Thursday, April 30, 2009

Dean Baker's Acerbic Wit

I enjoy Dean Baker's Beat The Press blog over at The American Prospect:

How Do You Distinguish an "Enraged" Republican from a Republican Who Claims to Be "Enraged?"

I don't know the answer to that one but perhaps the Post can tell us. It told readers that Republican members of Congress "were enraged" over the $1.2 trillion deficit projected for the 2010 budget.

Given that the major cause of the deficit is an economic crisis brought about by the policies pursued by a Republican president some people may wonder whether the Republicans really were enraged, as opposed to just trying to score political points. However, the Post was able to determine that the Republican rage was genuine. Perhaps they can share their method for distinguishing real rage from feigned outrage with their readers.
Now... how do I feign outrage at the fact that Republicans are feigning outrage? Whoa! Maybe I should just be plain outraged.

Green Shoots?

Obama has been talking up "green shoots" and the stock market has risen 25% on a buoyant mood that a "corner has been turned" in the economy.

I don't thik so. Here is a graph from the Calculated Risk website showing retail sales. Since 70% of the US economy is private consumption, I see a sere dessicated desertified vista, not a single green shoot in sight...

click to enlarge

Economic Insanity

You know that a society is dysfunctional when it takes new homes and nearly completed homes and razes them to the ground rather than finding a way to put low income people into these homes.

I find it amazing that Obama has no "housing" policy to deal with foreclosures as well as the above kind of economic paradox.

On the other hand... John Maynard Keynes said that one way to deal with a depression is to pay people to dig holes and then pay another group to fill them in. I guess this is America's latest attempt to be on the cutting edge of "new economic ideas" recycled.

What It Takes to Beat the Financial Crisis

Here is a bit from an interview with George Akerlof, a co-author with Robert Shiller of the book Animal Spirits from the Freakonomics website:
Freakonomics: We have to ask: as a Nobel Prize-winning economist, what do you think should be done about the financial crisis?

Ackerloff: We should have two targets: a target for aggregate demand and a target for credit. These targets force policy makers to have their eye on the ball. In the first target, there should be sufficiently large stimulus to aggregate demand that the economy would have at full employment. There should also be a credit target so that those who are doing legitimate business (not selling or buying snake oil) would be able to obtain loans under reasonable terms (on the terms they would normally obtain if the economy were at full employment and credit markets were operating normally).

For most important journeys, one of the most important decisions is the destination. By establishing and aiming for such targets (they are destinations for economic policy) the government will be able to plan sensibly. Roosevelt and Hoover had many programs. They were both very inventive about what to do in the Great Depression. But because they lacked firm targets, they were never sufficiently confident. The Depression could have been cured easily with an appropriately large dose of fiscal stimulus, but it was not applied. Unemployment in the United States only fell below 10 percent in 1941, which was some time after the start of the war in Europe, in September 1939. World War II, unfortunate as it was, then provided the fiscal stimulus that got us out of the Depression.
My chief criticism of Obama centres on his approach to the financial crisis. He is doing what the Japanese did post-1989. He is trying to "rescue" the banks when he should simply let them fail and help capitalize new banks under tighter regulation with enough capital to support the credit needs of the US. My other criticism is that his stimulus package is too small. Akerlof says "provide enough stimulus to keep the economy at its productive capacity". Obama isn't doing that.

Reich on the Auto Bailouts

Here is Robert Reich on his blog bluntly questioning the bailout policy:
GM just announced it was laying of 21,000 more of its workers, as a means of assurring the Treasury Department the company is worthy of more bailout money. A Treasury official was quoted as saying approvingly that the goal is a "slimmed-down" GM.

What? Having General Motors or Chrysler cut tens of thousands of jobs in order to be eligible for a government bailout reminds me of "saving" Vietnam by bombing it to smithereens. Aren't we giving these companies billions of taxpayer dollars to save jobs? If not, we're just transferring money from taxpayers to GM and Chrysler bondholders and shareholders.

I agree with those who say the United States needs an auto industry. But there's no point spending tens of billions of taxpayer dollars for an auto industry that's a tiny fragment of what it was before. We could achieve that objective by doing nothing.

Besides, as I've said before, the "American auto industry" shouldn't be defined as auto companies whose headquarters are in the United States. The true "American auto industry" is Americans who make automobiles. At the rate the Big Three are shrinking even as they’re bailed out, foreign automakers with American plants may soon employ more Americans than the Big Three do.
I agree with Robert Reich. The funny thing is that the "media" say very little about this. I guess Reich's viewpoint isn't "news".

How can a public act as knowledgeable voters if the viewpoints that are different from the "media" viewpoint (basically the business interest viewpoint) is never presented?

Is There Something Wrong with This Picture?

Here is a graphic from the NY Times showing that despite the fact that the "titans of Wall Street" drove the US economy into a ditch, destroyed 40% of stockholder wealth, and have put the US taxpayer on the hook for trillions... they are being "rewarded" for this accomplishment...

click to enlarge

I count only two Wall Street financial houses that show any diminishment of "reward" for results. I expected the bonuses to be cut and salaries to be slashed. But, no, it looks like blue skies and clear sailing for these workers.

I guess the Wall Street bosses are giving their workers a great big "thumbs up" for such a remarkably good performance: they sure knocked the socks off everybody... as well, they pulled the money out of their pants... stripped them and left them in the gutter... and pretty well flattened the average American.

I guess by Wall Street standards those "accomplishments" deserves a raise!!!

I still have a hard time choking down the screams of pain when Congress talked about taking back bonuses. Wall Street shouted out its pain: contracts are sacred!

I guess they are sacred on Wall Street, but they sure aren't sacred in Detroit. All those poor autoworkers have been forced to walk the plank. Their contracts have been run through a paper shredder. Where are all those voices crying "but contracts are sacred"? All I hear is silence. Makes you wonder about "equal under the law". I guess the really rich are equal but with an edge, i.e. their laws are written in invisible ink at the back of the book. It isn't that they are above the law. Nope. They get to write the laws and hire the fancy suits to interpret the law to uncover those wonderful "special cases" written in invisible ink at the back of the law books. So for them, sure enough, contracts are sacred.


Here is a NY Times article by Jo Becker and Gretchen Morgenson that looks at the architect behind the bailout, Timothy Geithner:
Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.

Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary.

The proposal quickly died amid protests that it was politically untenable because it could put taxpayers on the hook for trillions of dollars.

“People thought, ‘Wow, that’s kind of out there,’ ” said John C. Dugan, the comptroller of the currency, who heard about the idea afterward. Mr. Geithner says, “I don’t remember a serious discussion on that proposal then.”

But in the 10 months since then, the government has in many ways embraced his blue-sky prescription. Step by step, through an array of new programs, the Federal Reserve and Treasury have assumed an unprecedented role in the banking system, using unprecedented amounts of taxpayer money, to try to save the nation’s financiers from their own mistakes.

And more often than not, Mr. Geithner has been a leading architect of those bailouts, the activist at the head of the pack. He was the federal regulator most willing to “push the envelope,” said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner.

Today, Mr. Geithner is Treasury secretary, and as he seeks to rebuild the nation’s fractured financial system with more taxpayer assistance and a regulatory overhaul, he finds himself a locus of discontent.


His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.


As late as 2007, Mr. Geithner advocated measures that government studies said would have allowed banks to lower their reserves. When the crisis hit, banks were vulnerable because their financial cushion was too thin to protect against large losses.


Willem H. Buiter, a professor at the London School of Economics and Political Science who caused a stir at a Fed retreat last year with a paper concluding that the Federal Reserve had been co-opted by the financial industry, said the structure ensured that “Wall Street gets what it wants” in its New York president: “A safe pair of hands, someone who is bright, intelligent, hard-working, but not someone who intends to reform the system root and branch.”
The full article has many more details of Geithner's "close relations" with Wall Street and his actions that can be viewed as "too close" to those he is supposed to regulate.

Economic Chalk Talk

I think Christina Romer is doing a great job as Obama's Chairman of the Council of Economic Advisors.

Here's a bit from her testimony in Congress today:
Understanding the sources of the crisis is critical to crafting the right policy responses for recovery. In thinking about the causes, one needs to begin with the extreme fall in house and stock prices over the last eighteen months. Housing prices, as measured by the Case-Shiller index, have fallen by 27% since July 2007. Stock prices have fallen roughly in half since their peak in October 2007.

Why these two key asset prices have fallen so much is a topic that we could spend hours discussing. Was there a bubble? If so, what caused it, and what caused it to burst? But, regardless of their cause, the falls in asset prices have had a direct impact on consumer behavior. Consumers have substantially less wealth than before. By one measure, household wealth has fallen by $13 trillion, or 20%, since its peak. Consumer spending depends on many things, including income, taxes, confidence, and wealth. Studies suggest that when consumer wealth declines by a dollar, annual spending falls by about four cents. So, a decline in wealth as large as the one we have experienced has led to a large decline in the aggregate demand for goods and services.

Another factor to consider is the uncertainty created by the gyrations in asset prices. In a paper I wrote many years ago, I argued that the main effect of the crash of the stock market in 1929 on spending operated not through the direct loss of wealth, but through the enormous uncertainty it created. The initial crash in October was followed by wild fluctuations of stock prices. This volatility led consumers and firms to be highly uncertain about what lay ahead. I found narrative and statistical evidence that this uncertainty led to large drops in consumption and investment spending. This makes sense: when you don’t know what is likely to happen, the best thing to do may be to simply do nothing as you wait for more information.

The same factor may be at work today. While house prices have been steadily down, stock prices have been on a wild ride. Volatility, according to some measures, has been over five times as high over the past six months as it was in the first half of 2007. The resulting uncertainty has almost surely contributed to a decline in spending, especially in the last few months.

The decline in asset prices and the rise in uncertainty have also been critical to the defining feature of this recession: the drying up of credit.


The result of our current credit disruptions and the drop in spending has been a very painful contraction in the economy. Total output of goods and services has now fallen for three consecutive quarters, after barely rising at all over the previous three. The unemployment rate has risen from 4.7% in late 2007 to 8.5%, and payroll employment has fallen by 5.1 million.

Rising unemployment and falling home values have intersected to greatly increase home foreclosures.
She goes on to talk about actions being taken by the Obama government to get the economy up and running again.

War Crimes

From the Washington Post, here is an article by Mark J. McKeon who was an American war crimes prosecutor at the Hague. He has some observations that are relevant to the current situation in the US with the Bush administration:
On Sept. 11, 2001, when the twin towers were hit, I was sitting in a meeting in The Hague discussing what should be included in an indictment against Slobodan Milosevic for war crimes in Bosnia. I was an American lawyer serving as a prosecutor at the International Criminal Tribunal for the former Yugoslavia, and there was no doubt that Milosevic should be indicted for his responsibility for the torture and cruel treatment of prisoners. As the head of state at the time those crimes were committed, Milosevic bore ultimate responsibility for what happened under his watch.

While at The Hague, I felt myself standing in a long line of American prosecutors working for a world where international standards restricted what one nation could do to another during war, stretching back to at least Justice Robert Jackson at the Nuremberg trials. Those standards protected our own soldiers and citizens. They were also moral and right. So I didn't understand why, a few months after the attacks in 2001, the Bush administration withdrew its consent to joining the International Criminal Court. Wasn't accountability for war crimes one of the things America stood for? Although staying with the court did mean that the United States would be subject to being charged in that court, how likely was that to happen? Surely we would never do these things. And, in any event, the court could only assume jurisdiction over a person whose own government refused to prosecute him; surely, that would never happen in the United States.

And yet, seven years later, here we are debating whether we should hold senior Bush administration officials accountable for things they have done in the "war on terror."

In 2001 and the following few years, we at the international tribunal built a strong court case against Milosevic. We presented evidence that he had effective control over soldiers and paramilitaries who tortured prisoners, and did worse. We brought into court reports of atrocities that had been delivered to Milosevic by international organizations to show his knowledge of what was happening under his command. And we watched as other heads of state were indicted for similar crimes, including Charles Taylor in Liberia and, of course, Saddam Hussein in Iraq.

At the same time, I watched with horror the changes that were happening back home. The events are now well known: Abu Ghraib; Guantanamo; secret "renditions" of prisoners to countries where interrogators were not afraid to get rough; secret CIA prisons where there appeared to be no rules. I tried to answer, as best I could, the questions from my international colleagues at The Hague about what was happening in and to my country. But as each revelation topped the last, I soon found myself without words.

I hope that the United States has turned the page on those times and is returning to the values that sustained our country for so many years. But we cannot expect to regain our position of leadership in the world unless we hold ourselves to the same standards that we expect of others. That means punishing the most senior government officials responsible for these crimes. We have demanded this from other countries that have returned from walking on the dark side; we should expect no less from ourselves.

To say that we should hold ourselves to the same standards of justice that we applied to Slobodan Milosevic and Saddam Hussein is not to say that the level of our leaders' crimes approached theirs. Thankfully, there is no evidence of that. And yet, torture and cruel treatment are as much violations of international humanitarian law as are murder and genocide. They demand a judicial response. We cannot expect the rest of humanity to live in a world that we ourselves are not willing to inhabit.
That is about as clear and succinct a statement on war crimes by the Bush admininstration that I've read. He makes it clear that laws should be applied. He makes it clear that he thinks the crimes by the US were serious but limited in scope and severity. And he makes it clear that the US should live up to the standard it claims to hold dear.

Wednesday, April 29, 2009

The Suffering of the Rich

Shed a tear for these poor people...

OK, I admit I didn't break down an weep. But for those who really did lose everything, I do feel sorrow for. For those who simply lost a few rungs in the game of climbing to the top, I don't have much pity for.

What has always bothered me is that our literature, our myths, our media all focus on the rich. It is as if the poor don't suffer. Where is the equivalent media for those now homeless because of the financial crisis? Where is the story about those who lost their job, their savings, and their pension because of this crash? My prejudice is that you will find a tens of thousands sad stories of suffering among the bottom 90% of society as you find among the top 1%.

Sizing Up the Cost of a Flu Pandemic

This bit is from a UK Telegraph newspaper article that cites various estimates of how much a flu pandemic could cost the economy:
The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion (£2 trillion) and result in a nearly 5pc drop in world gross domestic product. The World Bank has estimated that more than 70m people could die worldwide in a severe pandemic.
The problem with putting a $3 trillion cost on top of the $4 trillion financial crisis is really too scary to think about. I'm still hoping that this H1N1 strain is not significantly more deadly than normal flu. To my untrained eye, the initial panic was spurred by two factors:
  • It is a new strain and that usually means the population will be unusually susceptible.
  • The initial reports from Mexico of 80 deaths out of 900 cases implied a fatality rate of nearly 10% which was well above the 1918 Spanish flu pandemic which had a mortality rate of "only" 2% but was the most deadly outbreak recorded. The problem with the 10% rate is that it now appears that a very large number of cases were unrecorded because the didn't become serious and the lack of affordable health care in Mexico means that these people simply stayed home and dealt with their infection until they recovered. So the 10% rate is very misleading.

DeLong on the Financial Crisis

Brad DeLong, economist at UC Berkeley and an under-secretary of the Treasury under Clinton, has prepared a set of slides that give his perspective on the financial crisis. I must confess to a prejudice. After Paul Krugman, I think Brad DeLong is the second best guide to this current financial mess.

You can access his presentation here.

Signs of Panic over the H1N1 Flu

This statement by WHO says to me that panic is setting in at the top:
WHO's Chan was asked about countries' freedom to break Roche's patent on Tamiflu, an antiviral drug that has proven effective in treating the H1N1 swine flu, in order to manufacture it locally and, presumably, more cheaply.

Chan left the door open: "When and what the country is going to decide, it is their decision."
Patents and intellectual property rights are like the feudal rights of the Middle Ages, you didn't lightly cross them. The fact that the senior figure in WHO is implicitly giving the signal that countries can break the patent in order to rush production of the only known treatment for this flu says to me that leadership at WHO is panicking.

How Bad is the Economy?

Here's evidence that it is pretty rotten. This is from an article by Krishna Guha in the Financial Times:
The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve's last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.
There have been some quasi-humourous suggestions by economists that you could create a negative interest rate effect by creating a government policy where paper money in circulation could be periodically destroyed to make the value of holding the currency drop (see here). You could run some kind of lottery every few months and identify bill serial numbers that were declared worthless. This would counteract the tendency to hoard money during a depression. This is effectively a negative interest rate on holding money.

Being Rational about Swine Flu

Here is a bit from a very good article by Stephen Hume in the Vancounver Sun about the swine flu outbreak. It is nice to see some of the media being rational about this stuff:
It's estimated that about 28 per cent of Canadians and Americans contracted the Spanish flu. Worldwide, an estimated 2.5 per cent of the sick died of complications, which made the pandemic one of the most lethal flu outbreaks in recorded history. Certainly it was one that imprinted itself upon human consciousness for several generations.

But there's another way to look at those statistics. You might observe, for example, that they mean that even during the worst ravages of the 1918 flu, 97.5 per cent of those infected survived and recovered. Or that 72 per cent of the population -- even in the absence of the sophisticated public health planning and infrastructure that Canada and the U.S. have since built -- was not infected during the pandemic.

So, even if we had a repeat of the 1918 flu, the chances were seven out of 10 that you wouldn't catch it and if you did, the odds were better than nine out of 10 that you'd survive.

Torture and Killing

I have a hard time taking Thomas Friedman's argument seriously. The test is simply to reverse roles. Assume this is the story of American prisoners captured by Japanese or Germans in WWII. Would Friedman make the same please to "let bygones by bygones"? I doubt it. I've bolded key bits:
Weighing everything, President Obama got it about as right as one could when he decided to ban the use of torture, to release the Bush torture memos for public scrutiny and to not prosecute the lawyers and interrogators who implemented the policy. But there is nothing for us to be happy about in any of this.

After all, we’re not just talking about “enhanced interrogations.” Lawrence Wilkerson, the former chief of staff to Secretary of State Colin Powell, has testified to Congress that more than 100 detainees died in U.S. custody in Iraq and Afghanistan, with up to 27 of those declared homicides by the military. They were allegedly kicked to death, shot, suffocated or drowned. Look, our people killed detainees, and only a handful of those deaths have resulted in any punishment of U.S. officials.

The president’s decision to expose but not prosecute those responsible for this policy is surely unsatisfying; some of this abuse involved sheer brutality that had nothing to do with clear and present dangers. Then why justify the Obama compromise? Two reasons: the first is that because justice taken to its logical end here would likely require bringing George W. Bush, Donald Rumsfeld and other senior officials to trial, which would rip our country apart; and the other is that Al Qaeda truly was a unique enemy, and the post-9/11 era a deeply confounding war in a variety of ways.
Did the US decide to not prosecute Japanese war criminals because that would "rip the Japanese country apart"? Did the Allies refuse to hold the Nurenberg trials because they would "rip the German country apart"?

Go read about war crimes and decide for yourself.

Personally I don't buy either claim. My reaction to the "rip our country apart" is recorded above. I'm also cynical about the "unique enemy" argument. Hitler was pretty clear that he considered Jews to be a "unique enemy" since he called them vermin and pursued a policy of extermination. Does the fact that his "enemies" were unique mean that Hitler should have been given a pass for the horrors he inflicted on the world? I'm pretty sure everybody but the fringe nutwing right would agree that Hitler was evil and if he hadn't killed himself he should have been tried for crimes against humanity and war crimes.

Bush may be merely a bush leaguer in this debate (pun intended), but Bush shouldn't get a pass. You don't let off the guy who holds the corner store up for $20 buck because it isn't in the same league as a $1 million bank heist.

I used to like Friedman's essays, but I've now come to the view that they are mostly "me too" journalism or take a trend and push it too far. What appears bold and original really isn't. Usually he is simply catering to the readers' prejudices.

In this essay, after many paragraphs working hard to explain American exceptionalism, he makes this ridiculous claim:
Conversely, if we, with Iraqis, defeat them by building any kind of decent, pluralistic society in the heart of their world, it will be a devastating blow. Odd as it may seem, the most dangerous moment for us is if Al Qaeda is beaten in Iraq. Because that is when Al Qaeda’s remnants will try to throw a Hail Mary pass — that is, try to set off a bomb in a U.S. city — to obscure its defeat by moderate Arabs and Muslims in the heart of its world.
This is truly astonishing. The US has spent hundreds of billions of dollars in Iraq, but I'm not aware of even a few tens of millions being spent on civil society functions that would create a "pluralistic" society. Sure, the US has spent modest sums fixing water and electricity, but the US destroyed a lot of that so it makes sense you need to repair what you ruined. But where are the great academies that the US has built to teach law, teach civil society, establish voluntary civic associations, create arenas to spread inter-group understanding? I don't think any money has been spent on this. Billions on war. Maybe a few pennies on civil society. But nothing on "pluralism".

So where does Friedman get this crazed view? At best this is self-congratulatory journalism, feel good journalism that reassures Americans that they don't go in and destroy countries under a beserk President. Nope, this war was necessary because it was the first step in building a better world, a "pluralistic" world. Now that is hallucinatory dreaming on steroids!

And where does Friedman come off as a prophet with his keen seer's eye that foretells of Al Qaeda's plans for a "Hail Mary pass"? What nuttiness. This guy is writing for a major newspaper and he publishes this rubbish?

Martin Wolf Looks at the IMF Data

Martin Wolf's article in the Financial Times is pretty glum reading. He summarizes the data from the recent IMF report, and I've extracted some key bits:
The International Monetary Fund’s latest Global Financial Stability Report provides a cogent and sobering analysis of the state of the financial system. The staff have raised their estimates of the writedowns to close to $4,400bn (€3,368bn, £3,015bn). This is partly because the report includes estimates of writedowns on European and Japanese assets, at $1,193bn and $149bn, respectively, and on emerging markets assets held by banks in mature economies, at $340bn. It is also because writedowns on assets originating in the US have jumped to $2,712bn, from $1,405bn last October and a mere $945bn last April.

To put this in context, the writedowns estimated by the IMF are equal to 37 years of official development assistance at its 2008 level. Estimated writedowns on US and European assets, largely held by institutions located in these regions, also come to 13 per cent of the aggregate gross domestic product.


Yet these are not the only sums required. Governments have so far provided up to $8,900bn in financing for banks, via lending facilities, asset purchase schemes and guarantees. But this is less than a third of their financing needs. On the assumption that deposits grow in line with nominal GDP, the IMF estimates that the “refinancing gap” of the banks – the rollover of short-term wholesale funding, plus maturing long-term debt – will rise from $20,700bn in late 2008 to $25,600bn in late 2011, or a little over 60 per cent of their total assets (see chart below). This looks like a recipe for huge shrinkage in balance sheets. Moreover, even these sums ignore the disappearance of securitised lending via the so-called “shadow banking system”, which was particularly important in the US.

The IMF also provides new estimates of the ultimate fiscal costs of rescue efforts (see chart below). At the high end are the US and the UK, at 13 per cent and 9 per cent of GDP, respectively. Elsewhere, costs are far lower. These, happily, are affordable sums. Indeed, compared with the recession’s impact on public debt, they look quite manageable. True, costs are likely to end up higher. But the overwhelming likelihood remains that the fiscal costs of deep recessions are substantially greater than those of rescuing finance. Refusing to rescue financial systems because it looks too expensive is a classic case of being “penny wise, pound foolish”.

Tuesday, April 28, 2009

The Future of Wind Generated Energy

Take a look...

People think of alternative energy sources as clean & safe. They generally are... but I sure wouldn't have wanted to have my house located underneath this windmill.

Oil Price & Recessions

Here is an interesting blog entry by James D. Hamilton in his Econobrowser website. It makes sense to me that if you jack up the cost an essential resource, you tend to push an economy into recession:
Here I provide some more background on the relation between oil price increases and economic recessions.

When I first began working on my Ph.D. dissertation in 1980, I was intrigued by the fact that the oil embargo of 1973-74 and the collapse in Iranian oil production after the revolution in 1978 were both followed by global recessions. But when I called attention to the fact there had been a sharp increase in the price of oil prior to 6 of the 7 postwar U.S. recessions up to that point, the general response was one of skepticism.

By the time I was presenting evidence of this relation at various seminars in 1981-82, the Iran-Iraq War had produced yet another shock to world oil markets and the NBER declared that the U.S. experienced a new recession immediately on the heels of the previous downturn, meaning that the evidence had now become that 7 out of 8 recessions had followed oil price increases. That research was subsequently published in the Journal of Political Economy in 1983 and the Energy Journal in 1985. My ideas about how this relationship might be explained by disruptive changes in the composition of spending appeared in the Journal of Political Economy in 1988.

We received some more evidence on this relationship when Saddam Hussein invaded Kuwait in August 1990, causing oil prices once again to double and coinciding with the 9th postwar recession. The price of oil also shot up before the 2001 recession. Add in the conjunction of the oil shock of 2007-08 with our current economic pickle, and my count is now up to 10 out of 11.

For the record, my position has never been that oil prices were the sole cause of all of these recessions. But the evidence persuaded me that oil must have been a contributing factor in at least some postwar recessions.
He references papers. Go read the blog entry to access these.

The Truths about Torture

Here is an excellent article by Frank Rich in the NY Times that goes into all the details about the torture memos and how the government came to take its position on torture. It is just a taste of what is in the article. Read the whole thing:
We don’t like our evil to be banal. Ten years after Columbine, it only now may be sinking in that the psychopathic killers were not jock-hating dorks from a “Trench Coat Mafia,” or, as ABC News maintained at the time, “part of a dark, underground national phenomenon known as the Gothic movement.” In the new best seller “Columbine,” the journalist Dave Cullen reaffirms that Dylan Klebold and Eric Harris were instead ordinary American teenagers who worked at the local pizza joint, loved their parents and were popular among their classmates.

On Tuesday, it will be five years since Americans first confronted the photographs from Abu Ghraib on “60 Minutes II.” Here, too, we want to cling to myths that quarantine the evil. If our country committed torture, surely it did so to prevent Armageddon, in a patriotic ticking-time-bomb scenario out of “24.” If anyone deserves blame, it was only those identified by President Bush as “a few American troops who dishonored our country and disregarded our values”: promiscuous, sinister-looking lowlifes like Lynddie England, Charles Graner and the other grunts who were held accountable while the top command got a pass.

We’ve learned much, much more about America and torture in the past five years. But as Mark Danner recently wrote in The New York Review of Books, for all the revelations, one essential fact remains unchanged: “By no later than the summer of 2004, the American people had before them the basic narrative of how the elected and appointed officials of their government decided to torture prisoners and how they went about it.” When the Obama administration said it declassified four new torture memos 10 days ago in part because their contents were already largely public, it was right.

Yet we still shrink from the hardest truths and the bigger picture: that torture was a premeditated policy approved at our government’s highest levels; that it was carried out in scenarios that had no resemblance to “24”; that psychologists and physicians were enlisted as collaborators in inflicting pain; and that, in the assessment of reliable sources like the F.B.I. director Robert Mueller, it did not help disrupt any terrorist attacks.

The newly released Justice Department memos, like those before them, were not written by barely schooled misfits like England and Graner. John Yoo, Steven Bradbury and Jay Bybee graduated from the likes of Harvard, Yale, Stanford, Michigan and Brigham Young. They have passed through white-shoe law firms like Covington & Burling, and Sidley Austin.
That's just the start of the article. It goes on with more details, more info, more background. It is well worth your time to read the whole thing.


The current swine flu outbreak makes the following talk by Steven Johnson at the TED conference relevant. He talks about his book Ghost Map, a book about a cholera outbreak in 1854 London and the impact it had on science, cities and modern society. This video will give you a quick synopsis of the topics covered by the book:

If you liked the talk, you may find Steven Johnson's blog on the NY Times interesting.

Swine Flu

The media is wasting endless hours hashing over details that provide no real understanding of this flu outbreak. The following is from the Charlie Rose show. In twenty minutes you get everything significant you need to know (except for the up-to-date infection rates). The gap between this and the commercial media is staggering...

Why can't we have a more intelligent media? I guess it is partly a level of sophistication (most people can't follow or appreciate the above discussion), partly it is a problem with the level of expectations (most people don't realize there is better information out there, they just accept "the news" as satisfactory because that is what they are used to). It is sad that a media so good at educating is subverted to mostly entertainment and the fishwrap to sell advertising.

A Polish View of America

I ran across this interesting bit in the Guardian newspaper. I've bolded the bits which appear to be the cause of his personal animus towards the US:
Krystian Zimerman, the great Polish concert pianist, is usually a man of few words. He doesn't, as a rule, talk to the audience during performances. He says little or nothing in the press between his all-too-rare concert tours - not even about his habit of travelling everywhere with his own Steinway grand piano. He rarely grants them the pleasure of an encore.

So he triggered more than the usual rumble of discomfort when he raised his voice in the closing stages of a recital at Los Angeles' Disney Hall on Sunday night and announced he would no longer perform in the United States in protest against Washington's military policies.

"Get your hands off my country," Zimerman told the stunned crowd in a denunciation of US plans to install a missile defence shield on Polish soil. Some people cheered, others yelled at him to shut up and keep playing. A few dozen walked out, some of them shouting obscenities.


At least some of his opprobrium appears to be personal. Shortly after 9/11, his piano was confiscated by customs officials at New York's JFK airport, who thought the glue smelled funny. They subsequently destroyed the instrument.

For several years he chose to travel with just the mechanical insides of his own piano and install them - he is a master piano repairer, as well as player - inside a Steinway shell he borrowed from the company in New York. In 2006 he tried to travel with his own piano again, only to have it held up in customs for five days and disrupt his performance schedule.
Who can blame him? The idiocy of the US government is beyond belief. A friend of mine tells me that one of the teachers at his school was driving down to the US when the border agents stopped her, held her car for several days, then "returned" it with things smashed up and parts missing. Apparantly they suspected her of drug running. Of course she wasn't. But the US government doesn't feel it needs to apologize or compensate you when their agents go beserk in this excessive zeal for their "job".

Stepping into the Future

Here is a nice report on GE's new technology to store 500 gigabytes on a new type CD:

Here's a NY Times article about the new technology:
When Blu-ray was introduced in late 2006, a 25-gigabyte disc cost nearly $1 a gigabyte, though it is about half that now. G.E. expects that when they are introduced, perhaps in 2011 or 2012, holographic discs using its technology will be less than 10 cents a gigabyte — and fall in the future.

“The price of storage per gigabyte is going to drop precipitously,” Mr. Lawrence said.

A Meteorologists' Rant

I love dissent. Here's a Michigan TV weatherman, Bill Steffen, letting loose with his feelings about the global warming bandwagen...
MSNBC is running a four-part series entitled Future Earth. On their website they say you can “find out why Earth’s climate machine — the North Pole — is melting alarmingly fast. Learn about our planet’s future, and how you can stop its decline.”

First, the North Pole is not “Earth’s Climate Machine”. There is far more heat and area in the Tropics than at the North Pole.


Third, MSNBC does not know “our planet’s future”. The scenario they portray in this piece is about as remote a possibility in the near future (and more than likely the very far future) as the Lions going 16-0 next season. The Antarctic icecap (which is much bigger than the Arctic icecap) has been growing. In Sept. 1979 (first year of satellite data) the Antarctic icecap was 18.4 million sq. km. In Sept. 2008, the Antarctic icecap was at 19.2 million sq. km. That’s a 30-year trend.

By comparison, Michigan is 151,586 sq. km, so that’s an increase in icecover of over five times the area of Michigan. MSNBC could instead be doing a story on the trend of cooling in Antarctica and possible falling sea levels due to ice accumulation in Antarctica. Keep in mind that if the Polar icecap (without Greenland) melted…it would hardly cause sea level to rise, because the icecap is currently displacing water in the Arctic Ocean. The Antarctic icecap is over a land continent, not floating over an ocean. Significant ice accumulation over the land of Antarctica would cause sea level to fall. The Arctic icecap did decrease significantly (yes, very significantly) from 1979 to 2007. To do a fair piece on Arctic ice…MSNBC or anyone would have to note this. However, to also be fair…they should also tell what’s been going on in the Arctic since 2007.

Please, CHECK OUT THIS GRAPH from the National Snow and Ice Data Center. Note that the current icecap has grown significantly and is now much closer to the 1979-2000 average than it is to the low level of 2007. There are meteorological reasons for this increase (PDO - Pacific Decadal Oscillation going negative, etc.) that have nothing to do with CO2. Some scientists predicted there would be no icecap this summer. It’ll actually be bigger than last summer. Al Gore predicted last year that “the icecap will be gone in five years!”. I would be willing to not only bet Al Gore but also give him 100 to one odds that there will still be a polar ice cap in 2013. One last point, MSNBC is owned by General Electric. GE is already making money off the issue with their Carbon Credit Master Card (link from “Treehugger”, no less).

Here’s CNN’s story on the new credit card. Interesting note: In the fourth quarter of 2008 as GE/NBC stock fell 30 percent, GE spent $4.26 million on lobbying — that’s $46,304 each day, including weekends, Thanksgiving and Christmas. In 2008, the company spent a grand total of $18.66 million on lobbying.” Reviewing their lobbying filings, GE’s specific lobbying issues included the “Climate Stewardship Act,” “Electric Utility Cap and Trade Act,” “Global Warming Reduction Act,” “Federal Government Greenhouse Gas Registry Act,” “Low Carbon Economy Act,” and “Lieberman-Warner Climate Security Act.” Do you think this “big business” is just concerned about the environment?

...Robert Stavins, a professor of business and government at Harvard University, said a cap and trade program would be fantastic for GE and other companies that sell products that consume power. He said that if energy costs go up as a result of the regulation — something he believes is likely — a wide array of products from appliances to power plants would become prematurely obsolete and need to be replaced with greener models.” That would mean big money for GE (parent company of NBC and MSNBC).

Putting Swine Flu in Perspective

Here's a classic routine by George Carlin to help us get a little perspective on our latest worries...

He's got it...
"The planet isn't going anywere. We are! We're going away. Pack your shit folks! We're going away... What would you do if you were the planet trying to defend against this pesky troublesome [humans] species. ...they seem vulnerable to viruses... I think we are part of a greater wisdom than we will ever understand, a higher order, call it what you want, you know what I call it? The Big Electron."

Monday, April 27, 2009


Here is the logician Peter Smith using his blog to point out the idiocy that passes as intellectual "brilliance":
Bullshit of the day

Some years ago, I used to have an occasional slot in my first year logic lectures where -- as light relief from getting straight about the material conditional or quantifier trees -- we'd pause for Bullshit of the Day, with an engaging quote or two from some laughable post-modernist pseud. I recall Simon Critchley as being an excellent source of amusement. But when Sokal and Bricmont published their Intellectual Impostures, I gave up my trifling dabbles, and instead recommended everyone to soak it up and learn from their wonderful indictment of intellectual bollocks.

But it's just so tempting to restore the slot when there's guff like this about:
In the first Part of this essay, I trace the emergence of the unliturgical world, the lineaments of whose struggle to quell the agonies of obsolescence and desire can be seen in the lateral consolations of universalized strongholds, cities whose citizens are regulated either visibly via military force or written contract, or invisibly, via the dissemination of unquestioned assumptions regarding the nature of reality and the human subject. In such immanentist cities, the ideal course involves the eradication of the unknown, the choreography of "spontaneity," and the anticipation of all eventualities via a textual calculus of the "real". These unholy cities which claim clarity and knowledge as their secure foundations, conceal a nihilistic aspect which is the inevitable outcome of a separation of ontology from theology.
The perfectly cloth-eared mangling of the English language, the wild exaggeration, the unconstrained arm-waving rambling: don't you just love it? Though sad to say, this travesty is from a Reader in Philosophy and Theology in my own university. Sigh.

Classic Krugman

Here's Paul Krugman taking a swipe at right wing idiocy in his inimitable way:
Masters of disaster

So Bobby Jindal makes fun of “volcano monitoring”, and soon afterwards Mt. Redoubt erupts. Susan Collins makes sure that funds for pandemic protection are stripped from the stimulus bill, and the swine quickly attack.

What else did the right oppose recently? I just want enough information to take cover.

Sunday, April 26, 2009

Paranoia in the Obama Aministration?

The following published by the UK Telegraph newspaper would make sense under Bush, he was an idiot. But the supposedly "liberal" Obama administration is still following the "playbook" laid down by Bush. This is nutty...
Hernando Calvo Ospina, who works for Le Monde Diplomatique and has written on revolutionary movements in Cuba and Colombia , figured on the US authorities' "no-fly list".

Air France said the April 18 flight was forced to divert to the French Caribbean island of Martinique before continuing its journey and that it might ask the US Transportation Security Administration for compensation.


The publisher accused the Central Intelligence Agency of being behind Mr Ospina's blacklisting, pointing out that the journalist was currently researching a book about the spy agency. "It shows to what degree its paranoia (has reached)," it said.

Air France said that as the flight was not due to stop in a US airport, it had not sent US authorities the passenger manifest. However, it sent one to Mexico, which apparently sent the list on. The crew were informed of the ban as they approached US airspace.

Mr Ospina, who has written several books and contributes to Le Monde Diplomatique, the left-wing French political monthly, said that he was informed of the order to divert the flight by its co-pilot.

"I was speechless and my first reaction was to ask, 'Do you think I'm a terrorist?'," he said. "He replied 'no' and said that was why he told me about it, adding that it was extraordinary and the first time it had happened on an Air France plane."

Maurice Lemoine, editor in chief of Le Monde diplomatique, said: "Hernando Calvo Ospina is a Colombian political exile in France who writes a lot denouncing the government of (President) Alvaro Uribe and the role of the United States in Latin America, and as a journalist has had occasion to interview top members of the Farc (leftist guerillas in Colombia). That seems enough for him to be considered a terrorist."
I have bolded the key bit: The plane was forced to divert. It had no intention of landing in the US, but the paranoid US authorities wouldn't let the plane overfly the US. That is truly nutty. I thought the US electorate had thrown the nuts out when they voted out Bush and voted in Obama, but apparantly not. I guess Obama is not yet "allowed" to control the CIA. The CIA is still running its own puppet regime and is "permitting" Obama to pretend to be the President and "in charge". Nutty!

This is just as nutty as the famed case of the CIA gutting Valerie Plame's book Fair Game. Go to the library and leaf through the book... lots and lots of blank pages. The CIA refused to allow her to print facts about her life in her biography, facts that were in the public record. This was pure vindictiveness on the part of the Bush administration. Read the NY Times review of this book and the expurgations inflicted by the CIA:
But Ms. Wilson and her publisher, Simon & Schuster, contend that much of the censored information is in the public domain — and that the suppression of information is itself part of Ms. Wilson’s story. So “Fair Game” has been published with the censor’s marks visible as blacked-out words, lines, paragraphs or pages. The publisher amplifies the book with an 80-page afterword by Laura Rozen, a reporter, who uses matters of public record to fill in some of the gaps.
Why do Americans put up with this heavy-handed idiocy from their government? It is bizarre. Americans love to boast about how "freedom loving" they are, but they have an iron-fisted government that disrespects fundamental rights. Somehow this is not noticed by most Americans. Bizarre.

Robert Reich on the Wall Street Banks

Robert Reich thinks Obama will have to stop coddling the bankers and take them on. The following is from his blog:
Almost $600 billion has been poured into big Wall Street banks with nothing to show for it. They're still not lending to Main Street, still paying their top executives princely sums, and still issuing dividends and looking for acquisition targets. Yet apart from a few rhetorical blasts at a few Wall Street executives, Obama has so far shown remarkable solicitude to the banks because he thinks he needs their cooperation to get credit moving again. At some point, though, he'll have to get tough.

Lessons Not Learned

In his latest NY Times Op-Ed article Paul Krugman is complaining that the Wall Street banks with their extravagant self-image and even more extravagant pay packages haven't learned any lessons from the economic collapse they have inflicted on the rest of us...
On July 15, 2007, The New York Times published an article with the headline “The Richest of the Rich, Proud of a New Gilded Age.” The most prominently featured of the “new titans” was Sanford Weill, the former chairman of Citigroup, who insisted that he and his peers in the financial sector had earned their immense wealth through their contributions to society.

Soon after that article was printed, the financial edifice Mr. Weill took credit for helping to build collapsed, inflicting immense collateral damage in the process. Even if we manage to avoid a repeat of the Great Depression, the world economy will take years to recover from this crisis.

All of which explains why we should be disturbed by an article in Sunday’s Times reporting that pay at investment banks, after dipping last year, is soaring again — right back up to 2007 levels.

Why is this disturbing? Let me count the ways.

First, there’s no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks.

Remember that the gilded Wall Street of 2007 was a fairly new phenomenon. From the 1930s until around 1980 banking was a staid, rather boring business that paid no better, on average, than other industries, yet kept the economy’s wheels turning.

So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes.


But given all that taxpayer money on the line, financial firms should be acting like public utilities, not returning to the practices and paychecks of 2007.

Furthermore, paying vast sums to wheeler-dealers isn’t just outrageous; it’s dangerous. Why, after all, did bankers take such huge risks? Because success — or even the temporary appearance of success — offered such gigantic rewards: even executives who blew up their companies could and did walk away with hundreds of millions. Now we’re seeing similar rewards offered to people who can play their risky games with federal backing.


In 2008, overpaid bankers taking big risks with other people’s money brought the world economy to its knees. The last thing we need is to give them a chance to do it all over again.
Go read the whole article. It is really, really depressing.

A Wall Streeter Asks: How Did We Get it So Wrong?

Here is what John Mauldin says to answer the question. This is an extract from a blog entry at Barry Ritholtz's The Big Picture website. I find this to be a straightforward an analysis of how the Wall Street big shots got it all wrong. I've put in bold key bits:
So how did we get it so wrong? How did we get here? Let’s go back to first principles: Ideas have consequences. And bad ideas tend to have bad consequences. We’ve taught two generations of financial managers theories that were patently absurd. Rob Arnott is going to be here later with us for the panel discussion. Rob recalls standing in front of 200 academics, professors in schools that teach economics. He asked them, “How many of you believe in the efficient market hypothesis?” Something like two or three raised their hands. “How many of you teach it?” All of them raised their hands.

We have been teaching generations of MBA students economic garbage. Gaussian curves and things you could model. The classic line is from Ibbitson, is a brilliant professor and a brilliant mind, who said economics is a science. No it’s not. It’s barely an art form. It’s voodoo. That’s what we practice. We look at the entrails of the Wall Street Journal and try to predict the future. Sometimes it’s
about as bloody as sheep entrails. CAPM… poor Harry Markowitz’s Modern Portfolio Theory got so twisted beyond recognition. I remember being with Harry Markowitz. I gave a speech at a big hedge fund conference about five years ago, talking about why Modern Portfolio Theory was not going to work. The next year it was the 50th anniversary of Modern Portfolio Theory, and they brought Harry out to speak. He of course talked about why it was. I remember meeting him in the hall of this big hotel. And I asked him a couple of questions; I forget what they were because he so staggered me with, “Oh, you missed the
whole concept of correlation and assets. Correlations change.”

And he started drawing quadratic equations in the air. But because I was standing in front of him, he was
drawing them backwards so I could see them. I mean, this guy is absolutely brilliant. But he’s right, you should have a diversified portfolio of noncorrelated assets; but as John was showing yesterday, correlations in a crisis all go to one.

What money managers did was to create models that said, “If you do this, diversify your portfolio like this, and here are all your noncorrelated asset classes — see what happens? You get long-term positive results.”

And they would project that into the future. But they didn’t project crises, when correlations go to one. Modern financial theory only works in models if you assume a few things that are patently not true in the real world. So we trained a generation of managers and investors that they should buy 60% stocks and 40% bonds. Yet for the last 40 years, bonds have outperformed stocks. Where was that in the model?

Well, we can go back to the 19th century and see it. But we created a trend from 1944 to 2000 that said we were going up, and we trained a generation to believe they could model, and they did it. They modeled garbage, and now we’ve wiped out a generation of retirement income. I could go on and on, but it’s nonsense.

Political Reverberations of the Financial Collapse

Iceland has just voted out the Conservative government which set up and encouraged the unregulated "free market" economy that led to the banking collapse in that country and it huge international debt.

Here are a few interesting tidbits from the NY Times article by John F. Burns. I've bolded key bits:
It would also confirm a remarkable turnaround in the political fortunes of Johanna Sigurdardottir, the 66-year-old caretaker prime minister, who is the first woman to lead Iceland’s government. Only months ago, before January’s turmoil, she was readying herself for retirement after 30 years in politics and was widely seen as too feisty, and even too left wing, to rise beyond a series of midlevel coalition cabinet appointments.

Ms. Sigurdardottir is notable, too, for being the first openly declared lesbian to lead a government in the modern world, though her sexual orientation was never a significant election issue. What Icelanders say they like about her, as much as anything, is the way in which she embodies everything the New Vikings did not: a quiet, steady personality uncomfortable with the public spotlight, who chose to stay away earlier this month from a NATO summit meeting in Europe, where she would have met President Obama and other Western leaders for the first time.

In Iceland, the storyline of the election has closely followed the growing partnership at the head of the government between Ms. Sigurdardottir, a former flight attendant, and Steingrimur Sigfusson, the 53-year-old former truck driver and geologist who leads the Left-Greens. He, too, is a combative character, though as much at ease with the hurly burly of politics as the shy Ms. Sigurdardottir is not.

Mr. Sigfusson was finance minister in the caretaker government, a position he is expected to keep after the election, and he says he wants to free Iceland from the consequences of embracing the unrestrained free-marketeering that had its origins in the United States.

“What are the people of the United States mad about now?” he said in a recent interview. “It is the same poisonous philosophy that we had here, based on a lack of moral awareness and greed, and people who thought nothing of flying Elton John into Iceland for their 50th birthdays and paying him 70 million Icelandic kronur,” or roughly $600,000.

... the krona has plunged almost 50 percent against the dollar and the euro. Inflation in recent months has been running between 15 and 18 percent. Unemployment, virtually nonexistent for much of the last 20 years, is running at close to 10 percent.

On the street, people talk of standards of living that have been set back to the 1980s. Fears of an exodus of professionals to Europe and North America run deep...

“We have grown used over our history to bad harvests, seasons with no fish, the bad climate, things going up and down,” said Olafur Hardarson, dean of social sciences at the University of Iceland.

“People are saying, ‘This will be bloody tough, but we’ve got to get on with it, and we’ll muddle through.’ ”
There are lots of comments bouncing around about how the Great Depression fundamentally changed society. It looks like this recession/depression will be doing the same thing. The rich and powerful had a really good thing going, but they got too greedy and it now looks like a lot of their power & wealth will be taken away from them by populist outrage and the consequent political shift this will bring. Obama may be just the first faint whiff of the outrage that is to come and the political changes it will wield.

More Moyers on Fraud and Corruption

I had seen a video of Moyers interviewing William K. Black on April 3 (click to view it!), but I didn't get as outraged as I should. But after posting the April 24th interview with Simon Johnson & Michael Perion about the Pecora hearings I put two-and-two together. It was in the William K. Black interview that Moyers first heard about Pecora. Moyers obviously did some digging, and this April 24th interview is the follow-up to understand more about the Pecora hearings, the experience of confronting fraud & corruption in the Great Depression.

This April 3rd interview with William K. Black is filled with very interesting, very shocking, very depressing facts. Here's a sample:
BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?

WILLIAM K. BLACK: There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, รข€˜contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.

BILL MOYERS: The cover up?

WILLIAM K. BLACK: Sure. The cover up.

BILL MOYERS: That's a serious charge.

WILLIAM K. BLACK: Of course.

BILL MOYERS: Who's covering up?

WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.

BILL MOYERS: But he denies that he was a regulator. Let me show you some of his testimony before Congress. Take a look at this.

TIMOTHY GEITHNER:I've never been a regulator, for better or worse. And I think you're right to say that we have to be very skeptical that regulation can solve all of these problems. We have parts of our system that are overwhelmed by regulation.

Overwhelmed by regulation! It wasn't the absence of regulation that was the problem, it was despite the presence of regulation you've got huge risks that build up.

WILLIAM K. BLACK: Well, he may be right that he never regulated, but his job was to regulate. That was his mission statement.


WILLIAM K. BLACK: As president of the Federal Reserve Bank of New York, which is responsible for regulating most of the largest bank holding companies in America. And he's completely wrong that we had too much regulation in some of these areas. I mean, he gives no details, obviously. But that's just plain wrong.
William K. Black knows his stuff, here's the background on him posted on Moyers' website:
William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" — frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
So why do I find Black's statements so depression. It is yet another confirmation that while Obama is doing wonderful things domestically and internationally, he is a bought & sold instrument of the banking interests. Obama has shown no interest in taking on this fraud and corruption. As a result the US will have a "lost decade" like Japan (and since Canada is joined at the hip to the US economically, it means a lost decade for Canada as well).

The Economist Nixes the Green Shoots

The staff on the Economist magazine are not buying the "green shoots" optimism that has been spread around and has led the stock markets on a six week mini-boom:
Stockmarkets usually rally before economies improve, because investors spy the promise of fatter profits before the statisticians document a turnaround. But plenty of rallies fizzle into nothing. Between 1929 and 1932, the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen five separate rallies in which share prices rose more than 10% only to subside again.

The economic statistics are hard to interpret, too. The past six months have seen several slumps, each with a different trajectory. The plunge in manufacturing is in part the result of a huge global inventory adjustment. With unsold goods piling up and finance hard to come by, firms around the world have slashed production even faster than demand has fallen. Once firms have run down their stocks they will start making things again and the manufacturing recession will be past its worst.

Even if that moment is at hand, two other slumps are likely to poison the economy for much longer. The most important is the banking crisis and the purge of debt in the bubble economies, especially America and Britain. Demand has plummeted as tighter credit and sinking asset prices have exposed consumers’ excessive borrowing and scared them into saving more. History suggests that such balance-sheet recessions are long and that the recoveries which eventually follow them are feeble.

The second slump is in the emerging world, where many economies have been hit by the sudden fall in private cross-border capital flows. Emerging economies, which imported capital worth 5% of their GDP in 2007, now face a world where cautious investors keep their money at home. According to the IMF, banks, firms and governments in the emerging world have some $1.8 trillion-worth of borrowing to roll over this year, much of that in central and eastern Europe. Even if emerging markets escape a full-blown debt crisis, investors’ confidence is unlikely to recover for years.

These crises sent the world economy into a decline that, on several measures, has been steeper than the onset of the Depression. The IMF’s latest World Economic Outlook expects global output to shrink by 1.3% this year, its first fall in 60 years.


The Depression showed how damaging it can be if governments don’t step in when the rest of the economy seizes up. Yet action on the current scale has never been tried before and nobody knows when it will have an effect—let alone how much difference it will make. Whatever the impact, it would be a mistake to confuse the twitches of an economy on life-support with a lasting recovery. A real recovery depends on government demand being supplanted by sustainable sources of private spending. And here the news is almost uniformly grim.
The whole article is well worth reading.

Talking Points and Scare Mongering

Here is an interesting video of Representative Henry Waxman taking Newt Gingrich to task for misusing "facts" to spread fear in his efforts to oppose new energy legislation:

Notice how Newt Gingrich evades taking responsibility for his "facts". He has been pushing a point of view based on "facts" but when questioned about the facts he becomes vague. Waxman takes him to the woodshed because the author of the MIT study disavows the use the Republicans are trying to make of it. Instead of the $3,128 a year per household the Republicans are using in their scare tactics, the real number according to Riley, the "source", is that it is only 40 cents per day. To see the letter from Riley to Republican John Boehner, look here.

For more gory details, go look at Brad Johnson's blog The Wonk Room at the Think Progress website.

Mud Wrestling

Here is Nora O'Donnell wresting with Liz Cheney over whether "Torture" is "torture" or "TORTURE" is "Torture" or if torture-lite is really torture...

I love the way Cheeny argues "It can't be torture because we do this to our own people as part of their training!".

With that logic, nuclear fallout can't be dangerous because the US purposefully exposed US troops to nuclear fallout in the late 1940s and early 1950s to "test" its effects on troops.

Her logic is perverse.

What I find amazing is that the level of "discourse" is boiling. The US is fracturing yet again. The dialog is collapsing into shouting matches. Intellectual intolerance is on the rise because the right is selling a kind of moral blindness.

I'm not big on the right, but I can be sympathetic with another daughter of a big cheese Republican, Meghan McCain. I can respect her desire to rebuild the Republican party because she comes across as not an ideologue, but somebody with a viewpoint that attempts to be inclusive. I don't agree with her politics, but I can respect her:

I don't know much about Liz Cheney, but from the above clip, I have no respect for her. She comes across as deaf to moral discourse and the need to see both sides of an argument. In the end you have to take a side and defend it, but Cheney shows no ability to understand the complexities of ethics and acting in the world. She comes across as having a cartoon vision of us "good", them "bad" and therefore anything goes.

Saturday, April 25, 2009

Bill Moyers takes on the Economic Crisis

This weekend PBS's Bill Moyer's Journal had a very interesting interview of Simon Johnson, former chief economist of the International Monetary Fund (IMF) and a professor at MIT Sloan School of Management, and Perino, professor of law at St. John's University and advisor to the Securities and Exchange Commission. The talk was focuses on the banking crisis. It begins...
Like thunderheads roiling on the horizon, the clamor has been building as more and more Americans want to know exactly what, and who, brought on the worst economic crisis since the great depression. What happened and how do we keep it from happening again?

Congress has finally acknowledged the outcry and is supporting some 21st century version of the "Pecora hearings."

"Pecora hearings?" That's right, as in Ferdinand Pecora, the savvy immigrant from Sicily who became a Manhattan prosecutor with a memory for facts and figures that proved the undoing of a Wall Street banking world gone berserk with greed and fraud.

In the early 1930's, during the Great Depression, and under threat of subpoena, one tycoon after another, including J.P. Morgan Jr., was hauled before the Senate Banking Committee and grilled by Pecora, the committee's chief counsel.
Go watch the interview.

I quite like Simon Johnson's viewpoint. Here is the bit where he is first given an opportunity to present his case against the banks (at time 10:00):
... these big finance houses and securities firms that merged with commercial banks, and vice versa, are incredibly powerful. And they have, you know, questionable practices in New York on and around Wall Street. They're also incredibly powerful in Washington. The strength of their connections possibly is even greater now than it was back in the early 1930's.

I think you see it everywhere. You see it this week, for example, in-- in these banks that receive massive amount of government assistance and I think a pretty good deal from Treasury pushing back against other Treasury initiatives, for example, to help consumers in changing the rules around mortgages and around credit cards.

And also with regard to Chrysler. So, the government has a broader set of public policy initiatives. One of them is: save the banks. Others are: help consumers and some auto companies. The banks are happy to take the money on pretty generous terms, and won't cooperate on the other aspects of public policy. That tells you how powerful they are and how much hubris they have in these kind of situations.
Go watch the interview.

What Ails the Body Politic

Here is the key bit from an article by Tim Fernholz on The American Prospect website. He focuses on economist Simon Johnson's analysis that the financial industry is corrupt and has bought the politicians:
His argument, in a nutshell, is that the last 25 years have seen deregulatory policies driven by the banking interests, leading to an over-large financial sector that has captured the political process. Financiers promoted free-market ideals, served in government, and funneled millions into the political process. Now, the risky behavior of major financial institutions, combined with the public policy they promoted, has created a major crisis. But the bankers' political power hasn't waned, and they are preventing the government from acting aggressively to start recovery.

Johnson and other economists across the ideological spectrum have fashioned a rough consensus that the government needs to take insolvent banks into receivership and use anti-trust tactics to break them apart, producing a financial sector that is small, simple and heavily regulated. But Johnson doesn't believe this will happen unless the financial crisis becomes even more severe; otherwise, the political incentives standing in the way will be insurmountable even if the price paid by the economy is, in the long-term, devastating.

On the other hand, the results of the recent G-20 economic summit offer a glimpse of the current political response to the economic crisis: return to the status quo. Leaders blame the crisis on technical decisions made by regulators and the central banks that set monetary policy; they hope to prop up the existing system, and, with slightly more regulation, continue on with essentially the same game.

Many economists see in this approach as complacent, and indicative of a fundamental misunderstanding of the financial sector's structural problems. Johnson's contribution is identifying the political factors that contribute to the rosy-eyed government consensus in the face of many academics' hard-edged analysis.

Gallows Humour

All the victims of the stock market meltdown can enjoy this bit of gallows humour entitled "Why I Fired My Stock Broker" by Jeffrey Goldberg in The Atlantic:
For most of our adult lives, my wife and I have behaved in the way responsible cogs of capitalism are supposed to behave—we invested in a carefully calibrated mix of equities and bonds; we bought and held; we didn’t overextend on real estate; we put the maximum in our 401(k) accounts; we gave to charity; and we saved, but we also spent: mainly on gasoline, food, and magazines. In retrospect, we didn’t have the proper appreciation for risk, but who did? We were children of the bull market. Even at its top, my investment portfolio was never anything to write home about. Its saving grace was that it was mine. And I imagined that when we did cash out, at 60 or 65, I would pass my time buying my wife semisubstantial pieces of jewelry and going bass fishing like the men in Flomax commercials.

Well, goodbye to all that. I took a random walk down Wall Street and got hit by a bus.

How am I sure it’s goodbye? The signs are rampant, but one has become stuck in my mind: a video of Richard Bernstein, the chief investment strategist for Merrill Lynch (sorry, I mean the Merrill Lynch division of Bank of America, which, by the time you read this, may be the Bank of America division of the United States Government), advising Merrill clients such as myself that one of the best financial strategies to adopt now would be to extend my “investment time horizon.”

“If one were to trade the S&P 500 for one day, the probability of losing money is about 46 percent,” Bernstein states. “However, as one extends that time horizon from one day to one month to one quarter to one year to 10 years, the probability of losing money decreases as the time horizon lengthens.”

To which I would add this observation from Keynes: “In the long run, we are all dead.”


And my wife and I have decided to fire our Merrill Lynch financial adviser. We’re not firing him because we realized that his company couldn’t manage its own money, much less ours, and we’re not firing him for his bad advice. I was the one, after all, who pulled the trigger on the purchase of 100 shares of AIG. (It would have been good of him to warn us about what was coming, but that would have necessitated him knowing what was coming.) We’re also not firing him because his research chief wants us to elongate our already too-long time horizon. And we’re not firing him because John Thain, his former CEO, spent the fees we paid his company on a $35,000 commode. We’re firing him mainly because he fired us. He never said he was firing us. He just stopped calling. Eventually, I stopped calling him. I got the message.
Go read the whole thing... you will weep, not from joy, but from the recognition of how you too are a victim of the mad greed of Wall Street. The tone is the kind of light-hearted joking that the condemned make as they are marched off for execution. Like the soon-to-be-executed, you will learn all you need to know about the cost of rope, the height of the gallows, the strength of the execution, and the time to drop. All the essential facts... but just moments before you perform your last act that vitiates the need for the knowledge. Now that is funny!

Friday, April 24, 2009

Worries over TARP

An article by Robert Scheer in The Nation points out problems in the TARP program:
We are being robbed big-time, but you can't say we haven't been warned. Not after the release Tuesday of a scathing report by the Treasury Department's special inspector general, who charged that the aptly named Troubled Asset Relief Fund bailout program is rife with mismanagement and potential for fraud. The IG's office already has opened twenty criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming.

Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money. (Read the complete report here.)


At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush's treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent.

Unfortunately, President Obama's administration continued that practice.

The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama's top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not.

Just Like Casey at the Bat...

Here is a blog entry by Charles Pierce that is posted by Eric Alternam on the Altercation blog at The Nation. He points out the critical points in American history:
I have now lived through three major episodes in my life where the political elite have told me quite plainly that neither I nor my fellow citizens are sufficiently mature to suffer the public prosecution of major crimes committed within my government. The first was when Gerry Ford told me I wasn't strong enough to handle the sight of Richard Nixon in the dock. (Ed. note--I would have thrown a parade.) Dick Cheney looked at this episode and determined that the only thing Nixon did wrong was get caught. The second time was when the entire government went into spasm over the crimes of the Iran-Contra gang and I was told that I wasn't strong enough to see Ronald Reagan impeached or his men packed off to Danbury. Dick Cheney looked at this and determined that the only thing Reagan and his men did wrong was get caught and, by then, Cheney had decided that even that wasn't really so very wrong and everybody should shut up. Now, Barack Obama, who won election by telling the country and its people that they were great because of all they'd done for him, has told me that I am not strong enough to handle the prosecution of pale and vicious bureaucrats, many of them acting at the behest of Dick Cheney, who decided that the only thing he was doing wrong was nothing at all, who have broken the law, disgraced their oaths, and manifestly belong in a one-room suite at the Hague. Not to put too fine a point on it, but I'm sick and goddamn tired of being told that, as a citizen, I am too fragile to bear the horrible burden of watching public criminals pay for their crimes and that, as a political entity, my fellow citizens and I are delicate flowers encased in candy-glass who must be kept away from the sight of men in fine suits weeping as they are ripped from the arms of their families and sent off to penal institutions manifestly more kind than those in which they arranged to get their rocks off vicariously while driving other men mad.

Hey, Mr. President. Put these barbarians on trial and watch me. I'll be the guy out in front of the courtroom with a lawn chair, some sandwiches, and a cooler of fine beer. I'll be the guy who hires the brass band to serenade these criminal bastards on their way off to the big house. I'll be the one who shows up at every one of their probation hearings with a copy of the Constitution, the way crime victims show up at the parole board when their attacker comes up for release. I'll declare a national holiday -- Victory Over Torture Day -- and lead the parade right up whatever gated street it is that Cheney lives on these days. Trust me, Mr. President. I can take it.
The question... will the citizenry be struck out for a third time? Is this yet another story of Casey at the Bat?

The Failings of the CIA

There is a very long and very informative essay on the failings of the CIA written by Spencer Ackerman in The Nation last summer. Here are some key bits:
But what the agency never acquired was competence. Its history is one of profound failure in two respects: first, operational failure, as its efforts at pulling the puppet strings of the world have usually ended up garroting its allies; second, the agency, fearful above all else of dismemberment by politicians outraged by its appalling track record, has lied with pathological consistency to Presidents and Congresses about its failed missions. An attempt to bump off the Syrian leadership in 1957 resulted in the interrogation and exposure of the CIA's Damascus chief, Roger Stone, within weeks. The agency fooled itself into believing a ragtag band of counterrevolutionaries could topple Fidel Castro in 1961, and followed up its disaster with years of aborted assassination attempts. A fear that the Iraqi coup of Nuri Said in 1958 would give the Soviets access to the Middle East's oil bounty led CIA area chief James Critchfield to sponsor a countercoup by an up-and-coming political force called the Baath Party.


From the beginning of the cold war, a consensus grew within the Truman Administration--entirely in secret--that success in shouldering the United States' newly assumed hegemonic responsibilities required a secret agency. The agency rose out of the ashes of the Office of Strategic Services (OSS), a ramshackle but romantic gentlemen's covert-action club assembled by Franklin Roosevelt to perform the dirty work of winning World War II. Truman didn't want to institutionalize the OSS for the cold war, yet the only people with experience in the shadows to staff the espionage organization he wanted were OSS veterans, and they quickly took charge of the nascent agency. These unsentimental elitists did not wait for Congress to authorize such an entity through legislation, since they were used to simply taking the money they needed and doing as they pleased. State Department appropriations became slush funds to finance disinformation efforts, bribe foreign officials and pay for three-martini lunches in European capitals. By the time Congress passed an act creating the CIA in 1949, the agency had already become a playground for paranoid alcoholics like Frank Wisner and James Jesus Angleton to tinker with the US-Soviet balance in Europe. The only ironclad provision in the agency's deliberately vague charter was that it could not spy on US citizens domestically. John F. Kennedy, Lyndon B. Johnson and Richard Nixon ordered the CIA to violate that prohibition.

The CIA's successes were meager. After numerous "missteps"--which, in practice, meant getting local proxies killed--the CIA managed to oust Jacobo Arbenz of Guatemala and Mohammed Mossadegh of Iran. Perhaps the agency's most competent director, Richard Helms, kept the criminally insane Angleton on as head of counterintelligence because he stopped the Soviets from penetrating the agency's highest levels. Meanwhile, Angleton told nearly every secret the agency had about its European assets to his drinking buddy, the Soviet agent Kim Philby. To call the CIA comically incompetent in its early years would be to diminish the considerable achievements of Buster Keaton and Charlie Chaplin. In 1950 William Wolf Weisband, an employee in the CIA's cryptanalysis division whose job was to translate intercepted Soviet communications, gave the agency's code-breaking secrets to the USSR. The catastrophe had more than one fateful consequence: in addition to what an official history later called "perhaps the most significant intelligence loss in U.S. history," it led to the creation of the National Security Agency, which under George W. Bush implemented a constellation of illegal, unconstitutional programs for warrantless domestic surveillance. It should be clear that even at that early date, CIA analysis was a sideshow to the much sexier realm of covert action.


Helms, as luminous a star as the CIA ever produced, was eventually convicted of lying to Congress under oath.

All this and more is recounted in Legacy of Ashes, a history of the agency written by New York Times reporter Tim Weiner. It is not hyperbolic to say that Weiner's book is the greatest ever written about the CIA. Weiner combed through mountains of declassified material and tracked down agency veterans at all levels to produce a complex, subtle and beautifully written history.
You really need to go read the whole article.