Links 12/12/09

Posting will be light today and tomorrow, I have a speech and an article I need to put to bed, plus holiday stuff…apologies! And I am SOOO annoyed about the reform bill headfake I don’t know where to begin.

Poor Children Likelier to Get Antipsychotics New York Times. I think the odds are non-trivial that 10 or 15 years from now, we will see some Big Pharmas go bankrupt due to class action suit resulting from long-term damage done to kids that were given psychoactive drugs.

Retail Data Shows Strong Start to Holiday Season New York Times. This contradicts the Discover Card report we featured on consumer intentions, which said average consumers planned to pare spending. Was spending more front-loaded than in the recent past, or will this season be better than expected? Jesse is not convinced:
About Those Strong November US Retail Sales Numbers

Fernholz vs Taibbi Felix Salmon

The Book of Lists Satyajit Das

The American Who Manages the Decline of a Japanese Hamlet Wall Street Journal

A windfall tax in the US? Krishna Guha, Financial Times. This makes a ton of sense, which of course means it will never happen.

Outside Edge: Yakuza solutions for errant bankers John Plender, Financial Times.

Overplaying Goldman’s Bonus Move Ryan Chittum, Columbia Journalism Review

Goldman Fueled AIG Gambles Wall Street Journal. This partially confirms one of our pet theories, namely, that there was not enough subprime related insurance capacity ex AIG to handle all the subprime-related risk (including CDOs) that was insured in 2006. Recall that the urban legend, which we can trace only to Joe Cassano (who has lied before) was that AIG quit insuring subprime related risk as of end of 2005. This article includes some 2006 deals. However, it also omits some other Goldman-related deals that included subprime that we are aware of….and we suspect were far more profitable to Goldman than the ones covered here.

The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG’s books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG’s exposure to losses on securities linked to mortgages.

I have to wonder, cynically, if a large number of not hugely profitable deals to Goldman were ‘fessed up to to mask the existence of others that were very profitable to Goldman. And note the timing of this story: the evening the audit the Fed provision passed as part of the House financial services reform bill. Oh, silly me, that is a paranoid line of thinking…

Antidote du jour. A cute bat!

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  1. Uncle Billy Cunctator

    ” that is a paranoid line of thinking…”

    Looks good on you. 2010, the less and less United States of America — if you’re not paranoid, you never learned to read critically.

    But you worked at GS for goodness sake, and you deal with the sociopaths on a daily basis in your line of work. How could any of this be surprising and angering for you? How do we know you’re not the actor that plays the part of “the one that should have known better, but had to learn the hard way,” and that you’re not key in the mass destabilization program? (If you are… just for fun… what is the codename? “Ice-9”? Or was that just for one stage…?)

    1. Yves Smith Post author

      I was a pretty junior person, Goldman was not into its government subornment program (that was a good decade after my departure) and the whole industry was much less sociopathic than it became. Most people understood that Wall Street was a racket, and we were either lucky enough or clever enough to have stumbled upon it. The people who came through in the 1990s started believing in their innate superiority. In my day, only the most obnoxious were that deluded.

      I am not saying the industry was honorable, but the conduct was markedly less bad than what came later.

      1. Uncle Billy Cunctator

        A thought… you mentioned the 90’s…

        The British and Americans were deeply involved in the Russian privatisation program, and a great deal of resources were expended there. Our Skylark, Blithe Spirit Masters, came over with her little crew in the early 90’s to begin weaving their webs and “innovations.” Coincidence? It would be interesting to see how the tenor of NBER, CEPR, CEP, and other research and policy suggestions changed about that time.

  2. Uncle Billy Cunctator

    I have so many questions for you which you’d never be able or likely willing to answer here. A few years back a former econ blogger confided in me that he had lost his religion and gave me a little insight into how “problematic” things really were, and on what scale.

    Do you think Pittman had special insights? Do you think that he really gave Zerohedge his workproduct or shared his special knowledge with them?

  3. attempter

    It’s always fun with Taibbi.

    I hadn’t heard about this Fernholz beef. It sounds like personal rancor, since he basically agrees on the substance but just doesn’t like it that this guy he considers a flashy tabloid slob rather than a serious analyst like himself gets all the attention.

    I’d say, it’s not about you man, it’s about the cause.

    But when you try and tell that story with a lot of lies and innuendo, and misunderstand the basic policies that these people are producing, you don’t hurt them. Now anyone who criticizes the Administration will just be lumped in with Taibbi’s meandering conspiracy…

    Number one, Taibbi never lies, and his innuendo is no worse than anybody else’s, just “flashier”.

    And two, does Fernholz understand anything about the way politics works? As far as what writers can do, Taibbi’s sensationalism is the only thing likely to have much effect among the masses. Fernholz is exactly wrong here.

    The serious people never like the muckrakers.

  4. MarcoPolo

    Got this at CR, there is a video on bloomberg which I cannot see sans flash
    in which Volcker says that the _structure_ of the US economy will constrain growth. Though I can’t see the video I agree with that premise prima facie. And it’s the point I’ve been trying to make here and elsewhere for so long.

    1. Jesse

      The Banks must be restrained, the financial system reformed, and the economy rebalanced before there can be any sustainable recovery.

    2. DownSouth


      Thanks for the video.

      Volcker believes that by failing to promulgate thoroughgoing reform of the financial sector we are laying the groundwork for another crisis.

      “People like big bonuses,” Volcker says, so the push is on by the financial sector to go back to business as usual.

      Volcker talks about how Goldman Sachs and GE are taking advantage of the government “safety net” that traditionally has only been available to those institutions engaged exclusively in core commercial banking. They now enjoy a taxpayer backstop or safety net so that they can go forth and engage in high-risk, non-banking type activities, such as Goldman’s core business, which is proprietary trading.

      Volcker bemoans the failure to promulgate meaningful regulation for those organizations backstopped by the taxpayers. Goldman and GE can now conduct their high-risk activities, backstopped by the taxpayer, in a regulation-free zone. They don’t have to obey the rules that those with a government safety net should be required to obey, nor do they have to provide basic banking services.

      Volcker says there is an economic problem mixed up with the financial crisis—“too much consumption and too much spending relative to our capacity to produce and to export.”

      If we could get the reform right, Volcker believes the structural problems in the economy could eventually be resolved. However, in the absence of substantive reform, there is no way to resolve the structural economic problems.

      Volcker is a guy who exudes common sense, wisdom and good judgment. Too bad Obama exiled him to Siberia and instead put his imprimatur upon Geithner, Bernanke and Summers and the insanity they are advocating.

      1. Daniel

        Volcker is a guy who exudes common sense, wisdom and good judgment. Too bad Obama exiled him to Siberia and instead put his imprimatur upon Geithner, Bernanke and Summers and the insanity they are advocating.

        Right from the start, Obama took Volcker onboard with a view to neutralize what he, Volcker, meant. Quite a success. Financial common sense has been neutralized for an additional couple of semesters.

        This is one more reason to join the uber-pessimists who believe that the US will rip into an Argentinian path. When on that way, possibly as early as 2010, a Volker will be useless at this stage. As no doctor will accept to inflict the medicine to the aching body. Way too hard.

      2. MarcoPolo

        Thank you for that summary, DS. Reform of overlarge
        and now parasitic financial sector is only part of restructuring an economy that consumes too much and produces too little and who’s roo cause is in the imbalance created by a 40 year history of mercantilist Asian development policy and US monetary & policy responce which accomodated it.

        It’s not just banking. We have structured our companies flat to survive in that atmosphere! It will take a generation to turn that around. There isn’t time.

        There are 2 ways to rebalance. Either demand for western goods is created in the east. Which would be good for everybody and is what we always thought would happen as we were “restructuring” our companies flat. Or supply & prices must fall in the east to compensate for the attenuated demand of the west. The 3rd option would be to preserve the imbalance. I don’t see savers, in the east or elsewhere, suffering that much longer. So, given the time available rebalancing must come from the east and there is no indication they are willing to make that adjustment. Now see Michael Pettis for why those numbers don’t come out either.

        It’s only a question of whether savers pull the plug or bleed to death more slowly. Daniel, you are correct.

  5. rcyran

    I wouldn’t put much stock in any retail numbers at this point, but couldn’t the retail discrepancy be explained by demographics? When I was younger and couldn’t get a credit card, Discover was the only one that offered me one. My guess is they skew towards groups that have been hit especially hard by layoffs/job worries, hence fewer and smaller gifts for the holidays.

  6. Richard Kline

    The drugging of children for the convenience of others is a crime; it’s that simple. It doesn’t matter if a physician connives at this, though it’s been a societal choice for a generation. I would heartily encourage those who have endured it to sue early, often, and at once.

  7. Doc Holiday

    Can I speak about the stock market bubble here? Ok, thanks.

    I just pulled a sort of log chart of the Dow from about 1929 to yesterday. For some reason, I decided to look at sections of growth and decline over that period, in terms of Dow performance. Keep in mind this all takes about 2 minutes of on-the-fly chaotic thinking and very few brain cells were used for the following observations. I focused more on the period from 1986 to present:

    1. Between 1986 and 1995, the Dow went up apox 2262 points

    2. Between 1995 and and 1999 the Dow went up about 7340 pts

    3. Between 2002 and 2007 the Dow went up about 5067 pts

    4. Between 2007 and 2009 the Dow went down 5800 pts

    5. During the year 2009 the Dow has gone up 2863 pts

    That very general output was then divided into performance points per year, which results in the general results, which indicate the first period of growth was about a 251 pt gain per year, group 2 was an amazing 1835 point gain per year, group 3 was a gain of 1013 per year, and the group three subprime bubble resulted in a 2900 point per year drop — followed by group 5 of this year, which thus far is an unrealistic and unsustainable fantasy gain of 2863 points, which no doubt will spike even higher.

    Although this is all just made up on-the-fly (in the last 1/2 hr by me) this does indicate IMHO that the current synthetic-based parabolic trajectory towards the moon is highly unlikely to be sustainable. If the Dow reverts to its normal pattern next year, and if everything goes perfect and the Dow adds on to the current fantasy world gains — the best that one could pray for, would be about a 1000 pt gain in 2010 — but and however, that two year gain would result in performance of 1930 pts per year, in a year which unemployment is increasing and more and more banks are failing.

    Bottom line, the current bullshit run-up is something to be VERY afraid of — and IMHO, I would not be in a hurry to jump on the hot Dow bandwagon, because IMHO, it is about to explode and fall off a cliff!

    If these back-of-the-napkin values are way off, then perhaps someone can point to the mechanism that will result in about 10 million people finding employment next year — versus the more likely reality of maybe 5 years …

      1. Doc Holiday

        Wow, UB, is that really you? I thought you were lost forever, like in some infinite blizzard of virtual pixel and packet storms, not unlike that drug-induced thing that happened in Wizard Of Oz, when Toto had that infection and fever, went into a coma and then pee’d on the sofa … I digress there just a bit, sorry.

        How are you, or maybe the more proper question is, will you come back? I need support to fight these bastard alien parasitic pricks that are wedged in the economy — the same people that are layered like toilette paper in a septic system, the same people that have crawled
        to the surface
        Of a dark Scottish loch

        1. Uncle Billy Cunctator

          No resources to fight a frontal war. Hit and run only. After four years I got a little pooped out. The thing that I’ve been noticing lately is the selling of Volcker and Elizabeth Warren. I don’t think people still don’t realize for the most part that this is all just theater.

          1. Doc Holiday

            Re: “After four years I got a little pooped out.”

            That’s just the point, they wear you down to nubs and then run you over and drag you under the water and then provide cement footwear — but instead of going down to see Odin, this the time to rise to the surface and take them on (again).

            I posted this earlier, but it was intended to give someone (somewhere) inspiration for something, but I’ve forgotten what that was, so just forget the whole F’ing deal:


  8. Doc Holiday

    S&P earnings crashed to a 50 year low …. and the stock market just made the biggest one year gain ever…… It’s been about a year since I’ve played with earning yield info, essentially because Treasury is a tainted mafia-infested pile of shit and there is no way to calculate earnings growth, because as some may recall, the yield curve and Treasury model had to be reinvented last year, after their model broke and the yields went below zero …. I don’t go there anymore with that topic, but obviously the only reason the S&P has had an increased amount of earnings, is because of re-written FASB bullshit and massive amounts of taxpayer cash flooding into corporations that use accounting magic to write off losses, then use taxpayer cash to boost earnings … I knew there was a reason I stopped doing this….. puke!

  9. anon

    The politburo speaks again on retail numbers.

    Anyone who is out there looking sees a pile of inventory, lots of programmed shoppers, and no buying.

  10. Kelli K

    Re. the drugging of children I have a few thoughts of my own. First, if we refused as a matter of course to prescribe these meds to poor children who needed it, that would be a crime too. A great deal of this is hit and miss. But children who cannot function without the meds are able to attend school and live with their families rather than being institutionalized. Isn’t this worth something? I rather think it’s worth a lot.

    That said, parenting is hard work and people are increasingly taking shortcuts. This is an unacceptable one if the children are not sick. But it doesn’t matter–it’ll go on anyway.

    As for the class action suit, that is probably inevitable. But we only have one chance to raise a child, and we can’t see what that child would have looked like if we made different choices–we can only see what happened to other untreated children with similar diagnoses. This is not the same thing as knowing what THIS child would have been like had they not been medicated. IT will not be admitted in a court of law.

    Moreover, a better case could be made that mentally ill children who are NOT treated with anti-psychotics suffer great harm in later life and THEY could sue a medical establishment, anti-drug crusaders or family members for having failed to prevent permanent brain damage (for such it is, when a depressed or bipolar child goes untreated–the alterations to their brains are permanent and irreversable).

    The sword cuts both ways.

    1. Yves Smith Post author

      Kelli K,

      In all candor, what you have written is both ill informed and verges on bigoted.

      First, there is no reason to think mental illness is more pronounced in poor people than the population as a whole.

      Second, you are 180 degrees wrong on the effects of medication. The intent is not to change brain structure on a permanent basis; your statement, “depressed or bipolar child goes untreated–the alterations to their brains are permanent” is utter rubbish.

      There are also NO studies on the long-term effects of medicating developing brains; the effects are FAR more likely to be damaging rather than salutary. For anti-depressants, for instance, there is considerable evidence that the long-term use of SSRI (selective seratonin reuptake inhibitors) over time blunts seratonin receptors. In other words, the operation of the brain has been interfered with in a permanent, negative way.

      Finally, I guarantee that in the vast majority these diagnoses are bunk. These are merely active, somewhat to seroiusly disruptive kids who are being medicated into a stupor. Behavioral issues are being falsely labeled as medical. When I was a child, there was no such thing as depressed children, and bipolar ones are very rare. And depression, almost without exception, can be treated successfully with exercise. The literature is robust here.

      The fact is that doctors in the US hand out psychoactive meds with NO diagnosis, like candy. Every time I have mentioned fatigue to a doctor, as soon as they eliminate the obvious one or two culprits, they deem me to be depressed and want to hand out anti-depressants or Adderall. This is by GPs with NO psychological evaluation of any kind.

      1. Roger Bigod

        Good points, but you missed the outrageous detail at the end of the Times piece. They’re handing out classic anti-schizophrenic meds to children who don’t have a diagnosis of schizophrenia. It’s been known for decades that a possible complication of these drugs is a movement disorder, tardive dyskinesia, featuring creepy twitches and jerks. I don’t think there are any studies in children, so they may be less susceptible. Or more susceptible.

      2. Kelli K

        Strong words that demand some response. First, some background: I have two children who are medicated for mild depression/anxiety. Given the strong feelings (moral certitude) of medication critics like yourself in our contemporary American upper-middle class–we hesitated to even try SSRIs on our pre-adolescents.

        What convinced us to give it a go? Many mental health experts (most of whom stood to gain nothing personally) told us the same thing: untreated depression in children can permanently alter the bio-chemistry of the brain, rendering the condition permanent and increasing the likelihood of suicide, drug addiction and severe mental illness later in life.

        What has been our experience? The drugs helped us help our children hold it together long enough for them to develop coping strategies for school and life. Now we are working with their doctors to wean them off.

        If you have a 7 year old talking about killing himself in the back of your car, you tell me what you would do, Yves.

        Furthermore, you give the game away when you use terms like “I guarantee” that most of those being medicated are “merely” rambunctious (how do you know this, Yves?). And it is doubtful that just because you did not know depressed or bipolar children in your youth they did not exist. Again, Yves, isn’t it possible that they were simply whisked off to someplace where you did not have a chance to know them? Was that better for them?

        I acknowledged that I cannot know the particulars of who is doing the prescribing, on what basis and with what other supports in place. I do not know, nor does the NY Times reporter, whether on balance more children are being harmed or helped by the increase in medication. Nor do you, Yves.

  11. dimitris

    That yakuza article was a bit of a letdown, I was expecting (the Japanese equivalent of) horses’ heads and such. It looked like it was getting interesting when golf clubs were mentioned, but that was a false positive too.

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