Links 1/20/10

Astronomy Picture of the Day Nasa (hat tip reader John M). Today you get the known universe.

Pretty women ‘anger more easily’ BBC (hat tip Michael T)

Fight to save dying plant species BBC

The Greek tragedy deserves a global audience Financial Times

Goldman Sachs staff must wait to hear size of bonuses Guardian (hat tip Michael T)

China Asks Some Banks to Limit Lending on Insufficient Capital Bloomberg

The fallout: Democrats rethinking health care bill Politco. I don’t see the Brown victory as being a repudiation of the health care reform as much as of Obama’s crony capitalist policies. But the immediate impact will be on the legislation.

Beware global economic imbalances, Mervyn King warns Guardian

The Greek tragedy deserves a global audience Martin Wolf, Financial Times. Reader Swedish Lex notes:

What I am mainly worried about is Germany’s intentions. The French would be quite inclined to pay the political price in order to save the euro. I can however not figure out Germany’s and Merkel’s intentions, neither what it wants with the EU on the whole and whether they are beginning to believe that the political and economic constraints that follow from a common currency with rowdy Southeners are a nuisance.

The sweetest usurious bastards John Hempton

Antidote du jour (hat tip reader Jon M, photo by his friend Byung Lee, who took it in Patagonia):


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  1. Martin

    Well, Merkel would agree to a bail out, when there is some European control over Greece policy.
    More of political union? Definitively no. It is very questionable if more than the Lisbon treaty is possible without changing the constitution. The idea is more like when the IMF weighs in. On side gives souvereignty away, the other not.

    I’m German and don’t believe the population will take much more in giving away souvereignty. I have become less and less enthusiastic about the EU in the last years.
    As well the opposition is extremely fixed on the national scale. They would claim the opposite, but everyday actions are more revealing than words.

    I think Greece should default and stay within the Euro; and if they leave the Euro they should as well leave the EU.

    1. michael

      I’m German too, although I don’t follow all their headlines anymore.
      When the new coalition recently decided to cut taxes and thereby raise the deficit to ~7%, I wondered:
      Obviously they don’t care about the Maastricht rule. Politicians must have thought “free money!”, through free additional deficits, as pretty much all EU countries are already breaching Maastricht criteria.
      But thinking a little further, in effect they take money from the till and burn it. So if soon to come the EU needs bailout money, they can take a long look into their coffers and say “Hm, sorry… we have very little ourselves!”

      So I believe Germany intends to bail out other EU members to save the Euro, as they are positioning themselves to take on a *smaller* piece of the burden.

  2. a

    “The French would be quite inclined to pay the political price in order to save the euro.”

    The French would be inclined to pay a political price, of course, but not a monetary price; that is, the French will not be willing to pay any of their money. That, apparently, is Germany’s job.

  3. joebek

    Ever since Obama emerged as a potential and then a probable President, I have expected that he would eventually arrive at a Mitterrand moment. At that point, he would grasp, under the pressure of responsibility, that the nineteenth century ideas he absorbed at Columbia and Harvard were no longer viable and he would radically shift directions. I am beginning to doubt though that, despite his obvious intelligence, he has the character and cast of mind to make that shift. The Brown victory in MA suggests that my original thesis will be verified or falsified soon enough.

    1. aet

      Mr Obama was not Republican enough in hispolicies, says Z.

      “The people want health care costs cut, not expanded coverage”, he says.

  4. Bob_in_MA

    The Brown victory is only tangentially tied to the bailouts, or the health care reform for that matter.

    It’s about the massive increase in spending and deficits. That’s what’s Brown’s full page ad in our local newspaper stressed. Larry Summers is not on their radar. Bring up the AIG-Goldman connection and they will have no idea what you’re talking about. And we already have a health care regime that penalizes people for not having insurance, etc.

    Basically, people here are liberal, but they’re as cheap as old time Yankees. Saddling their kids and grand kids with another $8T in debt gives them pause.

    1. aet

      And by what percentage of the vote did Mr. Brown gain this sweeping mandate to reverse Obama’s very limited “changes”?

      This is a classic protest vote: against the policies which Obama has followed: policies notably similar to those of GW Bush – escalation of the wars , more corporate welfare , and the same old faces from the Bush years in prominent & public positions of power (never mind those positions out of the public eye): positions held at the pleasure of the President!

      And the MSM spins it to read: people want Bush and his boys back in Office!!

      1. DownSouth

        With the Republicans you’re the victim of only one crime. But with the Democrats you’re the victim of two. Policywise there’s not a bit of difference between the two. But with the Democrats, besides having to bend over and take the big one up the rear, you also have to listen to their lies and hypocrisy.

        1. Cynthia

          I couldn’t agree more, DownSouth. Let me add to what you’re saying by saying that Massachusetts, one of the most liberal states in America, voted a Republican into the US Senate not because the movers and shakers within Democratic party, mostly led by Obama’s two key advisers David Axelrod and Rahm Emanuel, moved their party so far to the Left that’s it now is in commie territory, but because these very far right-of-center democrats have moved their party so damn far to the Right that the Democrats have become one and the same with the Republicans. So what I think is probably happening in Massachusetts is that its liberal Democrats feel so betrayed by their party that they elected to stay at home and not vote in this senatorial election.

          The people of Massachusetts are perfectly aware of the fact that there’s something very stupid (not to mention very fishy) about Obama hiring some of the very same people who were most responsible for messing up our economy to help clean it up. This is the economic equivalent of hiring a known child molester to look after kids in an day care! So it’s no surprise to most Massachusettsians that Obama’s wrecking-crew-turned-clean-up-crew, led by Rubinites like Larry Summers and Timothy Geithner, tailor made the economic recovery plan to bail out our TBTF banksters on Wall Street, while leaving ordinary folks on Main Street to fend for themselves. Massachusettsians aren’t clueless to the fact that the recovery plan was specifically designed so that even more of our nation’s wealth is transfered to the very few at the very top of our economic food chain.

          The people of Massachusetts also know that there’s something very stupid (not to mention very fishy) about Team Obama wanting to design a health care system for our nation after Massachusetts’ health care system, given that it’s shown to contain more bugs than features. So it’s no surprise to most Massachusettsians that Team Obama is pushing for a a health care plan that’s nothing more than a pork-fest for industry elites. What is even more stupid and even more fishy about Obama and his team of health care advisers is that they made sure that single-payer never saw the light of day and that the public option was killed in its infancy: the very two things that could’ve done the most to cut the fat out of our already very fatty health care system.

          1. avrymann

            Right On Cynthia! As has been advocated by our fearless leader, Yves Smith, kill the health care bill now. It is worse than what we now have. It’s another transfer of wealth from the middle class to the fat cats.

          2. Kevin de Bruxelles

            You are so right. Ask anyone the question “has Obama governed more to the left or to the right than you expected” and any honest person will answer “to the right”. So now the corporate funded media tells us that all these people who voted for Obama a year ago are upset because he drifted left? Not a chance. They are upset because he is just more of the same.

            Btw, thanks for mentioning Wolin’s Inverted Totalitarianism on one of your comments a few days ago. I ordered it immediately and should get it soon.

    2. craazyman

      they may not realize it, but their unconscious minds are tuning in to the big fraud written in high amplitude waves of collective consciousness in the upper noousphere.

      It’s the same way the birds know where to fly. they don’t think, they just watch the DNA mind screen and the voice of the big Bird God tells them where to go in sentient waves of meaning that defy language.

      So it is with the Massachussets colony. they may mistake their stabs at logic for their real motivation, but their real motivation is beyond language or mathematics. It conveys itself in waveforms that propagate through time from even the King George era.

      It is a sentient knowing — that AIG is a fraud and everything about the Big Finance Bailout is a fraud. That they are being looted, raped and crushed by pschotic madmen who control their money and therefore their lives.

      It’s like a big radio. Really, I’m not kidding even though it sounds like I am.

      1. Jim S

        I’ll bite. “Holographic Universe”, or “Spiritual Universe”? And please, don’t tell me you have a newsletter …

        1. craazyman

          newsletter? :) are you kidding?

          I’m a hard working white collar ditch digger in the investment and energy industries.

          Nobody has any idea I’m this nuts. ha ha aha aahahahaha.

          If you saw me on the subway, you’d think I was a just another clean cut guy in a suit.

    1. DownSouth

      Yea right.

      As if thirty years of Libertarian-Austrian-Neoliberal (LAN) domination of the economy, and the devastation it caused, wasn’t enough.

      But oh! I forget! You’ve excommunicated both Bush and Greenspan, who up until recently were two of your leading lights. So now the LANies get to start all over again, as if the last 30 years, where the LANies enjoyed almost free reign to implement their policy prescriptions, don’t count.

      I at least appreciate the fact that the LANies are now being more forthright about their intentions, for instance with the book being plugged on the von Mises Institute web site: DEMOCRACY: The God that Failed. The Description provided says “it reaches the conclusion that monarchy, with all its failings, is a lesser evil than mass democracy.”

      Of course anyone who has been paying attention knew that, despite all the soaring rhetoric about “freedom” and “liberty,” there was trouble in LANie paradise. Hayek and Friedman made that pretty clear when they went to Chile back in the 70s. “My personal preference,” Hayek said while fawning over Augusto Pinochet, “leans toward a liberal dictatorship rather than toward democratic government devoid of liberalism.”

      Carlos Fuentes, writing in The Buried Mirror, explains the type of “liberal dictatorship” the LANies were heaping their praise upon:

      In a savage action, Allende partisans were rounded up, gathered in a stadium, and murdered en masse. Others were sent to concentration camps, and still others were exiled and sometimes murdered abroad. Pinochet did all of this in the name of democracy and anticommunism.

      1. attempter

        Earlier this morning I mentioned on another forum how Friedman was personally complicit in mass murder. I forgot that Hayek had gone to Chile as loved it as well.

        I wonder what will have to happen before history puts them in their proper place among the 20th century’s worst killers.

        Even Hjalmar Schacht, after working for Hitler for several years, got ambivalent and was replaced. But evidently Hayek and Friedman were willing to go all the way with Pinochet. There’s nothing they wouldn’t have endorsed, short of failure to privatize the copper mines.

      2. tysker

        Both Pinochet and Bush liked to dress in “LANian” clothes – they fit well and were fashion forward. But when it came time to govern the people and move their countries forward through difficult times they reverted to the standard, drab, bottom-drawer corporate schwag. Dont blame the message, blame the messenger.

        1. Anonymous Jones

          I think the point is that the message can never be delivered because there will never be a messenger who can deliver it.

          You really should examine that possibility.

          I’m definitely not positive (and can definitely not prove a negative) but still, it might just be right.

          Listed to any communist: “It’s never been tried! Well, except for when it was usurped by Stalin and his brand of totalitarianism.”

          Listen to Chomsky on Anarcho-Syndicalism: “It’s never been tried! Well, except when it was usurped by fascism under Franco.” [Literally, you can see something almost exactly like this emanating from Chomsky’s lips in Manufacturing Consent.] Classic!

          And now we can listed to the LANies: “It’s never been tried! Except when Pinochet screwed it up and ‘disappeared’ everyone.”

          Seriously, this is beneath a reasonable mind. Utopias don’t exist. Liberty is something to strive for, yet it is something that will be forever out of reach. Seeking liberty in the fashion of LANies hasn’t worked and will probably never work. Is it really so surprising that the creation of a power vacuum in the power dispersal ‘utopias’ of communism, anarcho-syndicalism and radical libertarianism always ends in that vacuum being filled with violent, totalitarian dictators like Stalin, Franco and Pinochet? Surely you don’t all still think it’s a coincidence? Perhaps we should focus on practical, non-ideological solutions that involve checks and balances at most every level of public life, from the local to the national to the international? Oh, never mind…

  5. charcad


    I don’t see the Brown victory as being a repudiation of the health care reform as much as of Obama’s crony capitalist policies. But the immediate impact will be on the legislation.

    Isn’t this a positive result from your viewpoint? I thought you were condemning the current health care reform bill as inherently corrupt just a few weeks ago. I think this also means any carbon emissions cap, tax ‘n trade legislation is now DOA. I like this result although you probably don’t.

    On the plus side for you the present Congress might become markedly more anti-Federal Reserve, anti-bankster, anti-Bernanke and anti-Geithner. The last two are likely to become the lightning rods for everyone’s anti-bankster rage in this election year.

    Ideally they’ll be pilloried in Congress until October, then transported by tumbril down Pennsylvania Avenue wearing dunces caps.

    1. DownSouth


      You say: “On the plus side for you the present Congress might become markedly more anti-Federal Reserve, anti-bankster, anti-Bernanke and anti-Geithner. The last two are likely to become the lightning rods for everyone’s anti-bankster rage in this election year.”

      This is the same theme expressed in a column I found by following Valissa’s link above:

      No, what has Wall Street worried, at least according to the senior officials I spoke with in the days following the hearings, is not the past but the future. Wall Street sees no end to the massive public anger directed its way. (It’s why the president’s new banking tax seems to have little opposition, even among Republicans, who generally oppose higher taxes on anyone.)

      So in some crazy, convoluted, roundabout way, the people may have the last say after all.

      1. charcad

        So in some crazy, convoluted, roundabout way, the people may have the last say after all.

        We’ve had a Democratic House and Senate four years now, ever since 2006. Add to this one Year of Change in a Democratic Executive branch. Almost 2 years come November. Excusing everything by blaming George and the GOP no longer works.

        If you want to see the future in the House I suggest looking at the seats that turned Blue starting in 2006. The GOP House majority in 2006 got killed on two main issues. The first issue was the Jack Abramowitz influence-peddling scandal. The effects of this were fairly diverse geographically.

        The second issue was the rising impact of Chinese non-Free Trade on Midwest industrial employment. The GOP lost a string of formerly safe Ohio River Valley seats from western Pennsylvania out to Iowa. Now Obama and the Democrats may argue they didn’t cause their problems. But with record unemployment it’s equally clear they haven’t improved their situation.

        Carville’s “It’s the economy, stupid” will be in play this year in excelsis. These Midwestern industrial unemployment seats are the most likely to start flipping back. Listen to what Indiana Democratic Senator Evan Bayh is saying. There’s a reason he’s talking like he is.

        1. Anonymous Jones

          Fair points mostly, but did you mean it’s “equally clear they haven’t improved their situation” in that their situation hasn’t improved from what it was or that their situation hasn’t improved from what it might have been? The former is pretty clear, the latter not as much.

          I am not a Democrat and I find Democratic representatives mostly embarrassing stains upon humanity, but I do still have the instinct that they are less aggressively trying to destroy the things about my country that I love than the Republicans are.

          Do we really think the GOP wouldn’t still be trying to eliminate the estate tax (and all taxes on capital for that matter)? As disappointing as Obama has been to progressives and how insubstantial a change he seems from Bush, I find it difficult to believe Bush or McCain would not have wrought more havoc on our economy and our middle class (the largest block of our populace). Of course, I could be wrong…

          1. charcad

            but did you mean it’s “equally clear they haven’t improved their situation” in that their situation hasn’t improved from what it was or that their situation hasn’t improved from what it might have been?

            I meant these districts’ situations are far worse in 2010 than they were in 2006 when they changed from GOP to Democrat House representatives. Incumbent Democratic representatives are now holding the bag.

            I am not a Democrat

            A useful reiteration: I’m a registered independent myself.

            As disappointing as Obama has been to progressives and how insubstantial a change he seems from Bush, I find it difficult to believe Bush or McCain

            Bush/McCain used to be called “Rockefeller Republicans” and are still called “Country Club Republicans”. But there is a large section of the GOP that are not overly signed up to the Globalist, Free Trade, Neocon/Neoliberal paradigm of this group. Maybe up to three sections.

            1. Reagan Democrats. a/k/a Buchananite nationalists.
            2. Traditional economic conservatives.
            3. “Christian Right”

            Enough of them failed to turn out in 2006 to defeat about 20 GOP reps. McCain of course failed to appeal to them, other than by selecting Sarah Palin as VP. Obama, Pelosi and other limousine liberal snobs of course sneer at them as “clingy people” (guns & Bibles) when they think they’re not being overheard.

            These three groups are more highly energized to turn out this year. Meanwhile Obama, Pelosi & Company have worked hard since 2008 to alienate both swing independent voters and their own activist base.

            The Ohio Valley is full of districts that only need a 5-10 point swing to flip back to Red.

            Q. And Coakley in uber liberal Massachussets lost how many opinion poll percentage points in 6 weeks?

            A. 31 points.

            Q. What do Virginia, New Jersey and Massachussets have in common?

            A. Profound regret over helping elect Barrack Obama, based on the results.

            But Democratic partisans can look on the bright side. RNC Chairman Michael Steele and House Minority Whip Eric Cantor despise and fear most of the GOP base as much as they do.

    1. MyLessThanPrimeBeef

      Richard Smith, they say when Columbus first showed up, the Taino people couldn’t see the his ships. The reason, they then say, was because the Taino people didn’t have the mental construct to see the ships.

      So, is it the wind moving, the flag moving or the mind moving, so goes a Zen koan. Is it the water flowing, the bridge flowing or the mind flowing, asks another Zen koan.

      Now, is it llama lust or lust in our own minds that we see lust in the picture?

      1. Richard Smith

        MLTPB, it just looked like some llamas at first, then one seemed to have some rather short legs, then the heads were in the wrong places, then I got it.

        So you can put me down as one of the Taina, I think; though eventually I did retrieve the right mental construct, after some puzzlement.

        Must be getting old… which probably answers your question.

    2. gordon

      Well, I didn’t know that llamas do it sitting down. You learn something new everday on the internet!

    1. Yves Smith Post author

      Obviously, here where I am ruler of my little domain and hide behind a male monicker, very. In person, not much at all on personal matters, but I will disagree with ideas pretty freely, more freely than most people. But that seldom rises to the level of argumentative.

  6. rickstersherpa

    The decision to go “Japanese” and save Robert Rubin and all his friends and buddies at CITIGROUP, Goldman Sachs, the others is directly responsible for current economic conditions (high unemployment and slow growth with a high risk for a double dip recession), the apparent failure of last year’s stimulus bill, and consequential explosion in the Federal Budget deficit. As Barry Ritholz points out today on his Blog, the Big Picture, because the zombie banks continue to carry so many bad loans on their books, and loans and securities that will go bad, they have contracted lending by 1 trillion dollars in the past year. It has also undermined confidence that any health plan that will come out of this Congress and Administration will benefit the mass of middle class and working people. For more read below:

    “For over a year now, I have been advocating a Swedish rather than Japanese approach to crisis. The Swedes decided to protect their banking system at all costs; the Japanese protected their banks at all costs.

    That subtle distinction is the difference between a rapid recovery and a slow, agonizing one.

    Some people think this is an academic debate — a distinction without a difference. However, when you see who bears where the actual costs of this fall, it is apparent that the it is an enormous difference.

    Unfortunately, the US (mostly) went the Japanese route. Exceptions are the automakers and a handful of FDIC closed banks. Instead of waxing philosophical, let’s look at who pays the costs of this – and who does not.

    Shareholders: In the Swedish approach, the Shareholders get wiped out. In the US/Japanese model, they take a big hit — a loss of 90%+ of their value — but they got to keep there stock shares. Hope springs eternal for an eventual recovery.

    On Wall Street, other than Lehman Brothers (LEH), all other shareholders were saved. Bear Stearns (BSC), Citigroup (C), Fannie Mae (FNM), AIG, BofA, (BAC) Goldie (GS), Morgan Stanley (MS) — all were kept afloat.

    Ironically, the insolvent firms that were forced into a reorganization – GM & Chrysler, Washingon Mutual, etc. – actually are the ones following (at least partially) the Swedish style model: Restructure, Wipe Out Debt, Recapitalize, Relaunch as a new, clean firm.

    Bondholders: There are 3 parties that undeservedly were bailed out, and the head of the class are the bondholders.

    Except for Lehman and FDIC closures, most bondholders were rescued: Bear Stearns Bondholders received 100 cents on the dollar — that was their reward for exercising terrible judgment when lending money to a reckless irresponsible insolvent investment house (so much for Moral Hazard). Same for Citi, Fannie Mae, Bank of America. We still don’t know what the final impact will be for AIG Bondholders, but expectations are for the full monty.

    When future historians discuss the bailouts of 2008-09, and discuss who were the greatest financial recipients of taxpayer largesse, they will be referring to the bondholders.

    Counter-parties: For reasons not yet explained, Paulson, Bernake and Geithner essentially gifted to speculators and hedge fund traders a guarantee that all their back alley bets would be made good. This is truly perplexing, as they are probably the least deserving group receiving taxpayer money.

    Management: Several senior execs have lost their jobs, but they have been the exception. A recent study found that 92% of TARP firm senior execs, boards of directors, and C-level management were still running the firms they had been. It is perplexing to those of us are trying to figure out the penalties for driving your firm over a cliff . . .

    Taxpayers: So far, the US taxpayer has laid out all of the costs of the bailouts. TARP appears to be mostly repaid, and the new TBTF tax should recover the rest. But the question the FCIC should be asking is why are taxpayers a backstop fro traders and speculators?

    Borrowers: Banks are lending dramatically less, as they slowly recapitalize their balance sheets, borrowing from the Fed at 0% and lending back to the Treasury at 3%. Best guesses are that this year and last will see a $1 trillion less dollars than normally would be loaned to credit worthy borrowers. This is directly due to the Japanese approach that allows bad balance sheets and enormous bank under-capitalization to continue.

    Workers: Are going to suffer for a long period of slow job recovery due to the above. If banks were forced into the normal FDIC insolvency process, the economy and employment would likely recover must faster.

    Savers: Zero % interest rate. Estimates are this costs depositors $250Billion per year. ’nuff said

    Bank Customers: All banks customers are now buying services from frims in a sector with much less competition.

    First Time Home Buyers: Although they get a minor tax credit, various government policies are maintaining home prices at levels far in excess of where the market would take them. Outside of the big foreclosure zones, they are feeling the impact of the subsidies and bad policies.

    The bottom line: Bailouts have specific winners and losers . . .”


  7. Rickstersherpa

    Unhappy economic conditions lead to an unhappy electorate. However, as long as they are voting for Republicans and Tea Partiers and DLC Democrats I don’t think the U.S. elite will be worried. The masses have suffered basic decline in their standard of living and public services in the United States to a 3rd world level the last thirty years have made the U.S. eliites fairly complacent about potential domestic disturbances, as opposed to the Chinese elite, with their vivid memories of the Cultural Revolution, and therefore feel a vital interest in raising the general population’s standard of living or India, where the elite also still feel a noblesse oblige to the masses and don’t evaluate each other strictly on size of their bank accounts, the number of homes they own, and the expense of their toys.

    1. MyLessThanPrimeBeef

      Ricksterssherpa, maybe I have climbed Mt. Everest one time too many without sherpa guides, but I am not so sure about the part about the noblesse oblige of the Indian elite.

      A Zen man becomes the arrow itself when practicing archery. It’s the total immersion school. To work on the problem of poverty, one become poverty itself. One becomes poor. You can’t just set up your billon dollar foundations. I know many rich people do that. But the Zen approach is for the rich, charitable men to become poor, to become poverty itself. Better yet, don’t get rich in the first place. My hypothesis is that if no one gets rich, no one feels poor either, relatively speaking.

  8. MyLessThanPrimeBeef

    What is this, pretty women anger more easily?

    I don’t know why we are posting this kind of stuff.

    What’s next – ugly women anger more deeply and longer?

    Do you think animals and plants care about this obsession on human anatomy?

  9. Cynthia

    Let me remind everyone here that Coakley slipped sharply in the polls just after she caved into Sen. Nelson’s demands to attach abortion restriction legislation to the health care bill. Keep in mind that Massachusetts, despite having a large population of Catholics, is a pro-choice state. Also keep in mind that Brown, despite being somewhat of a gun-toting teabagger, is pro-choice. I say these things because I’m expecting to hear many right wingers argue that Coakley’s pro-choice stance helped her lose the election. Nothing could be further from the truth!

    And let me end by saying that Brown really has got some balls to pose nude in Cosmopolitan magazine…;~)

    1. MyLessThanPrimeBeef

      Let’s not get distracted by the first real sexy man or woman to show up in Washington DC.

      We have a lot of important work to do for our nation. His first task is to reform politicians’ healthcare so they can afford better doctors to improve their hearing. Due to poor medical care, politicians don’t hear very well. It’s a bipartisan sympton, probably from environmental causes – it is know that fancy furnitures, pliant staff and pompous music destroy one’s hairy hearing cells located inside one’s inner ears. But most of all, making speeches of soaring rhetoric is the deadliest killer of one’s hearing cells. It’s like detonating a nuclear bomb inside one’s ears.

  10. MyLessThanPrimeBeef

    Regarding the size of bonuses, Goldman Sachs staff needs to know that it’s their own feeling of inadequacy that they think size matters.

    Small is OK.

  11. MichaelC

    In the interest of making the financial crisis and the role of the villains clearer to every granny reading the OpEd page of the NYT and to connect a few dots for your readers I think the following analogy is useful.

    GS is to the financial markets, what Oppenheimer was to nuclear proliferation. They each developed the bomb that threatens to destroy civilization.

    Credit derivatives, not lax lending or easy monetary policies alone, are THE primary cause of the state of the financial markets today.

    Consider the following timeline:

    Insurance on financial instruments was primarily written by :

    A. AIG – till 2005 (per Cassano)
    B. Monolines – till 11/2005 (when they refused to trade with dealers under Pay as you go ISDA form I, in other words post cash collateral)

    In late 2005:
    The monolines insistence against trading on the pay as you go terms has forced dealers to find ways of attracting investors other than monolines to sell protection in the senior-most part of the ABS capital structure. In the leveraged super-senior deals, investors receive exposure to the pumped up returns by selling dealers protection on the tranche- much as the monolines previously did. (1)

    “Levering exposure to super-senior tranches of ABS expands the role of the monolines to the capital markets”, said Todd Kushman, managing director and product specialist for derivatives of asset-backed securities at Bear Stearns in NY, noting that selling ABS to hedge funds and other institutions diversifies issuers counterparty risk. “It’s unbelievable how many people want this trade” (1)

    From Derivatives Week 2/06 link below

    In other words, a synthetic instrument was created that enabled the insurance to be provided by purchasers of the instrument.

    Goldman got the ball rolling with its first LSS, an Abacus deal, referencing 30 AAA rated US CMBS in November 2005. (2)

    This development was tremendously significant. Since this product and its spawn facilitated wide distribution of real estate exposure, the lending boom could continue and the quality of its product could continue to deteriorate.

    C. 2006 onwards- LSS insurance structures expanded to Mezz tranches and then to ABS CDOs. Major banks arrange/manage conduit structures which issued these notes , retain minimum equity positions and record them off balance sheet in their SIVs and other Off Balance sheet vehicles. This sponsorship soothes investors giving them the impression that the notes are backed by the sponsors , although that was not true. (The 400 b shadow banking system)

    4 Q 2006 -2008 Monolines get hammered.
    At this point , late 06, GS, by their own admission, goes short the market using the instruments they pioneered in ’05 ( the betting against their clients claim becomes relevant at this point, although technically they really were betting against the investors providing the insurance)

    August 2007- Canadian CP Markets collapse, paralyzing the entire Canadian economy. CP investors were huge buyers of LSS on ABS. Canadian CP investors weren’t sophisticated enough to realize the notes they bought represented insurance written on dodgy assets. The Canadian gov’t intervened and the Montreal accord was negotiated, with the result that CP investors swapped their worthless CP for longer term notes on the same assets.

    Bank sponsors of conduits are forced to prop up (not bailout) some of the structures in their SIVs. The size and fragility of the shadow banking system was exposed.

    These LSS (and their spawn) trades were widely distributed globally.

    There was clearly a large concentration in Canada. Asian retail exposure became apparent when Lehman collapsed. Australian municipalities were hit. Large bank sponsors of the conduits also were impacted, and hedge fund (and their lenders) realized losses. The bulk of the losses are, or will, be borne by the bondholders of those structured vehicles. Its not clear yet who they are (pension funds, bond mutual funds, municipalities, gov’t funds, ??)

    AIG was silent through 2006-2007 as their peers were collapsing. It’s ironic that AIGs auditors had to use Sarbanes-Oxley to force AIG to reveal the depth of its problems, but nevertheless their exposure was well understood by GS and every other player in this space long before Sept 08.

    Which leads me to conclude the AIG bailout is a sideshow (although a significant one). All the decision makers at the table , Treas, Fed and the IBs understood full well that an AIG bankruptcy would be a tipping point that would expose the bankruptcy of the larger insurance pool provided through the synthetic CDS notes. And the fallout from that could not be contained without a coordinated global gov’t response and there was clearly no time for that during that Sept weekend, or on any other weekend to come.

    Geithner may be the callow tool he is portrayed as, but since he constantly insists that he made the right decision in bailing out AIG, I conclude that he needed to address a crisis that needed to be covered up at the moment and resolved over time and he is resigned to playing the useful idiot .

    In cold war terms , the banks on one side and the regulatory/govt’s on the other are locked into a MAD stalemate. Disarmament talks need to be organized, but the immediate priority was to disarm the known bombs and contain the damage from the smaller devices.

    Credit Derivatives reform is not being addressed or even seriously considered at this time. Until it is, any talk of reform of the regulatory system is meaningless and probably counterproductive.

    to paraphrase Carville. “It’s the CDS, stupid”

    Leveraged Senior ABS touted as way round monocline CDS standoff
    Goldman pitches Levered super senior on CMBS

  12. emca

    CA. tried the action figure route several years ago. Hasn’t worked out so good.

    Voting for Obama one year, and Brown the next would seem confusion on the voter’s behalf, a mystification on how steely pols can, with the countenance of Zeus, imply change in an election – then deliver none; a general vagueness of change in implementation, a logical consequence of Ann Ryan theory of social cohesion. Perhaps it is only a matter of the Lets-Make-A-Deal psyche, that all you have to do is briefly make an ass of oneself to achieve great reward.

    Don’t have the slightest how Brown will out, but I see no good in the undefined and indecisive state of voters terming themselves – independent.

    Maybe the independents should have their own party, that actually stands for something without the disconnect of the major parties. They certainly have the numbers.

  13. kevinearick

    Report from the Southeast:

    Typical nexus, AFL-CIO/Corporate/Government, behavior – doing what needs to be done last, first, and saving what needs to be done, as a gun to the head of the public.

    Of course the Operating Engineers are in the trough first, doubling highways exactly where people are abandoning the collapsing capital structure. All kinds of vacant hotel rooms, commercial REIT, with petulant proprietors fleecing the remaining souls, with even more irrational prices.

    Everyone that can is cutting themselves out of the that rope holding the $500T in liabilities, leaving those remaining entangled to accelerate toward the cliff edge, and capital is securing the remainder with more knots, hoping to catch those fleeing within the next expansion radius of the financial black hole.

    Oregon, Washington, and Idaho all thought they were at a safe distance, and that was just first stage. Vermont is the canary in the coal mine; a collapsing global empire should have enough crumbs to subsidize a tiny outpost, you may think. But the state has already admitted a 15% deficit, half of just the government problem, and it is filling the major hotels with the influx of welfare recipients, while the controlling landlords are hiding a “plethora” of vacant rentals from market forces.

    Move back. You can get on at this station, but you will not have another opportunity to get off that train again.

    The middle class has been given everything required to build the next economy, but capital needs that technology now. If capital does not allow the middle class to reorganize itself, the spring in the catapult will release.

    1. kevinearick

      AFL-CIO Standard Practice

      So; there I was, working as a non-union plumbing proby, for the union, on a union job, at a biochemical testing facility, got the highest recorded apprentice test score in local history, handled all the materials coming in and going out of the job, installed the german pipe, and instructed the plumbers on how to prefab the struts to throw all the work up at once, and simply make the directional joints.

      One by one, the plumbers were tipping me to plea the committee for entrance based on “my” primary interest in the pension. Of course real labor would never trust capital with payment beyond one week. When the big moment came, the bosses asked me to stick around another year as a non-union proby, to plea again the next year; the existing plumbers had kids, many on the same job. Real labor doesn’t favor its own kids; that’s a capital thing, and it does so to benefit itself, not the kids, to pull revenue forward.

      That’s all I needed to see.

  14. gordon

    Unhealthy food is cheap. When a researcher wondered why, he found, once again, that policy matters.

    From NYT 22/4/07. Not a new item, but I only just saw a link to it on another blog and think it’s really interesting:

    “…Compared with a bunch of carrots, a package of Twinkies, to take one iconic processed foodlike substance as an example, is a highly complicated, high-tech piece of manufacture, involving no fewer than 39 ingredients, many themselves elaborately manufactured, as well as the packaging and a hefty marketing budget. So how can the supermarket possibly sell a pair of these synthetic cream-filled pseudocakes for less than a bunch of roots?

    “For the answer, you need look no farther than the farm bill. This resolutely unglamorous and head-hurtingly complicated piece of legislation, which comes around roughly every five years and is about to do so again, sets the rules for the American food system — indeed, to a considerable extent, for the world’s food system. Among other things, it determines which crops will be subsidized and which will not, and in the case of the carrot and the Twinkie, the farm bill as currently written offers a lot more support to the cake than to the root. Like most processed foods, the Twinkie is basically a clever arrangement of carbohydrates and fats teased out of corn, soybeans and wheat — three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year…..”

    Ack. to Economist’s View (Anne’s comment):

    1. MyLessThanPrimeBeef

      Gordon, food is where science is going to meet its Waterloo.

      More and more people want to do it the old fashioned way and are saying no to science. No genetic modification. No pesticide/insectide/herbacide.

      You know, science can only hide beyond Gallileo’s trial for so long. Someday, people will final say that since science is the problem or created the problem, it can not be the solution, just as they now say debt created the problem, more debt is not the solution.

      They laughed the Luddites and, usually in the first few years after an invention, said arrogantly, hey, look at those modern marvels. They proclaimed the Luddites had lost.

      But time is on Luddites’ side.

      If we could just go back to a time when people opposed the internal combustion engine or insectide, and re-engage the debates, the losers will be different this time.

      Of course, that’s not what science would do. It just offers some new sexy toys. It’s too bad people don’t wake up to this ponzi scheme.

      Look at today’s solar energy. Some companies are going to make a lot of money promoting that. The thing is, has anyone calculated, if the planet is covered with solar panels, instead of a few, just like they should ahve asked if the planet was to be filled with cars, instead of a few, what would happen to the energy that supports the ambient local temperature everywhere when it is diverted and sunked into the solar panels? When people start to wonder what happened to some disappearing backyard creatures, they might notice a slight drop in the surrouding air temperature. I would like to know if they have considered that.

      What about better mileage cars? It’s known that if you lower the cost of a product, you will sell more and if the demand elasticity is right, your total revenue actually increases, making up the lower revenue per unit with more units sold. Now, if you lower the environmental cost of the car, would it actually increase the total carbon emission when drivers everywhere feel less guilty to drive more often and longer?

      Cure for cancer? Well, who make it possible for cancer to be such a big prevelant threat? And when it comes, it won’t be the last elixir you will ever need because science will make sure you need the next magic bullet. The addiction has not been broken.

      But the worst crime by science is it makes you not able to go back. How are we going to feed all the people? It ought to make you panic a little. But think about it. How do we get this point that we can’t go back. People in the 35th century yearning to escape their own troubles won’t be able to go back to these halcyon Eden-like 21st century days. Why? Who or what lured them into that situation?

      What if we don’t know the secret of nuclear bombs? Sorry, it’s too late. We can’t go back. Well…. How about learning a lesson from that? What is the lesson? Don’t peak into nature? Surely, if you can’t gurantee it can’t be mis-used, you should restrain yourself. Do you, though? Not when your tenure, knighthood, fame, wealth, research grant and mortgage payment depend on it. Don’t say it’s not up to you. Just look at human history and examine human nature. You KNOW it will be mis-used, if not today, then at some future time.

      It’s time to put science on trial and re-open some old cases.

      And it’s never too late to say that your two legs are the most environmental friendly transportation system and not the electric car egoists, trend-chasers or the wishful-thinkers like to believe. And the greenest clothes, based on the total environmental footprint, is the birthday suit.

      But no one promotes using less. No one travels in the Turtle Lane. No one walks around naked. Where is the money in that? But there is money in encouraging you to think that there is free lunch and you continue your profligating ways by buying some new fancy toys.

    2. kevinearick

      They subsidize the corporate farmers, and put the small, independent farmers out of business.

      It doesn’t take a lot for small communities to become food independent.

      What kills the farmers is accepting the loans, and charging global “market” prices, which are inflated by transporatation and middlemen charges, locally.

      $4 for a bag of apples? Now, the tree huggers are growing a couple of orgamic acres, and charging twice as much. A bag of apples shouldn’t be more than $1. Of course that would require $1000/acre land.

      My grandfather had one of the bigger, independent farms in Ohio, leaving enough land for 13 kids to each have a farm. When the bankers came in during the Carter years, they all suddenly needed a new car every two years, and land prices went through the roof, coutesy of financial leverage.

      Ultimately, the entire middle class started expecting profit from passive investment, leaving the true bill to future generations.

      The correction is here.

  15. john

    Why can’t the Brown Victory just be about a moronic campaign run by a lazy politician with an entitlement complex? I mean, Coakley did everything she could to alienate the state.

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