Links 10/15/2010

I have a ton of links today – probably 60-70. Many didn’t make it in to this edition because of space constraints. But I reckon I will fit them in at the weekend. Have a good weekend, everyone.


On Mortgages

The Other Links

Why the U.S. Has Launched a New Financial World War — and How the Rest of the World Will Fight Back Michael Hudson (h/t Swedish Lex)

Elusive Scottish wildcats filmed BBC (h/t John)

Is Belgium next? Eurointelligence (h/t Swedish Lex)

Only the Weak Survive Nouriel Roubini

Businessman Sees Golden Opportunity in Vending Machines Spiegel

The Original Microsoft Windows 1.0 News Release Mashable

Young voters vent frustration to Obama in MTV forum McClatchy (h/t Glen)

"United in Our Delusion" about Taxes Mark Thoma

Currencies and bonds fire quant funds to big rallies FT

Since Dick Cheney shot him, Harry Whittington’s aim has been to move on WaPo (A good read. I recommend it highly)

Bernanke’s History Lesson: Japan WSJ

Thoughts on Unemployment Arnold Kling

Wer hält die meisten US-Anleihen? China? Japan? Nein! Egghat

Scarface: "Say Good Night To The Bad Guy" Credit Writedowns (Sorry, I can’t help myself. This is a play on Krugman’s description of China as the ‘bad guy’. Warning: strong language.)

Currency wars – ‘The crisis is upon us’ FT Alphaville

Risk on, risk off, risk on, risk off, risk … ruptured FT Alphaville

More Praise for TARP Arnold Kling

Antidote du Jour: Ibex Goats on Dam (This is wicked cool. These goats would. not. be. deterred. They saw the dam and fought to rise over it. Now, how’s THAT for an antidote! Check out the site that gave us these pictures here. There is a video there. Thanks to Crocodile Chuck)



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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

      Only those who tried to climbed the bricke-lined dam – they were also the ones who tried to securitize goat droppings on the theory that they could make a derivative out of/on anything (I saw that on the interview at the beginning of Michael Moore’s movie on Wall Street).

  1. Edward Harrison Post author

    I know I shouldn’t but I had to laugh very hard at that comment. No, I don’t think there are any dead goats. But you have to hand it to these goats for scaling this dam. Pretty amazing climbers.

  2. EmilianoZ

    I love those goats! They should be a model to us all. That’s how we should fight the corporatocrats. They’re building walls around us too, maybe even higher and steeper. They keep us in obscurity, in abject serfdom where they can extract rents from us. They distract us with the absurd spectacle of Democrats and Republicans fighting each other. In the meantime they suck the blood out of us and reduce us to pitiful wrecks afraid of their own shadows.

    But like those goats we can fight back, we can scale their walls. All we need is guts.

      1. Cedric Regula

        Yes, I think I recognize Cramer…

        One of my old Janus mutual fund managers is lying dead at the bottom.

  3. purple

    Similar goats are in the Colorado. I saw them scaling a steep incline on Mt Evans a few years ago; the highest road in the continental U.S.

  4. Jmd

    Good article on Barney Frank, note that in the lead article to which this was linked, the Boston paper does not even MENTION the name of his opponent, Bielat. Cannot get much more in bed than that. Anyhow, Boston could do a lot worse than to get Frank out of office, bring in a Marine, and hopefully get term limits on their Congressional delegation.

  5. Hugh

    Not a big Roubini fan. I think he is mired back in the 19th century somewhere.

    “Over-spending countries – such as the United States and other “Anglo-Saxon” economies – that were over-leveraged and running current-account deficits now must save more and spend less on domestic demand. To maintain growth, they need a nominal and real depreciation of their currency to reduce their trade deficits.”

    This comes across to me as a fairly classical or rather neoclassical viewpoint, but what it misses is the kleptocratic nature and great wealth inequality in the US. If the wealth the country was generating had been directed back into the lower and middle classes, instead of the rich, then there would have been no overspending or overleveraging because these classes could have afforded what they were buying. And trade deficits would have been less because those middle class jobs would have stayed in this country, i.e. there would have been less money available to ship them overseas. I’m not saying that everything would have been perfect but there would have been a lot less of all this destructive bubble blowing and most Americans would now be far better off than they currently are.

    As it is, Roubini’s prescription is for the lower and middle classes to take it on the chin again by lowering domestic demand. What does Roubini have the rich contribute to all this? Nothing that I can see. He doesn’t mention them at all.

    Instead he goes off on how creditor and debtor nations, exporters and importers are at loggerheads and how this will be bad for everyone. Well, duh! But what he doesn’t grasp is that his conclusion shows his model which I quote in part above doesn’t work. So why even bother to use it? It just seems more of the neoclassical conceit that if everyone were just rational and followed neoclassical models those models would really work!

  6. Ron

    Bernanke’s History Lesson: Japan:

    The most striking similarity between the U.S. today and Japan is how the banking system has relied on commercial and residential property as the basis for collateral on loans. The financial system in Japan used property asset appreciation to drive up credit expansion and thereby its GDP without ever increasing property values the bank lending machines reverses and what is left is basically unsecured lending. This same process is evident in the United States as property is the key to secured lending and needs to appreciate at ever faster rates in order to fuel greater credit expansion. With residential and commercial property values falling we can expect similar economic stresses that Japan has experienced over the past 20 years.

    1. Chris

      The difference between us and Japan right now is that Japan had a high personal savings rate. We do not.

  7. Hugh

    Here is a link to Bernanke’s speech today:

    I usually don’t read his stuff because I always have a “What an incompetent nincompoop”, but how can you resist a title like:

    “Monetary Policy Objectives and Tools in a Low-Inflation Environment”

    I like that, “low-inflation”. It’s what, I believe, deflation used to be called. Equating it to “standing in place and going nowhere” I think is inaccurate. That would ignore the deteriorating fundamentals.

    Noting that the recovery began a year ago, he says,

    “Sustained expansion must ultimately be driven by growth in private final demand, including consumer spending, business and residential investment, and net exports. That handoff is currently under way.”

    Except all those things he mentions are dead or heading the wrong way, and the whole point of his incredibly vague blather is to signal that the Fed is ready to start QEII, precisely because none of this stuff is heading the right way.

    Then there is this:

    “In particular, consumer spending has been inhibited by the painfully slow recovery in the labor market, which has restrained growth in wage income and has raised uncertainty about job security and employment prospects. Since June, private-sector employers have added, on net, an average of only about 85,000 workers per month–not enough to bring the unemployment rate down significantly.”

    First, the Fed has sat on wage growth for the last 30 years considering inflationary. And of course, unemployment is through the roof. So hoping that wage growth will appear and rescue the economy is more than farfetched. It’s insane. And given Bernanke’s reassurances about stomping on inflation in the future, if wages did rise, he would be right there trying to suppress them.

    Since June the BLS tables show that the private sector added 91,000/month on average. But even that number is lower than the 110,000-130,000 jobs needed each month
    just to keep up with population growth. So the fact is that they won’t bring down the unemployment rate at all, and this is even with BLS’ habit of writing off and not counting millions of the long term unemployed. What Bernanke doesn’t say either is that since July 2009, that is 14 months ago, when the recovery supposedly started the private sector has added a whooping great 192,000 jobs, or a little less than 14,000 jobs a month on average. Nor does he comment on their quality. And if you look at both the public and private sectors, we are actually down 93,000 jobs from where we were in July 2009. The whole speech is full of these Alice in Wonderland contradictions, half-truths, and lies.

    This extends to the “meat” of his speech, the QEII:

    “a means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer-term securities. Empirical evidence suggests that our previous program of securities purchases was successful in bringing down longer-term interest rates and thereby supporting the economic recovery”

    You know that recovery which those job numbers do so much to support. And which the need for another round of QE does so much to bolster. But this is what he says immediately after about the efficacy of QE which he just promoted:

    “One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument”

    If the effects of QE are so hard to judge, how can Bernanke assert that the previous round of QE was a success, especially given that he doesn’t know how to read a BLS table, and again the whole reason for the speech is to signal the need for another round because the first round, in fact, did not succeed?

    This kind of linguistic lunacy can give reassurance to no one, but then the banksters are only interested in the bucks and as long as those are in the pipeline, they can stand Bernanke drooling and blathering as much as he wants.

    1. Doug Terpstra

      Thanks, Hugh. Bernanke is proving to be a protégé of “fatal-flaw” Greenspan, the ‘maestro’ of prevarication and obfuscation.

      The link to Hudson clarifies Bernanke’s “linguistic lunacy” and the nefarious bankster agenda behind it. The Fed is a clear and present danger to the American people.

  8. hermanas

    Good post Hugh, We need to recognize that ever since the average man lost the ability to support a family and have quality time with them we’ve been spiraling down the drain.
    Happy talk is lunacy.

  9. Doug Terpstra

    Amazing daredevil goats, thanks. The wall just doesn’t look very tasty. Que cabrones!

    RE: Hudson’s piece. These currency wars look scary, and of course we are the instigators once again.

    Hudson writes, “Faced with normalizing world trade or providing opportunities for predatory finance, the U.S. and Britain have thrown their weigh behind the latter. Targeted economies understandably seeking alternative arrangements.” He calls “finance is the new form of warfare” and QE2 as a form of imperial tribute.”

    Indeed the Fed is now quite plainly a predatory counterfeiting racket—the perfect conclusion of neoliberal “free” market theology and yet another way to re-leverage deflated assets for the few. It “provides the arbitrage opportunity of the century” writes Hudson, “what bank lobbyists have been pressing for. It has little to do with the welfare of workers.” And in this neo-feudalism, “So much money is made by purely financial speculation that “real” economies are being destroyed.” It never ends.

    But Hudson also says that this war by other means comes “without the expense of a military overhead and an occupation against unwilling hosts.” But that’s clearly not true. I would argue that this counterfeiting by the “divine right of kings” is ultimately enforced by massive violence—which squanders half of our entire federal budget on a bloated “intelligence” complex, a global military garrison of 900 bases in 120 countries, and perpetual war-fighting on multiple fronts, including covert, illegal wars. Plus beggaring the world further in this way is very likely to express itself at some point in more violence — good for the merchants of death but no one else. Profoundly ignorant of history, we repeat the time-worn cycle of imperial overreach, decline and liquidation.

  10. Gil Mendozza Zuntzes

    hum… hum… Oh! To all gullible, stupid and crazy Americas’… This goats can be a blinding ignorance that can lislead us… Hope my good “friend” Barack don’t offer a post to a former “HEAD HUNTER” Condi Rice.

  11. Patriot

    Re: The Michael Hudson article– is there any place where we can see the US balance of trade deficit figures? I’ve tried to look around on the web for this, but can’t seem to figure it out. Is there a USG agency that tracks this?

  12. john c. halasz

    This “explanation” from the Randall Wray piece I don’t understand:
    “According to Brown (quoting Steve Liesman and Neil Garfield), the other possibility is that the tranching process actually prohibited assignment of the notes to the REMICs. Bundles of mortgages of varying quality would be tranched into a variety of securities, say from AAA to BBB. But no individual mortgage is actually assigned to a particular tranche—until it defaults. When one defaults, it is assigned to a lower tranche security and then the foreclosure process begins. This means that from inception of that BBB security, there was no way to assign a note to the trustee because the trustee did not know in advance which mortgage would default.”

    I’d thought all the mortgages were to be transferred into a trust, which would gather all the payment streams from them, (which would mean that each mortgage was owned in part by each tranche), and then the flow of payments would be sliced and diced into a different set of payments, “waterfall”, in accordance with the rules stipulated by the structure. Since the acceleration of principal to the top tranches was one of the mechanisms by which they would be “AAA”, a prepayment or foreclosure recovery would count as principal payments and flow to the benefit of the top tranches, whereas continued payments of interest or fees would relatively advantage the bottom tranches. There would be no need to assign a particular mortgage to a particular tranche, rather than just differentiation what was interest and what was amortizing principal. Any help on this question, anyone?

    1. Cedric Regula

      I didn’t get that explanation either. I read a primer on CDOs a few years ago, and it was pretty much as you describe. The tranches just establish a pecking order of risk. But then again, they aren’t all standardized either. This will be more of a problem between tranche investors when they realize servicers will try and pass the costs of fixing the mess on to the trust.

      From what I’ve read so far is the original promissory note and mortgage are inseparable in order to comply with real estate law. The IRS gives the trust a corporate tax waiver (usually because it’s a REMIC) if the original mortgage and note get there in 90 days. If the originals get lost, then they can do the lost doc routine. But I’m sure the intent of allowing that was not that all of them can get lost.

      The other thing I’m trying to find is the implicit-explicit warranty statement that our government gives on F&F&FHA MBS. Like I mean the one that must be in writing somewhere? I’ve noticed both Barney and Timmay can’t seem to find their copy, and’ve heard different spoken versions of this government guarantee.

      I’m starting to think it might be important to find the hard copy?

  13. LeeAnne

    Definition of cronyism -no conception of public service, no respect for constituents, public opinion, or right and wrong for that matter..

    The man who famously jailed more than 1200 peaceful demonstrators in New York City while phony orange alerts were going off during the Bush RNC 2004. Bloomberg is an ‘independent.’

    From today’s Financial Times pg 2 October 15:
    Bloomberg sees no reason not to retain Steve Rattner personally in spite of his being about to be heavily penalized by regulators in ‘pay to play’ with New York’s state pension system and Havesi.

    Bloomberg in response to criticism:
    “Steve Rattner is my friend. Of course I’d keep him on. Why would you not?” Mr. Bloomberg said “I value his advice and …you stick by your friends.”


    “On April 15, 2010, Quadrangle stated, “We wholly disavow the conduct engaged in by Steve Rattner, who hired the New York State Comptroller’s political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund. That conduct was inappropriate, wrong, and unethical.” as it agreed to a $7 million fine.[11]

    “On January 14, 2005, the Good Times CEO sent an email to Rattner reporting to him that Good Times was moving forward with the Chooch distribution deal and “wanted to bring it to [his] attention as a potential relationship issue.” Rattner forwarded the email to Morris, telling him, “This is Steve Loglisci’s project. Wanted you to be aware.”” Morris told Rattner to contribute to Hevesi indirectly. “Thereafter, Rattner asked a Democratic donor he knew to contribute to Hevesi. That person and his wife each subsequently gave approximately $25,000 to Hevesi for New York. 70. Shortly thereafter, the CRF increased its investment in QCPII from $100 million to $150 million.” [12]”

  14. Sundog

    *The climate’s not gonna get any better. It’s worsening fast, everywhere. American conservatives are more weirded-out about the physical facts there than any other political movement on the planet.

    *They can’t play Canute to the tide indefinitely. So they either somehow get to grips with the facts, or they climb down another rung into organized irrationality. I’d be guessing the second option — a kind of Altamont for the Tea Party Woodstock.

    *You wouldn’t think that the highly-advanced USA would suffer such severe damage to its civil society over a simple matter of scientific fact. but given that the USA is also the major greenhouse offender, maybe this Gothic nemesis makes some kind of sense. An inner madness rises to the surface, and a society hallucinates in public while its neighbors marvel and hide the children.

    Bruce Stirling, “Bill McKibben, limpid voice of reason”

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