Category Archives: Free markets and their discontents

New Zealand Company Registry Whack-a-Mole!

More old and new delights from the little shop of horrors that is the New Zealand Company Registry

New Zealand Opportunity! Earn $$$ Working from Home, Creating Bogus Companies for Crooks!

Introducing Scam Central of New Zealand…

Marshall Auerback: A Beer(s) Hall Putsch From the Rentiers?

By Marshall Auerback, a hedge fund manager and portfolio strategist

So the ratings agencies have reared their ugly heads again. David Beers, head of S&P’s government debt rating unit, announced Friday night that S&P has downgraded the U.S. credit rating for the first time, from AAA to AA+. It’s a sham: S&P’s whole analytical framework reflects ignorance about modern money. If the US government, Treasury, and the Federal Reserve, capitulate to this outrageous act of economic extortion, it will effectively be sanctioning a beer hall putsch by the rentier class.

ECB Considers Massive Purchases of Italian and Spanish Bonds (Update: Eurobazooka Armed)

Even thought the US media has been fixated on the downgrade of Treasuries to AA+ by Standard and Poor’s, the real risk to the markets is continuing decay in Eurozone sovereign debt. The BBC’s Robert Peston said today that the failure of the ECB to buy Italian bonds would be a Lehman moment. As our Ed Harrison stresses, while some countries like Greece have a solvency crisis and need to have their obligations restructures (as in written down), the stress on Spanish and Italian bonds looks like a classic liquidity crisis. And the concern has spread to the core, as French sovereign debt (remember, rated AAA) was trading at a 90 basis point premium to German bunds. As Ed noted:

James Galbraith on How Fraud and Bad Economic Thinking Got Us in This Mess

Yves here. Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.

Similarly, Galbraith refers to an incident at the most recent Institute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud. The stunning part was how utterly unreceptive the panel and the audience were to his observation. You’d think he’d had the bad taste to say the host had syphilis.

I strongly urge you to read the entire piece; non-economists may want to skim the first third and focus on the crisis material and what follows. This is the key paragraph:

This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.

Will S&P Downgrade Be Another Y2K Scare?

Remember Y2K? The world was gonna end because there was tons of legacy code that couldn’t accommodate the rollover to the new century. I know people in who went into survivalist mode, stocking up months of supplies, and others who took less extreme precautions, like having lots of cash on hand in case ATMs were disrupted.

As we now know, January 1, 2000 came in without major incident, since the widespread publication of this software threat to End the World as We Know It led to lots of preventive action. Perversely, the big effect of the Y2K scare was that it accelerated tech spending, since many firms bought new systems and upgraded hardware as part of their overhaul. That increased the severity of the post-bubble economic downturn. Remember, Greenspan dropped Fed fund rates to negative real interest rate levels and held them there for an unprecedented amount of time, which many argue helped stoke the housing bubble. So while Y2K’s direct effects were greatly overestimated, its indirect impact (on how long the former Maestro kept rates down) may not have been fully acknowledged.

It isn’t yet clear what the impact of the S&P downgrade of the US to AA+ will have. There are good reasons to believe, despite the media hyperventilating, that it won’t add up to much, and may perversely hit wobbly stock markets more than Treasury yields.

But there is a much bigger issue, namely S&P’s highly questionable conduct, the lack of any analytical process behind this ratings action, and the political implications.

Bill Black: U.S. Subsidies to Systemically Dangerous Institutions Violate WTO Principles

By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives

Greetings from Quito, Ecuador!

Introduction: The SDIs Pose Systemic Risks

This article makes the policy case that U.S. subsidies to its systemically dangerous institutions (SDIs) violate World Trade Organization (WTO) principles. The WTO describes its central mission as creating “a system of rules dedicated to open, fair and undistorted competition.” There is a broad consensus among economists that the systemically dangerous institutions (SDIs) receive large governmental subsidies that make “open, fair, and undistorted competition” impossible. To date, WTO is infamous for its hostility to efforts by nation states to regulate banks effectively. At best, the result is a classic example of the catastrophic damage cause by the “intended consequences” of the SDIs’ unholy war against regulation.

Randy Wray: The Budget Compromise – Congress Creates a Rube Goldberg Doomsday Machine

By Randy Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College. Cross posted from EconoMonitor

Don’t you feel relieved? After weeks of threats, hostage-taking, and other forms of deficit terrorism, our two political parties have finally “compromised” on what was always a foregone conclusion. (As I write, we still await the Senate vote—but it looks like a done deal.)

Washington got what it wanted—a down payment on destruction of the last remnants of progressive policy. Soon, it will be 1929 all over again. We can make believe that the New Deal and Great Society programs never existed, and go back to the good old days when it was every “man” for himself.

Should Elizabeth Warren Run for President?

As the manufactured debt ceiling crisis provides an unflattering window into the reckless incompetence of pretty much all of our elected officials in DC, more and more readers have been calling for Elizabeth Warren to run for President.

The idea of punishing Obama by introducing a wild card into his stacked deck is enormously appealing. The assumption that he can abuse his everyman base as badly as he wants to because they won’t vote for someone further to the right (no matter how little further to the right that really is) after the bait and switch of his campaign is still seen as a viable strategy by most political commentators.

But discomfiting Obama isn’t a very good reason for Warren to consider throwing her hat into the ring. And as we’ve observed in past posts, the Harvard professor attracts a tremendous amount of projection. It would be hard for her, or anyone, to live up to the hopes vested in her.

We’ll take a dispassionate look at the notion of having Warren run for President. The bottom line is there is a sound case to be made for the idea, and it trumps having her run for the Senate. And if she is to go this route, she should primary Obama rather than run as a third party candidate.

“Time to Take Stock”

Yves here. I had come across the speech mentioned in this post, “The Race to Zero” by Andrew Haldane of the Bank of England and decided not to write it up because I had come across it a bit late. This post will probably persuade readers that that was a bad call.

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

Exactly how did we get into this mess with the capital markets? A situation where the global stock of derivatives is over $US600 trillion, which is about twice the capital stock of the world. A situation where high frequency trading is over two thirds of the transactions on the NYSE and about the same in the stock markets of the UK and Europe. Likewise they are over half the action in foreign exchange markets and they are rapidly becoming dominant in the futures market. Andrew Haldane from the Bank of England is arguing against allowing high frequency trading — algorithms chasing algorithms chasing algorithms — from being allowed to proliferate pointing at volatility as the problem: