Links 3/20/10

Flat-headed cat of southeast Asia is now endangered BBC

Night Riders: Afghan Atrocity and American Values Chris Floyd

Ground Zero workers settlement unfair: judge Raw Story

Some Arguments on Resolution Authority Mike Konczal

The Mason-Dixon Line in Health Care Reform: Economists Edition Menzie Chinn

Oh no … Bernanke is loose and those greenbacks are everywhere billy blog

A Ruinous Meltdown Bob Herbert, New York Times

Sarkozy Opposes IMF Greek Loan, Widens German Rift Bloomberg (hat tip reader Swedish Lex)

A bad day for the Fed:

Federal Reserve Must Disclose Bank Bailout Records Bloomberg

Fed Told to Hand Over Friedman Documents Wall Street Journal. Recall that Friedman, as chairman of the New York Fed, bought Goldman stock during his tenure, a real no-no. Reader John Moore notes with some skepticism that this tidbit was released on a Friday evening…

Problems in an NYT Column Columbia Journalism Review

Leipzig in legal wrangle with banks over CDS Financial Times

Lehman Brothers’ golden girl, Erin Callan: through the glass ceiling – and off the glass cliff Guardian

Dodd calls for Lehman inquiry Financial Times. Full text of letter here (hat tip reader Crocodile Chuck)

Antidote du jour:

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  1. Carrick

    Footnote to Lehman inquiry..

    “Jan. 26 (Bloomberg) — Richard Fuld, the Lehman Brothers Holdings Inc. chairman who led the firm into bankruptcy, transferred his $13.3 million Florida home to his wife last year, property records show.

    Fuld deeded the house at 265 South Beach Road on Jupiter Island, north of Palm Beach, to his wife Kathleen on Nov. 10, according to records on the Web site of Martin County, Florida. Kathleen Fuld paid her husband $100 in the transaction, the minimum amount allowed to transfer a property.

    The single-family home on 3.3 acres was assessed with a market value of $7,855,310 for the land and $5,459,840 for the house. The house is on the eastern side of the island, facing the Atlantic Ocean, records show.

    Lehman spokeswoman Kimberly Macleod said Fuld would not comment on the transfer. Two Florida attorneys said Fuld may have made the move for estate planning purposes or to shelter assets from potential creditors under Florida’s homestead act.”

  2. attempter

    Re “resolution” scams again: Don’t people ever figure that if in order to preserve some dubious thing yet keep it under control you have to cobble together some absurd Rube Goldberg structure that’s unlikely to work, then maybe that’s a hint that the thing itself should simply be done away with?

    I guess it’s not surprising that many of those who have delusions of “resolution authority” are also members of the fundamentalist cult of this health bill, that it will magically control costs and cover some of the uninsured*, even though the ways it proposes to do so have already been overwhelmingly proven to fail.

    [*Never mind that Obama already admitted that it won’t extend coverage; these “progressives” have dug in on repeating that lie.]

    Never mind that it’s a law of this system that you can never trust any racket to do anything other than steal every cent it can. Never mind the proven law that you can’t “regulate” these rackets. Never mind that all the actions of government officials prove their bad faith. That the wretched legislative processes themselves, which were dedicated first and foremost to gutting finance and health reform in principle, prove that this government will also never enforce whatever enervated rump bill is passed.

    Never mind that these are proven facts; that we know all this.

    Where it come to the insurance racket bailout, things will be different! Where it comes to “resolution authority” things will be different! It’s another, even more freakish form of voodoo economics. What kind of entrails do they need to spread over the floor to reach their political positions?

    Don’t these cult wackos have a comet they can go meet or something?

    That ties in with the ongoing idiocy with the Fed. It’s funny how Greenspan is digging in on the same line Heckuva-Job-Bennie already got panned for, that monetary policy has been just swell, it was failure of regulation which let the bubble get out of hand.

    But the Fed is the head regulator! Are these guys really so stupid that they think they can explicitly say “our performance where it came to job A was correct” while implicitly saying “we screwed up terribly at job B”, and that no one will notice?

    It’s like when Homer Simpson, accused of poor job performance, laments “I wasn’t asleep; I was drunk!” (Bart tenderly replies, “I believe you, Dad.” So I picture monetary policy hacks speaking in Bart Simpson’s voice.)

    And these are the same criminals, admitted regulatory delinquents, who now demand the extension of their pseudo-regulatory purview. They think they should have the “resolution authority”. They think they should control the CFPA.

    Oh, but as we already discussed, today’s deranged religious dogmas proclaim “everything will be different this time.”

    Comets, people. Today it’s all comets.

    1. i on the ball patriot

      “everything will be different this time.”

      Yes, we will be poorer, more exploited and enslaved.

      Fuck the crooked government and all of its uncivil and disrespectful scum bag corrupt politicians!

      Deception is the strongest political force on the planet

    2. Doug Terpstra

      Exquisite rant, but way too short. “Are these guys really so stupid…?”, you ask rhetorically.

      The answer “no” is all too obvious, but they continue to count on our chump/sucker stupidity—vindicated, so far. This system must crash and burn in spectacular fashion before we can hope for substantive change. Until that becomes crystal clear, until people no longer hope and work for “reform” within a broken union, that necessary dissolution will be deferred.

    3. eric anderson

      attempter, that’s the best thing I’ve read all week.

      Why would we trust these people, i.e. Congress and bureaucrats, to manage anything? What possible basis of trust can one put forward?


    4. Cynthia

      Obama campaigned on a populist platform, but as soon as he was elected and sworn into office, he did an about-face. He governs and will continue to govern on an elitist platform. To be more blunt about it, he lied his way into the presidency. Look no further than his public-option-less health care bill which is nothing more that a giveaway to industry elites and you’ll know what I’m talking about. Wall Street knows this, otherwise health care stocks, and especially health insurance stocks, wouldn’t be soaring in anticipation that a lot of money is gonna be made in the private sector at great expense to taxpayers and consumers of health care.

  3. rtalcott

    RE: Lehman Brothers’ golden girl, Erin Callan: through the glass ceiling – and off the glass cliff

    I have worked for many men at corporations major (3M, Honeywell/AlliedSignal, StorageTek) and small (Sensormatic, Silor) and many VC funded start-ups that were completely unqualified to walk up to a urinal and successfully take a leak…so OK…an unqualified female was promoted…is this news?

    1. Yves Smith Post author


      No, the point was that she was promoted into a high profile position where anyone would have failed. Look, the CFO before and after her (men) are also criticized in the Valukas report. That job was a poisoned chalice.

      And your remark re unqualified females reads as being sexist.

      1. gordon

        Yves Smith: “And your remark re unqualified females reads as being sexist”.

        It doesn’t sound sexist to me. Not unless you believe there’s no such thing as an unqualified female.

        1. Yves Smith Post author


          Read the whole comment again. First he says he has “many men” and by implication ONLY men (why bring that irrelevant fact up?) Second, he uses the ability to piss into urinals as the metaphor for business competence. Since women cannot piss into urinals (at least in the manner he describes) that is tantamount to saying women can’t cut it. If he had ONLY made the remark at the end, you’d be correct, but in context, coming after his set up, his closing remark reads quite differently.

          You might also Google “expectancy theory”.

          1. gordon

            I read rtalcott’s comment again, I read the linked article again and I even read the Wikipedia item on expectancy theory. I really don’t see sexism in what rtalcott wrote.

            If it is true (as the linked article implies) that women are more often used to absorb flak by being put in impossible positions, as Ms Callan may have been, that is sexist, but that wasn’t what rtalcott was writing about.

            As for the toilet analogy, I think it’s just a racy way of saying that he’s worked for numbers of incompetent men. In other words, there are lots of incompetent managers, their sex isn’t important, so why are we concentrating on the incompetence of Ms. Callan?

          2. Yves Smith Post author


            Ahem? I used to do survey research, very minor changes in phrasing shifts perceptions and responses. People are much more suggestible than we want to admit to ourselves. Asking the question “What do you think of the job Obama is doing?” will elicit much lower average scores in a poll than “What do you think of the job Obama is doing as President?” The “as President” both reminds the listener that Obama is an Important Guy and has a Big Job.

            Similarly, the only way people have ever been able to change their test results in the Harvard Implicit Bias test (the results are amazingly stable upon repeated takings of the test, even understanding how it works, test takers are not able to change their results even when they try to override them consciously) is to read a story immediately prior to taking the test that is favorable towards the group they are biased against. Thus they cannot CONSCIOUSLY overcome their biases, yet presentation of information to counter those biases does the trick.

            The same is probably true of reinforcing biases. His little preamble has two bias hooks you choose to ignore, but trust me do influence people, even if they are not conscious of the impact: saying/suggesting his bosses were only men, and setting a standard for business performance that only men can attain. That sort of thing does influence people, whether you are prepared to acknowledge it or not.

            And the expectancy theory bit? The pissing/urinal bit IS a slap if you are female. It’s a crude way of saying you aren’t a player. Women don’t think of pissing as a proxy for any type of performance. The mention of this peculiar male attitude is a reminder that women are outsiders (recall also how many important aside supposedly take place in MALE bathrooms). And per expectancy theory, those demotivating signals, whether subtle or overt, do impact performance.

          3. gordon

            Well, I give up. rtalcott can defend himself from here on in. I can only say that I don’t think I’m influenced against females by what he wrote. And I don’t know why I’m discussing the proceedings in male toilets.

    2. Anonymous Jones

      This was a great comment.

      Even if I were to limit myself to those colleagues of mine who made $100 million+ (just in the Aughts), the number of them who literally (and I mean, *literally*) don’t have the competence or attention span of many 5th graders still astonishes me. For the not-so-well-off, I try to explain how this state of affairs can be, how a real estate executive who did over 100 deals in the last 10 years and made gobs of money doesn’t even know the basics about negotiating or business (like don’t talk up your potential acquisition with competitors or that you shouldn’t throw your long term partners under the bus for something small or that you should judge most business decisions under the idea that it’s a good decision if the marginal revenue of such decision will exceed the marginal cost or that, wait for it, 10 > 6…seriously! I mean, this happened!), but it is impossible to convey this without actually living through it. Some people make money just being risk-seeking ids (and putting on a suit); some people rise up management ladders just staying out of everyone else’s way (and putting on a suit); some people become partners at the most prestigious NY law firms by coming out of school in the right year and just grinding mindlessly on huge matters for huge clients (and putting on a suit). Echoing another comment here, throughout my businesses, I often hear the echo, “Can he be that f’ing stupid?” but in these cases, it’s a not a real question. It’s rhetorical. Yes, he *can* be that f’ing stupid. I’m often on conference calls with colleagues and we’re listening to what’s going on with mouths agape at what’s being communicated. It’s so stupid that no one believes me when I tell them what happened. It has literally crossed over into the world of the unbelievable.

      Yes, many successful people are enormously talented.

      No, success is no assurance that the person who achieved that success is talented.

      So, to sum up, it does not surprise me at all that one woman got to an enviable position and wasn’t quite up to it. If it surprises you, you don’t understand the limits of your theory that success is a marker for talent.

      1. Anonymous Jones

        Sorry, just saw Yves’ comment. I didn’t read rtalcott’s comments as sexist. I thought rtalcott was pointing out the underlying sexism in attributing newsworthiness to one woman’s “failure” when humans of both genders fail all the time.

        Yves – your point about the article is sound, but rtalcott and I were making arguments about a tangential matter. As much as this may be about a position that could not have ended in anything but failure, the article talks about the glass ceiling and thereby made it about gender when it should not be about gender.

  4. IF

    The Leipzig case is quite interesting. German cities did lots of dodgy deals with banks, like their US counterparts. In this case the city owned water company did an “investment” that backfired badly. The city is suing the banks (low chances of success). But also the former heads of the waterworks that signed the deal are accused of the crimes of tax evasion, Untreue (unfaithfulness) and manipulated statements, while overstepping their authority. At least one of the water company heads (Klaus Heininger, but maybe both) is in jail waiting for a trial (no bail).

    Should be a clear signal to any communal managers in Germany to be careful with the banks. The city of half a million people of course will be stagnating. Fortunately it should always be able to pay its debt. It is literally standing on coal (shallow depth, poor quality but huge amounts). Once the city is ruined, one could tear down all the buildings and recover the coal via strip mining…

  5. MichaelC

    Recommendation for links:
    The Lehamn whistleblower letter

    FWIW- In his role he would be one of the key signers of the internal control assesments. His letter serves to both blow the whistle on some specific charges (i.e 5b in excess assets (?))and to formally inform mgt and the auditors that a fundamental key control (substantiation of the accounts)is compromised. This is a big deal, since the auditors, both internal and external rely on the substantiations to sign off on the overall internal control assessment. One would expect a letter like this to trigger a significant response from E+Y.

    Every major GL account is assigned an individual ‘owner’ at the firm. That individual is resposible for certifying that the account balance is reported correctly and the balance can be substantiated.

    It’s not surprising then that he didn’t mention the 105 specifically. He didn’t need to, since he’s implying that the 105 isn’t the only material issue, the entire control structure was at least ‘significantly deficient’ a term that normally sets off alarms, especially with the exteral auditors, and demands prompt corrective action.

  6. Jim

    Over at billy blog their is the beginnings of a discussion on the foundations of MMT.

    When discussing the rising acceptance of Monetarism Bill quotes approvingly a statement by Alan Blinder which maintains that monetarism was not based on a empirical rejection of the Keynesian orthodoxy but was instead: “a triumph of a priori theorizing over empiricism, of intellectual aesthetics over observation…”

    Bill’s understanding of empiricism may be flawed and this misunderstanding leads most members of MMT to the eventual position that their description of our monetary system is not prescriptive.

    Hume has somewhat famously argued that there is apparently no string of words that transparently and unproblematically reflects a state of affairs–a going on–in the world.

    The upshot of his arguments is the empirical unavailability of the pure “is” statement. He maintained that in an important sense we are always on the level of the ought–that all “is” statements are disguised “ought” statements.

    Thus, according to Hume, the MMT description of our monetary system and my argument against this “pure” description inhabit a world in which preference, inference and conclusion feed into each other in a way to ensure that the prescriptive lurch of our descriptions is realized and sustained.

    I don’t have time right now to take this argument any further but if any of the MMT advocates want to contiune this line discussion I would be happy to pursue it.

    I would also add, that for myself, the envisioning of where I want to go is grounded in my passions and I deploy my reason (in a calculating way) to get me there.

    In other words, my premises are based on my feelings and sympathies even though it is difficult to acknowledge the bare contingency of personal feeling as the final stopping point.

    Is this also true for you Bill?

  7. john

    Billy Blog seems to be making quite a leap when he goes from ‘first money is created and then the bank reserves are found’ to ‘bank reserves have no constraining effect on money creation and thus are unnecessary’. Clearly the fact that reserves need to be found at some point in the accounting period shows that they do have a constraining effect.

    As banks get more desperate for reserves, they are going to pay up for them and either curtail lending or stop lending altogether. Thus reserves do have a constraining effect on money creation even if that effect tends to occur AFTER too much money has been created.

    Further, just because Australia, Canada, and Japan do not have reserve requirements for their banks doesn’t mean that the U.S. should do the same. You can’t take one piece (no reserve requirements) of a complex regulatory structure from a relatively successful banking-regulatory structure and then try to shove it into a broken regulatory structure and then claim everything is fixed. Any idiot should be able to figure that out. Except for Billy.

    1. stf


      You are the one who doesn’t understand monetary operations, in fact. The point is that EVERY central bank provides reserves on demand at the target rate (otherwise it can’t hit its target rate), so with or without RR banks are not constrained in their lending.

      Every CB with RR already acts to provide sufficient reserves to meet RR–just read the literature on CB operations, as they incorporate banks’ RR into their plans for discount lending or open market operations as they go about achieving their target rate; if they didn’t they wouldn’t hit their target rate.

      Your scenario in which “banks get more desperate for reserves, they are going to pay up for them and either curtail lending or stop lending altogether” NEVER ACTUALLY HAPPENS, in other words, because CBs ALWAYS PROVIDE SUFFICIENT RESERVES SO BANKS CAN MEET THEIR RR or else they couldn’t hit their target rate.

      RR can add a small cost, but that’s it; it doesn’t limit their operational ability to lend. And even with RR, banks generally find ways around them, as they have become essentially voluntary in the US for many years already.

      And given the $trillions of payments banks must settle EACH day with reserves, the CB has NO CHOICE but to supply reserves desired at some rate–which must be at or near its target rate or else the overnight rate will not equal its target rate–or via open market operations. The alternative is for the CB to not achieve a target rate and–worse–a meltdown of the payments system (we saw a bit how this turns out in the fall 2008) that all CBs are charged by their government with protecting first and foremost.

      RR are simply a relic of an inapplicable gold standard monetary system. They don’t constrain bank lending. They don’t provide “insurance” against losses (that’s what deposit insurance does). They don’t provide a buffer against liquidity drains (that’s what CB overdrafts, open market operations, and discount lending are for). All they do is raise the costs slightly for an entity whose liabilities the govt (via deposit insurance) is already on the hook for.

      The reason why many other nations have eliminated RR is they understand there are far more efficient ways to achieve an interest rate target. And those CBs generally do achieve their targets with far less variability and with far more simplicity for the CBs trading desk.

      There are volumes and volumes of academic studies applied to numerous countries supporting all the points I’ve made above.

      I have not been a supporter of much of Bernanke’s efforts, but on eliminating RR, he’s (finally) right.

      1. john

        “RR can add a small cost, but that’s it; it doesn’t limit their operational ability to lend. And even with RR, banks generally find ways around them, as they have become essentially voluntary in the US for many years already.”

        So the only effect of reserve requirements is to add a small cost? Then why not just leave them in place if they essentially have no effect? I guess that small cost is hurting banker profits, so that is probably why Bernanke is so keen to get rid of reserve requirements — and lack of banker profits is exactly what most Americans are concerned about right now.

        Why don’t we just jack up the reserve requirement to 50% if it has no effect? If it has no effect, then why the big push by you and other shysters to get rid of it?

        1. stf

          And what benefit would that provide, aside from greatly complicating the liquidity management operations of most banks?

        2. Yves Smith Post author


          You seem unwilling to consider the information, that your view of RR is based on gold standard thinking which is no longer germane.

          And stf is not a “shyster”, I can see his e-mail address, he’s an academic. So your attack is off base.

          1. john


            I greatly enjoy your blog and respect your opinion. But, the Federal Reserve’s own actions are contrary to what Billy and others are saying about RR. If reserve requirements have no effect, then why does the Fed raise them on failing banks:

            “Corus’s failure doesn’t come as a big surprise. Federal regulators imposed higher reserve requirements in February, giving the condo lender until mid-June to raise cash or find a buyer. But the bank’s sale dragged out as bidders worked over how to value the bank’s sprawling condo assets.”


            So last year the Federal Reserve raised Corus’s reserve requirement and this year Ben is saying that reserves don’t matter? Something is amiss. And if reserves don’t matter, then why was Corus (along with other failing banks) paying above average rates for them?


            To me, this just seems like MERs all over again. The banks and the Federal Reserve focus on some miniscule cost (the cost of transferring a mortgage in the case of MERs, the cost of RR in this case), they then eliminate the thing causing that small cost, and leave taxpayers to clean up the mess later. It’s great for banker bonuses in the short term and terrible but terrible for society in the long term.

        3. Skippy

          Just to chime in, so OK we take away the RR (which in my mind has been the objective since 1913 [unfettered creation/limitless expansion]), will the reduction in friction solve all our problems?

          If this is the case why not just hand over the task to algos, this way overnight lending will all ways come to pass.

          They killed virtuous accounting and now we enable hells spawn to spew forth unimpeded, great, lite the fuse, just give me time to run far enough away.

          Skippy…if they cant run this monetary engine in its currant state we’ll just slap on a couple of turbos, super charge it and direct Nos injection…no steering needed cause only one trajectory is possable…speed dosen’t kill…it’s the sudden stop.

          1. stf

            This is for John at 6:49 since there is no “respond” under his comment.

            The first article you cite confuses RR with capital, which is common. Regulators didn’t require more reserve requirements, they required more capital, since a bank with no capital is insolvent and is taken over by the govt. Capital IS a constraint on bank lending, as banks have minimum capital requirements as a % of risky assets (loans, etc.) set by regulators. As they create loans to expans their balance sheets they need to have the capital available to meet the required capital ratios. Overall, the growth in a bank’s capital limits how fast the balance sheet can grow. This is VERY DIFFERENT from RR, as RR do not in any way . I would NEVER suggest eliminating capital requirements . . . and I don’t know that anybody else would. But confusing the two is quite typical.

            The second article you are citing is highly flawed and mostly ridiculous. And it doesn’t say the bank paid more for reserves (which most any bank can pay the federal funds rate for since the Fed makes sure that rate stays at its target on average). It says the bank paid more for CDs. VERY DIFFERENT. And it wouldn’t contradict my point even if it were the case, as at worst the bank simply pays the rate the Fed charges, which is what I said originally.

  8. Sundog

    Charles Bowden writes:

    The border should not be an issue in American life, but rather our window on the world. All our foolish beliefs are refuted here. Free trade is creating the largest human migration on earth. Our belief that drugs can be successfully outlawed has created the second-most profitable industry in Mexico and a gulag of new U.S. prisons. Our effort to fortify the border has created a wall and a standing army of agents (now larger than the U.S. army was when we launched our war against Mexico in 1846), and it has failed to stop people or kilos from moving to our towns. Our refusal to even seriously consider the notion of overpopulation (we prefer lethal drones to birth control or legalized abortion) will eventually destroy large portions of the earth’s ecosystems. And we are equally reluctant to face one nagging fact about Mexico: Forty percent of its federal budget comes from oil sales, and the president of Mexico has said publicly that the oil fields will be exhausted in nine years. What then?

    Someday a history of our border policies will be written. It will require a Marxist — Groucho, not Karl.

    High Country News, “Adam Smith’s invisible hand meets magical realism on the border”

    For anyone interested in following day-to-day developments in the conflict which has led to at least 2,000 deaths in Mexico already this year, I recommend borderlandbeat.

    1. Cynthia

      Bankers, by nature, have no loyalties to their host countries. So this quote by Napoleon Bonaparte captures the essence of why we should’ve never given our TBTF banks bail-out money without requiring them to use this money to get our economy back on track: “Money has no motherland. Financiers know no patriotism, no decency, only gain.”

  9. MyLessThanPrimeBeef

    I hope the Flat-Headed Cat doesn’t go the way of the Flores Man, Orang-Pendek or the Flat-Headed Man (not to be confused with the Flat-Faced Man).

  10. Hugh

    Bob Herbert is the last good writer the NYT has. State budgets, and the services based on them, are falling apart. This is placing real hurt in people’s lives, but as long as the bubble on Wall Street goes on, everything is all right and recovery is just around the corner, right?

    Wow, Dodd is going to hold a hearing. I am sure the financial industry is quaking in its boots. Laughter will do that.

  11. Mike the Machine

    Ein Kumpel hat mir deinen Blog gerade empfohlen und dann hatte ich gedacht schaue ich doch einmal vorbei. Und ich muss sagen ich finde ihn richtig gut, ich denke er koennte zu meinen Stamm Blogs dazu kommen bei denen ich regelmaeßigoft vorbei schaue.

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