Links 3/26/09

Darwin’s ‘gentleman’ student days BBC

Hey Paul Krugman (A song, A plea) You Tube (hat tip reader Scott)

US retail investors flee to savings Financial Times

Surge in short selling clouds rally prospects Financial Times

China raises jobless migrant count to 23 million CNBC (hat tip reader Michael)

Will the Geithner Plan Produce True Market Prices? Felix Salmon

Toxic Assets Were Hidden Assets Hernando De Soto, Wall Street Journal (hat tip reader Don)

The Real AIG Scandal, Continued! Eliot Spitzer, Slate

Geithner Wants New Rules to Check Risks and AIG Fights a Fire at Its Paris Unit, Wall Street Journal. Read these two in sequence. Have you heard Geithner say word one about imposing restrictions on them? The AIG terms may have been non-standard, but a regulatory takeover would trigger a default on CDS written on a firm, and apparently also on CDS written BY a firm. So either he hasn’t done his homework or, as we said before, the receivership proposal is a sham. Take your pick.

Antidote du jour. From the Washington Post (additional text and photos, hat tip reader Jeff):

…despite murderous tendencies in the captive species, two newborn clouded leopard cubs were found alive, well and squealing at the National Zoo’s Conservation and Research Center in Front Royal, Va.

They were taken immediately from their gorgeous mother before she could do them harm, or do them in, placed in an incubator set at 88 degrees and fed salt water from baby bottles. Born with dappled, reptile-pattern fur, they were the first such births at the zoo in 16 years.

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  1. Richard Kline

    Yves: “So either he hasn’t done his homework or, as we said before, the receivership proposal is a sham. Take your pick.”


    This is all fiction we’re following, right? Like the script for a sitcom pilot that bombs but you can’t forget. I think it’s called, called . . . ‘The Human Comedy.’

  2. jbmoore

    Not sure why they’d be feeding clouded leopard cubs salt water. Shouldn’t they be feeding them some sort of feline milk substitute full of fats and essential nutrients? Those cats are probably worth more than their weight in gold or any precious metal as rare and unique as that species is.

  3. a

    From a WSJ article today:

    “The bonuses were approved in early 2008 by the board of AIG’s financial-products unit, which included Harvard economist Martin Feldstein.” So old Marty was a board member overseeing the unit which lost all those billions of dollars. Way to go Marty!

  4. eh

    Great story about the leopards. But unless and until enough of their habitat is protected, it’s all for naught.

  5. tyaresun

    It is hard to believe the second AIG article. One of the things I would like to know is why are there no public interest lawsuits yet? I used to see them in India. Is there no room for such things in USA?

  6. Anonymous

    Foundations of Finance 101

    From the above link: “Toxic Assets Were Hidden Assets” Hernando De Soto, Wall Street Journal

    Excellent article -a must read in plain English for anyone who wishes to understand the cause of this financial crisis and why responsible parties must be brought to justice now.

    Those responsible are sitting on both sides of the desk at the Congressional hearings in a made for TV circus.

    While the public is thrown a little red meat to focus on one sensational fraud by an outsider like Madoff followed by a focus on the bonuses of a few AIG underlings {they have mortgages too, even if the numbers are above average}, the people remain confused about what Wall Street has already done to subvert the rule of law over their dealings that make them feel powerless over the power grab in progress right now before our very eyes on the TV.

    If the Obama administration is not vigorously investigating those in charge of fraud among the ‘too big to fail’ and ‘on the dole’ and preparing to receive another gratuitous windfall of taxpayer money but is participating in the Treasury power grab going on before our very eyes on the TV this Republic is gone.


  7. Anonymous

    Richard Kline: I hear you.

    Yves: Good link to ‘Geitherner Wants New Rules’.

    Please correct me if I am wrong but I do not see systemic risk here. Systemic risk in the true sense of the word. Sure, the system is at risk, as it has been for 18 months now, but it is not systemic risk that is the cause.

    “Because we have learned from the current crisis that *destabilizing dangers can come from financial institutions besides banks*..” [ its now 2009 and they finally realise this – after 10 years in the brewing.]
    “.. our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage,” Mr. Geithner told the Council on Foreign Relations on Wednesday, the same day the Treasury laid out how such a process might work.”

    Do they need a crisis to wake them up to what should have been reviewed and monitored in the interim? Does it take a car accident to wake up the driver: “Because we have *learned from the current crisis* that destabilizing dangers can come from financial institutions besides banks, our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage,”

    Yes, this is a new Government but the realisation of the root cause has not sunk in. Its more bandaging to fix up the current problem without looking to the future.

    This is truly maddening.

    Yes, banks need more capital. Q: How much? A: Sufficient to cover the [correctly captured] risks? Only someone with their head around the industry and awareness and *understanding* of the products peddled can determine this. Do we have such a system?

    Back to the first issue: Am I wrong or is this not systemic risk? If the auto industry is about to collapse due to inefficient manufacturing, is that systmeic risk? Systemic risk is an immediate viable alternative to petrol, say??

    Thoughts appreciated.

  8. Anonymous

    RE: The Real AIG Scandal

    The question in the article asked is:

    “The only rationale for what we should call the “hidden conduit bailout” to AIG’s trading partners is that the cascading effect of AIG’s inability to pay would have been devastating. But Goldman has now said very clearly there would have been no cascade. Not even a ripple.

    Is the same true of AIG’s other counterparties, including several foreign banks? What examination of the impact of an AIG failure did federal officials undertake before deciding to spend countless billions bailing out AIG and its trading partners?”

    Isn’t the answer the European Banks who used AIG via CDS as second tier capital ie to minimise their capital requirements and that if AIG went under, they would cascade too? This was back in September when the world was truly on the brink.

    So Goldman made the right call. They are Goldman and make some wrong calls too, but on a portflio effect, they make more right calls more often. Nothing surprising in this. Thats why Goldman and not Citi or BA etc etc etc made the right call. Most of the banking industry just follows the others. Not much independent thinking.

    I do agree however, that it is wrong that Goldman ended up being a $13bn beneficiary. Now this is another matter and not to be confused with them making, prima facie, the right call.

  9. MyLessThanPrimeBeef

    Cloud leopards are beautiful.

    Snow leopards are also very beautiful…maybe more. I hope they are not in captivity, though both anaimals are in a tough spot – their homeland is being bombed daily by the Americans, Nato, Taliban, Al Quaeda, the Pakistan army and the Indian army.

  10. Anonymous

    From the WSJ’s AIG Fights a Fire at Its Paris Unit: “The private contracts say that a regulator’s appointment of a manager constitutes a change in control, according to a person familiar with the matter; the provision is often included in derivative contracts where parties want to preserve a way out if something about their counterparties changes.” I assume this is why several of the top figures at AIG (whom Liddy was advised to fire by their controller) are still in place. What I do not understand, though, is why the replacement of AIG’s CEO (in Sept ’08?) did not trigger any defaults? Surely replacing the CEO is a “change in control”?

  11. Evelyn Sinclair

    My suggestion: Bring on Bernie!

    We have been told for months that big bonuses are needed to retain the “talented” people who created the very complex derivatives that turned into a black hole once Lehman blew up. These people are the only ones, we are told, who understand how to “unwind” (and keep making) these complicated Structured Investment Vehicles.

    This goes right to the top, of course, with the control of all these trillions of dollars in backdoor, front-door and sideways bailouts/guarantees gifts/loans – whatever – completely in the control of a coterie of Goldman Sachs’ finest. They use their savvy and keen insight into the depths of financial matters to shovel money into AIG so it passes through to Goldman Sachs!

    Not just any garden variety financiers could think of so many good tricks for getting money (and leverage and other force-multipliers) into the pockets that matter.

    So what I would like to suggest is that they quit fooling around and put Bernie Madoff in charge of the whole shebang. Turn the FED-Treasury over to Bernie. He knows what to do.

    The stated goal of this whole exercise is equivalent to keeping a Ponzi scheme running through another round, delaying the collapse by taking in one more gluttonous feeding. They say want to reinflate the price of houses! Paulson actually said in a videotapes speech that he would “Stop this correction” in house prices. The only real way to make houses “worth” their bubble-madness prices is to make the dollar worth correspondingly less. We are working on that (quantitative easing) but in the meantime, the fiction that the banks “assets” are not based on fictitious prices can only be kept via secrecy.

    There is great motivation for the banks to pretend they’re solvent. They get free money, like social security checks that keep coming as long as Grannie stays “alive.” They won’t get any more free money if they declare themselves dead.

    So bring on the free money, YAY! – and then oops, we’re very sorry but the re-inflation is unsustainable; the bankers crack-cocaine binge is over, and the taxpayers have the biggest hangover in financial history to show for it. Right? I mean, that’s how these things end; the bigger we blow up the bubble the bigger the blast when it pops. So clearly, the way to deal with this inevitable crash is to delay it as long as possible.

    Bernie proved that he could keep a multi-billion dollar Ponzi scheme going for YEARS. He’s financially sophisticated, with a track record that speaks for itself.

    Bernie! He’s our guy.

    (Thanks for that link to the fdic — I’ll go let them know!)

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