Why size matters Steve Waldman
Goldman allowed executives to exit funds Financial Times
AIG Bonuses as Fraudulent Transfers Adam Levitin Credit Slips
Bank Executives May Keep TARP Funds After Meeting With Obama Bloomberg
Money creation and the Fed Jim Hamilton, Econbrowser
Bank of America Accused in Ponzi Lawsuit New York Times
George Soros: Britain may have to seek IMF rescue Times Online
Why do more open economies have bigger governments? Paolo Epifani and Gino Gancia VoxEU
Antidote du jour:
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Relevant Cartoons
South Park – Margaritaville Season 13 Episode 3 – REAL HD {Part 1}
http://www.youtube.com/watch?v=Qpap2NuMh38
South Park – Margaritaville Season 13 Episode 3 – REAL HD {Part 2}
http://www.youtube.com/watch?v=3XQI23c8u98
Yves,
I think that you will enjoy this link. It’s by the ex-president of the IMF, and clarifies things in a great and accessible way.
http://www.theatlantic.com/doc/200905/imf-advice
More circle jerking from the Wall Street-DeeCee axis of weasels: Michael Isikoff of Newsweek writes that TARP funds are being recycled as campaign donations via pacs. See it here – Newsweek Mar 27 Isikoff
Bank executives may keep TARP funds… Haha, the level of ham-fisted double speak tickles my funny bone.
I assume that’s the core from a roll of toilet paper that is about to strangle the poor, little critter. Perhaps people will now see why we need to ban the use of toilet paper, which, incidentally was invented by the Chinese and called ‘grass paper’ by them (here, I assume and I could be wrong, for the not-so-smooth nor charmin’ texture of the paper), though it is not usually enumerated in the list of inventions from the Middle Kingdom. It probably sounds better to say you invented paper than to say you invented toilet paper. Still, apparently, one Arab trader during the Southern Song dynasty was bothered enough by it to note that in his dairy, about how un-clean (Muslims were and are still particular about cleanliness) it was to use toilet paper, instead of just splashing some water over the offending orifice as they, and as far as I know, Romans were accustomed to do. And it is perhaps time we look into reviving that tradition, instead of cutting down ancient forests to make more rolls of pontentially very animal-threatening toilet paper.
This is an old and stale hedgehog photo, but nonetheless very cute, so, WTF, maybe the stars look different today and maybe the Treasury rates are not crashing again…
In other stuff, I’m about to watch this and wreck my weekend: Thomas Geoghegan on “Infinite Debt: How Unlimited Interest Rates Destroyed the Econom
“We dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter’s term.”
Yah know, that is good stuff worth watching and reading IMHO: Infinite debt:
How unlimited interest rates destroyed the economy
The Romans used a sponge on a stick, I understand.
Is The PPT killing off blogs or what; maybe control of the press is the next logical area for synthetic manipulation? Between the demise of CR’s functionality and now Yves (on holiday) what choices do clones have for infotainment? Bill Moyers
Ok,
That does it, I’m taking over the controls here in yet another mutiny, which probably will turn out like the others, with me being tossed to sharks, but I can’t take it anymore.
Here is a nice mutiny story, to get going on: A foretaste of mob rule
The collapse of political restraint over AIG
ep. Charles B. Rangel, New York Democrat, was even more infuriated at such greed and, as chairman of the House Ways and Means Committee, he helped pass the retroactive tax bill. Yet for years, the populist Mr. Rangel – who is in trouble over back taxes owed and misuse of his subsidized New York apartments – had tried to entice AIG executives to fund his Charles B. Rangel Center for Public Service at the City College of New York.
Sen. Christopher J. Dodd, Connecticut Democrat, was the fieriest in his denunciations of Wall Street greed. Yet he was the very one who inserted the bonus provision into the bailout bill, despite later denying it. And Mr. Dodd has taken more AIG money than anyone else in Congress – in addition to getting VIP loan rates from the disgraced Countrywide Financial Corp. mortgage bank.
Then there is the matter of blowing apart the budget. Mr. Obama inherited from former President George W. Bush a $500 billion – and growing – annual budget deficit and a ballooning $11 trillion national debt. Mr. Obama nevertheless promised us an entirely new national health plan, bigger entitlements in education and a vast new cap-and-trade energy program.
Hiding a Mountain Of Debt
The Congressional Budget Office sketched the dimensions of the problem on March 20, and Congress reacted with shock. The CBO said that over the next 10 years, current policies would add a staggering $9.3 trillion to the national debt — one-third more than President Obama had estimated by using much more optimistic assumptions about future economic growth.
s far as the eye could see, the CBO said, the debt would continue to grow by about $1 trillion a year because of a structural deficit between the spending rate, averaging 23 percent of gross domestic product, and federal revenue at 19 percent.
The ever-growing national debt will require ever-larger annual interest payments, with much of that money going overseas to China, Japan and other countries that have been buying our bonds.
No worries, Ben has a printing press, next…
US commercial banks lost $9.2bn on derivatives trades in Q4
U.S. commercial banks lost $9.2 billion trading in cash and derivative instruments in the fourth quarter of 2008 and for the year they reported trading losses of $836 million. The poor results in 2008 reflect continued turmoil in financial markets, particularly for credit instruments.
The notional value of derivatives held by U.S. commercial banks increased $24.5 trillion in the fourth quarter, or 14%, to $200.4 trillion, due to the migration of investment bank derivatives business into the commercial banking system
Derivative contracts remain concentrated in interest rate products, which comprise 82 per cent of total derivative notional values. The notional value of credit derivative contracts decreased by 2% during the quarter to $15.9 trillion. Credit default swaps are 98% of total credit derivatives.
Derivatives activity in the U.S. banking system is dominated by a small group of large financial institutions. Five large commercial banks represent 96% of the total industry notional amount and 81% of industry net current credit exposure
> Does that piss anyone off? Probably not… oh well.
Cheap Fed Money Turned Wall Street Into Pavlov’s Dog:
Cooper: The length of the adjustment is proportionate to the time it took to inflate the bubble. If you want to be pessimistic, the bubble started when the U.S. savings rate began falling in the early 1980s. Or you can be less dramatic and say, well, it started at the turn of the millennium with the housing boom, so it will take about a decade.
Pressley: You argue that central banks should conduct “fire drills” — that they should deliver occasional shocks to the system by withdrawing liquidity. Would that pop bubbles?
Cooper: We shouldn’t be attempting to deflate all asset bubbles; we should be attempting to deflate the massive systemic bubbles that risk sinking the whole economy. That’s where I want the fire-drill policy used. If the private sector didn’t expect a bailout, it would have to be more responsible.
Pressley: Would the Fed have the political courage to take away the punchbowl?
Cooper: This is a huge problem. Economic cycles run five to 15 years. Political cycles are often five to 10 years. So they’re not very different. That makes it tempting for an incumbent government to try to push corrective recessions into the next president’s or prime minister’s term.
Pressley: Do you blame former Fed Chairman Alan Greenspan for this crisis?
Cooper: Greenspan was following the efficient-market script in believing the markets would look after themselves. Yet he also pursued an aggressively interventionist policy of stimulating preemptively. His policy framework was intellectually incoherent.
Sex, Spitzer, Derivatives: Using Our Outrage
One group of public servants spotted the derivatives problem way back in 1994. The staff of the Government Accountability Office spent two years on a meticulous report concluding that without better regulation, derivative trading could trigger “liquidity problems” for the “financial system as a whole.”
The systemic risk was too large for markets to mitigate, the report explained, so “in cases of severe financial stress,” the nation would be stuck with a “financial bailout paid for by taxpayers.” Got that?
Before the report was even released, however, a corporate attack campaign blasted the GAO and its recommendations. Then leading reporters “largely parroted industry” complaints when covering the issue, as Columbia Journalism Review’s Elinore Longobardi details in a new 12-page analysis.
The old quotes might turn your stomach. Derivative losses would not require a bailout, declared then-Fed Chairman Alan Greenspan. A Washington Post editorial falsely claimed that the GAO report was not only “reassuring,” but it also supported the existing derivative system. “If this were the obvious reading of the report,” Longobardi dryly notes, “the derivatives industry would hardly have been so up in arms about it.”
We’re In A Whole New Territory
Nobel laureate Joseph E. Stiglitz on the coming global economic order.
STIGLITZ: A reserve currency has to be stable to be effective, and for some time now, it’s been clear that the dollar is not. The financial crisis has brought this home with a vengeance. The Fed’s balance sheet is surreal. They are in uncharted territory, and there are serious concerns about inflation, and its subsequent effects on the dollar. The Chinese are clearly very concerned about this. They see that some of their investments in the U.S. (like Blackstone) have gone badly wrong, and they worry that they will have worked so hard to save their $2 trillion in reserves, only to see it blown away by inflation. At the same time, there’s this broader concern about how the current reserve system basically entails poor countries lending to the U.S. at very low interest rates. It’s inequitable, and it also reduces consumer demand at a time when it’s really needed.
Why can’t the euro help fill the currency void?
A two-currency reserve system would be even more unstable than what we have now, because people would move in and out of the dollar and the euro depending on which is up or down, increasing volatility.
Greenspan’s Fatal Flaw
Yves Smith at Naked Capitalism puts her finger on Alan Greenspan’s fatal flaw, which is a desperate need to be liked. In the job that Greenspan held for a fifth of a century, you need to be willing to infuriate almost everyone from time to time, and Greenspan has never shown a willingness to do that.
Obama’s Fall Guy
So Geithner gets pelted with mouldy cabbages, while Obama — entirely responsible for the basic economic strategy of bailing out the banks rather than taking them over – charms the nation.
It won’t go on forever. If things go badly , the peple know perfectly well where the buck stops. There’s already a powerful drumbeat of disquiet that Obama, for all his smoothness, is Hoover-like in his timid orthodoxy. Back from the political graveyard last week came former N.Y. governor Eliot Spitzer arguing in a strong column in Slate that Obama’s $200 billion payoff to AIG was the real scandal, not the $180 million in bonuses.
A few days after the column Spitzer was on CNN giving his views. At this point in this unexpected renaissance one of the agents of Spitzer’s downfall gave him an untimely nip on the ankle. The madam running the call girl business patronized by the governor disclosed that another of her clients had been the baseball player New Yorkers love to hate, Alex Rodriguez. Spitzer, A-Rod and Madonna linked hands in a Daily News gossip item. For now, Obama sails smoothly on, transferring wealth upward to the bankers from the rest of us.
ince 1980 global debt has increased sharply. According to the Flow of Funds Accounts of the United States (a Federal Reserve publication), all debt has grown from $3,953.5 billion in 1980 to $33,517.9 billion in 2008, an incredible increase of 748 per cent. Household debt (mortgages and consumer) grew by 990 per cent. GDP by contrast grew from $2,789.5 billion to $14,264.6 billion – only 411 per cent. It took $2.60 of debt to purchase $1 of GDP during the period. Each recession and economic slowdown required increasing amounts of debt to purchase an additional $1 of GDP.
America and the industrial world have over the past 30 years been built on debt, creating a vast illusion of wealth. Since the financial crisis broke in August 2007 the US has added over $2 trillion of new debt. Most of this has come from the Federal Government and domestic financial sectors (banks, etc). Indeed the domestic financial sectors have seen some of the biggest growth over the past 30 years, growing by an incredible 2,878 per cent. They are now the largest debt holders, followed by households. In 1980 they were one of the smallest sectors holding debt.
Now the government proposes adding another $3.5 trillion of debt to bail out the now bankrupt financial sector. While everyone concentrates on the $165 million (later $218 million) of bonuses being paid to AIG executives, the real scandal is the bankruptcy of the US financial sector. Admittedly they are not alone, as the British and European financial sectors are effectively bankrupt as well. We are not saying that every single financial institution is broke (Canada's are not, for example) but even if they are not, they are affected by the massive slowdown in credit flows around the world.
At the centre of the financial scandal is AIG, until recently the world's largest insurance company. To date some $180 billion of US taxpayer money has been funneled into AIG. While the public outrage was directed at the bonuses, it should have been directed at the $180 billion bailout. In a dramatic moment at the recent hearings a US senator or congressman was questioning a very uncomfortable Treasury Secretary Timothy Geithner over the $180 billion. Just as the questioning was starting to go somewhere, Geithner was relieved that the allocated five minutes of questioning was interrupted by Chairman Barney Frank. We never saw it raised again.
So why is the $180 billion important? Why did AIG need so much in the first place? And where did the money go? Recall that prior to becoming Treasury Secretary; Geithner was president of the Federal Reserve Bank of New York. He was at the center of the AIG bailout before he became Treasury Secretary…..
It gets better>>> What a Mess!
U.S., Mexico to Intensify Fight Against Violent Drug Gangs
More than 7,000 people have been killed since January 2008 in attacks by traffickers on their competitors and security forces.
Clinton called on Mexicans to support their government’s fight against the gangs and urged students to use the Internet to send tips on illegal activity to authorities.
Economy Shrinks As Job Losses Continue to Mount
“It’s a long, long lag between the economy stabilizing and the labor market improving, unfortunately,” said Kurt Karl, chief U.S. economist at Swiss Re. “We’ll continue to see bad numbers from the labor market for some time.” He said he expects that the nation will continue shedding jobs through most of 2010, though at a much slower pace than in recent months.
President Obama yesterday made a similar argument, trying to rein in expectations for a quick recovery, even though the government has taken extraordinary steps to contain the recession.
Also: Consumer spending fades in February
Real disposable incomes fall 0.4% as wages drop 0.4%
Real consumer spending, representing outlays adjusted for inflation, fell 0.2% last month, a reversal after rising by a three-year high of 0.7% in January, the government estimated.
Adjusted for inflation, after-tax incomes dropped 0.4% in February, reversing direction following a 1.4% surge in January. Income figures for the first month of the year had received a boost as a result of several one-time factors, including annual cost-of-living raises and a once-a-year technical adjustment to tax payments.
In current dollar terms, last month’s nominal spending rose 0.2% after a 1% gain in January.
With incomes falling and nominal spending increasing, the personal savings rate ticked lower, to 4.2% of disposable incomes, compared with 4.4% in January.
But wait, what’s this?
Mervyn King has calmly cancelled Gordon Brown’s credit card
Once the brick was thrown, the uprising followed in the form of the first failure of a government bond auction since 1995. Government spin doctors rushed like the riot police to quell the revolt, claiming that the failure was a blip and that the particular bond was a 40-year gilt which is ineligible to be sold back to the Bank of England. But the symbolic power of the auction’s failure was beyond dispute. In October, George Osborne said in a speech at the LSE that “at some point the question becomes ‘how much more are the markets prepared to lend?’ That’s why there are limits to borrowing – not political limits, but actual limits.” This botched sale of bonds was the first undeniable evidence that those “actual limits” may be within sight and that the markets’ tolerance of government borrowing is closer to exhaustion than the Prime Minister likes to claim.
Tsys Dn On Profit-Taking, Erasing Early Gains From Fed Buying
On Thursday, Treasurys rallied after the $24 billion seven-year note auction garnered decent demand, which calmed the market’s worries about the U.S. government’s ability to secure funding for its massive spending to revive the economy. That fear was fanned by a failed 40-year U.K. government bond auction and a sloppy $34 billion five-year Treasury note sale Wednesday.
“The supply freight train has reached the station with all passengers safely aboard. We can now look forward to a brief respite before the next round of issuance,” said Chris Ahrens, interest-rate strategist at UBS Securities LLC in Stamford, Conn.
With this week’s $98 billion bond supply out of the way, Treasurys may have more room to gain in price in coming days, given the Fed’s intervention, market participants said.
Bonds may also be supported by demand from companies and funds seeking to get hold of liquid assets at quarter-end, especially Treasury bills and other short-dated notes. Meanwhile, buying related to portfolio rebalancing among bond funds in response to month-end adjustments in benchmark indexes may also lend some support, market participants said.
See: 3-Month Treasury @ 0.10%
Soros says failed bond auction “a blip”
Soros echoed the Treasury’s assertion that the failure was an isolated incident and not part of a broader drop in demand.
“That was a blip,” he said. But asked whether Britain could end up going cap in hand to the IMF, he said it was a possibility.
“It’s conceivable. You have a problem that the banking system is bigger than the economy … so for Britain to absorb it alone would really pile up the debt … if the banking system continued to collapse, it’s a possibility but it’s not a likelihood,” he said.
Britain last sought IMF help in 1976 in a move that destroyed the Labour party’s economic reputation for a generation.
(blip my ass …)
King told a parliamentary committee on Tuesday that the government’s burgeoning budget deficit meant it would have to be cautious about any new fiscal stimulus package to boost the economy
G20 ‘make or break’, Soros says
Mr Soros say it may be the last chance to prevent a full-scale depression.
He said the G20 meeting had to come up with concrete solutions to help the developing world in particular, which had been been worst hit.
Soros Says Commercial Property Values Will Fall 30%
Soros also said that the U.S. may face a new round of inflation should the flow of credit recover because of the large increase in the money supply stemming from the Federal Reserve’s purchases of Treasury securities.
U.S. central bankers decided last week to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home-loan and other interest rates.
“In order to make up for the collapse of credit, we are effectively creating money,” Soros said. “If and when credit is restarted, you would then have an incredibly swollen monetary base, which, if it were leveraged, you would have an explosion of inflation.”
“Right now we are in a period of deflation, but it could easily tip over, where you are facing inflation,” Soros said. “You are then faced with the prospect of draining money supply as fast as credit is created.”
> George Soros: Crunch will bite deeper in UK
He was not optimistic about the G20 meeting, saying the odds were that it would fail because there were so many differences of opinion. The price could be years of economic devastation worse than the Great Depression. “It is really a make-or-break occasion.”
It would be a disaster if the meeting were allowed to turn into a talking shop, he said. “It’s not enough to state general principles. You’ve got to come up with practical measures that are going to provide protection to the developing world, periphery countries, against a storm that originated from the centre, against a calamity that is not of their own making.”
He spoke amid more gloom over the British economy after official figures showed that output shrank by a worse-than-expected 1.6 per cent in the final three months of 2008. It was the biggest fall since April-June 1980.
Mr Soros refused to blame Mr Brown for failing to prevent the crisis. “He underestimated the severity of the problem but so did most people. Part of the perceived role of a leader is to cheerlead so you can’t really blame him for that.”
Britain has not sought IMF help since 1976 when, with inflation approaching 27 per cent, Denis Healey, then the Chancellor, applied for a loan, shredding confidence in the Labour Government.
Emerging-Market Stocks Advance
Bear-Market Rally
Nouriel Roubini, the New York University professor who predicted last year’s economic crisis, said today the global equity rebound is a bear-market rally and won’t last. His view contrasts with predictions this week from Templeton Asset Management Ltd.’s Mark Mobius and Traxis Partners LLC’s Barton Biggs, who said equities are poised to rally as government efforts to revive the economy and banking systems take effect.
“The outlook for emerging markets is attractive,” Josephine Jimenez, chief investment officer of San Francisco-based Victoria 1522 Investments LP said in a phone interview. “We haven’t seen such valuations in 20 years.”
Emerging-market bonds also gained. The extra yield investors demand to own developing nation debt instead of U.S. Treasuries narrowed 10 basis points, or 0.10 percentage point, to 6.16 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index.
See also: "The latest data certainly paints a picture of money leaving essentially passive vehicles such as money market funds and being put to work in funds offering more risk and higher rewards," said Cameron Brandt, a senior analyst at EPFR Global, in a statement.
Oddly enough, see: Treasury 3-Month Bill Rates Drop to Lowest Since at Least 1954
In another sign of risk aversion, yields on emerging-market bonds have soared as investors moved money into Treasuries. The yield on Russia's 7.5 percent dollar bonds due in 2030 has jumped 91 basis points to a four-year high of 6.97 percent, according to JPMorgan Chase & Co. data. Yields on Venezuela's 9.25 percent bonds due in 2027 have surged 2.24 percentage points this week to 13.53 percent, the highest since May 2003.
Save the international investment market with the blood of citizens.
The yoke is a burden untill it becomes to heavy, then its time to do a mule, and just say NO.
skippy
Levitin’s cropped screed on the AIG bonuses parallels but doesn’t pip a rankle of my own. There was a well-circulated op-ed from an AIG man from a unit well in the money in no way connected with the CDS boiler room in London, to the effect that he had done harm to none, and the bonus was earned. Well-thought out, with many merits: stone wrong. AIG _as a complete entity_ was massively insolvent as of September of last year. By any real evaluation there was NO MONEY _NET_ to go for bonuses—or anything. There was no money for severence; their options were smoked; their in-house pensions were probably history. Yes, someone can sort through the details; and once done, yes, some would get money per prior contractual obligations. But there was not money in the conglomerate. _It doesn’t matter if any of these folks in reality earned their year-end_, because THERE WAS NO MONEY THERE. The only way they get paid bonuses is if bankruptcy is magically levitated above AIG’s collective head until post-December.
The sense of entitlement there is . . . word’s fail me. When the furiture shop or the restaurant down the block goes BK, _THE STAFF DON’T GET PAY OWING MOST OF THE TIME_. Because the money is gone. Nothing to pay them _with_. But somehow the contract is ‘sacred’ if you make six figures a year. And because the Guvmint prevented AIG from being received into public control, those contracts were ‘honored’ even though the cash that made that possible didn’t exist—certainly not at par and in many cases at all—without public money paying for it. Those six-figure folks, they just don’t get it, because the feel it is owed to them. They’re right, some of them, but there was no there there, that’s the collective delusion.
And on another snippet, Joe E. da Stig has be best content-per-clause ratio in this game. He’s on the money in the least words every single time. When can we get him in Larry Summers job and Summers ‘pearl diving’ to pay for his tucker where he belongs?
RK,
Re: “The sense of entitlement there is . . . word’s fail me.”
I word I found, is “retarded”, but the words corrupt and dishonest also come to mind, as do pirates, scum, snakes, rodents and various words that I probably should write here, but what is the point of making comments here at all?
Dearieme, you may be right. Of course, the Romans could have been very diverse and cosmopolitan like us today and various customs existed within the empire. I got my info from, admittedly not the most respectable, Michael Palin in his show, Shahara, where he journeyed around the desert and when he got to Tunisia, where he recalled the filming of Life of Brian, or maybe it was Lybia, he showed a communal Roman bathroom where a Roman could chat amicablly, with his fellow Romans while doing his business, in front, or beside each other, without partitions, above all the bodily noises, presumably, and Palin showed how when they were done, they would scooped up water from a stream circulating on the floor of the bathroom. Perhaps it was with a sponged stick or with bare hand, I don’t quite remember; though Palin seemed to motion with his bare hand.
The Chinese, at least in the zen monasteries perahps because they were too poor to afford such luxury, but in any case, before the invention of paper, used a wooden stick, to my understanding.