Links 1/15/10

Arctic permafrost leaking methane at record levels, figures show Guardian (hat tip reader John D)

FCIC hearings must shatter the ’sociopathic nature’ of Wall Street Rob Johnson, New Deal 2.0

Europe cannot afford a Greek default Simon Tilford Financial Times (hat tip Swedish Lex)

So what are banks for, anyway? Marshall Auerback, New Deal 2.0

It’s Not About Interest Rates Yet Tim Duy

Google vs. CCP: All the possible WHYs Chinayouren (hat tip Michael T) and Google’s fight: US-China lock horns Sydney Morning Herald (hat tip reader Crocodile Chuck)

UK banks face $10bn bill from US over bailouts Times Online (hat tip Swedish Lex)

Reply to Krasting’s reply to Coberly’s reply to Krasting Dale Coberly Angry Bear

Why are we letting Wall Street off so easy? Joseph Stiglitz, Mother Jones (hat tip reader John D). Why is Stiglitz having to say this in Mother Jones?

Antidote du jour:
Picture 17

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  1. attempter


    Sometimes, the financial companies (and other corporations) say that it is not up to them to make the decisions about what is right and wrong. It is up to government. So long as the government hasn’t banned the activity, a bank has every obligation to its shareholders to provide financial support for any activity from which it can obtain a good return. The predecessors to JPMorgan Chase helped finance slave purchases. Citibank had no qualms about staying in apartheid South Africa.

    1. As those examples, as well as all the domestic practices of the last 30 years, demonstrate, the banks are indeed morally depraved and despicable from any point of view.

    2. The argument that “it’s up to government to decide which practices are moral and then police accordingly” fails the instant you start lobbying.

    It doesn’t work, morally or rationally, to bribe and extort the government into letting you dictate morality to it, and then turn around and say “the government’s deciding what’s moral here.”

    But consider, too, that the business community spends large amounts of money trying to create legislation that allows it to engage in nefarious practices. The financial sector worked hard to stop predatory lending laws, to gut state consumer protection laws, and to ensure that the federal government’s ever laxer standards overrode state regulators. Their ideal scenario, it seems, is to have the kind of regulation that doesn’t prevent them from doing anything, but allows them to say, in case of any problems, that they assumed everything was okay—because it was done within the law.

    That’s why we cannot accept the fraud that what’s technically “illegal” or “legal” coincides with what’s in fact criminal or not. The law has been hijacked, the rule of law abrogated.

    We must have the spirit of Nuremburg.

    1. Richard Kline

      I agree with Stiglitz completely, could have written the commentary myself word for word. Yes, the crooks at the top of the game have exploited the other 99%—and the 90% who’ve gained _nothing_ from this have allowed their society to become what we see. The broadest problem isn’t the financial system but the dysfunction of individual responsibility in the enabling society. My thoughts for a dozen years at least; more.

      How many people did you know who remarked breathlessly in passing that their house had had a six figure gain since 2002 without their having done a thing to the property? That their 401k or other equities had gone up 50%? To me hearing these things, my reaction was one of horror. Not because I envy those their wealth but because manifestly both gains were transitory ripples in obvious bubbles with a great deal of pain and loss to follow. But try getting anyone to see that during those years. It was free money, the finest kind. And when folks are raking in five- and six-figure gains for just being there, how easy do you think it is to get them to question our imperial policy? Our gross mistreatment of the poor in the US? The problems which the complete domination of money in the political process guarantee for policy and regulation? My countryfolk have been, in the vast majority, deaf. Mammon speaks louder.

      It isn’t just a matter of punishing a few of the senior culpable. Getting a fair society which ‘first does no harm’ is the necessary goal. I see no movement toward that. Most Americans want a few exemplary punishments and than back to the 9% a year gains. We haven’t got our society off the gray-green cocaine, folks are just jonesing for their fix, and mad at the dealer for copping what’s left of the stash for himself.

      Citizens, heal thyselves. You’ve nothing to lose but your monthly statements.

      1. LeeAnne

        Contempt for working people isn’t going to shed light on this situation in which confusion and propaganda plays such a large part.

        “The people” have had no control over the Supreme Court. They have in large part respected the law.

        “The people” have had no say in how our elections are financed which is the basic cause of corporate dominance.

        In the world you live in, everyone would be a lawyer, a lobbyist, a political activist which isn’t too far from where we are now with FIRE slurping up 40% of the productive side of the economy.

        1. Anonymous Jones

          I left a similar comment on the thread to the previous post, but this is not about “contempt” for working people. It’s not contempt at all. It’s a simple recognition that if the working people and the dispossessed do not actually *sacrifice* to change the world, the world will not be changed. Just wishing that the government enacted better laws, just wishing that Supreme Court would make better decisions and just wishing that the elites will voluntarily stop the process by which they become richer and richer will not stop anything. People have to do more than just wish, more than just “depend upon the kindness of strangers.” They have to fight. And they just aren’t fighting. And they just haven’t fought. The dispossessed in this country far outnumber the elites. They could demand change at all levels of government. They have not done so. Richard was just pointing this out and explaining why he thought it was so. It’s descriptive and objective, not normative.

      2. Skippy

        If you breed them ill-informed, press all the right chemical buttons, expose them to endless visual and audio stimulation, incite never ending fear you’ll end up with Gods Country Brand Feed Lot Chattel, ripe for the market in half the time free range takes.

        The elites both in business and government having been groomed in the best schools America has to offer never seem to suffer the same fates as the common, as policy creators and enforcers, save an early retirement with full benefits.

        1. Skippy

          Yeah, that must be why I have trouble conversing with many such individuals out-side Posh food, Ritz travel or the latest Financial coup. Never any scope or curiosity out side the narrow blinkered view of the world that is set in social climbing stone.

  2. Amit Chokshi

    Why the dig on Mother Jones? Stiglitz doesn’t have a “real” voice, that’s been established since Larry can’t stand him ergo the whole economic team + MSM won’t listen to him. So now unless you’re like me and subscribe to real mags like MoJo, Progressive, The Nation, etc you don’t get much from Stiglitz except in Der Spiegel and Project Syndicate contributions. Stiglitz had a great interview in the progressive a cpl months ago too and the current Mother Jones is all about the finance industry, very very good.

    1. Yves Smith Post author

      I don’t mean that as a dis to Mother Jones (it has broken some important stories over the years). But why not Vanity Fair (which despite its bizarre Hollywood trash stuff, also has some serious articles? And BTW Stiglitz HAS written for them). Or the Atlantic (recall Simon Johnson’s The Quiet Coup) or Harper’s?

      This suggests to me the other venues might not have been willing to take this piece….which itself is terribly revealing. Of course, he could have been approached by MJ and been up for it.

  3. LeeAnne

    “Securitization epitomized the process of how markets can weaken personal relationships and community. With securitization, trust has no role; the lender and the borrower have no personal relationship. Everything is anonymous, and with those whose lives are being destroyed represented as merely data, the only issues in restructuring are what is legal—what is the mortgage servicer allowed to do (see “Mortgage Shark Attack”)—and what will maximize the expected return to the owners of the securities. Enmeshed in legal tangles, both lenders and borrowers suffer. Only the lawyers win.”

    Stiglitz’s statement that data are real people goes to the heart of the matter in “those whose lives are being destroyed represented as merely data” he rightly emphasizes securitization as a destructive force. ‘Securitization’ is at the center of this crises and much more needs to be said about its effect on the real lives of real people –all over the world.

    Only geniuses could have come up with a concept that eliminated the very fiduciary responsibility for which banking exists.

    This innovative financial system is indefensible having successfully erased fiduciary responsibility in the packaging process and perpetrated fraud here and abroad –all over the world on the most innocent people -like pensioners and workers.

    The concept of fiduciary responsibility is one that the public had every reason to believe was still in place when they signed agreements put in front of them whether it was credit cards or real estate or any number of other agreements that defrauded them of their money and/or legal rights. It is this absence of legal protection that constitutes fraud on the part of the investment banking community; the people who designed and sold these products to an unsuspecting public.

    Bringing securitization under control will take something like a return to Glass-Steagall to separate retail banking from investment banking.

  4. sherparick1

    But we can keep reading Casey Mulligan make a fool of himself on NY Times Economix blog.

    By the way, James Galbraith is another who seems to be boycotted by the MSM. Somehow Dean Baker is getting on NPR so someone must have taken him off the black list.

    Surprisingly, Business Week has been surprisingly strong and realistic. A recent cover article on the future of the U.S. work force in an era of chronically high unemployment showed that risks will be further shifted to workers and the work force will be made up even more part-time and temporary was very dark.

  5. MyLessThanPrimeBeef

    The world needs more owls to catch them rats…at least around my neighborhood.

    Gotta go. Today’s my ‘hug a car’ day. Will be busy all day looking for a nice, under-appreciated clunker to hug.

  6. MichaelC

    Brooksley Born’s testimony on Wed hasn’t got much attention but I think you and your readers should have a look.

    Her questioning of Blankfein elicited this great gem from him.
    “We didn’t specifically have a derivatives crisis”

    Of course we did have a massive, system crippling derivative crisis, which he had no small part in, but no matter.

    The statement also flies in the face of Born’s derivative market narrative especially as it relates to her point that:

    When markets moved the wrong way, AIG couldn’t make good on the payments Goldman and others demanded. And because the contracts didn’t trade on central clearinghouses, nobody knew where the risk lay—and which other financial firms AIG’s default would bankrupt. These unknowns set off mass panic until the Fed and the Treasury announced that they would stand behind AIG’s promises, including those it made to Goldman Sachs.

    That’s a nice summary of the wrong way risk issue, (although it’s easy to overlook since she chose to emphasize the lack of a clearinghouse over the bigger issue of the danger of the products).

    Mass panic ensued because few (except GS perhaps) recognized till then the reality that an insurance policy from a bankrupt insurer is no insurance at all.

    Although she focused on AIG, in reality every entity that wrote CDS on CDOs was potentially bankrupt, and likely didn’t anticipate that event, not just AIG. That’s a lot of bankruptcy to worry about, especially when you can’t figure out who wrote the policies. We knew about the monolines and AIG, but more was lurking in oher funds in the form of purchased synthetic CDOs. This is still an unknown 2 years later. Maybe Geithner knew, or knows, but he’s not saying.

    Maybe the Fed can be forgiven,(not really)for reacting in terror that AIG was only the tip of the iceberg.

    A summary of Born’s testimony:

  7. Tortoise

    To add to your reading of “Europe cannot afford a Greek default Simon Tilford Financial Times” I recommend:$file/ResearchEuroland_040110.pdf

    My reading of this fine report is that Greece and Ireland will have a hell of a time bringing their debt-to-GDP ratio to 60%. Miracles happen of course (they better since I do not see another way for Greece).

    I think that the only long-term solution for Greece and Ireland is the so-called “internal devaluation”, a misnomer for drastic reduction in the cost of production. Just watch California to see how difficult this is in practice. In practical political terms, it may come to pass that either Europe will assume part of the responsibility and pay a big part of the bailout cost or it will be better for Greece (and perhaps Ireland) to just quit the euro-zone and return to a national currency.

    1. kevin de bruxelles

      I’ve been thinking about this scenario where Greece bails out of the Euro but I cannot see how it would help them.

      First of all they have tons of debt to service. If they leave the Euro and adopt the GyroMark (or whatever they will call it) it will immediately be devalued by say 40-60% against the Euro. This means their debts will go up by this much, which means in turn that they must default. Now Greece has an insane current account deficit, while they export €30 billion or so they import €93 billion. Once they swithc over to their weak-ass GyroMark, those imports are going to become real expensive. Petrol, electricity, natural gas, food, cars, not to mention consumer goods just went up by 40-60%. And after having defaulted it’s going to be real hard to get any credit besides from the IMF, and they’re going to insist on the same reforms, if not more, than the Germans are demanding now.

      So they will suffer all this so that in theory they will be able to export a little more with their cheaper currency, after paying for the huge increase in imported raw materials and energy of course. On the bright side tourism will increase and Eurozoners will pick up cheap retirement or vacation homes on the islands. But that is one huge current account deficit Greece needs to make up. Leaving the Euro will result in a precipitous drop in their standard of living to say they least.

      Not only that, but think about how middle class Greeks with savings will game this. If there is even a hint that Greece would leave the Euro, there would be a huge run on Greek banks with savers rushing to get their money into European banks where they can be sure their savings would be denominated in Euros. I’m sure businesses would follow so that there will be one huge flow of private capital out of Greece. On the other hand people with debts will be more than happy to have their mortgages and credit cards to be priced in GyroMarks. But what does this do for Greek banks, if they were stupid enough to agree to it? They would basically be out of business in this case. Greek banks just lose most of their capital and their assets (the mortgages and other loans they hold) would be devalued. No Greek bank could survive this.

      Greece is going to have to find a solution that keeps them in the Euro zone.

      1. Tortoise

        Greece would only leave the euro-zone in combination with a default in their sovereign (an even perhaps all public or private euro-denominated) debt. I agree that otherwise, Greece would be devastated by just leaving the eurozone while owing 300 billion plus in euros. Of course, if Greece defaults, quite a few banks and mutual funds would be hurt. Furthermore, this would undermine confidence in the next weak link and may speed up the collapse and withdrawal of another country. You can draw your conclusions regarding who has to do what.

    2. MyLessThanPrimeBeef

      Tortoise, the California equivalent of Greece leaving the Euro-Zone is the idea broached last year by a state official to leave the Union and revert to territorial status.

      1. Tortoise

        California has huge problems but is in better shape than Greece. (I hope this is obvious.) I will mention just one reason: Checks from the federal government (like social security checks) are not affected by the finances of the state. Very different situation in Greece. In Greece, there is only one government that is over-indebted and is now trying to economize. Chances are that Greece will enter a severe and prolonged recession while I think that California’s economy will soon start growing again.

      2. Oldeuropean

        But with a country (Greece) producing 2.5% of the Eurozone’s GDP (and 1.9% of the EU’s) we are far from a dangerous situation weighing on the single European currency and the Eurozone. By way of example, the California’s default (12% of US GDP) entails far more risks of destablisation of the Dollar and the American economy.

        1. Tortoise

          To be sure… However, if the sovereign country of Greece has a 50% probability of defaulting, the State of California has only a 5%. In other words, California is a longer way from a default than Greece. California and Greece do have a common characteristic: They have citizens with money but they cannot squeeze enough tax out of them. In California because of the divided legislature (plus the strong lobbies like real-estate related)and in Greece because of the dysfunctional state apparatus. They both should cut down on their expenses but the politicians are not willing to pay the “political cost”.

  8. KFritz

    Re: Google vs PRC

    Probably some combination of several of the factors mentioned is the motive.
    Here’s one more thought. Google was playing a subtle game with the Great Firewall, complying with censorship while allowing dissidents to use Gmail’s security features to protect themselves. PRC’s hacking apparatus punctured the security features and defeated Google’s strategy. Between losing at this game, actual anger at the vicious tactics, and a belief that search in PRC will increasingly be weighted in favor of Baidu, they picked this as the moment to bail.

  9. wawawa

    I am speechless.

    This is HR 4173, “‘The Wall Street Reform and Consumer Protection Act of 2009.

    On Section 1701 (ADDITIONAL IMPROVEMENTS FOR FINANCIAL CRISIS MANAGEMENT.) starts on page 436 and on subsection C (FINANCIAL CRISIS MANAGEMENT) talks about unusual and exigent circumstances. Page 437 says “Upon making any determination under this paragraph, with the consent of the Secretary of the Treasury, the Financial Stability Oversight Council shall promptly submit a notice of such determination to the Congress. The amounts made on available under this subsection shall not exceed $4,000,000,000,000.”

    Basically this bill allows future $4 Trillion back stop to WallStreet casino.

  10. run75441

    Hi Yves:

    It is interesting that when Wall Sreet and the Financial Industry gets in trouble the first thing they look to attack is Social Security, Medicare, and other programs that help the vast majority of the taxpayers who bailed them out. The sky is not falling as some would have us believe. The SS TF is doing what it is supposed to do, payout when there is a short fall whether if is a normal cyclical downturn in the economy or one perpetuated by thge Wall Street pirates and speculators. Unless one gives up on the growth of the economy and truly believes people will not go back to work, than there is not much to worry about for now.

    Coberly and Webb are correct in their stance. The others are misguided.

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