Links 2/12/09

‘Arctic unicorns’ in icy display BBC. I enjoyed this little video (hat tip reader Stephen V).

Ballmer likens economy to depressions of 1837, 1873, and 1929 CNet (hat tip reader Peter)

China on the brink Patrick Chovanec, Asia Times

Nearly 700 at Merrill in Million-Dollar Club New York Times

Damning verdict for ‘fragile’ WTI Financial Times

Global demand for oil faces biggest contraction since 1982 Independent

Today’s Congressional Hearing on the Banks – The ‘Joe Pesci’ Moment Jesse’s Café Américain

Fed Faces Constraints in Market-Revival Role Wall Street Journal. Jim Hamilton discussed this problem back in December and suggested an alternative approach.

Linda Thomsen, Fool or Knave? Independent Accountant

Sweden May Not Be a Model Leif Pagrotsky EuroIntelligence. A must read.

Antidote du jour:

Print Friendly, PDF & Email


  1. Swedish Lex


    I am writing further to Mr. Pagrotsky’s Eurointelligence contribution. Having experienced the Swedish bailout from the inside myself, I would like to make the following comment.

    I endorse most of Pagrotsky’s conclusions but would like to expand on the following comment of his:

    “In contrast to today’s situation, the assets were not bonds, but usually entire companies. But like today’s toxic assets, there was no market and a rapid disinvestment would have triggered dramatically low prices that would have sent values of all assets in the economy tumbling, with more bank failures as a result.”

    Pagrotsky’s experience is that on an elected official, thus far away from the micro experience of putting a value on the individual assets that ultimately constitute a company’s balance sheet. True, we did not have to put values on über-sophisticated financial instruments but, we did have to put values on a very broad variety of assets (half-finished ghost golf courses in Spain, Picassos, polluted industrial sites in Eastern Germany, etc.) during a period when prices were in freefall. In addition, the troubled clients of the Swedish banks were often cross-owned or otherwise interconnected in a myriad ways that increased the difficulty in determining the appropriate market value of various holdings.

    Had the state at that point intervened with a proposal to buy trouble assets with taxpayers’ money (at least you can put a Picasso in a museum as opposed to a CDS) at a fictional value in order to establish a new, artificial, floor, it would have created confusion and would, in my view, have derailed the deleveraging process that was inevitable.

    It took some 12+ months for the state to grasp that the deleverging process had systemic consequence and that extraordinary measures were required. During those months, we worked relentlessly to stem the crisis through in- and out of court settlements (some of which actually held through the crisis). We however soon (before the banks and the Government) realised that the dominos would not stop falling and that state intervention would be required.

    The Government that took action was center-right (unlike Mr. Pagrotsky) and had been elected on a political platform of privatisation and tax cuts. The policy-makers were thus ideologically opposed to the idea of state owned enterprises and state control of the economy. In parallel with nationalising part of the financial sector, the Government proceeded with privatisation of other sectors of the economy and opened other areas to competition. I believe that it is important to make this point as some (including President Obama, perhaps) appear to regard Swedes as socialists by default.

    In the end, it was the massive, decisive and brutal intervention by the State, as described by Mr. Pagrotsky, that managed to reverse the situation, although it took several years and although Swedes were not certain of the outcome until afterwards.

  2. "DoctoRx"

    Thank you, Swedish Lex. Helpful to hear your comments, as I had signed in to comment on thePagrotsky article as very helpful- indeed a must read as Yves suggests.

    Quote of the day from the House-CEO get-together:
    Pandit saying “send us the bill” after cleaning Citi’s dirty laundry.

    Also loved the chewing out a NY Rep gave the CEOs for financing such mega-deals as Pfizer buying Wyeth in order to revage its cost structure.

  3. Richard Kline

    That incisive brief by Pagrotsky is indeed esential reading. (Plus thanks Swedish Lex for the elaboration.) I would like to think Bo Prez had the three minutes before bedtime it would take to quaff that straight shot of hard wisdom, neat. Would he have any guts to put it in, though?

  4. Richard Kline

    I wanna iguana. When there’s nothing left in the world but gingko trees, cockroaches, and iguanas, we’ll know that entropy has achieved maximal dispersion. . . . And we’ll name the Iguana king Wardo—’cause that’s what word verification has decided.

  5. Anonymous

    But Sweden always has the best models.

    If it takes massive, decisive and
    brutal intervention by the state
    then so be it. Problem is – which
    state? The current cast of cops
    is too entangled, complicit, and
    corrupt. Shadow banking? How
    about a shadow government. Somehow
    representative of we the bagholders.

  6. Anonymous

    Thanks for the ATimes China link. As usual ATimes plays the role of the little boy viewing the naked Emperor.
    This is for me the operative paragraph:
    “Even worse, analysts are underestimating the degree to which domestic Chinese demand is driven by all the remittances sent by migrant workers to their extended families in the interior – income that will now disappear as job losses mount. Contrary to popular belief, domestic demand is in the process of being undercut, not strengthened. All the cheap loans in the world won’t replace lost customers, at home and abroad.”
    We can accept that Latino migrants
    are often sent North to work and send money home to support their families. And now there are articles detailing the effects of the Recession on these Southern families.
    But somehow this is not generalized to internal migrations in China. But this was the heart of the China economic miracle.
    Deng made a pact with his country. That the standard of living could not be raised all over at once, but needed to start from seeded areas.Over times these would be enlarged and wealth spread.
    Wages could be forced to rise by strictly controlling internal migration and residency permits.IIRC the work force was designed to be single, who would send most of their wages home.
    Thus was Deng’s promise kept.
    In essence it was a Ponzi scheme,fuelled by external capital. Some of the money was kept back for infrastructure development. This in time would generate internal capital and allow for a decrease in external capital.
    But like Madoff and the California housing market, the Deng Ponzi scheme needed unlimited growth.
    But now with the world-wide depression, Ponzi schemes are going bust.
    California home owners are raging and Medoff losers are ranting.
    But in China they are rioting.
    (Long ago in the 1960’s, looking at American Blacks, Pettigrew et al theorized that when expectations rose more quickly then reality anger would rise and rioting occur.
    Some cynics believe that the Johnson Civil Rights Acts were designed to buy off this anger by manipulating the time line of these expectations from the present to some indefinite future. Skinner showed that partial reinforcement delivered on a random time basis could extend “expectancy” along an extremely long time line)
    Deng’s scheme achieved similar results.He was able to keep the expectancy of Inland Chinese in check. The remittances of those lucky families with migrants, like a lottery, provided a Skinnerian partial reinforcement situation.

    But psychology also has learned that for this effect to maintain, the “stimulus situation” needs remain pretty constant.
    I suggest that the current economic situation destroys the basis of this expectation being extended into an indefinite future.
    Its as if the Lottery once didn’t pay off. Who would continue to buy tickets?

    We may be sure that via “guanxi” migration employment and remittance was given disproportionately the the local party elite. The same ones who sold the Deng message. So guess who becomes the target of denied expectations?

    That is why China is pouring money into the back country.
    But think with a rural population of 750millions, how far does 2million million dollars of surplus stimulus go?

  7. Don

    “My view is that this solution was only possible because the Government was already in possession of all the assets. The hopelessly difficult issue of pricing the assets thus became unimportant. With a private owner, I don’t believe taxpayer’s money could have been used without very big subsidies that would have been totally unacceptable. Either the assets would have been transferred far above what they could have fetched on the market with taxpayers subsidizing the previous, failed owners, or the private bank would not have been helped at all. A Government sponsored bad bank for private assets is thus, I believe, a very bad idea. “

    I agreed with everything that Pagrotsky said.Since he’s Swedish and a Social Democrat, I’m not sure that using him will advance our cause. On the contrary, although I agree with him, I’m going to be very careful not to mention him when I post. I have learned a few useful lessons in the last five months.

    Don the libertarian Democrat

  8. Swedish Lex

    Instead of Pagrotsky, quote Bo Lundgren who has the Minister in charge at the time. The last interview I saw with him was in the NY Times.

  9. Anonymous

    U.S. Treasury Provides Interim Guidance on Executive Compensation Provisions in Emergency Economic Stabilization Act

    Worth looking at some details, as more bonus stories keep surfacing!

    In addition, a TAAP Participating Institution (whether publicly traded or privately held) may not deduct executive compensation in excess of $500,000 or golden parachute payments to SEOs, and any golden parachute payments will result in a 20 percent excise tax to the SEO (Section 302 of EESA). Notice 2008-94 provides guidance regarding these restrictions under Section 162(m)(5) and Section 280G(e) of the Internal Revenue Code, including how to determine the following:

    The duties of compensation committees with respect to incentive compensation, such as identifying “unnecessary and excessive risks,” reviewing compensation arrangements with the institution’s senior risk officer(s) and certifying their review of SEC incentive compensation arrangements
    How the recovery of bonus and incentive compensation under the CPP is broader than the clawback provision under the Sarbanes-Oxley Act (e.g., it includes all SEOs, applies to public and private companies, does not require an accounting restatement and does not contain a time-limit on clawbacks)
    What constitutes an “involuntary termination” that is subject to the golden parachute prohibitions

  10. Doug

    Richard Kline said…
    “That incisive brief by Pagrotsky is indeed esential reading. (Plus thanks Swedish Lex for the elaboration.) I would like to think Bo Prez had the three minutes before bedtime it would take to quaff that straight shot of hard wisdom, neat. Would he have any guts to put it in, though?”

    I think Obama may be looking a lot more closely at this stuff lately. That ABC interview in which he discussed the Swedish versus Japanese approaches gives me some hope, even if he is currently going with the wrong approach. At least he is aware that this is the major decision that he is going to have to make. See:

    Prediction: Obama may be giving Geithner one last chance with his incremental TARP/MLEC, and if things continue to get worse (which they will), sometime later this year it will be goodbye Geithner, hello Sweden.

  11. ruetheday

    Looks like they’re playing the trial balloon game again, this time with the foreclosure prevention proposals.

    Leak out that there will be a “subsidy” for struggling homeowners rather than an attempt to drive mortgage rates to 4% and snap the equity markets from their funk. Then, after hours, back off that and start talking about driving mortgage rates down again. It’s becoming a joke.

  12. Anonymous

    Securities and Exchange Commission Chairman Mary Schapiro has offered an apology of sorts for the testimony of SEC officials before a House subcommittee hearing yesterday that was looking at the SEC's role in the alleged Bernard Madoff fraud.…5/REG/ 902059960

    At one point during the hearing, SEC acting general counsel Andy Vollmer cited executive privilege and other privileges in declining to answer some questions.

    That claim caused a sharp rebuke from committee members.

    Executive privilege “was not claimed … by anybody” at the hearing, said SEC spokesman John Heine today.

    Ms. Schapiro promised to work with the subcommittee to provide information without compromising investigations.

    > So, where The Fuck are we on this? That was contempt of Congress and it doesn't just get swept under the table, or is The Obama group above the law?

    Whoever corruptly, or by threats or force, or by any threatening letter or communication influences, obstructs, or impedes or endeavors to influence, obstruct, or impede the due and proper administration of the law under which any pending proceeding is being had before any department or agency of the United States, or the due and proper exercise of the power of inquiry under which any inquiry or investigation is being had by either House, or any committee of either House or any joint committee of the Congress—
    Shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both.

Comments are closed.