorry its the only way to get around the FT paywall)to Barcap hit in Commodities tradingjostle

    http://ftalphaville.ft.com/blog/2012/03/20/930161/lunch-wrap-666/ )

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