Links 3/18/10


  1. Sundog

    Despite China’s limited room for maneuver with regard to its stocks of foreign-exchange reserves, it should never give up its efforts to safeguard the value of its hard-earned wealth, which has been entrusted to the good will and supposedly responsible hands of the US government.

    Here I was, thinking that paper is put up for auction and someone chooses to buy it or not. This is the most liquid paper in the world, so it’s not like after you buy it you’re forced to suffer years of remorse or get some frat bro’s at AIG to fiddle it. WTF?

  2. gordon

    Counterpunch has a nice story about how the bank “stress tests” (regarded by Yves Smith with less than 100% credibility) have popped up again. Apparently the US Treasury is dragging its feet about implementing a programme to assist second mortgage holders (“second liens”) because banks say they can’t afford it. Counterpunch replies:

    “Hold on a minute! Didn’t Geithner just run bank “stress tests” last year to prove that the banks could withstand losses on second liens?

    “Yes. And the banks all passed with flying colors. So, why are the banks whining now about the potential for “catastrophic” losses if the plan goes forward? Either they were lying then or they’re lying now; which is it?

    “According to the Financial Times the banks hold $400 billion in second lien mortgages. But –as Mike Konczal points out–the stress tests projected maximum losses of just “$68 billion. In other words, Geithner rigged the tests so the banks would pass. Now the banks want to have it both ways: They want people to think that they are solvent enough to pass a basic stress test, but they also want to be given another huge chunk of public money to cover their second liens. They want it all, and Geithner’s trying to give it to them…”

  3. attempter

    Re Goldman’s totalitarianism (a version of the same comment I posted at Rortybomb):

    The framing of this question, “Why would Goldman oppose this bill?”, still looks at a thing like Goldman Sachs as being remotely within the realm of what can be called reasonable. That, if only out of tact and political self-interest, they’d refrain from fighting to the death over even the most trivial restraint or responsibility.

    But by now they and other system actors really are psychopathic. The personnel are not citizens, and not part of society. They regard America and the American people as nothing but prey. They regard even the slightest constraint as an outrageous affront to their sense of entitlement and an intolerable burden upon their criminal prerogative.

    That’s just one example of why the incrementalist “progressive” “reform” mindset is always doomed to absolute failure. No matter how much you unilaterally negotiate yourself downward before the real fight even begins, the enemy will always fight just as hard. He will NEVER reciprocate. The gangsters are waging total war upon the people. That’s how they see it, and that’s how they fight.

    So the only correct mindset is to seek their total destruction, and that’s the only course of action which can possibly work.

    1. gordon

      It took a long time before the UK and France realised that the German Nazis were the sorts of thugs with whom you simply cannot do business. National Govts. in developed countries are still in a sort of Munich mindset as far as banks are concerned.

      1. DownSouth

        To understand Fascism they would have had to study the theory of socialism, which would have forced them to realize that the economic system by which they lived was unjust, inefficient, and out of date. But it was exactly this fact that they had trained themselves never to face. They dealt with fascism as the cavalry generals of 1914 dealt with the machine gun—by ignoring it. After years of aggression and massacres, they had grasped only one fact, that Hitler and Mussolini were hostile to Communism. Therefore, it was argued, they must be friendly to the British dividend-drawer. Hence the truly frightening spectacle of Conservative M.P..s wildly cheering the news that British ships, bringing food to the Spanish Republican government, had been bombed by Italian aeroplanes. Even when they had begun to grasp that fascism was dangerous, its essentially revolutionary nature, the huge military effort it was capable of making, the sort of tactics it would use, were quite beyond their comprehension. At the time of the Spanish civil war, anyone with as much political knowledge as can be acquired from a six-penny pamphlet on socialism knew that if Franco won, the result would be strategically disastrous for England; and yet generals and admirals who had give their lives to the study of war were unable to grasp this fact.
        –George Orwell, “England Your England”

        1. alex

          True of many, but not all Conservatives. Churchill was an early voice warning of the Nazi threat. One of my favorite quotes of his is his justification, as an ardent anti-Communist, of allying with the USSR in WW2:

          “If Hitler invaded Hell, I would at least make a favourable reference to the Devil in the House of Commons”.

        2. gordon

          Nice reply, Down South. But I don’t think the UK-German hostilities were ever based on any anti-Fascist agenda. It was really an old-fashioned war of nationalities, the UK realising (very late) that the virtually unlimited scale of German ambitions for European hegemony were inimical to UK national interests. Hitler finally began to be understood as another Napoleon, something which the UK ruling class could comprehend.

          Fascist ideology actually worked positively in the UK for Hitler and Mussolini, appealing as it did to the morbid hatred of socialism and Bolshevism which pervaded UK conservative politics. It created an instinctive feeling of support for the Fascists which only gave way to hostility when it became plain that they would admit no partners or rivals and were playing to win the whole pot for themselves alone.

          Declarations of anti-Fascist war aims like the Atlantic Charter were essentially PR, aimed primarily at the US public. However such declarations appealed deeply (perhaps unexpectedly deeply) to publics on both sides of the Atlantic, and post-War Govts., especially in the UK, became in a sense prisoners of them for a generation after the War ended. We now see that the US “liberated” itself from these sorts of aspirations much more quickly that the UK (or other post-War European countries) did, and reverted to a neo-Fascist mindset which really mirrors pre-War (and pre-Depression) ideas.

    2. lambs to slaughter

      Yeah, it’s hard to accept the fact that you can’t trust some organization. For example, I bet everybody’s buying into the civic-duty arguments and answering the census, when it’s blindingly obvious that your compliance will enable the next illegal government witch-hunt.

  4. IF

    Finally something that makes sense from AEP. Just a warning, the German supreme court has repeatedly made pro Europe rulings and bent the German constitution for this project. It has its own ideas and might do it again.

  5. fresno dan

    Odds Are, It’s Wrong ScienceNews

    “Assigning patients at random to treatment and control groups is an essential feature of controlled clinical trials, but statistically that approach cannot guarantee that individual differences among patients will always be distributed equally. Experts in clinical trial analyses are aware that such incomplete randomization will leave some important differences unbalanced between experimental groups, at least some of the time.”

    Its much worse than that. If you don’t consider the most important variable, randomization can give some truly cockeyed results. Do a thought experiemnt about skin cancer, and whether sun exposure increases skin cancer. Do a study without reguard to skin pigmentation, and you would conclude lack of exposure to sun causes skin cancer. Now unblind your study to pigmentation, and you find less skin cancer in Africans, more in the Irish, and much, much more in the Irish when they live in Africa.
    Unlike the obvious phenotypic trait of skin color, the vast majority of clinical trials don’t know what the critical variable is.
    NOTE: I very much believe in clinical trials, as it is the best we have. But you have to be aware of the flaws.

  6. DownSouth

    I keep searching for silver bullets. But by doing so, I just keep firing blanks.

    Take Europe for instance. My great hope was, since it’s become so obvious that the greater US is little more than one of Wall Street’s plantations, that Europe could find its way out from under the thumb of the international criminal banking cartel. No such luck. As Billy Blog concludes in the linked post, Europe is a bigger basket case than the US:

    First of all the EU, dominated by the EMU nations, cannot even run their own region properly. They have established a system which cannot deliver prosperity to its nations and which allows the bullying Germans to run the show in favour of the welfare of their own privileged classes.

    Last time I looked the unemployment rate was averaging around 9.5 per cent across the EU (Source) and was even higher in the EMU segment of the EU. Even Britain has a lower unemployment rate than that. So who are the EU to be casting judgement on anyone?

    Oh well, so much for Europe leading the way.

    Then there’s Barak Obama. Am I the only one who entertained the foolish notion that somehow a black president, because he comes from a group that is historically discriminated against, would have greater knowledge and empathy for the dispossessed? Whew! What a pipe dream that was!

    So it’s becoming obvious that there are no silver bullets. The burden for correcting what’s wrong in the US falls directly upon my shoulders, and the shoulders of millions of other rank and file Americans. If they can’t or won’t do the heavy lifting, if they can’t get the job done, then it is obvious that the job isn’t going to get done.

  7. wunsacon

    I actually am not sure there’s anything wrong with insurers investigating *new* HIV patients as pre-existing conditions. It’s what I would do in their shoes.

    Insurance is supposed to be protection against future accidents; not a subsidy for people with existing conditions. If someone reports an *expensive* condition within just one year of signing on, it begs the question of whether this was pre-existing.

    If we prevent insurers from investigating pre-existing conditions, then we’re creating a backdoor universal health care program. A program where you have to lie to gain the health care.

    I prefer we deal with the problem of sick people in some other manner than a kluge.

  8. Marcus

    The Madoff article is based on a felon’s hearsay, and then descends into essentially, “Madoff and the prison denies it, but they would do that wouldn’t they” to justify it. There’s not a single other source.

    Respectfully, it appears the title, “Madoff Got Beaten Up In Prison” is unreasonable in that light.

  9. Anonymous Jones

    Shocking news in the statistics article! They’re trying to tell me that humans have the propensity to take a few bits of evidence and then start to believe they know more than they actually know? I’m flabbergasted!!! Impossible, I say! Off with their heads!

  10. tranchefoot

    There is a reason why there are separate math and statistics departments in most major universities: statistics is NOT math! For sure, statistics uses math, but after many attempts to axiomatize the major “theorems” in statistics it was finally proved that it can’t be done! Probability theory, acclimatized by Kolmogorov, is a branch of mathematics. I prefer to think of stats as quantitative philosophy of science; like any other branch of philosophy, it is subjective and constantly evolving.

  11. MyLessThanPrimeBeef

    How will an RMB revaluation affect China?

    I dunno, so I will leave it to the ‘experts.’

    I do know it this though – the life sentence for a former Chinese Supreme Court justice was re-affirmed yesterday. Google it.

    It makes one wonder a bit.

    Are the Chinese more prone to crimes? Is that why a Chinese Supreme Court justice could commit a serious crime?

    Is it because it’s easier to bring the high and mighty to justice over there, unlike many other places in the world? Should we look up to China for it, if this is the case?

  12. aet

    China has a continuous 5000-years of legal experience to draw on.

    They once had- for a few hundred years,IIRC -rulers who insisted upon the harshest penalties for the most minor infractions of a written legal code.

    That experience was so completely awful that to this day the Chinese distrust leaving their entire justice system dependent upon strict written codes.

    Contrast the much shorter and more recent history Euro-American legal systems…and their ever-increasing reliance on pre-written codes & rules, and the mechanical application of prescribed sentences for their infractions.

    In a sense, the Chinese have already “been there, and done that”, and to a greater degree than the Anglo+Euro systems are now.
    They know better that the Law needs some flexibility to be most useful to human society. Their legal system is less “mechanistic” than ours, and there are good historical reasons for this.

  13. MyLessThanPrimeBeef

    Hyperdeflation followed by rampant inflation?

    It’s called fish tailing.

    If the car is skidding, you steer into the direction it skidding and the other way.

    If the economy needs lots of liquidating, of labor, stocks, everything, you don’t oppose nature. You steer into the direction of you’re skidding; otherwise, you end up with fishtailing. Nature is cyclical. The economy is not a perpetual motion machine. Like the human body, it’s natural to slow down, take a break or shut down overnight. There is no shame in taking 1/3 of the time off.

    I don’t usually say this, but I wrote that in 2007, about fishtailing and taking time off work.

  14. emca

    The Pettis article on RMB revaluation is a fine analysis of a situation gaining mainstream attention due to recent acrimony between the US and China. Its well worth reading this somewhat long blog for a broader understanding of factors domestic, regional and international flowing from China’s vs the World, specifically, currency/trade imbalances or any attempts to correct it.

    Outside that, Pettis’s quote of one Zhao Qingming, researcher with China Construction Bank is classic. In Zhao’s justification of Yuan devaluation,

    “western countries, to a large extent, were able to enjoy low inflation, low living cost, and current standard of living, and western governments were able to reduce financial deficit and allow their people to consume excessively.”

    I would put “consume excessively” in bold, if I thought WordPress could handle HTML script, but suffice it to say, I previous had never thought the ability to consume in excess was a desirable social attribute… then I underestimate the power of immoderate material gratification in the harmonization of the masses. My understanding of structural social/political dynamics is updated.

    Maybe China (its government) should have its own populace apply the rigors of consumption, so Americans would stop having to do all the work by tirelessly buying items (junk, dedicated to the immediate dispersal to landfill.

    1. MyLessThanPrimeBeef

      It’s interesting that whereas China ships junk to our store selves, we ship toxic waste/e-waste to their landfills.

  15. MyLessThanPrimeBeef

    Regarding social mobility and ladder climbing, in the movie Metropolis, happiness was found when people in the top came down to meet those below, and not by people below trying to climb up.

  16. Hugh

    Isn’t it interesting that when countries want to do something they find a way and when they don’t they cite the law? So for example Bernanke says he didn’t have the authority to take over the TBTF and wind them down, but somehow deals like AIG happened anyway. The same is true with Germany. Maybe they don’t really want to do anything for Greece, but gosh darnit even if they wanted to, they couldn’t. My question is why couldn’t they work through the ECB? The Germans could if they wanted (they don’t) work through the central bank and then let the central bank (which they largely control) work with Greece.

    DownSouth, what you need to keep in mind is that bad and captured leadership is not peculiar to the US. Look at the UK, Europe, China, and Japan. They all bought into the casino in their own way. None of them has political leadership to address their own problems, let alone serve as a model for others. I mean if any of them had such leadership, they would not only have acted by now but they would have acted years ago to insulate themselves from the various housing bubbles in the making and all the bad paper floating about.

  17. Jim

    Fascinating analysis and discussion at billy blog.

    The outburst by Bill that “The British government could do its citizens a favor by assuming absolute power and suspending the national election for three years…Then the need to match budget surplus aspirations with the Tories…would vanish and they could actually do what they were elected to do and that is ensure employment growth is strong so people can actually earn an income and take care of their families.”

    Such a perspective rasises the broader issue of the role of intellectuals in politics.

    In the comments section scepticus admonishes bill with the statement: “Hey bill I’d also advise caution on the suggestion , tongue in cheek or not, that public leaders should ride roughshod over the democratic process regardless of reason.”

    MMT is in the process of ascendency. It is a monetary theory created and articulated by intellectuals and presented to the general public as simply a description of how the monetary system actually operates. They claim that value judgments only come into play when debating the policy options which flow from their “objective” descriptions of how the present monetary system actually functions. For Bill, the goal of MMT is simply to increase the general welfare of the average citizen whether in the U.K., U.S., Australia or the Eurozone.

    But in a moment of exasperation (the generous interpretation) Bill reveals his frustration with those who do not understand or accept MMT. He advocates a coup by those who do know the truth ( or at least one MMT guy who does, himself) in order to guarantee “…that employment grwoth is strong so people can actually earn an income and take care of their family.”

    This is the logic of the best and the brightest and their devine right to rule–an acceptance of the assumption that greater intelligence implies a defacto claim on greater power.

    Those who know–the truth about our present monetary system– should rule.

    This is a profoundly anti-democratic sentiment. Democracy is built on the assumption that no one knows the Truth–that ultimately all of are arguments do not transcend circularity– which undercuts the claims of people like Bill Mitchell or groups like MMT to superior knowledge and justifies the inclusion of as many people as possible in public decision-making.

    Later in the discussion there are some excellent comments on how left and right no longer capture the categories operating in modern politics.

    Bills perspective seems to endorse a system in which the more enlightened (intellectuals) have the right to create an ever more expansive administration of society.

    This sentiment raises the age-old issue of knowledge as power. Perhaps what the West is experiencing today is the gradual displacement of the old markers of class distinction with the new markers–sets of linguisitc and intellectual capacities (ie. Obama and perhaps someday MMT).

    Of course their univesalistic claims will mask their particular interest–their right to rule while making sure we are all employed.

    1. Skippy

      Growth addicts aka expansionistas need to take a rest, they have yet to under stand dark flows and have not clue, to the ultimate conclusion.

      Skippy…economic idealism got us in this mess and I fear it will only make matter worse, with its magnification of not-so-homo-sapiens desires in the short term. Full employment is going to push us to the precipice of extinction…eh

      PS. I feel more and more like K-PAC every day.

      1. another


        Did you mean to say that you feel more and more like prot (who was from K-PAX). If so, I know where you’re coming from. Wish I could catch a beam of light out of here.

    2. Yves Smith Post author


      Has “billy” weighed in on his original comment? Australians often use hyperbole for shock value. He may have made that “antidemocratic” remark to illustrate how hard it is to sell better policy ideas when entrenched interests have done a great job of selling ideologies that support their pet interests.

      1. Cindy

        I also interpreted Billy’s comment on suspending elections as hyperbole. Perhaps not something to joke about, but I believe it was a joke.

    3. Bil Mitchell

      Dear Jim and others

      It was a joke – a piece of sarcasm to highlight how ridiculous things have become in this debate.

      If you want to view my values with respect to democracy etc have a look at my political compass score –

      Australian often use humour to make a point.

      I also note that you didn’t address any of the substance of the blog’s content.

      best wishes

      1. Skippy

        Bill septics take every thing literally too a fault, more black eyes than on a Friday night tent fight…knee jerk TKO.

        Skippy…disclamer…15 year septic resident with a strange dead cat bio starter, one must alway check what grows past the outflow pipe…me thinks.

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