Links 7/27/08

Uncertain future for elephants of Thailand PhysOrg

BP’s Russian boss goes into hiding Times Online and Russians claim control of TNK-BP as court battle looms Guardian

Can Hank Paulson Defuse This Crisis? New York Times. Ooof, this piece is positive about Paulson in an understated way, and stresses that he has a lot of clout in DC.

SAR #8208 Some Assembly Required

The Paradox of Deleveraging Paul McCulley, Pimco (hat tip Brad DeLong). Eeek, as we will discuss tomorrow….

Antidote du jour:

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  1. Richard Kline

    Re: McCulley’s charm offensive of a screed, oh Dear God(s). McC. on halting ‘pernicious deflation’: “It realy is that simple.” Umm, not so much. Or just plain, no.

    If everyone holding assets valued at x tries to sell them at x-5% to ease the strain on their individual capital bases, that may be a paradox of deleveraging. If, as is the case, those assets are actually only worth x-30% at best, what you have is the reality of insolvency. McCully obviously believes that it is the fiduciary duty of the public fisc to prevent the decline of asset prices, despite the manifest fact that the prices of the assets that his class of investors find stapled to their fingers are bloody delusional. This kind of thinking would make McC. a favorite son of ol’ St. Alan the Greenspender, that the public authorities should vacuum up however much in losses it takes to make private speculators whole. If that’s trillions, it’s trillions, ‘Keynes said so.’ [No, he certainly did not.]

    There are a few salient _facts_ absent from McCulley’s freeze-dried neo-liberal [sic] snake oil. What is the real value of said assets according to historical trends for same, not recent sticker values? What is the size of the asset mass he proposes that the Treasury “issue debt to buy” so as to shore up those recent values? McC. is in reality proposing the the US Treasury simply issue as many trillions of $ in debt as it takes to make a castle levitate in the air. Who, pray, does he propose is going to _buy_ all that debt? He doesn’t say, but the implication is obvious: All those greater fools in the rest of the world endlessly buying up $ denominated public and quasi-public debt. In short, China, Russia, and the Gulfies should spend every nickel of ours that they have amassed to defend the asset values of the America, i.e. bail out Western and specifically Ameican plutocracy. This, friends, is more nearly the paradox of suckerdom: If everyone gets wise at once, there isn’t a greater fool—so McCulley is doing his damndest to convert the suspicious into further fools of which he perceives a destabilizing (for him and his) shortage at the macro level.

    Delusional asset prices must come down. They will come down. Indeed, nothing can be down to prevent this, though much can be done to delay this. If Japan’s experience demonstrates anything it’s that the finacial tide _will_ go out even if it takes twenty years. This asset [sic] deflation of US MBSs and securitized LBOs may or may not be pernicious, but the false asset values have been and assuredly are toxically cancerous. Cut it out, boys.

    This is Frankenstein Economics being proposed by McCulley, ‘advanced’ by many Doctored men of confidence like McC., well, just like Victor the Electrifier. He knew his medicine; he knew his physics; he knew how to make the waxen lifeless walk forth from the slab: “This is science, and we must act as men of science.” What walked forth was monstrosity, with misery and woe in its wake. This is madness, if it is not veiled larceny, and Victor and McCulley both would be better—for the rest of us—in adjoining rooms in the asylum. _Before_ the flip that switch[eroo].

  2. Anonymous

    The PIMCO article is outright lies of someone talking their trading book. The truth is that PIMCO has placed their investment strategy on a government financing of Freddie and Fannie.

    The price of too much debt can be payed through inflation or deflation. The inflationary track insures more long-term pain and the deflationary track insures more short term pain. With politicians, we can certainly guess the likely direction. However, pretending that the deflation is a worse solution than inflation is a plain untruth.

  3. dearieme

    McCully: “This process is sometimes called, especially by Fed officials, a negative feedback loop”. Very possibly, but Engineers – who know about these things – call it a positive feedback loop.

  4. sailorman

    McCully: He’s not only talking his book, he’s talking his seemingly blind faith in Keynesianisum!

    Isn’t multiple generations of Keynesian policies at the root of our current problems?

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