Author Archives: Yves Smith

How Much of a Short Position Did Paul Singer Take in Argentina? And Who Were the Bagholders?

With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.

Ilargi: In The Lie Of The Beholder

Yves here. Ilargi uses strained messaging in response to recent market upsets, the Argentine default, and the failure of Banco Santo Espirito to address one of NC’s pet topics, propagandizing. Most people think of propaganda as the deliberate crafting of false or misleading messages, or the simple Big Lie. However, there’s also the variant of the deeply vested partisan. As Upton Sinclair stated, “It is difficult to get a man to understand something when his salary depends on his not understanding it.” And a lot of those salaried-by-the-status-quo folks have access to media megaphones.

CalPERS Rescinds $700 Million Investment With Private Equity Fund Headed By Doctor With No Private Equity Experience

You cannot make stuff like this up. The giant public pension fund CalPERS didn’t just make a “what were they smoking” private equity investment. The turkey deal was also stunningly large.

Regulators Reject Living Wills of 11TBTF Banks, a 100% Fail Rate

Mirabile dictu, it looks like Elizabeth Warren’s grilling of Janet Yellen on the Fed’s failure to make progress on Dodd Frank resolutions, also known as living wills, has had some impact. From the Wall Street Journal:

Philip Pilkington: Inflation is NOT Always and Everywhere a Monetary Phenomenon

Monetarism is a hoary old myth that does its damage in two distinct ways. The first is that, piggybacking on Milton Friedman’s personality, basically an entire generation of economists are actually monetarist in their practical thinking. Greg Mankiw once remarked that New Keynesianism should more accurately be called New Monetarism and a glance at the actual pronouncements of even the more self-critical the New Keynesians shows this beyond a shadow of a doubt.

Michael Hudson: The Fracking/World Bank/IMF/Hunter Biden Dismantling Plan for Ukraine

Richard Smith was early to take a dim view of R. Hunter Biden becoming a director of a Ukraine’s biggest private gas producer, Burisma Holdings:

This has to be a hoax, right?

It’s so bizarre that you almost have to assume it’s a hoax. It sounds more like a cliched movie plot — a shady foreign oil company co-opts the vice president’s son in order to capture lucrative foreign investment contracts — than something that would actually happen in real life. But the indications as of this afternoon are that the board appointments actually happened, and that a Ukrainian energy company has retained the counsel of the vice president’s son and the Secretary of State’s close family friend and top campaign bundler.

Michael Hudson reports in a Real News Network interview that the commercial and geopolitical logic behind the Biden role, and the bigger US and World Bank/IMF program, is to push fracking onto a decidedly unreceptive population in eastern Ukraine.

Hedge Fund and Private Equity Fund Rent Seeking: High Fees, Crappy Performance

We’ve written from time to time about the fact that alternative investments like hedge funds and private equity funds don’t live up to their marketing hype. For instance, hedge funds claim they deserve their outsized investment fees because they deliver “alpha,” meaning manager outperformance. In reality, it has long been known that at most what they really provide is “synthetic beta,” which is a return profile that investors find attractive because it is not strongly correlated with that of other investments, and therefore lowers portfolio risk. In reality, that “synthetic beta” is typical of the defective airbags all too regularly sold in finance: they fail when you most need them to work, which is in badly spooked markets.

Yet the marketing spin of wonky hedge funds touting intimidatingly complex strategies and slick private equity fund professionals with their cherry-picked success stories remain all too appealing to investors hungry for returns. And the most credulous and desperate are public pension funds, although many endowments and foundations and high net worth individuals are not far behind.

FT Alphaville has a devastating update on this front from Nomura along with other research findings.

Naked Capitalism is Back! Google Whackage Reversed

Naked Capitalism has recovered from the negative impact of a major Google algorithm in May and is back to traffic as usual.

Tom Engelhardt: The Rise to Power of the National Security State

As every schoolchild knows, there are three check-and-balance branches of the U.S. government: the executive, Congress, and the judiciary. That’s bedrock Americanism and the most basic high school civics material. Only one problem: it’s just not so.

“Land Grabs” – Economists’ Justifications of Agricultural Expropriation

Yves here. Robert Heilbroner described economics as the study of how society resources itself. It’s hard to think of a resourcing issue more basic than food. Not surprisingly, food and the means of producing it were the source of traditional wealth (the so-called landed aristocracy). Similarly, expropriation of rights that yeoman farmers had enjoyed, such as hunting rights and access to common pasture land, were the main devices that early industrialists used to end the farmers’ self-sufficiency and force them to sell their labor as a condition of survival. Even though similar land grabs are justified now under the idea that large-scale farming is more efficient than cultivation by smaller operators, Tim Wise contends that evidence is not conclusive, particularly in emerging economies.

Humanity May Face Choice By 2040: Conventional Energy or Drinking Water

Yves here. It is surprising that it is only now that the idea of water as a scarce resource is getting the attention it deserves in advanced economies. It was when I was in Australia, between 2002 and 2004, that I first heard forecasts of resource constraints that depicted potable water as the one at most risk, with global supplies in serious trouble by 2050. A related issue, which this post addresses to a degree, is that dealing with water, energy, and food supply limits are an integrated problem, yet are typically handled as isolated issues.

Ilargi: Say Bye to the Bubble

Yves here. Only with the fullness of time will we know whether Ilargi’s “the end is nigh” headline will have coincided with the crack that signaled the sell-by date of the officialdom-induced post crisis rally. But Ilargi makes more interesting points than simply, as many done, point out that the bubble party has to end and the unwind is not likely to be pretty.

RI Treasurer Justifies Hedge Fund Secrecy With Need to “Minimize Attention” Re Pay, Protect Them From Poaching

Remember the infamous moment in The Untouchables, the PBS documentary on the failure to prosecute major financial firms for blowing the global economy, when assistant Attorney General Lanny Breuer made it clear that he was more worried about harm to banks than harm to the public? Rhode Island is updating Breuer’s playbook.

Philip Pilkington: The Phillips Curve – Timelessly Misleading

Tom Palley has written a blog post politely requesting that Paul Krugman might give a bit of recognition to non-mainstream contributors to economics. It would be nice to see this happen but I doubt that it will (although Palley is getting a bit of blog play out of it which is nice). Anyway, I note that in the post he links to a discussion him and Krugman had regarding the Phillips Curve. Before I get to the arguments put forward here let us examine the Phillips Curve in some detail.

Reminder: Today is our San Francisco Meetup! Hope to See You There

Just to remind you: our meetup is 6:00 PM today at the Press Club. I’ll be there till at least 8:30 PM. Wolf Richter will be joining us, so I’m sure you’ll have fun meeting him as well. It looks like we’ll have a good, lively group.