Links 12/27/09

The Secret Lives of Amazon’s Elves Gizmodo

Found: the clue to van Gogh’s ear Times Online

Obama’s troubles are at their most desperate in Afghanistan Michael Crowley, Guardian

What Iceberg? Just Glide to the Next Boardroom Gretchen Morgenson, New York Times

The Long Decline of the American Economy John Kozy, Global Research (hat tip reader John D)

In Search of Work, but at What Cost? David Segal, New York Times

Pricing a CDO – Not only Bad Math, Bad Computation too Robert Oak, Economic Populist. George Washington posted on the underlying paper last week, but this is a very important finding, and this take is from an engineer who knows more than a bit about computer science.

How Overhauling Derivatives Died Wall Street Journal (hat tip reader Don B)

The Case For the Millionaires Surtax Economists for Firing Larry Summers

Teflon Buffett Felix Salmon

How the status quo can kill: the example of free trade Lambert Strether. Today’s must read. Provides a fresh and useful perspective on why the US has ceded manufacturing to China.

Antidote du jour (hat tip reader Richard). I have a soft spot for oddball critters. This is a Patagonian mara, which is a rodent.

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  1. attempter

    The Wikrent piece is good. “Free” trade is one of the key issues which lays bare how rightist the status quo, including its supporters among most so-called “progressives”, really is.

    The reason Obama isn’t smashing the banks and eradicating the health insurance racket is that he doesn’t want to. He’s a neoliberal corporatist ideologue, which is a version of being a fascist. And the hacks who support him are corporatists as well.

    The reason he doesn’t end the war is that he’s a corporatist. The reason he has stepped up the assault on civil liberties is that he’s a corporatist. The Obama hacks are such fascists as well.

    And then on to Orwellian “free” trade, one of the lies he actually got caught on during the campaign. Here too we see the basic rightist orientation of most “liberals”. No reality-based person any longer disputes the class war nature of globalization. And yet among right wing liberals and the MSM we have the continuing Big Lie, that there’s even a debate over whether exporting jobs and importing tyranny and debt is “good” for anybody other than the rentier parasites and their political whores.

    None of these Obama hacks ever objected to Bush’s actual policies, but only on the partisan grounds that it was a Republican doing it. That’s all.

  2. gruntled


    The link to
    “George Washington posted on the underlying paper last week”
    leads to antidote du jour. Was this intentional?

  3. molecule

    The “free trade” piece is nothing but a sob story. Refuting the “brilliant but misguided” free-traders with anecdotal evidence.

    Here are few questions:
    1. Why should a worker of similar aptitude be paid more in the US than elsewhere? (please provide an answer other than “we need a living wage” to buy a house, 3 cars and a TV in every room )
    2. If the US is technologically so much better how come the Japanese and Germans make much more reliable cars and industrial equipment? Would it be OK to outsource all our manufacturing to Germany and Japan? If not why not? How come IPods , IPhones, TVs, Korean ships, Japanese machinery and all sorts of other equipment made in Asia works just fine?

    1. Anonymous Jones

      I’m not sure it’s necessary to be antagonistic and use words like “sob story,” but certainly, the kernel of your argument is most likely correct — the share of resources commanded by the United States (especially its labor) is unsustainable. There is no reason to think that workers in India and China could not eventually acquire the skills to make shaped cardboard boxes without smells or proper titanium parts. There is a worldwide surplus of labor as well as a government policy across many countries intended to increase race-to-the-bottom competition among the labor pool participants. It’s not difficult to see where this is going. And to answer your first question, I see no reason why a family in Pittsburgh should have a bedroom and a car for every child but a family in, say, Da Nang, whose patriarch holds the same basic job as his counterpart in Pittsburgh, lives in one room and has one scooter for the entire family. Of course, I also see no reason why a banker should be allowed to keep a $100 million bonus if the voters in any particular democracy choose by a majority vote to strip him of his “private property.” Ah, leverage… Power is great when you have it.

      Regarding the unsustainable ‘resource share’ of the US, I am reminded of Stein’s Law: what cannot go on forever, will not. Of course, the unsustainable can last a long, long time! I guess if I could choose, I’d prefer to see our imbalances outlast me.

      1. molecule

        Of course there is no need to get antagonistic. I overreacted to the “free trade kills” thesis.
        It’s a new one to me. There are many things that kill, like wars and actual bombs, but free trade isn’t one of them.

        As for the welding example, anyone can do the job with proper training. If I remember correctly, in the late 90’s Boeing was outsourcing entire 747 fuselage sections to Japan.

    2. Yves Smith Post author

      Why should US workers be paid more than Chinese?

      1. We have the biggest consumer market in the world, it takes time and involves shipping cost, inventory financing costs, and coordination risks to source from abroad. Local manufacturers have a natural leg up, which they can enhance via higher service levels.

      2. US products can be and often are competitive on a cost/quality basis. You have folks like Wal-Mart focusing on cost with no regard to quality, you get crap quality. That was the lesson of the article, you chose to ignore it. My attorney advises her clients not to do business with Wal-Mart, that in the end, Wal-Mart will ruin them business.

      3. German workers are well paid and enjoy considerable benefits, so I would submit that it is the fault of our leadership, both managerial and political.

      1. MyLessThanPrimeBeef

        I don’t get why a haircutter should charge more here to cut a local guy’s hair than a Chinese haircutter charge to cut a local guy’s hair there, or why a palm reader should charge more here than over a palm reader chareg over there.

        You get the same quallity of service.

        I also don’t get why an American tourist would not pay the prevailing American price for, say, a custom made suit there. He would gladly pay according to the Chinese rate/custom/tradition/way of charging for the suit there. But he would not accept the Chinese way/tradition/rate for eating dog meat there. Rather, he gets very uptight about it. Shouldn’t he apply the same respect for quality and craftsmanship he has for his American tailor and insist he pays his Chinese tailor the prevailing American price?

        1. Francois T

          “I don’t get why a haircutter should charge more here to cut a local guy’s hair than a Chinese haircutter charge to cut a local guy’s hair there, or why a palm reader should charge more here than over a palm reader chareg over there.”

          Try to factor in the respective cost of livings in both countries.

          It’ll become crystal clear.

    3. steven

      “1. Why should a worker of similar aptitude be paid more in the US than elsewhere?”

      Perhaps you would explain to us how a first world nation maintains itself when the 90% of the population that isn’t wealthy is forced to pay first world rates for food, shelter,clothing, health care, etc. on a second or third world wage. You insist that it is irrelevant that an indian can live a middle class life in india on a wage that wouldn’t even pay for the average american’s health insurance premiums so please explain it to us.

      I’m also curious as to why a manager should be paid more in the US than elsewhere? Isn’t it about time that we start finding cost reductions by outsourcing ceo jobs to the poor in the second and third world who will do the job for 10’s of thousands a year instead of a hundred million plus options? Please provide an answer other than “upper level managers aren’t groomed but are born with some rare and special gift from God that can’t be taught”.

      We are all hell bent on race to the bottom profit maximization. When does the top 10% give its pound of flesh to the cause?

  4. dilbert dogbert

    The Kozy article is a fun read but I have one little data point that says another story: I own a 1990 Dodge diesel 350 pickup that runs great and will be running great for another 20 years. If we have been on this downward path since the 1980s why did Dodge produce this truck?????

    1. jimmy james

      Well, okay, the true downfall of Chrysler started only 16 or 17 years ago instead of 20. But it’s still a sad, sad story. All other things equal I’d have more faith in your 1990 Dodge than its 2010 counterpart.

  5. dilbert dogbert

    The Wreched Morgenson article was also a fun read but not helpful. The real problem is directors don’t have the tools to do their jobs. That is the obvious problem that even a noob like me can see. We need to have some insight into the tools that could make the directors effective.
    My BIL was at BOA before it was absorbed by the Borg. He told me the Board and CEO were hostage to staff. In otherwords; Garbage In Garbage Out.

  6. Been there

    Re: The Robert Oak article and your continuing coverage of the working paper by Arora, Barak et al about the inability to develop accurate models that validate the pricing of CDO’s and CDS’s because of “computational complexity”.- Great piece that allows interested lay people(like me) to comprehend.

    My guess is that the percentage of cash paid out under many of the subprime CDO’s divided the face value of the underlying mortgages is not that different from the percentage of winnings divided by total wagers paid out by some race tracks. If this is so, when can we expect the financial innovators to start to pool and package CGO’s (Collateralized Gaming Obligations)?

    Quite frankly, if what the working paper concludes is correct, then there would not be much difference between CDO’s and CGO’s

  7. Don the libertarian Democrat

    “Does your paper imply that CDOs and related products should be banned?
    For now, that would be a hasty conclusion.”

    I’m not going to go over my objections to the post since I agree with and find the actual paper salient. But, there is a big difference between having CDOs and investing in them. Although I can see some uses for them, I wouldn’t invest in them under any circumstances. The vast majority of investors should see the word “complex” and flee. We’re talking about a product that very few investors should use and only for a fraction of their portfolio. That has already been demonstrated. We don’t need any more evidence about that. But that’s different from banning them.

    1. Yves Smith Post author

      Frankly, I see no reason not to ban CDOs (the ones that are resecuritizations, meaning tranched products made from tranches of other products). They are far too complex to be evaluated without the buyer incurring high due diligence costs, so that means they wind up being faith based paper in bullish credit markets.

      Technically, CLOs (collateralized loan obligations) are a type of CDO, but they are a tranched product made of loans (a first generation securitization) and hence not impervious to assessment.

      1. Don the libertarian Democrat

        I don’t understand why we should ban a transaction if:
        1) There’s full disclosure of it’s true nature.
        2) The Govt isn’t backing it.
        You might well not see the use or possibility for a product that someone else does. If they risk their own money with eyes open then why should we care? If you hand someone the paper that we just read and they say that they know better, let them try it and find out.

        If you’re worried about a panic or govt backing, then you should be supporting Limited Banking:

        “What about investment banks, brokerage firms, hedge funds, and insurance companies? What’s their right financial order?

        Again, regulate to purpose. Investment banks take companies public and assist in mergers and acquisitions. They shouldn’t be permitted to invest in their clients’ companies. Brokerage firms are here to help us buy and sell assets, not to gamble on spreads. Hedge funds are here to help limit risk exposure. They aren’t here to insure these risks themselves. Finally, insurance companies are here to diversify risk, not write insurance against aggregate shocks.

        The FFA and “less is more” limited purpose banking won’t prevent asset markets from occasionally going nuts. But the functioning of financial markets will no longer be in question. Nor will con artists, parading as “financial engineers,” ever again be free to wreak havoc on the nation’s finances and its citizenry.”

        Again, a product that cannot be judged for fraud is not necessarily fraudulent. As long as the buyer knows that, what’s the problem? Quite frankly, we don’t seem to be able to discern stupidity from fraud right now legally or intellectually.

  8. gordon

    May I suggest that Yves Smith makes a New Year’s Resolution to fix the infuriating glitch whereby when I click on “older posts” I get thrown back to (at the time of writing this) 8 November’s “Links” post. Everything from the bottom of the current page to 8 November has fallen into a black hole.

    1. Yves Smith Post author


      I know this is frustrating, but I said elsewhere that my tech guy has stage 4 cancer, and has been hospitalized for the last six weeks. I would appreciate it if you cut me some slack here. I do not do tech, fixing this is not something I have the foggiest idea how to do.

      You seem to believe I can snap my fingers and fix these problems and it does not work that way.

      Solving that probably means moving to another webhost, and the last time we tried that, it was utter hell and basically did not work after 6 attempts, multiple site outages and tremendous stress on me. I am now running on another tech guy’s server, and the older post problem may not be solvable there.

      You can either have me posting or dealing with collateral damage from tech mishaps. Since you can access the older posts via the archives in the left column, your demand is not warranted.

      I suggest you use that route, since you have another route to get the information, and making a change now is not in the cards. I am unlikely to do anything relative to this site until well after the book is out, probably April. I cannot take another stress item or risk a serious site outage, which happened every time I tried moving the site.

      You can view all the older posts via the archives, so I suggest you use them.

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