Links 12/1/08

Beached whales die in Australia BBC

Research on mice links fast food to Alzheimer’s Reuters

The Return of the Skyscraper Index Dollar Daze

Retiree Havens Turn Younger to Combat Bust Wall Street Journal

PwC survey says consumers stay home as they repay debt Times Online

Quantitative easing: printing money like mad to ward off deflation Ed Harrison. Harrison takes a bit of an Austrian turn in his definition of inflation.

How to Squeeze the Most Out of a Stimulus Plan Louis Uchitelle, New York Times

World stability hangs by a thread as economies continue to unravel Ambrose Evans-Pritchard Telegraph

My “non-testimony” on the regulation of swaps and derivatives Richard Bookstaber. Do read this if you have any interest in derivatives.

German complacency poses a serious threat Wolfgang Munchau, Financial Times. A good piece, but a nitpick. Economists Tom Ferguson’s and Peter Temin”s excruciatingly well documented paper on the 1931 currency crisis debunk Munchau’s charge against Weimar last chancelllor Heinrich Brüning , Munchau is wrong in his charge that Heinrich Brüning efforts to balance the budget were hopelessly misguided. The facts are far more complicated. It was bad political decisions that deep-sixed the German republic.

Germany was about to lose access to international capital. Brunig’s efforts to balance the budget brought a change in international perception. German bonds traded up, Germany was increasingly seen as a responsible borrower, there was even talk among analysts that outstanding issues would trade at par within a year, a radical turnabout.

So what screwed it up? The French were, after the US, the biggest international bond buyers. Germany moved forward with a plan to build a couple of pocket battleships (rearmament) and worse, entered into a customs union with Austria (this was done back door, effectively foisted on Brunig). This was a violation of the spirit, and pretty close to the letter, of the 1918 armistice. France refused to buy German bonds. Chaos resulted internally as the government, which was providing extensive social support, could no longer fund itself. Exit Weimar.

Doris Dungey, Prescient Finance Blogger, Dies at 47 New York Times. I am deeply saddened to learn that Tanta passed on. She was kind enough to respond to my direct queries sometimes, and I was struck by how generous she was in giving me detailed and thoughtful replies. I very much enjoyed her work at CR. I will miss her wry, penetrating style and her unwavering commitment to accuracy, which is all too rare these days. Please also read CR’s heartfelt post: Sad News: Tanta Passes Away.

Antidote du jour:

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  1. doc holiday

    A clear case of tit for tat:

    The first exotic animal known to have been exhibited in America was a lion, in Boston in 1716, followed five years later in the same city by a camel. A sailor arrived in Philadelphia in August 1717 with another lion, which he exhibited in the city and surrounding towns for eight years.

    While lions do not usually hunt people, some (usually males) seem to seek out human prey; well-publicized cases include the Tsavo maneaters, where 28 railway workers building the Kenya-Uganda Railway were taken by lions over nine months during the construction of a bridge over the Tsavo River in Kenya in 1898,

  2. Anonymous

    This lion/snow photo hurt my brain. It would be intersting to know where this travesty is occurring.

  3. Anonymous

    The idea that older people are “cheaper” on local government is the gist of one of the arguments in the retiree piece. I think there should be more work done on just exactly the aging population is going to cost.

    They are the biggest users of a large portion of local services in most places. Half of the medicare costs are paid by states which collect that through property and income taxes. Older people tend to have less of both. Yet they are by far the biggest cost to medicare.

    The way in which the issues are being framed in this article brings my thoughts back the article posted here and on financial sense, blaming the boomers for most of the current problems.

    The idea of cost has to be clarified. Most people don’t even know who is paying for what anymore. They way in which this can be used to completely obfuscate issues is becoming high art.

    GM paying $78 dollars an hour comes to mind. They are also paying for their heath care. There has to be a huge cost with taking that from them if they do go bankrupt.

    There was an article in the Economist a while ago that looked at job growth in the US over the past few years. All of it was in Healthcare and Construction. What were we really building? A giant retirement community. Don’t worry, they might let us in….

  4. spare some change?

    Anon @ 3:55

    Old people were cheaper in 1950. They aren’t now.

    Key concepts in identifying an Entitlement Bubble:

    1. Is the Entitled Class considered politically untouchable?

    2. Are the costs associated with servicing the Entitled Class universally understood to be skyrocketing, and is the answer universally understood to be more spending?

    3. Are those who hope to profit from the Entitlement Bubble using their media mouthpieces to propagandize entirely new classes of entitlements for the Entitled Class?

    I leave it to you to apply these simple observations to various classes of individuals and government spending programs here in the US.

    Bubbles always pop.

  5. fresno dan

    Sad news – most readers of Naked Capitalism are probably aware of Calculated Risk blog. Tanta died last night. I find that heartbreaking, though I only knew her through words carried by electrons.

  6. Kevin Smith

    A few years ago there was concern about a pandemic of H5N1 flu. We did get a pandemic, just not the one we expected.

    I am wondering if an infectious pandemic which selectively killed off the old and the infirm might be a partial solution to this financial pandemic, by improving the dependency ratios in many modern societies.

    Imagine the effects on society of a virus which had a kill rate inversely proportional to a person’s Karnofsky score (

    On the other hand, if something like H5N1 (which preferentially kills off young working age adults – roughly proportional to their Karnofsky score) struck us now, the exacerbation of our dependency ratios at a time of widespread economic stress might push our societies to a tipping point.

  7. Richard Smith

    Same here, Fresno Dan.

    I suppose one should be glad that a really first rate talent suddenly got a bit of a break, but it didn’t last long at all.

  8. River

    Tanto will be missed very much. I did not know her personally but felt that I could trust her analysis and always sought out her comments on the mortgage bubble. Although she was not a personal friend when I read the news of her passing I was struck by my own deeply saddened state. My condolences to friends and family. RIP Tanto.

  9. River

    Off Topic: Baltic Dry Index Drops For Sixth Month…

    'LONDON—The Baltic Dry index, a measure of shipping costs for commodities, retreated for a sixth-consecutive month in November as slowing economic growth cut demand for commodities including iron ore and coal to make steel.

    The index tracking transport costs on international trade routes fell 18 points, or 2.5 percent, to 715 points, according to the Baltic Exchange. The measure has fallen 94 percent from a record on May 20 and is at its lowest since January 6, 1987.

    “The main culprit is the perception of real economic slowdown, especially for China,” SIAS Research Pte Ltd. in Singapore said in a report. There’s “no quick recovery” and shippers of commodities such as iron ore and coal face an “onslaught of pessimism,” it said.'…snip…

  10. Been there

    I was saddened to hear of Tanta’s passing. My brief encounter with her writings impressed upon me that she was extremely gifted and had a desire to share her thougts, so that others might learn(I know I did). It’s clear that her legacy will live on in all of those upon which she’s has such a positive influence. The world can’t afford to lose people like this.

  11. doc holiday

    I started blogging about a little over a year ago at nakedcapitalism & calculatedrisk — seems like a lifetime now.

    Before that, I had spent years running around The Yahoo financial message boards, screaming and yelling about accounting-related issues from SEC records and hoping to warm people to do more DD before they got into something that more than likely would turn out bad. Although I'm not an accountant, I enjoyed learning more and more and searching deeper for more connections to situations that looked like fraud from corporations, or at least false and misleading information. I'm not sure what my motivation was or is, but I guess I simply want honesty and hate to see people get screwed by accounting puzzles that are twisted into derivative lies and synthetic bait and switching.

    At some point last summer I was worried about things I had uncovered about The Pension Protection Act, e.g, the ability of pensions to use hedge funds and derivatives and to increase risk to new levels never before seen — I was shocked by the amount of risk exposure being toyed with in the safest of money market funds — so that worried me, and I decided to try to pick up the pace and find places other than Yahoo — because Yahoo had devolved to a point of chaos and the message boards were ineffective.

    It was at that time I found several high traffic economic blogs and thus, started posting my stuff, which at that time, looked very close to spam.

    My intention was to send out an SOS, and at times, I received warnings from Tanta and Yves to cool it. I tried to change my style and changed my name thousands of times and tried to sit back and learn more and to try to fit into the blogging community and try to become a better blogging citizen. At this point, I'm burned out from trying!

    Nonetheless, Yves and Tanta represent the very best of blogging, so it is very sad to see Tanta pass on — but there is obviously much work to still do, to bring about greater honesty into our chaotic world. In the last year it has been a pleasure to see the increase in traffic to this blogger world, and the flood of people that want more than what the mainstream press spins out and distorts. I hope people do realize that Yves works very hard to provide help to a bunch of strangers who are simply trying to make sense out of this puzzle in our lives — so, if I haven't said it loud enough, thank you for your time Yves, I appreciate it!

    I have my ups and downs with blogging, but I still enjoy reading stories and comments and many posters here seem like good people, and thus when we all lose a friend like Tanta, it really does hit home.

    I'll miss her work!

  12. SPECTRE of Deflation

    I echo your thoughts regarding Tanta. She will be missed not because of her writing, but because of the character she exibited in everything she did. It’s a commodity that this world surely has a demand for, and she was one of the good guys. God’s speed Tanta!

  13. Chris

    On Richard Buchstaber’s testimony.

    Thank you for posting it. I thought the view from the level of contracts useful and a counterpoint in a way to the totals the BIS puts out.

    I wonder though, in the old days a very long time ago, interest rate structures around the world used to provide useful signposts to where money was going and where it was coming from.

    It would be useful to know for example how much of the new money Paulson and Bernanke are deploying (if any)is going into purchases of default swaps and how much into what used to be called “banking”.

    This line of thinking was prompted by the news about potential defaults from Ecuador and Venezuela indicating perhaps another the expected next round of turbulence arising from the countries who got shafted by the reversal in the dollar.

    The September BIS report was the occasion for a number of articles about how Europe’s financial vulnerability to emerging markets was five times greater than that of US banks.

    There are reports that Deutschebank, and other European banks, are among the biggest buyers of default swaps. If Europe has lent into the emerging markets, rather than done direct equity investment per se, and has hedged that investment through wherever one does that (London?), one wonders where the potentials for further losses are concentrating.

    Was this kind of situation behind Paul Kedrosky’s earlier headline about “US bails out European banks”? Did that mean that Paulson and Bernanke had honored default swaps purchased by Europeans on that occasion. Then we would have a financial MAD type situation to parallel the strategic military one with the Russians.

    Rembrandt did two versions of the Samson story, one when the Philistines put his eyes out, the other when he pulled down Dagon’s temple.

    What would it take to wind “this” all down without collapsing everything on top of ourselves? Perhaps there would be a case for extending the US agricultural model to hard commodities, grains, metals, fuels internationally. If it were possible to identify who’s buying what it would be possible to think about netting out exposures in an orderly way, while perhaps dealing with “naked swappers” on their own. But there would need to be some serious discussion about who needs what from who and how performance can be guaranteed.

    On side bets. I’ve been troubled about the application of constitutional protection for contracts in this situation. Are contracts made with bookies constitutionally protected? How about mafia hit contracts, are they? What about prostitution services, numbers rackets? Where does the line get drawn between “having a flutter” and un-moored excess. Risk could surely be taken care of the way older folk remember, through well managed economic activity aimed at improving peoples’ all round well-being, and not self-enrichment through financial swindles and get rich quick schemes.

    There are less bank shareholders out there

  14. Anonymous

    That is truly shocking and sad news about Tanta. One of the best and also most entertaining writers in her field.

    Regarding Germany and its 1931 debt crisis, an interesting more or less contemporary note from 1932 is found within A Bubble That Broke the World (PDF file, long, complete book text). The gist of it seems to be that further loans to Germany would have simply postponed the inevitable (see in particular the chapter “The Rescue of Germany”), although knowing in hindsight just what the “inevitable” brought about in its aftermath, stalling for time would have been a damned good idea. Nor should we be complacent about possible truly ugly political or even military consequences of our own modern-day tribulations, a few years from now.

  15. Lune

    Anon 3:55-
    You’re getting Medicare and Medicaid confused. Medicare (program for the elderly) is paid entirely by the federal government. Medicaid (program for the poor) is split between the federal govt and the state (the split ratio varies state-to-state based on a complex formula).

    You’re partially right though, because the largest component of Medicaid expenditure is long-term care for the elderly, not acute care for the poor.

    Spare some change-
    You need to be more precise in exactly which entitlement you’re criticizing. Every economist agrees that medicare is headed for disaster (I’d argue it’s there already), but social security is most definitely not. Republicans like to conflate the two so that they can destroy both, but in truth, Social Security, with some tinkering (such as raising retirement age slightly, or increasing the cap on income subject to payroll taxes), will be sound for decades, far longer than most current govt programs.

    As for Medicare, the problem isn’t that it’s an entitlement, or that it covers the elderly. It’s a part of our overall disaster called health care. Health care costs are rising unsustainably across *all* ages, and all spectrum of incomes (rich or poor). Comprehensive health care reform that focuses on reducing costs and increasing efficiency across the board will go a very long way to making Medicare sustainable again, not to mention the rest of our economy.

    In other words, it’s not entitlements or the elderly that are Medicare’s problem. It’s the current health care field.

  16. Penn

    I’d like to butt in and point out a few facts about Weimar Germany.

    For one, it’s funny that Hitler blamed the economic downfall on a conspiracy of Jews, when it was really a conspiracy of American bankers.

    Hyperinflation in 1924 led to the Dawes plan, named after an American diplomat-cum-banker. The hyperinflated mark was replaced by a new currency backed by Germany’s stable real estate assets. Cheap credit flowed to Weimar from New York banks.

    The loans propped up the German economy till 1929, when they were called in.

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