Links 8/21/09

A step closer to ‘synthetic life’ BBC

This is Your Brain on Neurotechnology h+ (hat tip reader David C)

UBS Money Laundering: What Did Phil Gramm Know? Philip Sheer, The Nation (hat tip reader Jospeh M)

Japan Turns to Taxis for Help in Selling Bonds as Deficit Grows Bloomberg (hat tip DoctoRx)

Buffett’s false promise Rolfe Winkler

Yet another discussion on the Asian savings glut hypothesis, and why it matters Michael Pettis

China Said to Plan Tightening of Capital Requirements for Banks Bloomberg (hat tip DoctoRx)

Robert Rubin’s Agony Charles Gasparino, The Daily Beast (hat tip Ed Harrison). Aw Rubin feels bad! Not because he made huge errors of judgement by backing Wall Street favoring policies, like the ‘strong dollar policy” and beating back regulation of credit default swaps. No, it’s because people blame him for Citi and he thinks that isn’t fair. The story also shows how much influence he still wields.

Obama’s Trust Problem Paul Krugman

Antidote du jour:

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    It would be nice if Bob Rubin could feel as sorry for the 16 million unemployed, and close to thirty million underemployed, and the general devastation and immiseration that is taking place out side of the Upper West Side and the Hamptons. No regrets about LTCM, no regrets about Glass-Steagall repeal, no regrets about blocking regulation of derivatives; and finally, no regrets about not doing his job as member of the CITI Board to preserve the shareholders investment. In 2002-03, Dean Baker and Robert Schiller wrote that a housing bubble was under way and unless popped early, it would end very badly. By 2006 it was clear the Bubble had peaked, but Chuck Prince, with Rubin's encouragement, kept dancing to the music. The tragic thing for the country and the Obama administration is that he continues to have so much influence.

  2. LeeAnne

    Robert Rubin's Agony Charles Gasparino, The Daily Beast

    Robert Rubin was recruited by Sandy Weill of Citi while Rubin was Secretary of Treasury under Clinton during the second half of Clinton's administration in 1998, (the time of Clinton's troubles) to help with the dismantling of Glass Steagall that secured Weill's competitive advantage in his $76 billion acquisition of Travelers Insurance years in advance of the end of Glass Steagall. At the same time as his acquisition of Rubin, Weill also acquired former President Gerald Ford. Wikipedia -Sandy Weill

    A rapacious acquirer of Wall Street companies, Sandy began with retail brokerages, but included several of the most prestigious investment banking firms like Goldman competitor, Salomon Brother. When he failed to take over the biggest retailer, Merrill Lynch, Sandy turned to insurance companies. That's where the purchase of government officials came in; the ultimate competitive advantage as we now know: just own the government.

    Again, from Wikipedia, " … wrestling with his role as senior adviser to former Citi CEOs Sandy Weill and Chuck Prince when the risk taking began (and reached immense proportions), and falling back on the fact that he didn’t have “operating responsibilities,” meaning he had authority but no direct responsibility to manage those risk takers."

    What were Rubin's responsibilities? Using his 'genius' for dismantling laws that protect the American public to help others continue same? What is Robert Rubin doing for the people he was meant to serve under Clinton? Is he working to reform finance now that the fallout from his actions are clear and he knows intimately the levers of government? Apparently his concern is only to stay on the gravy train while continuing to advise others on same while the economy is on life support and Wall Street status quo remains a sewer of rapaciousness. And now what? he's naive?

    Accusations that guys like these, Rubin and Weill are sociopaths is beginning to ring true, or along the same lines, quoting the Chinese: 'American finance need parental supervision.'

  3. LeeAnne

    correction: from Daily Beast article:

    "…Rubin has been privately wrestling with his role as senior adviser to former Citi CEOs Sandy Weill and Chuck Prince when the risk taking began (and reached immense proportions), and falling back on the fact that he didn’t have “operating responsibilities,” meaning he had authority but no direct responsibility to manage those risk takers. "

  4. danps

    Hi Yves. Shorter Edmund Andrews: "It must be very strange to be Ben Bernanke. A man of extraordinary vision and brilliance approaching to genius, he can't get anyone to notice. He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile."

  5. Anonymous Jones

    I also read the Pettis article. It was one of his best posts yet. The balance, soundness, inquisitiveness, and rationality to his work never cease to astound me (and I generally think of myself as not easily impressed). If anyone here is interested in cross border economics and liquidity theories, you should definitely read The Volatility Machine. As a non-expert, I obviously cannot vouch for its accuracy, but I found it as compelling an argument as I can imagine.

    It almost makes me wonder why people haven't tried to shout him down or shut him up yet. I guess being wonkish at times allows you to get away with rationality for a little while. I can't imagine that those who have a vested interest in maintaining fictions and alternate realities will not eventually try to quiet him or discredit him.

  6. DownSouth

    @"This is your brain on neurotechnology"

    Incredibly exciting stuff!

    As Lynch asserts, this is "very sophisticated science –- it's the cutting edge of science."

    I would add to this that it holds out the possibility of making the social sciences, including economics, bonafied sciences instead of the pseudo-sciences they currently are. It also holds out the promise of letting us redefine "progress" as something other than, as Hannah Arendt puts it, the "irrational faith of liberals in growth, so characteristic of all our present political and economic theories" with something "altogether new and totally unexpected."

  7. Kena

    "It must be very strange to be Ben Bernanke. A man of extraordinary vision and brilliance approaching to genius, he can't get anyone to notice. He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile."

    Individuals who don't have a wealth driven sociopathy can't run on fumes forever. Eventually they run out of energy and stop trying or leave the profession altogether.

    Watching Volker be marginalized was, to me, the defining moment for realizing things weren't going to change under O's administration.

  8. DownSouth

    Anonymous Jones,

    I too read the Pettis article but wasn't so impressed.

    He misses two major phenomena that occurred in the post-1997 era.

    First was the advent of the shadow banking system.

    Second was the takeover of U.S. government by the ayatollahs of neoliberalism.

    The combination of these two resulted in a shadow banking system that was all but free of banking regulation.

    As Pettis pointed out, what monetary policy that was attempted by U.S. officialdom proved ineffective. The reason for this is that the shadow banking system, which operates outside the purview of U.S. officialdom, had already grown so large as to dwarf the size of the traditional banking system.

    Most of the capital that flowed back to the U.S. from China was funneled through the shadow banking system, vis-a-vis U.S. private banks. The only way to have reigned in these capital flows was by regulating the shadow banking system, which wasn't going to happen because the neoliberal ayatollahs (one and the same as U.S. private banks) had their hands firmly upon the levers of political power.

    I think William Black (see Yves's post on August 18, 2009, "This Economic Disaster") provides much more insight into what happened than does Pettis.

    Pettis clearly wants to keep the focus on what the Chinese did, as opposed to what we did. The problem with this tact is that we had precious little control over what the Chinese did. On the other hand, we had complete control over what we did. The bottom line is that we in the U.S. created a regulatory system that looked the other way as bankers made multi-million-dollar bonuses by handing out Chinese money to households that had no hope of ever repaying it.

    There is much folly here on the part of multiple parties. So who do we blame? Do we blame the Chinese, who we have no control over? Do we blame the bankers? Do we blame the prodigal households? Or do we blame a regulatory aparatus that stood by and allowed it all to happen?

    It appears to me that Pettis wants to blame the Chinese.

  9. Anonymous Jones

    DownSouth —

    I appreciate the comments. I, too, think that Pettis, while being very even-handed in saying that blame is impossible to apportion in this situation because both sides are in some ways complicit, is perhaps more sympathetic to the view that desires for reserve accumulation in China may be the more significant causal factor. But then again, I'm not sure.

    I confess that I'm probably not immune to the natural instinct to read less critically those with whom I generally agree. That said, I'm not sure that there is a significant difference, in the macro view that Pettis takes, whether liquidity and risk-seeking is born of an unregulated shadow banking system or a poorly regulated standard banking system. There have been many societies with poorly regulated standard banking systems, and I think their history is instructive. I don't think this means we disagree, but I'm just not sure what the rise of the shadow banking system really adds to the conversation. Yes, the totality of the banking system was poorly regulated and allowed a huge surplus of liquidity to overwhelm the system. I'm not sure the actual mechanics of that development is necessarily at issue here (though it is most certainly at issue in discussing what future regulations should be implemented to dismantle the shadow banking system).

    Back to the article, my view was that Pettis tackled a difficult conceptual issue with dexterity and even-handedness. I can see why you didn't think it was as even-handed, though I'm not sure I am yet convinced that Pettis wants to blame the Chinese. He is, of course, in China now, which makes a China-centric view understandable (though not necessarily as instructive for any of us, I understand that).

    Regardless, I am fully in agreement with you about the failure of regulation in this country in both allowing the development of the shadow banking system and following the false prophet of neoliberalism.

  10. DownSouth

    Anonymous Jones,

    Pettis undoubtedly does a better job than the monetarists do, who are convinced that all economic evil could have been avoided by either tinkering with the monetary base or tinkering with interest rates. But while he mentions that the Fed's attempts at monetary tightening didn't work (which puts him light years ahead of the monetarists, who deny the Fed ever made such an attempt), he makes no attempt to explain why they didn't work.

    After a period of monetary easing following the 9/11 attacks, Greenspan began decreasing the monetary base in 2003. He began increasing interest rates in 2005. But the money supply kept right on growing:

    Where did all that money come from? I believe, as Pettis does, that much of it came from China and other foreign countries. Here's how it left the United States:

    And here's how it came back:

    As can be seen, there was no huge upsurge in the purchase of U.S. treasuries, nor of agency bonds (Fannie and Freddie). But, beginning in 2003 and ending in mid-2007, there was a huge upsurge in the purchase of private bonds. I assumed that most of those were CDOs, MBS, etc., the latest "innovations" packaged and sold by the shadow banking system. But as you say, that assumption may not be correct, nor is it necessary to make my point. For the only thing that is important is that those bonds could not have been manufactured, created or produced in a properly regulated banking system, and, again conceding your point, it matters not a dither whether that banking system was standard or shadow.

    I suppose my beef with Pettis is that he leaves out of his telling of the story the part about the banks being deregulated, and from my point of view, that is the most important part of the story.

    But maybe you're right, perhaps that's because he's in China. As Orwell said, "When you are on a sinking ship, your thoughts will be about sinking ships."

  11. Hugh

    People like Rubin and Bernanke should be in jail where they can agonize and feel misunderstood all they want. rickstersherpa got it exactly right. Rubin's big play for redemption is to give Larry Summers advice? How much more clueless could the man possibly be?

    As for Helicopter Ben, just how badly do these guys have to f*ck up before they are treated like the idiots they are?

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