Category Archives: Guest Post

Joe Firestone: The Lawless Society

Yves here. This post lays bare the depth of corruption in the US. We addressed the problem of what Joe Firestone calls “the lawless society” and presented some initial thoughts about the necessity of pressuring political parties rather than working within them in our Skunk Party Manifesto. A key section:

Corruption is the biggest single problem. Until we tackle that, frontally, it will be impossible to get any good solutions or even viable interim measures to the long and growing list of problems we face. Conduct that would have been seen as reprehensible 40 years ago, like foreclosing on people who were current on their mortgages, or selling drugs even when the company knows they increase heart heart attack and stroke risk enough to be fatal for a meaningful percentage of patients, barely stirs a raised eyebrow today.

As Frederick Douglass said:

Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or both. The limits of tyrants are prescribed by the endurance of those whom they oppress.

It has become fashionable to talk of outrage fatigue, but political and economic abusers have used that to press for more advantage. And events of recent weeks suggest that even a downtrodden and disenfranchised public is capable of rousing itself and acting when they have finally been pushed too far. Escalating violence by police and the utter indifference of local authorities to it has produced not just a backlash, but sustained protests. Similarly, while the publication of the CIA torture reports is unlikely to lead to real reform of the CIA, it has embarrassed our foreign collaborators and has confirmed the worst of what US critics and skeptics overseas believe. Even if the report produces little change in the US, it has ended any pretense that the US has moral authority in the world at large.

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How Superstar Companies Like Apple Are Killing America’s High-Tech Future

Few would argue that America’s fortunes rise and fall on its ability to generate technological innovations — to put bold ideas to work and then bring them to market. William Lazonick, professor of economics at the University of Massachusetts Lowell, and Matt Hopkins, research associate at the Academic-Industry Research Network, have investigated how the technology knowledge base gets created, what has gone wrong in America’s approach to innovation, and why the truth about who invests in the process is poorly understood. In the interview that follows, Lazonick shares findings from two recent papers that are part of the Institute for New Economic Thinking’s project on the “Political Economy of Distribution.” He explains why successful companies like Apple need to make fundamental changes to the way they allocate resources and stop throwing away America’s most valuable asset for future innovation — you.

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Ilargi: Will the Oil Collapse Kill Energy Junk Bonds?

Yves here. Some ahead-of-the-curve analysts have warned of the magnitude of energy debt, mainly junk bonds issued to fund shale gas projects, that are now at risk thanks to plunging oil prices whacking the entire energy complex.

We’ve heard over the last few weeks sunny proclamations of how many shale players have lower cost structure than commonly thought and could ride out weak prices. The supposedly super bearish Bank of America report published earlier in the week called for oil prices to drop to a scary-sounding $50 a barrel. But the document sees that aa a short-term phenomenon. As supply and demand equilibrates (shorthand for “of course some people will drive more, and a lot of wells will get shut down”), it anticipates that oil prices will rebound to $80 to $90 a barrel in the second half of 2015.

The problem with conventional wisdom, even pessimistic-looking conventional wisdom, is that the noose of a lot of borrowings is likely to change the decision-making process of those producers.

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Bill Black: Second Circuit Decision Effectively Legalizes Insider Trading

Yves here. Bill Black is so ripshit about a Second Circuit court of appeals decision that effectively legalizes insider trading that he doesn’t unpack the workings until later his his important post. Let’s turn to Reuters (hat tip EM) for an overview:

A U.S. appeals court dealt federal prosecutors a blow in their crackdown on insider trading on Wall Street on Wednesday, overturning the convictions of two former hedge fund managers charged with making illegal trades in technology stocks.

The 2nd U.S. Circuit Court of Appeals in New York said prosecutors presented insufficient evidence to convict Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors.

The court held that defendants can only be convicted of insider trading if the person trading on confidential information knew the original tipper disclosed it in exchange for a personal benefit.

What does this mean in practical terms? The court has just provided a very-easy-to-satisfy roadmap for engaging in insider trading legally.

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Michael Hudson: U.S. New Cold War Policy Has Backfired

Yves here. Michael Hudson looks at the way what he calls “the New Cold War” is creating alliances among countries that the US has as designated enemies, when the classic foreign policy playbook is to do everything you can to keep your opponents isolated.

One thing that is striking about the US decision to escalate against Russia is that it’s not at all clear what the trigger was. And that raises the possibility that these hostilities were instigated out peeve, or what one might more politely call imperial reflex, reflecting the belief that Russia needed to be punished for its various sins, such as supporting Iran, outmaneuvering the US in Syria, and harboring Snowden. And the assumption appears to have been that Russia could be taken down a notch or two on the geopolitical stage at no cost to the US. Hudson explains that the reverse is proving to be the case.

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Obama Administration Muzzling Its Climate Scientists

Yves here. The fact that Team Obama is gagging its climate scientists should come as no surprise. First, the Administration is obsesses with secrecy and image-management, as its extremely aggressive posture on classifying records and prosecuting leakers attests. Second, Administration climate policy is founded on a Big Lie. As Gaius Publius has written at length, its greenhouse gas measures exclude methane, the most potent greenhouse gas. That omission favors fracking, which fails the “clean green” test when you factor in methane releases. And that’s before you factor in contamination of water supplies.

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Yanis Varoufakis: Ten Questions on the Eurozone, with Ten Answers

Yves here. Yanis Varoufakis’ discussion today focuses on hot-button issues in the Eurozone, which isn’t getting the attention it warrants in the US press right now, given the competition from so many stories closer to home, such as the oil price collapse to sustained protests over police brutality to the CIA torture report.

Admittedly, while a crisis looks inevitable, with Germany committed to incompatible goals (continuing to be export-driven but not lending to its trade partners), the Troika has made kicking the can down the road into such an art form so as to have dulled the interest of most Eurozone watchers. But there’s been a bit of a wake-up call with the possibility that Greek prime minister Antonis Samaras’ gambit of calling for a presidential snap election (which is a vote within the legislature) will fail, leading to general elections. A general election is widely expected to produce a victory for the leftist party Syriza, which is opposed to more bailouts, and one is scheduled to be wrapped up within the next couple of months. Syriza wants the debts restructured and also wants to be allowed to deficit spend, which in an economy so slack, would reduce debt to GDP ratio over time (the austerians keep ignoring the results of their failed experiments: when you cut government spending, the economy shrinks disproportionately. As a result, this misguided method for putting finances on a sounder footing makes matters worse as government debt to GDP ratios rise as a direct result of spending cuts).

As much as the Syriza leader, Alexis Tsipras, has spoken against bailouts, even if he comes into power, it’s not clear that he has the resolve to bluff the Troika successfully. International lenders will rely on the notion that Tsipras can’t afford to threaten a default, since that could trigger bank runs and potentially rescues via depositor bail-ins and are likely to push back hard. But the spike up in Greek government bond yields and the near 12% plunge in the Greek stock market yesterday says investors are plenty worried about the possibility of brinksmanship, and the tail risk that Greece might actually default and print drachmas to fund its government budget, which would be grounds for kicking it out of the Eurozone.

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Bill Moyers on The Lives of the Very Very Rich

Yves here. While this site talks regularly about the 1% and the 0.1%, we don’t often give a more specific idea of who they are. A recent Bill Moyers show gave a vignette of the super-rich, not just the 0.1%, but the 0.01%, who as we know all too well are playing a vastly disproportionate role in reshaping politics and our society.

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Oil Price Drop Not Affecting US Drilling Much

Yves here. There have been two view of how the sudden plunge in oil prices would affect US oil production. The first was the classic supply and demand view, that at a lower price, fewer players will want to provide energy. The second was that of John Dizard of the Financial Times, which we picked up here, that US producers, particularly of shale gas, would not cut back until their money sources forced them to. This OilPrice article suggests that Dizard’s counterintuitive reading was not all wet.

Yet it is instructive to see how different reporters are reading the same data sources.

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Wolf Richter: Treasury Warns of Leveraged Loan Risk

Yves here. Wolf provides a detailed and informative account of a new report by the Office of Financial Research on the risk of leveraged loans. The big finding is they don’t like what they are seeing. And on top of that, part of their nervousness results from the fact that the ultimate holders of leveraged loans are typically part of the shadow banking system, such as ETFs, and thus beyond the reach of bank regulators.

Because these loans were issued at remarkably low interest rates, they aren’t a source of stress. But as their credit quality decays (recall quite a few were made in the energy sector) and/or interest rates rise (the Fed is making noises again), investors in mutual funds and ETFs will show mark to market losses that could well be hefty.  Any bank with large amounts of unsold inventory would also be exposed; query whether regulators will let them fudge by moving them to “hold to maturity” portfolios.

Oh, and what is the biggest source of leveraged loans? Private equity funds when they acquire or add more gearing to portfolio companies.

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Yanis Varoufakis: Burst Greek Bubbles, Spooked Fund Managers – A Cause for Restrained Celebration

Yves here. Varoufakis describes a classic case of the old investing adage, “Little pigs get fed, big pigs get slaughtered.” In this case, the big pigs decided to ride what was clearly only a momentum trade on Greek sovereign debt, since anyone with an operating brain cell could tell that Greece was not getting better any time soon, and limited German tolerance for bailouts meant that some sort of restructuring was inevitable. The concern that the Greek bubble will be pricked sooner than expected looks to have wrong-footed some big name investors.

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