Links 10/25/08

Why Dogs Don’t Enjoy Music Scientific American (hat tip Mark Thoma)

Hot drinks promote warm feelings BBC

Princeton publishes how-to guide for hacking Sequoia e-voting machines engadget (hat tip Ed Harrison)

States’ Tax Receipts Fell Sharply in Latest Quarter Wall Street Journal. Predictable, but the magnitude of the decay caught many by surprise.

`Out of Control’ CEOs Spurned Davos Warnings on Risk Bloomberg

Citing the Biggest Losers: Post Shows Why Fed Missed the Bubble Dean Baker

Mortgage Threat From Hedge Funds Irks Democrats New York Times

Democrats Plea for Help in Stemming Battle Between Banks, Transit Agencies Wall Street Journal. Hat reader Steve, who noted:

Seems to me that under our political system, partial nationalization will lead to far more perverse results than full nationalization ever did in Europe. More pork barrel than Marx.

Port Traffic Down Big In September Joe Wiesenthal, Clusterstock

Stocks: A Bear Case Felix Salmon

Losing control FT Alphaville (hat tip reader Dwight), This is the most important post to read today.

We also had this comment today from Marshall Auerbach that deserves commemoration:

By the way, I can’t help but feel a wry bit of amusement at the fact that our beloved Treasury Secretary promised us financial armageddon if we didn’t pass his wretched bill a few weeks ago. I wonder how he would describe this?

Antidote du jour:

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  1. Anonymous

    Losing Control…Maybe should have been entitled ‘Lost Control’. While the Fed considers another rate cut, to less than 1%, the remainder of the world is considering a move to take control out of the hands of the lunatics that perpetrated this train wreck.

    Never have so few become so wealthy at the expense of so many. If these clowns do not get some time at the grey bar hotel there will probably be other consequences.

    If you want to see what the remainder of the world is saying about the catastrophy caused by the pigmen, check out the following link.

    ‘Europe and Asia Seek a Consensus Ahead of Washington Meeting’

    The remainder of the world is very fed up and will apply pressure for meaningful change.

  2. Matt Dubuque

    In terms of the FT Alphaville charts, the chart showing soaring bank capital requirements demonstrates my continuing assertion that “recapitalizing” banks involves trying to hit a RAPIDLY moving target.

    Their books are deteriorating in terms of CMBS, commercial loans and credit cards valuations and they also are bringing large standby letters of credit on to them as well, as that funding vehicle is becoming much more popular as a last resort for cash strapped corporations.

    As for the discussion of the Fed’s book, please keep in mind that much of the expansion in their balance sheet has to do with swaps with other reputable central banks; these have an extremely low credit risk in the near term.


  3. Independent Accountant

    In 1964 some said, “If you vote for Goldwater, there will be half a million men in Asia”. They were right, some voted for Goldwater and there were 535,000 Americans in Vietnam in 1968.

  4. Matt Dubuque

    Auerbach’s cogent comment reminds me of Bush’s comment, upon signing TARP, that “a crisis had been averted”.

    This struck me at the time as one of the most profoundly stupid comments I had ever heard.

    His crisis management skills are simply off the charts in terms of sheer incompetence.

    It not his politics so much that gripes me. He just has no clue how to manage ANY crisis, be it Katrina, Iraq, or this latest fiasco.


  5. Anonymous

    Bush is an experiment carried too far. The ultimate spineless sock puppet. Bush has failed even the mildest of stress tests and is certainly no match for current events. He is what the PTB wanted and the results are evident for all the world to see.

    His father weeped for good reason, whether he was weeping for his son or America.

  6. doc holiday

    {Sometimes} when I think of panda bears and The Large Hadron Collider, I also think of Drosophila BMP family members, because after all, this is a small world and sometimes the only thing between realities and fantasies are people. Family is family and we all need to get along and deal with things like backyard panda bear attacks and things that seem utterly stupid and random, like the stuff of chaos. I could swear here, but I do have some restraint and for the most part, I want to have the appearance of being in control, but perception is very open to interpretation, just like these visual metaphors. I guess I don’t care if the panda takes some kid into the jungle, but I need to occasionally act like I do care and then try to be involved with stuff and pretend that I’m part of society.

    Although I haven’t made contact with any of the elected people in my village, I remain on high alert — but, enough said on that matter! I’m still licking my wounds from recent calls to Congress and The Senate related to TARP and the fact that I thought the whole idea of giving taxpayer revenues to corrupt bankers was essentially a fraudulent activity somewhat like collusion, conspiracy and treason — thus why would these same pirates be concerned about my feelings related to The LHC or the proposal to cut funds for Drosophila BMP family members?

    1. CERN eggheads find there’s no mystery to the universal appeal of a good feast

    The only damper on an otherwise upbeat ceremony was the rather troubling fact that complications have arisen in one of the sections of the accelerator. The first circuit of protons was completed without a hitch on September 10, but nine days later a faulty electrical connection caused a leak of helium and it will take until the spring to sort it out. The delay was greeted with relief by those who fear that a high-speed collision might lead to a black hole and reduce the planet to goo, but has caused consternation in scientists yearning to perform the crucial experiments in the various detectors.

    For some of the more rotund dignitaries, the most eagerly awaited event of the unveiling was the “molecular buffet”, a banquet masterminded by the award-winning chefs Ferran Adrià and Ettore Bocchia that sought to break new ground in terms of “textures, temperatures and combinations”.

    2a. These results also demonstrate that combining Drosophila and Salmonella genetics can provide novel opportunities for advancing our knowledge of hematopoiesis and innate immunity.

    2b. Sarah Palin: Ignorant and anti-science

    sometimes these dollars go to projects that have little or nothing to do with the public good. Things like fruit fly research in Paris, France. I kid you not.

  7. Anonymous


    GOOGLE ADS in the top banner is posting advertisements to ‘porn sites’ i.e. “Britney Spears Naked.”

    They don’t seem to link through though…

  8. Anonymous

    Yves, I am puzzled why you quote reader Steve’s remark re: “Democrats Plea for Help in Stemming Battle Between Banks, Transit Agencies “. Steve remarks: “Seems to me that under our political system, partial nationalization will lead to far more perverse results than full nationalization ever did in Europe. More pork barrel than Marx.” Public transit is not pork. It has been identified as a fundamental national good not unlike AIG and the big commercial banks. If this interferes with the desire of some banks to get out leasing argreements with transit agencies, well tough.

  9. Phil

    China and EU are scared of the rising dollar. They want to pull the rug out from under the US’ feet quickly. And I believe they are scared-to-hell-and-back of Obama. They don’t want the US to get back on its feet, they view the current situation as an opportunity that came sooner than expected. There is a crossroad now; slowing world economy, rising dollar, falling commodity prices, and a new respected (likely) president that can unite the US and not step into the bear traps Bush walked onto.

    The US’ adversaries are afraid of its potential rise from the ashes due to the convergence of a few key factors that could allow for this to happen.

  10. Anonymous

    Missed an even more important link:
    It’s the number 1 emailed story from the NY Times right now. joe Nocera got an access code to a JP Morgan employee meeting conference call in which it is made plain that the bank has no intention of using the bailout cash to lend. Quite the opposite. Treasury ad the banks are intent on consolodation, not stopping the next Depression.

    Q: How do you have a depression without bank runs?

    A: Watch, we’re having one now. It’s called a bank managers’ strike. Either we break the strike, or it’s down the tubes.

  11. Yves Smith

    Anon of 1:46 PM,

    I have the rest of Steve’s message, and he was clearly referring to the fact that banks are getting a handout as pork.

    Anon of 6:57 PM,

    There have been other reports pre Nocera on bank’s intent not to use the bailout money for lending, which we have noted here previously. Nocera is a bit late to the game on this, and I am surprised his story is getting the sort of traffic you indicate.

    And it is not the most e-mailed story for the Times overall, The Barack Obama endorsement is #1. It is most e-mailed in the business section. Ben Stein articles often rate as #1 there too, so I do not take the business section rankings as much of an indicator.

  12. doc holiday

    This here space is where my head is at tonight, as I ponder future values and a glass of Redhook ESB:


    In economics, the value of a capital asset is equal to the present value of the flow of services the asset will generate in future, appropriately adjusted for uncertainty. Economic depreciation over a given period is the reduction in the remaining value of future services.
    Under certain circumstances, such as an unanticipated increase in the price of the services generated by an asset, its value may increase rather than decline. Depreciation is then negative.
    [edit]National accounts
    In national accounts, depreciation represents the decline in the aggregate capital stock arising from the use of capital in production, also referred to as consumption of fixed capital. Hence, depreciation is equal to the difference between aggregate (gross) investment and net investment or between Gross National Product and Net National Product. Unlike depreciation in business accounting, depreciation in national accounts is, in principle, not a method of allocating the costs of past expenditures on fixed assets over subsequent accounting periods. Rather, fixed assets at a given moment in time are valued according to the remaining benefits derived from their use.

    >> I reckon this is also another space to get inside and crawl around:

    Consumption of fixed capital

    It refers to a depreciation charge (or "write-off") against the gross income of a producing enterprise, which reflects the decline in value of fixed capital being operated with. Fixed assets will decline in value after they are purchased for use in production, due to wear and tear, changed market valuation and possibly market obsolescence. Thus, CFC represents a compensation for the loss of value of fixed assets to an enterprise.

    The UNSNA manual notes that "The consumption of fixed capital is one of the most important elements in the System… It may account for 10 per cent or more of total GDP."

    Consequently, if businesses decide for economic reasons to rent more physical assets, or alternatively buy more physical assets, this can independently affect the size of GDP components and the size of intermediate consumption. If they buy, this boosts GDP; if they rent or lease, this lowers GDP.

    > This is all based on a rouge data stream from The Large Hadron Collider, so just relax and embrace the noise as if taking a shower; I have no idea where this is going, other than down the drain…

  13. Anonymous

    "Jessica Alba Naked & Pamela, Anderson Naked, What does it mean?"

    Google thinks finance geeks like porn.

  14. Glen

    Anon of 6:57 PM, there are some good discussions on this site with regard to the why and hows on the use or hoarding of bailout money for banks – liquidity vs. solvency. I’d say it’s a solvency issue. Most of these banks were built on dodgy Fiat money and now that it’s worth zip, they need to hoard as much cash as possible to avoid credit rating downs grades due to solvency issues.

  15. Born Again Democrat

    Ms. Smith,

    This latest post on total bank capitalization is the first turn of events in recent weeks that I have not been able to follow. Will someone please explains the fundamental issues here in a simple way, if possible. I know economics, but not the ins and outs of banking and finance — beyond fractional reserves, open market operations, etc..


    Luke Lea

  16. doc holiday

    anon @ 8:57,

    I think the time has come to discuss The Roubini Plaster Vulvas, as it seems to be within the context of free association and by the time Yves gets around to reading comments, this will obviously be an old footnote…

    I bring to your attention, exhibit A:

    Sigmund Freud

    In 1876, he published his first paper about “the testicles of eels” in the “Mitteilungen der österreichischen Akademie der Wissenschaften”, conceding that he could not solve the matter either. Frustrated by the lack of success that would have gained him fame, Freud chose to change his course of study. Biographers like Siegfried Bernfeld wonder if and how this early episode was significant for his later work regarding hidden sexuality and frustrations.

    See Also: The Secret Pleasures of Dr. Doom

    To be continued…

  17. Yves Smith

    Now Doc,

    Just because I do not comment frequently does NOT mean I am not reading! I have taken note of your Large Hadron Collider musings, for instance.

    The other Dr. Doom, Marc Faber, is apparently a wild man too, but the original (Henry Kaufman) is not. Times change….

  18. Dave Raithel

    Re the FT “Losing Control” charts and Ms. Schwartz nearly a week ago: The banks don’t need liquidity (infusions of capital), they need mutual trust; but the banks don’t trust each other because they are all going bust; so they need the capital … to be liquid… Seth Myers on Sat Night Live explaining to Greenspan how what has happened, happened, was precious. Hope it shows up on You-tube ….

  19. RBG

    Can you please kindly help me understand the Alphaville report?

    Why does Fed changing rates paid on excess balances mean Fed had lost control?


  20. Anonymous

    Yves and all,

    With all due respect, I have reviewed the postings and comments here. Yes, there is some discussion of the ongoing bank manager lending strike. But the only (!) comment addressing stronger intervention within the banks themselves–that is, available policy for the US Govt–is a historical aside by Yves in the 10/18 ‘parallels with the 1930s’ post:

    “In the 1930s, the government had another major lever, however, to get credit markets going again in the 1930s. RFC preferred stock, unlike the preferred shares that Treasury is going to buy today, came with equal voting rights to common. The RFC exercised this to put its own managers in place at major financial institutions. The result was a distinctive type of state-capitalism. Arguably, Treasury might have done better to take preferred stock that would give it stronger control over bank management.”

    I do not accept the premise that the discussion here has “covered” the topic that Joe Nocera and Bloomberg News are ripping th lid off of. There is a big difference between speculation about the logic of bank actions, and actual ‘smoking gun’ evidence of their immediate intent. An occasional unsourced bank executive quote is not investigative journalism.

    Furthermore, the connection between the bank lending strike and the consequences for the real economy are not made with any sense of urgency. Urgency as in what can be done, and the option of government entering directly into bank managements’ offices.

    Mish’s Global Economic Trends had a nice post considering, but dismissing the idea of “forcing banks to lend at bazooka point”. I happen to disagree but at least it was openly discussed.

    Please do not dismiss the evolution of public opinion on this topic. You should understand that the intelligent role of the blogosphere could constructively shape the debate. But this is so only if you continue to pinpoint the mechanism by which the credit crisis can cause a new depression, and policy options to prevent same. My position is that bank lending policy must be affected by actual, i.e. in person interventions into positions of authority in the banking system. I challenge you to show that there has been any serious discussion about this option.

    Sure, there is plenty else to discuss and you do an admirable job. But the nearly silent free fall of the real economy can be mitigated by federal policy, and this should be one of the highest priorities under discussion.

  21. MattJ

    So, what exactly is the solution proposed here for the transit agencies funding problems? It seems to me that they are yet another example of an institution that should have known better making a short term decision with seriously negative long term effects, looking to be bailed out. I’m sure they are not proposing to pay back the initial payment they took, after all. They just want someone to bail them out from their short sighted, greedy decisions.

    This does not seem to me to be a federal problem. Let the cities in which they reside, or at worst their states, bail them out.

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