Race to save world’s rarest wolf BBC
How your unique body odour could identify you as effectively as a fingerprint Daily Mail
QE2 to be ripped up for new life as a Dubai floating hotel Times Online
What’s wrong with Lloyds’ takeover of HBOS? Just follow your nose Jeff Randall, Telegraph
The great bond market crash of 2009 Martin Hutchinson Prudent Bear
Merrill chief sees severe global slowdown Financial Times
AmEx Said to Request $3.5 Billion in U.S. Aid Wall Street Journal. As I have said before, how can you possibly defend helping Amex and not GM?
Buying Binge Slams to Halt David Leonhardt, New York Times. Some useful information, but an odd subtext. Leonhardt keeps stressing how remarkable and sudden the cutback in consumer spending is. Yet consumer spending was also clearly well above sustainable levels, yet also appeared extraordinarily resistant to pressure (scarcity of credit) and the worsening economy of 2008. Adjustments of this sort are always abrupt, and the longer they resist external forces, usually the more dramatic the shift.
China’s fiscal stimulus doesn’t necessarily mean that it will stop buying Treasuries Brad Setser
Nuclear Winter Andy Xie China Business
No change, no hope: Obama’s Transition Economic Advisory Board Willem Buiter. Buiter does not mince words.
Antidote du jour:
And a bonus: Dogs Serving Veterans New York Times (hat tip reader Megan).
I agree completely with your take on the NYT’s article on consumer spending.
American consumers were spending too much, it needs to come down by a lot. This is one big reason why I think Krugman’s and other Keynesian’s demand for a big stimulus is wrong – they’re trying to keep up spending which was unsustainable. That is, the GDP numbers on which they’re basing their theories, were too high.
The ‘Great Bond Crash’ link is incorrect, I think?
The link in “The great bond market crash of 2009 Martin Hutchinson Prudent Bear” doesn’t function.
From the prudentbear link:
“Next time, perhaps we can stick to the old rule that assets don’t get marked up in value until they are sold, but that clear impairment in value results in a markdown. “
Just to be clear, in my neck of the woods it was the regulators who forced the mark-to-market rule on the IBs. We had a time honored tradition of putting money under the pillow in case of bad times, by being conservative on parameters. The regulators forced us to have coherent “market-observed” parameters. Put money in reserves? Couldn’t do that either, without writing a two-page long memo justifying it (and how do you justify, “just in case”?).
There was a good story in the NYT:
November 12, 2008
A Deal Taxpayers May Live to Regret
So what, exactly, is a bank?
To the benefit of American Express, the Federal Reserve is using an increasingly liberal standard to decide which businesses can obtain banking licenses and gain access to government lending. Investment banks, thrifts and even GMAC, the troubled auto lender, have come knocking. In the latest twist, the Fed says that AmEx, the credit card and travel giant, can call itself a bank. American taxpayers may come to regret it.
The move looks good for American Express. True, it has to put up with more oversight from the Fed. But in return, it can tap the central bank’s pantheon of lending facilities, where AmEx can hand over securities backed by its credit card receivables as collateral for inexpensive loans. That’s important, since the market for such securities screeched to a halt in October, making it harder for credit card companies to finance their businesses.
The Fed also waived its usual 30-day waiting period to approve the application, which gives AmEx the option to apply for a capital injection from the Treasury’s $700 billion Troubled Asset Relief Program before the Friday deadline.
But for taxpayers, the Fed’s move looks risky. The central bank has already strayed outside its strict regulatory mandate with its $150 billion rescue of the American International Group, the insurer. Losses in A.I.G.’s huge finance business made the rescue seem necessary.
This past Sunday 60 minutes story is worthy of a LINKS entry!
Following The Trail Of Toxic E-Waste
Nov. 9, 2008
Link to the great bond market crash does not work.
In former, more normal times, it could be assumed that heads of state and/or government were pretty much figure-heads, that financial policy was run by finance ministers and central bankers without interference, and that finance ministers and central bankers were run in their turn by economists trained in schools and apprenticed to whatever. Thus in normal times the professors of the economists who ran the finance ministers were really in charge.
But this crisis seems to have blown this business as usual approach right out the window and the economic professors look like the best candidates for last to recognize this.
Politics with a big “P” is back, sooner that’s recognized the more sense will be brought to discussions about the Transition.
After all this is the biggest crisis in a century or so, and no one really expects the people whose ideas contributed to it to be the ones to solve it. Do they?
RE: ‘The Great Bond Market Crash Of 2009’
Many good observations by the author but he makes too many assumptions. The assumption that foreign central bankers will remain ‘a phlegmatic and tolerant lot’ in the face of rising discontent among foreign populations is foolish. Extreme pressure will be brought to bear on foreign governments if civic unrest begins. Foreign central banks will be forced to take appeasing actions, aimed at domestic unrest, even if they know they are taking actions that will cause further disruption in world financial markets.
In other words, the G 20 can jaw bone governments and CBs to ‘act in the best interests of the world economy’, but in periods of civil dislocation governments and CBs will act in their own interests. The primary ambition of all governments is to extend their stay in office.
Here is the correct link to the article:
Here is another link at Asia Times On Line if the above does not work for you:
Here is another take on bond market dislocation. It is more dire than the Prudent Bear op/ed by Hutchinson.
This is a reading of yield curve plus increasing cost of CDS (a subject recently brought to our attention by Yves…thank you) on government debt in tandem and what it might mean. Not for the faint of heart…
‘Uncle Sam’s Credit Line Running Out?’
…snip…’The steepening of the Treasury yield curve has been accompanied by an increase in the cost of insuring against default by the U.S. Treasury. It may come as a shock, but there are credit default swaps on the U.S. government and they have become more expensive — in tandem with an increase in the spread between two- and 10-year notes.
This link has been brought to light by Tim Backshall, the chief analyst of Credit Derivatives Research. The attraction of investors to the short end of the Treasury market is “juxtaposed with the massive oversupply and inflationary expectations of the longer end,” he writes.
Backshall is not alone in this dire assessment. Scott Minerd, the chief investment officer for fixed income at Guggenheim Partners, a Los
Angeles money manager, estimates that total Treasury borrowing for fiscal 2009 will total $1.5 trillion-$2 trillion. That was based on $700 billion for TARP, a $500 billion-$750 billion “cyclical deficit,” an additional $500 billion stimulus program and some uncertain amount for the Federal Deposit Insurance Corp.
Minerd doubts that private savings in the U.S. and foreign purchases of Treasury debt will be sufficient to meet those government cash. That leaves the Fed to take up the slack; that is, monetization of the debt.
However it comes about, Backshall’s charts of the yield curve and the spread on U.S. Treasury CDS paint a dramatic picture. Both the yield spread and the cost of insuring debt moved up sharply together starting in September.’…snip…
Wow, I have heard a lot of low opinions regarding lawyers but Buiter takes it to another level!
Buiter’s ire makes one wonder what sort of consequences he has experienced with lawyers in the past. His take on lawyers, although probably true for him, reads as comedy for those that have had the good fortune of avoiding the need for lawyers most of their lives. Buiter is a good economist but he might have also done well in stand up comedy. :)
I definitely wouldn’t want to get into a verbal row with Willem Buiter. I think his point about the size of the legal profession here is obvious and well taken. It’s not an opinion on lawyers, but the absurdity and inefficiency of having such a huge number of them.
Did anyone notice that latest trade stats from China show imports falling faster than exports? So much for that engine of growth…
‘Speaking at the company’s annual banking and financial services conference, Mr Thain said while he was cautiously optimistic about the future of the financial services industry, he lacked optimism about the near-term prospects of the US economy and global markets.
“Right now, the US economy is contracting very rapidly. We are looking at a period of global slowdown,” he told investors. “This is not like 1987 or 1998 or 2001. The contraction going on is bigger than that. We will in fact look back to the 1929 period to see the kind of slowdown we’re seeing now.”’
Wow. So basically, translated that is: “Yeah, you know this implosion we (investment banks) caused with our incestuous derivatives? Well I’ve got good news and bad news… The good news is we (investment banks) are going to be fine (thanks to the politicians giving us your money). The bad news is you (everyone else) are hosed. Sorry. Suckers.
Both political parties stand for status quo. Political advertising uses the word CHANGE like Exxon uses clean energy-its only a word.
I am not saying Obama is a fake rather he and his adminstration will operate within the scope of what they know and feel confortable with which is 98% within the box thinking. As Buiter has pointed out so well nobody on the team Obama stands for new ideas or change all of them are ingrained into both the political and economic system that has provided well for each one of them, clearly they don’t want any challenge to their own family wealth.
The youth of American that elected Obama is going to get a good lesson in American political theater as the Democratic Congress lumbers about the political landscape talking change and ruling from the middle.
I don’t think there is a reasonable defense for helping Amex and not GM. None whatsoever.
Well put by lineup32
Meanwhile, let’s expand on Buiter’s point that there are too many lawyers. So many, that lawyers have destroyed the rule of law.
Also: Way too many economists wedded to rational man and other orthodox economic theory. Result: they’ve destroyed the economy.
Too many journalists who compete for attention through celebrity and ‘narrative’ instead of reporting, accuracy and skepticism. Result: They’ve destroyed journalism.
Way too many politicians far more interested in power than governance. Result: They have destroyed politics and government.
Way too many investment bankers and related flora and fauna. Result: They have destroyed the financial sector.
Too many medical administrators as well as specialized medical practitioners. Result: They’ve destroyed medicine.
… and so on and so on
Oh great another poodle mix and more examples of LHC “performance” and examples of why we need to do more research and spend more money on stupid stuff that is “really” important… I just wish, I just pray that The LHC would be used to make Paulson and Bernanke vanish ….. but noooo, it’s broken …. and all we have to show is this mutated poodle. Disgusting!
The advantage the QE2 will have over other hotels is that it can be shipped (literally) back where it came from when–not if–the Dubai market crashes.
On Buiter, he is premature in calling the Obama transition team “no change, no hope”, but the criticism of the legal profession in the U.S. is long, long overdue.
anon 2:24 has solid comments, which I would summarize simply as: too many queen bees and not enough worker bees.
Re: On Buiter, he is premature in calling the Obama transition team “no change, no hope
I need to read that, but sounds dead on the money! I’m currently very pissed at Obama and the hoax of change …. Xerox, gimmie a break dude!
Great, now I have to chase Buiter…