Links 7/20/10

Here are the links today. I have a lot more than this but some time limitations this morning as I am preparing for a spot on BBC Five Live for 5PM UK time (12PM EDT). The Prime Minister is in town and I will provide some economic commentary on Five Live for anyone in the UK or anyone who wants to listen on their Internet live stream.

Also, you probably know this already, but I should point out that the Monday link on ‘Beyond Jane‘ is a fabrication. I thought there was something odd about it – and didn’t catch that it was a hoax until I read the comment section. It was only when reader Bela sent me this article with the reference to the non-existent Yvonne Rossdale that I realized I had seen this hoax before. After I got that e-mail, I had intended to write something up on suspension of disbelief and Internet mythology but I am a bit time-constrained right now. Let me say, in truth, I half believed the article, seriously – even though I knew it was a fake. I’ll leave you with my James Montier-inspired post "Spinoza, Descartes and suspension of disbelief in the ivory tower of economics" as a sort of background for now. But, people must suspend disbelief in order to process information – and I think it is this that is at the heart of all hoaxes and why I still half-believed the article despite its debunking. Did I want to believe? Is this why false narratives in economics and politics are so powerful? See the last link from Krugman as an example. Comments appreciated.


PS – if I forgot to tip my hat to anyone for the links, my apologies.

Watch Banks Pull Rabbits Out of Hats, Ably Assisted by Their Auditors re: the Auditors

Welfare and Warfare The Burning Platform

ICE Trust and CDS swaps Tyler Cowen

Demagogues, Deficits and Healthcare Managed Care Matters (Hat Tip Francois T)

Do sovereign debt ratios matter? Michael Pettis

The Obama financial reform bill won’t prevent another crisis Bill Black, Fortune

Grantham: Deflation has won on points Credit Writedowns (I inserted a pop-culture reference at the end for my friend Marshall Auerback)

Sarah Palin invents word in Twitter gaffe Telegraph

Hungary’s IMF revolt augurs ill for Greece Telegraph

A hidden world, growing beyond control WaPo

Spain’s unemployment devastates residents, adds country to European nations in crisis Globe and Mail

An Outspoken Fund Manager With Contrarian Views NYTimes on Hugh Hendry

Democrats Jump Into Six-Point Lead on Generic Ballot Gallup (any clues why?)

"Hypo Real Estate zakt voor stresstest’ Het Financieele Dagblad (Hypo Real Estate is probably the German bank rumoured to have failed the European stress tests. But they have already been nationalized.)

Stress The Frontal Cortex

Screw The Heat; Sears Wants To Sell You Christmas Crap Now The Consumerist

Blue Dogs Be Dog-Gone Soon 538

The Summer(s) of Our Discontent Marshall Auerback

Pakistani Taxes Widen Divide Between Rich and Poor NYTimes (hat tip cm)

George W. Bush: Screwup-in-Chief, 2001-2008 Bruce Bartlett

And So It Begins Paul Krugman

The Bush Deficit Bamboozle Paul Krugman

Antidote du Jour: Cat caught in a tree, looking very pleased (thanks, James)

Cat caught in a tree

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. MyLessThanPrimeBeef

    Christmas shopping in summer? In addition to separating Church and State, the true believers, I think they need to separate Church and Commerce.

    Leave all the buying to pagans (I don’t mean the Pagan tribe in Myanmar…they are cool like the Kandy, maybe Candy?, people in Sri Lanka) and atheists.

  2. rjs

    Democrats Jump Into Six-Point Lead on Generic Ballot Gallup (any clues why?)

    maybe opposing unemployment benefits and favoring tax cuts for the rich?

    1. Jim

      …. or because Gallup decided to poll 1,535 *adults* (their July 19 poll) instead of 1,594 *registered voters* (their June 2 poll).

      This is total garbage polling by Gallup. Their use of the July 19 data point (adults polled) in the graph of registered voters strains credulity to believe. The two data series are completely incompatible. Gallup should have noted the change in sampling and used *two* different graphs. Better yet, stop polling just adults — I could care less what a hobo on the street thinks of the November elections.

      This error is so basic, how is someone supposed to believe that it was inadvertant?

  3. Anonymous Jones

    Unfortunately, your site seems to be temporarily down and I can’t access the Spinoza article. So maybe you go into much more depth that the brief outline above, but our ability to process information is greatly constrained, not just because we must suspend disbelief. First, there is almost infinitely more information in the world (color, sound, objects near and far) than our brain could possible process so we have developed filtering systems that exclude almost all the information in the world except what our brain and our adaptive heuristics deem “important.” Second, we can never be confident that our information-gathering senses are accumulating accurate information or if there are defects in the machinery that incorrectly process the data. Third, throughout our lives we develop a basically accretive substructure of knowledge and thought-logic-machinery, and almost all new information can only be handled within the context of our previously gained “knowledge” and thought “skills.” Fourth, some people seem to hard wire, through pre-determined genetics or early environment (perhaps even pre-natal), into certain flawed systems for classifying information or disproven “logical” processes.

    This last two parts generally are the elements many people believe lead to resistance to cognitive dissonance. Regardless, all four should always give one pause before settling on the belief that one *knows* something. One probably doesn’t *know* it, but at the same time, we must do the best we can with what we have. Just because we can’t go farther than the Cartesian “Cogito ergo sum,” doesn’t mean we should give up. I usually take it to mean that we should just take a tad more time to listen to others, but that just makes me “liberal” I guess (even though I believe in as much dispersal of power as practicable).

    1. Edward Harrison Post author

      The site is back up now.

      I don’t think we can ever fully trust our compiled knowledge to help us navigate false narratives. You said: ” throughout our lives we develop a basically accretive substructure of knowledge and thought-logic-machinery, and almost all new information can only be handled within the context of our previously gained “knowledge” and thought “skills.””

      This is good substructure is good in digesting new information quickly but the biases our base of knowledge create make us selective in the information we process. It is a never-ending struggle not to fall prey to false narratives – especially when they fit your world view or satisfy wants and desires. I think this was a factor in people believing in the housing/stock bubbles over the last decade.

    2. OutsideLookingIn

      Or, to paraphrase Malvolio, “Some men are born stupid, some achieve stupidity and some have stupidity thrust upon them.”

  4. Diego Méndez


    I, too, fell for the big-breast hoax :(

    The article on “Globe and Mail” has several misrepresentations, among them:

    1) There has been no extra spending cuts by Zapatero this week.

    2) Spain *does* have a personal-bankruptcy law. There are many instances where getting out of a home investment through bankruptcy may be inconvenient (you lose all your other assets, and the debt may still hang on a relative who signed the mortgage), but personal bankrupcty does exist.

    3) There have been no spending cuts on unemployment insurance. In fact, unemployment benefits have been increased.

    4) None of this is true: “During the late 1990s and 2000s, a freewheeling mortgage market gave Spain the highest rate of homeownership in Europe and possibly in the Western world, at 85 per cent. But property values quickly collapsed across Spain – falling more than 40 per cent in Barcelona – at the same time as 2.5 million jobs were wiped out, so there are now a million Spanish families in which all the members are unemployed. ”

    The high rate of Spanish homeownership was there before the housing bubble. Property values have not collapsed as of yet (some 15% price falls; of course, we’ll probably see larger falls in the future, but not as of yet). And while 2.5 million jobs were wiped out, more people are working now than at the start of the decade (unlike in the US!), which puts the unemployment figures in perspective.

    – “Two years ago, he expected to be using his home equity to pay for post-secondary educations for [his children]”

    Since post-secondary education is free in Spain (including university education for the poor), that may not be a problem.

    Moreover, I have never heard about a Spaniard using home equity to pay for anything. Certainly not his children’s education, not even in the most expensive private schools. Unlike in the US, Spaniards don’t extract home equity for consumption.

    I don’t think a journalist can get it more wrong than this article’s author.

    1. Edward Harrison Post author

      Thanks for the pointers, Diego. It certainly sounded like serious fraud was rampant during the bubble days from the article. Do you think that aspect was accurate?

      1. Diego Méndez

        I don’t think that aspect is accurate.

        Corruption was widespread in city councils and other political institution involved in urban planning and construction projects.

        However, I can’t recall a single instance of banking fraud, as in bank employees telling mortgage-takers to exaggerate income figures. Banks demanded all documentation justifying income, and telling them “you worked on weekends” were tantamount to nothing.

        Moreover, there weren’t “free mortgages”. If you had money, cars and a relative putting their house as collateral, you didn’t need savings, but that was a safe bet for the bank: both you and your relative had to be completely penniless in a matter of 2-3 years for them not to make a profit.

        It’s true that banks gave loans against overvalued collateral in the last few years of the bubble, and clients were not made aware of all the risks involved in some mortgages, but that’s why you shouldn’t sign a document you haven’t fully read and understood.

        There’s a story of personal responsability in all this. You enter the bank and you make a huge bet on increasing home values, all in the same day (!), then the bet goes bust and you blame the system…

        I’ve seen many Spaniards take mortgages in yens (!) and telling the rest of Spain how smarter they were and how cheaper their mortgages were… now their mortgages have doubled and they cannot repay them. Their pride turned to tears and desperation. Can you really blame the banks?

  5. David Anthony

    Democrats Jump Into Six-Point Lead on Generic Ballot Gallup (any clues why?)

    Maybe because they went on the Sunday talk shows and said how great the Bush years were and we need to go back.

  6. Jojo

    Looks like the Faux News channel has found a way to rip off the suckers who watch their dreg.
    Glenn Beck’s Golden Advertiser Under Investigation
    Authorities Probe Goldline, Gold Firm Touted By Beck And Other Fox Talkers, For Alleged ‘Rip Off’


    July 19, 2010 —

    Authorities in California said today they have opened an investigation into Goldline International, a company that pioneered the practice of weaving its sales pitches into broadcasts by popular conservative political personalities — including two former presidential candidates and Fox News host Glenn Beck — to sell hundreds of millions of dollars worth of gold every year.

    “There are two main types of complaints we’re seeing,” said Adam Radinsky of the Santa Monica City Attorney’s office, which has launched what it described as a joint investigation with the Los Angeles County District Attorney’s office.

    “One is that customers say that they were lied to and misled in entering into their purchases of gold coins,” he said. “And the other group is saying that they received something different from what they had ordered.”

    In an interview to be broadcast on ABC News Nightline Monday night and Good Morning America Tuesday morning, Radinsky said the probe is in its early stages and involves more than 100 consumer complaints about Goldline and one other Santa Monica, California-based company, Superior Gold Group.

    1. Cynthia


      Hopefully this ungodly news about Glenn Beck with finally convince the taebagging crowd that he’s nothing but a fraud, but I’m afraid that they’ve been so brainwashed by him and other AstroTurfers that they wouldn’t know fraud even if it was served to them on a silver platter!

  7. curlydan

    In “Welfare and Warfare”, it seems like the author is trying to make Social Security look like a welfare program. In fact, it’s available to all wage earners who pay into the system regardless of income.

    The right would like to turn it into a welfare program by cutting benefits or imposing means testing with many left-of-center folks thinking that means testing sounds nice, too.

    In fact, as Dean Baker has pointed out, means-testing could drive a stake through SS’s future by turning it into a welfare program reserved only for those poor unfortunate souls. Once the wealther, more powerful voting class gets cut of the the system, then the system dies itself.

    I’m not saying Welfare and Warfare is without merit, but “welfare” is not the right term.

  8. Dikaios Logos

    I hope everyone reads the piece on Pakistan. I’ve spent time there and it puts low tax paradises in perspective. Everyone who assumes low tax rates automatically make the economy boom should see Pakistan. And that article’s allegation of the wealth of MPs is quite low. I am pretty sure there are MPs with wealth north of $100 million and many with $1-$10 million.

    If the Pakistan story isn’t enough to weird you out about certain American political movements, consider the country’s proclivity to religion mingling with politics and its bloated military. Sounds familiar, doesn’t it?

  9. dearieme

    “Democrats Jump Into Six-Point Lead on Generic Ballot Gallup (any clues why?)” Because the question asked was “Which set of bastards should we hang first?”

  10. kevinearick

    many incorporated areas have made it unlawful to walk through their jurisdictions … the Internet utilities & portals are already “managing” the news … freedom of speech is not free; someone has to build the platform/portal …

    Time Machines / AC Community Portals / Re-Cap

    So, humanity is a circuit and the planet is a circuit, within another circuit (helices). The planetary economy self-corrects by balancing its fulcrum of fulcrums, the distance / gaps. It is not sufficient to increase the diversity of commercial products. Those products must increase the diversity of planet products. Relativity, the potential difference, the ability to do work toward that end, is what sets the gaps and makes the current flow through the symbiotic circuits. Energy U is neither created, nor destroyed; it is simply transformed.

    We can tap the planetary circuit at will, but the return parallels must feed the planetary symbiotic relativity circuit with increasingly productive diversity to complete the circuit. Once we get that down, we will have a platform from which to explore space in numbers. In the meantime, humanity is shorting itself out, by creating too much distance (dissonance) from nature, and the planet’s natural response is replacement, through the resulting feedback parameters, to create a new balance, collapsing the human fulcrum, triggering a chain reaction of stack pops, to free up the required energy.

    DC markets could care less about future generations, except to efficiently enslave them to the past, to pull revenues forward, and push costs back. That process has run its course, and humanity’s gap has hit the planet’s limit switch. Meanwhile, the kids have adapted to hide their electrons accordingly, systematically cutting the dc bus off from the source of its addictions, and moving forward with analog technology, beyond the “knowledge” of the digital economy, closing its NPV window, and rendering it insolvent, leaving it one choice, link to the AC inverter or perish.

    In net, the digital economy is now making a run on its own currencies, in a recursive loop, because it can only replicate, moving it further away from the planetary supply with each iteration, paying itself for symptomatic relief, with increasing addiction, rendering itself into a gravitational black hole.

    Technology development requires an understanding of History. If you bought a machine that you did not understand, would you install a program to bankrupt the machine developer? If you were the developer, what’s your first concern? By all means, the dc bus will shop till it drops, following the multinational imperative to attack the machine developers, which it naturally views as a threat to the status quo.

    A machine cannot replace an intelligent human being, but it can replace human ignorance as the dc bus. Knowledge is not power; it’s just a temporary bridge, one that fails every time, when the last fool enters. The trick to detonation is the ability to travel through time, and the trick to that is understanding the difference between quantum and machine statistics.

    A time machine is not what it appears to be. A portal is required on the other side, someone needs to build that portal, and the dc bus may only go to that portal. The analog economy is always two steps ahead of the digital economy, and the digital economy may be relied upon to liquidate generational relationships, shorting its own chain. That’s History, but the dc bus sees only itself, and nothing between the portals.

    The multinationals, the empire, can only operate on accounting profit. They produce a large economic loss, that is born by communities in return for product diversity. To bear the, communities must produce an economic profit, surplus above self-sustained coupling with the local ecological economy. Communities require their own accounting systems to make the translation. They also require religious marriage in addition to civil marriage, as a sanctuary boundary beyond which no institution may go, to hide the electrons. Non-participants need not believe in religious marriage; they just need to respect the boundary. It’s a choice.

    The analog technology phase is not dependent on a particular empire choice. Whether they realize it or not, Americans are currently debating whether they wish to continue housing the dc empire. Either way, the dc bus is already global, playing nation against nation, and state against state, because communities are not organized to create economic profit, and the planet is just beginning to weigh in on the liquidation side of the scale.

    As the overhead of the empire has become transparent, it has migrated into the price of oil, which is embedded in all community costs. It’s the dc rough adjustment dial. All analog technology will be rolled out of small family businesses within community development, once family law is corrected. Do you want to keep the existing dc bus, the devil you know, or start from scratch? No decision is a decision to start from scratch. Communities need to take a look at all the different ways they are being charged for oil consumption, and how much of the empire they are willing to cut, to re-boot community development, and re-fill the economic pipeline.

    DC parents attempt to replicate themselves in their children and give them a comparative advantage, toward the end of their own retirement. AC parents encourage their children to be whatever nature intended them to be, and give them an advantage by giving all children in the community an advantage. Written history is just the history of the dc bus, which must be replaced regularly, because all it can do is replicate. Planning a path to the future is pure mythology.

    Naturally, the dc bus seeks to confiscate children from the analog community, to mitigate its insecurity, increasing its insecurity and creating the black hole, as the analog kids swim out. For every force of inertia applied over time, there is a quantum jump. For the analog kids, it’s about the venture, not the destination. In the digital world, time is absolute. In the analog world, time is relative, which is why the dc solution to the traveling salesman problem is efficient, but ineffective. On the first step, the salesman’s own action begins to change all the data. All dc assumptions are invalid outside the machine world.

    Raising children is not a simple matter that may be adjudicated by a politician in a robe, sitting on a pedestal, with yesterday’s laws, being paid in yesterday’s money, to confirm dc decrees, which were made up out of thin air, to appease a mob, created by the same process. A multinational merger is simple compared to effective parenting. The economy is entirely dependent on the latter, and not the former, which is why the rules for the former were left to government, despite any mythology to the contrary.

    Empires have a competitive knowledge advantage, requiring communities to have a cooperative learning advantage, to balance the system, and set the foundation for growth. Growth is a function of balance, circulation, and relativity – relevance. State, federal, and multinational symptoms are a function of community. Communities require healthy small businesses, which require durable new family formation. The Internet, as it is viewed through retail portals, naturally favors the multinationals. The AC community portal is a different way of thinking, which is why the dc bus cannot see it. The dc bus seeks the electron; the ac bus hides it, in net orbit.

    Good guys / bad guys is the dc bus. Single phase Ac works 4x as hard. 3 phase works 12x as hard. The number of participants in each changes over time, and the majority prefers to compete for yesterday’s money in the dc bus. The dc bus is the past, single phase ac is the present, and 3 phase ac is the future, which is why the system jumps. The trick to 3 phase ac is effective application, resisting the urge to take the expedient short-cut, which the dc bus may be relied upon to do every time. Evolution is building virtual communities, on its way to space.

    The community portal is a key, with its own parameters, that travels through the Internet, randomly compiling the AC wave, which is returned to the dc bus, beyond the knowledge of the dc bus. Kids design most of the technology now. The multinationals are vegetables, on government life support, resting on a structure never designed to carry their dead weight. If the multinationals do not want to pay the market clearing price, that is their business, and the business of everyone attached to them.

    …what’s the pressure on that well?

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