Links 10/9/08 and Reader Request

Dear readers,

I have noticed an increase in the snarkiness of comments lately. Based on traffic stats, we have a lot of new readers. If you are one of them, please be advised that unlike many other bloggers, I regard the quality of reader input as a vital asset of this site. Indeed, some have said that this site has the best comments of any of the financial blogs.

I welcome substantive, robust discussion. But there has been a lot of hostility in recent weeks, often as not in comments that are also substantively dubious. I don’t know if this is because new readers may not understand how the community here works, or that readers are stressed out by the markets and may be unconsciously getting more aggressive. Regardless of the cause, the decline in civility undermines the quality of discussion, and the methods I have to deal with it are pretty blunt (such as moderating comments). I thus encourage you to clean up your act.

Japan Introduces Monkey Waiters Consumerist

Owner saves dog from shark’s jaws Miami Herald

Leading geneticist Steve Jones says human evolution is over Times Online

Md. Police Put Activists’ Names On Terror Lists Washington Post

McCain Mauled Silicon Valley Insider

US debt clock runs out of digits BBC

ECB head urges traders ‘don’t be pessimists’ Telegraph. Why am I not reassured?

Financial Crisis: Who is going to bail out the euro? Ambrose Evans-Pritchard, Telegraph

Taking Hard New Look at a Greenspan Legacy Peter Goodman, New York Times

Homeownership: The Ideal Which Refuses to Die Felix Salmon

Balance sheet of the Federal Reserve Jim Hamilton, Econbrowser. A very useful post, and explains which Fed actions are liquidity enhancing and which not. Illustrative paragraph:

Anyone who suggests that last week’s ballooning reserve deposits represent inflationary pressure or the Fed monetizing the deficit simply doesn’t know what they’re talking about. Banks are sitting on the reserves, not withdrawing them as cash. When markets settle down, the Fed can and will absorb those reserves back in with sterilizing sales of Treasury securities, just as it did in 2001 or after the more modest spike in August 2007. Providing new reserves aggressively is absolutely and unquestionably the way the Fed needs to respond to this kind of development.

Antidote du jour:

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  1. Anonymous

    CDS’s and a death pool.

    This is the best analogy I can come up with when trying to explain this market to ‘normal’ people. I’ve actually found it to be very apt.

    The CDS market is a death pool that got too big. Under normal circumstances, betting on someone dying may be morbid, but should not have any real impact of the life expectancy of the person. That is no longer true. There is now a very real incentive to make your bet come true, and actually kill the company or firm.

    What do you guys think? The msm discription of life insurance on a company is not accurate, in my opinion.

  2. Anonymous

    Lehman to sell stake in R3 hedge fund

    “NEW YORK (Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) agreed on Wednesday to sell its 45 percent stake in hedge fund R3 Capital Partners for $250 million in cash and a $250 million investment in another fund managed by R3.”

    Is it they get $250mm in cash but then have to plowed that back into another fund or is it that the get $250mm in cash and then $250mm in news shares of the other fund?

  3. David Merkel

    Yves, Jim Hamilton’s comment that you cite is only correct if the various lending programs don’t take on any losses; otherwise they are inflationary, because the monetary base has less backing. The Treasury could come in and make the Fed whole after such a loss, but given the intimate relationship between the Treasury and Fed during a crisis like this, it simply transfers the pain to the creditworthiness of the US Treasury.

  4. Douglas

    Wonder what the Fed recently took off AIG’s hands for the 38 billion?

    The new plan is aimed at easing the strains from that program, under which AIG lent out securities to third parties, and received collateral in return. That program is costing AIG dearly, because it had invested some of that collateral in other assets, including mortgage-backed securities. Some of those assets lost value.

    When the borrowers of the securities returned them, and asked for their money back, AIG had to make up the difference out of pocket, putting further strains on its coffers. Some trading partners were unwilling to keep borrowing securities from AIG, so the company was unable to lend them back out for fresh collateral. The Fed is essentially offering to be that borrower: it will take up to $37.8 billion worth of securities from AIG, and give the company cash in return.

    Any way to find out the collateral the FED took? That kind of transparency would be nice.

  5. Viv

    The TED spread’s just spiked to 413 basis points. The credit markets seem to be worsening at this point.

  6. RK

    Re: Hamilton’s withdrawal of reserves by selling the
    trillions of treasuries needed to sterilize the reserve
    injection, one wonders, to Whom? Would not the Chinese, and Gulf nations like to get out of the way of
    that tsunami before it hits land?

  7. Dave Raithel

    There is nothing more alienating than having no place to be. The Ideal of Home Ownership is a morally legitimate – though not THE only morally legitimate – proposal for everyone to have a place to be. The particular shortcomings of McCain’s plan, whatever it may be in full detail, is not a good counter to the proposition that everyone needs a place to be. One might suggest, as does Mr. Salmon, an “affordable housing” solution – but no renter is ever as secure in their place as is a home owner. One can characterize the ideal of home-ownership as harboring “equality of outcome” assumptions – afterall, most anything can be characterized in different ways for different purposes. I tend to characterize home-ownership in the tradition of Jeffersonian Yoemanry – the stake holder with a piece of tangible reality to be. In a bourgeois society, that’s the bourgeois thing to do. (This isn’t snark – I really think and talk like this.)

    More in the financial vein: If in fact deflation is our future, then lenders can afford to take some haircuts.

  8. Anonymous

    Yves, may I respectfully suggest that readers take their tonal cues from the tone of your own comments. Quelle suprise!

  9. Anonymous

    Say it isn’t so -that the lack of decisive action is a delaying tactic until a public reaction allows postponement of the election.

    I am sorry that the venality of this bunch in charge cannot be underestimated.

    (hope I’m not rated among the snarky -posting on the Internet a first for me. I respect the quality of this blog and the high level of expertise far beyond my own)

  10. doc holiday

    These here bears are obviously symbolic metaphors for the Double Bear Market we are just now entering. Now some of you may be either too young, too dumb or too old to remember, but a Double Bear Market is where you have hibernation concerns in regard to secular market trends which are related to The Twin Bear Theory of Efficiency, which is what happened in the Ice Age, when a lot of bears froze to death.

    I don’t mean to pull down any wool over your eyes here, but IMHO, this here Sigma Six Event is worth going back and looking at Y2K survival preparation and planning on ways to proactively change your life, by being ahead of the curve, i.e, don’t be caught in the storm looking for a cave!

  11. Anonymous

    Yves, I’m new reader and was initially impressed by the content and editorial tone, but later disappointed to see links to snarky progressive and conspiratorial sites. I’m having a hard time reconciling an image of a serious economist/banker such as yourself with these aberrations and some deeply disturbing comments that ensue.

    It’s possible that I don’t understand the position of this blog, whether it’s really progressive or not, but I have yet to see progressive economic ideas here, so not sure why progressive politics are even linked to. You set the tone, the readership is following your example.

  12. Anonymous

    Re: links to snarky progressive and conspiratorial sites

    I hear that Fox news is a good place for news, have you tried there?

  13. Anonymous

    Ironic that in the same post you complain about hostility, you link to that Ambrose Evans- Pritchard guy, who seems obsessed with bullying the euro.
    Will we still have a 15-member euro by Christmas, he asks. Is this because he is worried about the euro? Hell no, I am sure he will be very happy when the euro collapses. If you want quality discussions, than I would suggest you maybe start with posting quality links.

  14. Anonymous

    1;53 is right, Yves has written, for instance, about income inequality deniers (my term, not hers). Generally on the left side of issues but not dogmatic. And I don’t know what you mean about tone, if anything too fair to troll-types.

  15. Yves Smith

    Anon of 1:58 PM,

    Ambrose Evans-Pritchard has been one of the few writers to make the correct call on inflation versus deflation, and has also regularly provided excerpts from interesting and useful research that was not covered anywhere else, in media or blogs. Several economist/fund managers have written to tell me that Evans-Pritchard is one of the very few financial commentators who understands economics.

    As for “bullying the euro” one writer’s words cannot move a currency. I have been saying for many months based on input from someone who has extensive contacts with regulators and speaks occasionally to Trichet that the ECB would have to cut rates because their banks are in bad shape.

    I must differ with you as to the “quality” of Evans-Pritchard’s work. FIrst, per above, he has been more accurate than the great majority of financial writers. Second, many of my professional investor readers find Evans-Pritchard to be useful; indeed, some even send me links to his articles, IHe appeals to the sophisticated readers in my audience, and I take their assessment more seriously than that of the occasional anonymous reader who begs to differ, or perhaps has a vested interest that is opposed to what E-P is discussing.

    And “bullying” a currency, which I find a very odd way to describe his writing on the euro, which is gloom and doom, but no more than, say, Nouriel Roubiini on the general outlook, is not at all the same as bullying a person. That is a very lame excuse for rudeness. It is possible to disagree without descending to personal attack or denigration.

  16. Anonymous

    I am not questioning his opinion but his europhobia. My point was: If you link to his hostile pieces, don’t be surprised you get hostile replies. BTW: that also happens with the comments on his blog about the EU/Euro, they turn into a childish battle between Brits and other Europeans. Why do you think this happens?
    I also read Nouriel Roubini, and while he has strong opinions, I do not read such hostility in his opinions and therefore regard it as fair criticism.

  17. mxq

    RE: Felix

    i think the new american dream is to be debt-free. Those phony, get-you-out-of-debt quick schemes are probably going to make a killing (unfortunatley).

    Anon 10:06 “Yves, may I respectfully suggest that readers take their tonal cues from the tone of your own comments. Quelle suprise!”

    Anon, you are probably right about cues…if you’re a robot (or were raised in a barn). This blog isn’t being forced on anyone. As a result, people that respond form their own opinions. This blog is not here to teach manners…so for pity’s sake, show up with your own.

    Anon @ 1:35…if you’re a new reader, how can you possibly have formed such a grave and damning opinion given your small sample set? this blog has been around for multiple years. That’s really irresponsible for saying something like that and then not cite anything that supports what you are spewing. A drive-by ad hominem. Real nice. Not sure Yves ad hominems anybody in her posts, so you’re pretty much following your own example.

    Anon @ 1:59…i agree she’s too fair. As far as my memory is concerned, there have only been a handful of users that have been kicked out vs. the rather large number of asshatted comments. I’m guessing she gives readers the benefit of the doubt that they can change after the forum actually acknowledges their comments, no matter how ludicrious. That doesn’t mean we take their comments to heart, but it does mean that the threads are like a real live conversation…asshattery won’t be ignored.

  18. mxq

    Sorry sorry sorry…an all in one place for idea generation, frank, critical analysis, and debate, is – as a reader – a luxury in my book. It just bugs me when a miserable few try to ruin it for everyone, inlcluding our seemingly tireless host.

  19. Anonymous

    Re: Anon of 1:35

    “It’s possible that I don’t understand the position of this blog, whether it’s really progressive or not, but I have yet to see progressive economic ideas here, so not sure why progressive politics are even linked to. You set the tone, the readership is following your example.”

    I too am a new reader, having only discovered the site in June (and regretting wasted years in not finding it earlier).

    This is the best and most informative economic site on the web (roubini aside). The last few weeks have been heated and frantic – reflecting the meltdown out there and Yves herself has lamented absence of posting about broader economic issues but such is the characteristic of these days in the midst of a meltdown.

    I can assure you, there is no more progressive site. This site (Yves and her bloggers) have provided more insight and accurate prediction in the 6 months that Ive been reading than Ive heard from a single source in a lifetime (and trust me, I have worked for some high calibre finance instutions and first rate minds in my life).

    Just be objective and look at the archive list and look at the headlines that have been posted this week alone!

    News quality does vary from time to time but full marks to NC.

    If you really would like to be objective, pick a couple of random weeks these past 18months or 2 years and look at what was being discussed then – and then see if “progressive” is not applicable here.

    Now I’m annoyed with self. I got sucked into responding, wasting both my time and yours, fellow reader.

    If you don’t like, don’t read. Otherwise your value-added contributution to the debate is most welcome (either for or against, doesn’t matter either way as debate stimulates intelligent thought).

    Well said, mxq. Here, here.

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