I have recently had 2 guest posts published on Naked Capitalism. As they are lengthy and not typical fare for EBR, and as their formatting is better suited for NC, I am providing links to them. They comprise a 2-part unified set of posts, and bookending other posts linked to in the second part. These are the titles and links.
Debate on Deficits
On, and Beyond, Deficits
Copyright (C) Long Lake LLC 2009
Showing posts with label Naked Capitalism. Show all posts
Showing posts with label Naked Capitalism. Show all posts
Monday, November 2, 2009
Sunday, September 13, 2009
EBR Reviews "The Fed" at Naked Capitalism
Anyone interested in my take on Martin Mayer's prescient 2001 book, "The Fed", may click HERE to link to a review of it I wrote for Naked Capitalism, or on the title: Guest Post: "The Fed has never believed in sunshine as a disinfectant".
Thursday, August 27, 2009
Big Finance to Shrink as Creative Destruction Moves Along?
There happen to be some very good reads today at two widely-read blogs.
At Naked Capitalism, Yves Smith comments on the possibility that there may be some hope for a relative shrinkage of the role of finance in the workings of the advanced economies; click here for the post.
Mish has a complex writeup with a number of links to his and other material with the theme and title of Creative Destruction.
Back at Naked Capitalism, Yves linked to a WSJ article I brought to her attention, click here for NC's links today; eighth link from the top. Because this is a subscription only WSJ article, I'd like to add a link to a more thorough abstraction from this, as published at the Planet Gore blog:
The Looming Biofuel Bust
The biofuels revolution that promised to reduce America's dependence on foreign oil is fizzling out.
Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.
The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors — biodiesel and next-generation fuels derived from feedstocks other than food. . .
Producers and investors now are pushing for swift and aggressive government help. Biodiesel makers are lobbying to kick-start the delayed blending mandates immediately and extend biodiesel tax credits, which expire in December.
On Aug. 7 more than two dozen U.S. senators wrote to President Barack Obama to warn that "numerous bankruptcies loom" in the biodiesel sector. "If this situation is not addressed immediately, the domestic biodiesel industry expects to lose 29,000 jobs in 2009 alone," the senators wrote, using estimates by the National Biodiesel Board.
Mr. Obama, who supported biofuels throughout his campaign, is working to roll out grants and loan guarantees for bio-refineries and green fuel projects, said Heather Zichal, a White House energy adviser. The pace of the disbursements should speed up this fall, administration officials say.
I have not followed the biofuels stuff much at all, but with oil around $70 barrel, the idea that oil prices are so far below projections that this stuff is now uneconomic is loony. One wonders if this was just another corporate scam.
It's one thing when one group of people gain an advantage over another in the process of developing useful goods, services, capital investment and the like. From an overall standpoint, spending real resources to build irrelevant things is pure waste. In the Bible, the seven lean years probably came from locusts and weather problems. Nowadays it's more likely government-caused problems or too much in the way of "animal spirits" amongst businesspeople.
Copyright (C) Long Lake LLC
At Naked Capitalism, Yves Smith comments on the possibility that there may be some hope for a relative shrinkage of the role of finance in the workings of the advanced economies; click here for the post.
Mish has a complex writeup with a number of links to his and other material with the theme and title of Creative Destruction.
Back at Naked Capitalism, Yves linked to a WSJ article I brought to her attention, click here for NC's links today; eighth link from the top. Because this is a subscription only WSJ article, I'd like to add a link to a more thorough abstraction from this, as published at the Planet Gore blog:
The Looming Biofuel Bust
The biofuels revolution that promised to reduce America's dependence on foreign oil is fizzling out.
Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.
The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors — biodiesel and next-generation fuels derived from feedstocks other than food. . .
Producers and investors now are pushing for swift and aggressive government help. Biodiesel makers are lobbying to kick-start the delayed blending mandates immediately and extend biodiesel tax credits, which expire in December.
On Aug. 7 more than two dozen U.S. senators wrote to President Barack Obama to warn that "numerous bankruptcies loom" in the biodiesel sector. "If this situation is not addressed immediately, the domestic biodiesel industry expects to lose 29,000 jobs in 2009 alone," the senators wrote, using estimates by the National Biodiesel Board.
Mr. Obama, who supported biofuels throughout his campaign, is working to roll out grants and loan guarantees for bio-refineries and green fuel projects, said Heather Zichal, a White House energy adviser. The pace of the disbursements should speed up this fall, administration officials say.
I have not followed the biofuels stuff much at all, but with oil around $70 barrel, the idea that oil prices are so far below projections that this stuff is now uneconomic is loony. One wonders if this was just another corporate scam.
It's one thing when one group of people gain an advantage over another in the process of developing useful goods, services, capital investment and the like. From an overall standpoint, spending real resources to build irrelevant things is pure waste. In the Bible, the seven lean years probably came from locusts and weather problems. Nowadays it's more likely government-caused problems or too much in the way of "animal spirits" amongst businesspeople.
Copyright (C) Long Lake LLC
Sunday, July 19, 2009
Wall Street Under Oath Reviewed by EBR
I have published a review of Ferdinand Pecora's Wall Street Under Oath at Naked Capitalism.
Click HERE or on the book title to be directed to that review.
Copyright (C) Long Lake LLC 2009
Click HERE or on the book title to be directed to that review.
Copyright (C) Long Lake LLC 2009
Friday, May 15, 2009
The Truth Begins to Surface About TARP and Shovel-Readiness
Naked Capitalism posts tonight a missive about a TARP beneficiary in TARP Beneficiary Says "Sham" Bailouts Help Speculators. Here are excerpts, first from Yves Smith, the blogger and then from the speculator:
So far, the beneficiaries of the handouts equity injections have complained only about the Obama Adminstration's occasional efforts to act like a substantial shareholder and exercise some influence over the companies' affairs. We are the first to acknowledge that these too often have involved matters of appearance (executive pay) as opposed to substance (risk taking on the taxpayer dime for the benefit of shareholders and employees).
But now we have a salvo from an unexpected source: an investor who used TARP funds to buy a bank, and thinks taxpayers are getting ripped off. Mark Patterson, of MatlinPatterson Advisers, used TARP matching funds to buy a Michigan bank. This by no means was a large transaction, but the point is that someone that one would expect to praise the process (after all, he benefitted from its largesse) is a pointed critic. . . (Ed.: Now the speculator/beneficiary in an article in the Telegraph (UK)):
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers...
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alpha hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said...
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
DoctoRx here now. The only thing in the above I would disagree with is the final statement that "the only way out is to debase the currency". Nouriel Roubini advocates, as I do, that debtors and lenders get together and cancel out as much of the debts as can be done. Barack Obama should be jumping on that theme. Avoiding debt deflation simplifies many, many matters and allows a balanced economy that should be "allowed" to grow at whatever pace is natural for it. Debasing the currency is a strictly political choice. It is not inevitable.
Below almost in its entirety is another piece from Naked Capitalism, reprinted here in its entirety as it has disappeared from the main NC page. Along with the above, which demonstrates problems with TARP (not to mention the even more abusive PPIP!), here is a discussion of practical problems with "stimulus":
Thursday, May 14, 2009
Not So Shovel-Ready Projects?
(Yves): Reader Harry H tells us that, at least in Vermont, shovel-ready projects aren't as ready to go as the very nature of the term would suggest. The Wall Street Journal described some reasons for delay back in March:
It turns out, though, that shovel-readiness is in the eye of the beholder. Soon after his visit, Mr. Biden found out that his model stimulus project wouldn't see a shovel for almost four more months, possibly longer, knowing how such timetables slip....
States are quickly assembling their construction wish lists. But it takes time to advertise for contractors, collect bids, check the numbers, pick a winner and get work underway. A typical paving project -- easy roadwork -- takes close to three months from the time the money is approved to the arrival of work boots on the ground, according to the American Association of State Highway & Transportation Officials. "It is not an instant process," says a spokesman.
(Yves again): However, an additional complicating (factor) appears to be the vagaries of the bidding process. (A Naked Capitalism reader) Harry H describes the local situation:
I was talking with a construction firm that was supposed to oversee a large ($9 million) civil project in VT.The bids on the project came in and there were 2 that were below $7 million. The $9 million was the engineers estimate. Take 20% off that, and that is roughly the cost of the work for the contractor, or $7.2 million. So the bids came it below what the costs for the project were likely to be.
This situation is very bad. The municipality does not want to let the work out if the contractor is going to go broke during the project, even with bonding it is a royal mess to have a contractor go bust in the middle, and to get someone else to go in and finish it is even harder. At the same time, getting rid of low bidders on government projects is very difficult. Lots of lawyers and obscure bidding laws, but it is possible to not let the job to the lowest bidder. It depends on law mostly, but smaller municipalities will usually throw out the entire bidding process, and start over in a few months. This is a simplification of the process, obviously. Lots of law behind the scenes that I only have seen in practice.
I have heard this is happening a lot, all of the "shovel ready" projects are not going anywhere because of bidding problems. This particular project was in a small town in VT, dig up main st and replace all of the water, sewer and gas line, and then re-do the entire road and drainage, as well as sidewalks. Very good work for a stimulus, lots of labor, as compared to say a new road.
(Back to Yves): The construction season is relatively short in the Northeast. If it doesn't get started soon, it will have to wait till next year. . .
DoctoRx here. The best-laid plans . . . gang aft agley.
The above demonstrates why this blog refers to ARRA of 2009 (i.e. the Obama "stimulus" plan) with quote marks around the word "stimulus". Supposedly only 5% of the ARRA funds have yet been disbursed. Along with waste and corruption, the rest of these funds are going to kick in when the economy is having a cyclical rebound without massive Federal debt. Oh, I forgot: a crisis is a terrible thing to waste.
But so is taxpayer money.
Copyright (C) Long Lake LLC 2009
So far, the beneficiaries of the handouts equity injections have complained only about the Obama Adminstration's occasional efforts to act like a substantial shareholder and exercise some influence over the companies' affairs. We are the first to acknowledge that these too often have involved matters of appearance (executive pay) as opposed to substance (risk taking on the taxpayer dime for the benefit of shareholders and employees).
But now we have a salvo from an unexpected source: an investor who used TARP funds to buy a bank, and thinks taxpayers are getting ripped off. Mark Patterson, of MatlinPatterson Advisers, used TARP matching funds to buy a Michigan bank. This by no means was a large transaction, but the point is that someone that one would expect to praise the process (after all, he benefitted from its largesse) is a pointed critic. . . (Ed.: Now the speculator/beneficiary in an article in the Telegraph (UK)):
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers...
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alpha hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said...
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
DoctoRx here now. The only thing in the above I would disagree with is the final statement that "the only way out is to debase the currency". Nouriel Roubini advocates, as I do, that debtors and lenders get together and cancel out as much of the debts as can be done. Barack Obama should be jumping on that theme. Avoiding debt deflation simplifies many, many matters and allows a balanced economy that should be "allowed" to grow at whatever pace is natural for it. Debasing the currency is a strictly political choice. It is not inevitable.
Below almost in its entirety is another piece from Naked Capitalism, reprinted here in its entirety as it has disappeared from the main NC page. Along with the above, which demonstrates problems with TARP (not to mention the even more abusive PPIP!), here is a discussion of practical problems with "stimulus":
Thursday, May 14, 2009
Not So Shovel-Ready Projects?
(Yves): Reader Harry H tells us that, at least in Vermont, shovel-ready projects aren't as ready to go as the very nature of the term would suggest. The Wall Street Journal described some reasons for delay back in March:
It turns out, though, that shovel-readiness is in the eye of the beholder. Soon after his visit, Mr. Biden found out that his model stimulus project wouldn't see a shovel for almost four more months, possibly longer, knowing how such timetables slip....
States are quickly assembling their construction wish lists. But it takes time to advertise for contractors, collect bids, check the numbers, pick a winner and get work underway. A typical paving project -- easy roadwork -- takes close to three months from the time the money is approved to the arrival of work boots on the ground, according to the American Association of State Highway & Transportation Officials. "It is not an instant process," says a spokesman.
(Yves again): However, an additional complicating (factor) appears to be the vagaries of the bidding process. (A Naked Capitalism reader) Harry H describes the local situation:
I was talking with a construction firm that was supposed to oversee a large ($9 million) civil project in VT.The bids on the project came in and there were 2 that were below $7 million. The $9 million was the engineers estimate. Take 20% off that, and that is roughly the cost of the work for the contractor, or $7.2 million. So the bids came it below what the costs for the project were likely to be.
This situation is very bad. The municipality does not want to let the work out if the contractor is going to go broke during the project, even with bonding it is a royal mess to have a contractor go bust in the middle, and to get someone else to go in and finish it is even harder. At the same time, getting rid of low bidders on government projects is very difficult. Lots of lawyers and obscure bidding laws, but it is possible to not let the job to the lowest bidder. It depends on law mostly, but smaller municipalities will usually throw out the entire bidding process, and start over in a few months. This is a simplification of the process, obviously. Lots of law behind the scenes that I only have seen in practice.
I have heard this is happening a lot, all of the "shovel ready" projects are not going anywhere because of bidding problems. This particular project was in a small town in VT, dig up main st and replace all of the water, sewer and gas line, and then re-do the entire road and drainage, as well as sidewalks. Very good work for a stimulus, lots of labor, as compared to say a new road.
(Back to Yves): The construction season is relatively short in the Northeast. If it doesn't get started soon, it will have to wait till next year. . .
DoctoRx here. The best-laid plans . . . gang aft agley.
The above demonstrates why this blog refers to ARRA of 2009 (i.e. the Obama "stimulus" plan) with quote marks around the word "stimulus". Supposedly only 5% of the ARRA funds have yet been disbursed. Along with waste and corruption, the rest of these funds are going to kick in when the economy is having a cyclical rebound without massive Federal debt. Oh, I forgot: a crisis is a terrible thing to waste.
But so is taxpayer money.
Copyright (C) Long Lake LLC 2009
Sunday, May 10, 2009
Yves Smith, "Animal Spirits", and the Big Lie Technique
One of the important moments in the financial blogosphere occurred at the end of a lengthy and impassioned post by Yves Smith at Naked Capitalism, where she opined:
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
Having recently finished reading Niall Ferguson's "The Ascent of Money", I would have to call that statement a Big Lie as well. The evolution of the Bank of England into a central bank was most assuredly not to insure full employment for the subjects of the Crown. It was much more to help finance wars, imperialistic expansion, and other matters. Similarly, while the origins of the U. S. Federal Reserve are a bit controversial, full employment in the U. S. was for the most part a given before the Great Depression (though the level of wages was another matter). The country in those days was much to busy growing and much too rural not to use more workers somewhere to do something. From the New York Fed itself on the creation of the Federal Reserve in 1913:
The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, "Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. (Ed: This post from the NY Fed lacks a close to the quote mark; alert readers who noticed the missing "end quote" should complain to the Fed!)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
Monday, April 27, 2009
Monday Morning Update: Good News Remains Scarce
This blog has since inception considered Tim Geithner to be the bad penny and asked that his nomination as Treasury Sec'y be withdrawn. Thus it is with positive emotions that an important blog from Naked Capitalism was seen this morning, titled Are the Knives Coming Out for Geithner? If you haven't, please read it.
That post by Yves Smith and the lengthy NY Times article that it keys off of, are not in conjunction with an apparent pandemic of swine flu enough to knock the stock market off its stride.
Yesterday, however, Larry Summers was reported on by Bloomberg as follows:
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said yesterday on “Fox News Sunday.”
In conjunction with this downbeat comment from Dr. Summers, TrimTabs reported today via Email that:
- U.S. Economy in Much Worse Shape Than Wall Street Realizes: Income Tax Withholdings Drop 3.1% Y-o-Y in Past Four Weeks, and TrimTabs Online Job Postings Index Falls 4.2% in April.
In addition, the debt monster is back: Bloomberg reports that companies have sold a record $468 B in debt so far this year (presumably this is a record for this far into a calendar year).
The news remains poor, and a veteran market observer comments (courtesy of Zero Hedge and GreenLightAdvisor Views):
Richard Russell of Dow Theory Letters, provides the following note April 20, 2009:
“(1) The market turned up in a V-shaped reversal off the March 9 low. However, almost all bull markets start with a period of accumulation. This entails a sideways move, sometimes taking weeks or even months. Or it may require a non-confirmation of the Averages as per December 1974. At the March low, we saw neither - no indication of accumulation. And that bothers me.
“(2) At the March lows, we did not see the ‘great values’ that usually accompany major bear market bottoms (i.e. P/E’s in the 5-8 area, average dividend yields of 5-6%).
“(3) The market was severely oversold at the March lows, a condition that often sets off a ‘relief’ (‘let off the pressure’) rally. The advance was probably triggered by the severely oversold condition of the market.
“(4) The one thing a money-manager cannot afford to do is be on the sidelines during ‘what could be’ a major rally. Once the market started up from the March 9 low, many money managers leaped in. The big short positions were immediately squeezed. The rise became a momentum advance. Retail buyers moved in, many trying to retrieve some of their brutal losses.
“(5) The rally moved up ‘too fast’ - action more typical of a bear market rally than the slow, plodding rise that is characteristic of the advance in a new bull market.
“(6) Two groups that led the rally were Financials and Consumer Cyclicals. Interestingly, these two groups contained respectively 5 billion and 2.7 billion shares sold short. This suggests strongly that a significant part of the rally was fired up by short-covering in these two groups (thanks Alan Abelson for this information).
“(7) Many investors and analysts turned optimistic after the market had rallied for only a few weeks. At true bear market bottoms, investors remain stubbornly sceptical or bearish for months after the bottom. Remembering 1974, people were actually angry when I turned bullish at the bottom. I was receiving hate letters and subscription cancellations.
“All of the above have kept me skeptical and cautious about this rally.”
To the above list one might add that around now is the time that a traditional honeymoon period ends for a media-favored new President. The Geithner lashing out of the leading Democratic organ, the Times, may signal a less gauzy picture of the new administration reaching the public, which in turn could lead to a less optimistic view of the future.
We shall see what we shall see.
Copyright (C) Long Lake LLC 2009
That post by Yves Smith and the lengthy NY Times article that it keys off of, are not in conjunction with an apparent pandemic of swine flu enough to knock the stock market off its stride.
Yesterday, however, Larry Summers was reported on by Bloomberg as follows:
“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said yesterday on “Fox News Sunday.”
In conjunction with this downbeat comment from Dr. Summers, TrimTabs reported today via Email that:
- U.S. Economy in Much Worse Shape Than Wall Street Realizes: Income Tax Withholdings Drop 3.1% Y-o-Y in Past Four Weeks, and TrimTabs Online Job Postings Index Falls 4.2% in April.
In addition, the debt monster is back: Bloomberg reports that companies have sold a record $468 B in debt so far this year (presumably this is a record for this far into a calendar year).
The news remains poor, and a veteran market observer comments (courtesy of Zero Hedge and GreenLightAdvisor Views):
Richard Russell of Dow Theory Letters, provides the following note April 20, 2009:
“(1) The market turned up in a V-shaped reversal off the March 9 low. However, almost all bull markets start with a period of accumulation. This entails a sideways move, sometimes taking weeks or even months. Or it may require a non-confirmation of the Averages as per December 1974. At the March low, we saw neither - no indication of accumulation. And that bothers me.
“(2) At the March lows, we did not see the ‘great values’ that usually accompany major bear market bottoms (i.e. P/E’s in the 5-8 area, average dividend yields of 5-6%).
“(3) The market was severely oversold at the March lows, a condition that often sets off a ‘relief’ (‘let off the pressure’) rally. The advance was probably triggered by the severely oversold condition of the market.
“(4) The one thing a money-manager cannot afford to do is be on the sidelines during ‘what could be’ a major rally. Once the market started up from the March 9 low, many money managers leaped in. The big short positions were immediately squeezed. The rise became a momentum advance. Retail buyers moved in, many trying to retrieve some of their brutal losses.
“(5) The rally moved up ‘too fast’ - action more typical of a bear market rally than the slow, plodding rise that is characteristic of the advance in a new bull market.
“(6) Two groups that led the rally were Financials and Consumer Cyclicals. Interestingly, these two groups contained respectively 5 billion and 2.7 billion shares sold short. This suggests strongly that a significant part of the rally was fired up by short-covering in these two groups (thanks Alan Abelson for this information).
“(7) Many investors and analysts turned optimistic after the market had rallied for only a few weeks. At true bear market bottoms, investors remain stubbornly sceptical or bearish for months after the bottom. Remembering 1974, people were actually angry when I turned bullish at the bottom. I was receiving hate letters and subscription cancellations.
“All of the above have kept me skeptical and cautious about this rally.”
To the above list one might add that around now is the time that a traditional honeymoon period ends for a media-favored new President. The Geithner lashing out of the leading Democratic organ, the Times, may signal a less gauzy picture of the new administration reaching the public, which in turn could lead to a less optimistic view of the future.
We shall see what we shall see.
Copyright (C) Long Lake LLC 2009
Friday, April 3, 2009
Yves Smith Says Team Obama Uses "Big Lie" Technique, and Other Unpleasantries of the Day
Today is another busy news day.
The Economic Cycle Research Institute is out with its monthly U. S. Future Inflation Gauge. ECRI has maintained this measure for over 60 years. It has fallen massively over the past 18 months and is back near its lowest level in history at 79.3, at about a 51-year low. Inflation probably averaged 1% in the next 5 years after sinking to that level, only rising after the guns-and-butter Viet Nam era (1964 onward).
ECRI also reports another marginal uptick in its Weekly Leading Indicator, which remains well below its very low level of November 2008 and still at a very severe 22% below year-ago level. This suggests a continued slowing of the economy through year-end, with stabilization at very low levels of economic activity.
I intend to do a post on the ECRI and its usefulness, or lack of such, to investors, in the near future.
Consistent with the above, there is truly bad news behind the headlines of the Labor Department's unemployment report. Not headlined are two data points. The average supervisory work week has shrunk to a record low since records began in 1964: 33.2 hours.
And, consistent with the lack of work available and the very low USFIG, January's unemployment number was revised upward substantially, from 655,000 to 741,000.
Labor Department's broadest measure of unemployment is U-6, which can be found on Table A-12 of the basic unemployment report available at www.bls.gov, shows that almost 1 in every 6 members of the labor force is either unemployed, underemployed or too discouraged by labor market conditions to bother actively looking for work. While comps are difficult to obtain, it would appear that the definition of unemployment used in the 1930s is more like U-6 than the headline U-3 (8.5% in March). Given that the Obama "stimulus" program has no relation to FDR's emergency work programs, it is virtually certain that U-6 will hit 18% sooner rather than later.
(Note also that ADP's March non-farm job loss count was 742,000, exactly the current Labor Dep't count of Jan. job losses. The ADP and Labor numbers have tracked each other very well for some months now (www.adpemploymentreport.com); expect further downward revisions in the Labor numbers for Feb. and March, I'm afraid.)
Moving along to the blogosphere, it is interesting to observe how certain passionate critics of the Bush-Paulson approach to the financial crisis have stayed objective after Mr. Obama became President, and others have kind of sort of joined "Team O" while trying at the same time to be interesting and objective.
Amongst the former, I would note Mish at www.globaleconomicanalysis.blogspot.com. He has a series of posts excoriating the PPIP and has not fallen for Team Obama hype. Mish is of the Austrian school of economics and has an amazing track record of forecasting the economic downturn and the low-inflation/deflation environment. He also is a darn good market timer.
Another blogger who was definitely in the Obama hope-change camp is Yves Smith of www.nakedcapitalism.com. She has definitively changed her tune, and her site is currently displaying a variety of well-informed opinions and reports. Here is a quote from Yves herself from the conclusion of today's post, Treasury Trying to Defend Bank Gaming of Public-Private Partnership:
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Well! Obama-phile no more, it would appear.
Finally, also on NC is the overlooked report that Hedge Fund Bridgewater Says No to Public Private Partnership Program:
Now illustrating our (Ed: Yves'/NC's) latest concern, that the Treasury may turn out to be the Gang That Can't Shoot Straight, our ongoing reservation, that there may be no way to make the program work for banks and investors even with hefty government subsidies, may be coming to pass. . .
The turndown by Bridgewater is particularly significant. (Ed: They only manage $80 B!)
Is this the beginning of the end for PPIP?
What Nouriel Roubini recently called the "Made-Off" economy, with Ponzi schemes built into the system of much greater scale than the Madoff one, is currently on a glide path to a 1995 level of economic activity, if one takes the numerical ECRI weekly leading indicator as predictive. Given potent deflationary forces and "crowding out" of private borrowing by the massive projected Federal deficits, the outlook for business remains unexciting, and when brilliant thought leaders such as Yves Smith start describing Team Obama as using a technique associated with Team Hitler, one should watch out for the public to gradually adopt that viewpoint.
Copyright (C) Long Lake LLC 2009
Monday, February 23, 2009
Set It Right
In dealing with the ongoing financial crisis, the Obama Administration is going that of G W Bush one worse.
During times of crisis last year, Treasury Sec'y Henry Paulson would appear Sunday afternoon to make an announcement of some feckless but important action. The rationale was to get the news out before the Asian markets opened. (Why? We've got troops in Japan, not the other way round.)
A disquieting pattern may be emerging out of Treasury. Recently it had a delayed major policy talk by Mr. Geithner which was widely panned for being merely the announcement of a plan to have a plan. Last night we saw a Sunday evening trial balloon. This also moved Asian markets, as Bloomberg.com reported in Citigroup Rises on Report Government May Boost Stake:
Citigroup, Inc., which has accepted $45 billion from the U.S. taxpayer, climbed as much as 28 percent in German trading following a report that the government may increase its stake in the lender.
Citigroup was up 24 percent at $2.41 a share as of 12.05 p.m. in Frankfurt trading today. The New York-based bank slumped 44 percent last week on concern it may be nationalized. .
(Note: the "news" came out before the European markets opened. In response, the Japanese stock market moved from down about 2% to almost even. Also note that the stock has been plummeting for a year and a half, as it has become more and more clear that not only is the Company insolvent, but it has been much more disastrously run than its peers.)
The lender is in discussions with U.S. officials about an increase in the government’s ownership, the Wall Street Journal said earlier today, citing people familiar with the situation. The government may end up owning as much as 40 percent of Citigroup’s common stock, while the bank’s executives would prefer the stake to be closer to 25 percent, the Journal said. Citigroup spokesman Jon Diat declined to comment.
“It’s good news that the bank likely won’t be 100 percent nationalized,” said John Haynes, senior U.S. equity strategist at Rensburg Sheppards Plc in London. “It’s a relief even if only 20 percent remains out of government hands.”
(My comments:
1. The Haynes comment is gibberish. What difference if Government owns 80% or 100% of a worthless company? And on what evidence is he even concluding that Citi will not be 100% nationalized?)
2. Why did Bloomberg bother to highlight that idiotic comment?)
Citigroup proposed to its regulators that the government should convert a large portion of its preferred shares into common stock in a transaction that wouldn’t cost taxpayers more money, the Wall Street Journal reported.
To me, this "story" smells more like a pathetic short squeeze effort than real news.
In any case, the above Bloomberg report is disingenuous in the extreme. Currently, the Feds own a semi-senior stake in Citigroup. Why should we move down to the bottom of the credit ladder? To speculate? What are the ethics and the practicalities of the U.S. Government having a common equity stake in one particular company whose fate it controls? How unfair is that to its competitors, anyway? Does anyone suspect that Robert Rubin, who likely still holds lots of Citi stock and options, has been influencing matters to favor Citi?
Overall, given how consistently Treasury has been favoring the Citis of the world over you and me under both Presidents Bush and Obama, I'll take the Paulson approach. At least with him there was a specific policy, disgusting and ad hoc though it may have been.
Though the financial crisis has been worsening for a year and a half, does President Obama even have a policy? (Mr. Summers, the President's senior economics adviser, let it be known two months ago that he and his team were working day and night to solve this problem.)
Some bloggers answer both yes and no to the above question. Yves Smith's answer is a yes and no, disquieting answer, as her Naked Capitalism reported last night: Now It's Official: Stress Test Reports Pre-Determined. The post, which is a very worthwhile read in its entirety, references one especially odd quote from CNBC:
Said one high-level (government) official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”
Excuse me? The stress tests are designed to prove what Treasury already knows?
And if the banks (read Citi and perhaps BofA) have enough capital, what's this about giving them access to capital?
There have been innumerable references in the press comparing this economy and the financial crisis to the 1930s. Let's not forget the miserable 1970s:
Citigroup and the markets are twisting slowly, slowly in the wind (sometimes not so slowly!). The Administration, Citi, and general market information are providing modified limited hang-outs. Various leaks are providing plausible deniability. Someone may protest that he is not a crook. High-def TV may show in exquisite detail beads of sweat on some malfeasor's frenulum.
The time is out of joint. Is Barack Obama thinking Hamlet's next line:
"O cursed spite, that ever I was born to set it right!"?
Leaks and plans (forget about a plan to present a plan) are useless at best.
The dislocated financial joint must be set right.
Right away.
During times of crisis last year, Treasury Sec'y Henry Paulson would appear Sunday afternoon to make an announcement of some feckless but important action. The rationale was to get the news out before the Asian markets opened. (Why? We've got troops in Japan, not the other way round.)
A disquieting pattern may be emerging out of Treasury. Recently it had a delayed major policy talk by Mr. Geithner which was widely panned for being merely the announcement of a plan to have a plan. Last night we saw a Sunday evening trial balloon. This also moved Asian markets, as Bloomberg.com reported in Citigroup Rises on Report Government May Boost Stake:
Citigroup, Inc., which has accepted $45 billion from the U.S. taxpayer, climbed as much as 28 percent in German trading following a report that the government may increase its stake in the lender.
Citigroup was up 24 percent at $2.41 a share as of 12.05 p.m. in Frankfurt trading today. The New York-based bank slumped 44 percent last week on concern it may be nationalized. .
(Note: the "news" came out before the European markets opened. In response, the Japanese stock market moved from down about 2% to almost even. Also note that the stock has been plummeting for a year and a half, as it has become more and more clear that not only is the Company insolvent, but it has been much more disastrously run than its peers.)
The lender is in discussions with U.S. officials about an increase in the government’s ownership, the Wall Street Journal said earlier today, citing people familiar with the situation. The government may end up owning as much as 40 percent of Citigroup’s common stock, while the bank’s executives would prefer the stake to be closer to 25 percent, the Journal said. Citigroup spokesman Jon Diat declined to comment.
“It’s good news that the bank likely won’t be 100 percent nationalized,” said John Haynes, senior U.S. equity strategist at Rensburg Sheppards Plc in London. “It’s a relief even if only 20 percent remains out of government hands.”
(My comments:
1. The Haynes comment is gibberish. What difference if Government owns 80% or 100% of a worthless company? And on what evidence is he even concluding that Citi will not be 100% nationalized?)
2. Why did Bloomberg bother to highlight that idiotic comment?)
Citigroup proposed to its regulators that the government should convert a large portion of its preferred shares into common stock in a transaction that wouldn’t cost taxpayers more money, the Wall Street Journal reported.
To me, this "story" smells more like a pathetic short squeeze effort than real news.
In any case, the above Bloomberg report is disingenuous in the extreme. Currently, the Feds own a semi-senior stake in Citigroup. Why should we move down to the bottom of the credit ladder? To speculate? What are the ethics and the practicalities of the U.S. Government having a common equity stake in one particular company whose fate it controls? How unfair is that to its competitors, anyway? Does anyone suspect that Robert Rubin, who likely still holds lots of Citi stock and options, has been influencing matters to favor Citi?
Overall, given how consistently Treasury has been favoring the Citis of the world over you and me under both Presidents Bush and Obama, I'll take the Paulson approach. At least with him there was a specific policy, disgusting and ad hoc though it may have been.
Though the financial crisis has been worsening for a year and a half, does President Obama even have a policy? (Mr. Summers, the President's senior economics adviser, let it be known two months ago that he and his team were working day and night to solve this problem.)
Some bloggers answer both yes and no to the above question. Yves Smith's answer is a yes and no, disquieting answer, as her Naked Capitalism reported last night: Now It's Official: Stress Test Reports Pre-Determined. The post, which is a very worthwhile read in its entirety, references one especially odd quote from CNBC:
Said one high-level (government) official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”
Excuse me? The stress tests are designed to prove what Treasury already knows?
And if the banks (read Citi and perhaps BofA) have enough capital, what's this about giving them access to capital?
There have been innumerable references in the press comparing this economy and the financial crisis to the 1930s. Let's not forget the miserable 1970s:
Citigroup and the markets are twisting slowly, slowly in the wind (sometimes not so slowly!). The Administration, Citi, and general market information are providing modified limited hang-outs. Various leaks are providing plausible deniability. Someone may protest that he is not a crook. High-def TV may show in exquisite detail beads of sweat on some malfeasor's frenulum.
The time is out of joint. Is Barack Obama thinking Hamlet's next line:
"O cursed spite, that ever I was born to set it right!"?
Leaks and plans (forget about a plan to present a plan) are useless at best.
The dislocated financial joint must be set right.
Right away.
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