Category: interesting

Mark Thoma:

I have criticized regulators for not having plans ready to deal with too big to fail institutions.

One thing everyone seems to agree on is that the ad hoc response from regulators made things worse, and we need to be better prepared with plans to dismantle these firms without destabilizing markets next time around (and do our best to prevent problems from developing to begin with, including regulating connectedness). The fact that we were caught without such plans was a big handicap in dealing with the unfolding crisis.

But the same can be said about macroeconomics. We didn’t plan for a big crisis either.

We had no plans on the shelf that we could rely upon when the crisis hit, and what we have seen from macroeconomists is the same kind of ad hoc scramble for an effective response that many of us have criticized regulators for.

But if macroeconomists had taken the possibility of a massive meltdown seriously before it happened and developed the theoretical apparatus we are now calling for now that we have seen that such events are, in fact, possible, then perhaps regulators would have been more inclined to think through this possibility and get ready for it. I don’t think the blame is all theirs.

Paul Volker’s tidbit:

[Laughter] It’s interesting you ask that question because I recently commented to some of my economist friends that I’m not aware of any large contribution that economic science has made to central banking in the last 50 years or so.

Oil and Economics: a dialogue between Mr. Q and Mr. A, with an occasional comment by Polly, a parrot.

Q: What is the most important thing to know about oil and economics?

A: Marginal cost, the cost of the next barrel of oil.

They came from all across this great land, from Sun City to Leisure World, united only by … by … Dick Armey’s astroturf roots movement and their dissatisfaction with … something-or-other.

Rebels without a common cause, they came to Washington because whatever irks them, it must be that guy’s fault, that Obama. He’s been in office practically forever.

So they brought their Winnebagos and walkers to Washington, all two million, one million, 100,000, 60,000 of them.

Stephen Baldwin:

I have recently returned from circumnavigating the salad bar at my local Shaw’s Supermarket. Magellan may have sailed further into uncharted realms, but I doubt that he experienced as much uncertainty and ill-omen as I did amid the lettuce and tomatoes. Darwin’s voyage of discovery may have penetrated more exotic ecosystems, but his microscope cannot have encountered any specimens more fearsome, alien and repulsive than those that wriggled between the teeth of my tongs.

Aside from the usual, unappetizing array of salad bar items such as scrimshaw cauliflower and dead-man’s cucumber, there were macaroni-shaped pasta worms drowning in some sort of mayonnaise scum; rubberized eggs, too; broccoli rendered as verdigris carbuncles; mushrooms that might have been grown in the dimmest recesses of a slave ship’s hold; and various other undesirable, indescribable types of organic matter that had been lately dredged from their watery grave. These were the monsters of the deep; vegetable krakens, giant squids and sliced albatrosses that lurked beneath a bed of brined lettuce and scurvy onion.

Talk about a “nightmare life-in-death” that “thicks men’s blood with cold”, I think tomorrow I’ll hike overland to Dante Ristorante instead. I hear tell that they do a good Italian cold-cut special, even if waiting in the long lunchtime line is purgatory.

Bill Easterly:

The Origin of Development as a Cover for Imperialism and Racism

Economic Development was “a new justification for colonial rule to replace the unpopular and increasingly implausible idea that they were a superior race destined to rule inferior races.”

…”in the end, the elites still believe in their fundamental superiority.”

Robert Levine:

And melioration is crucial: left alone as they were before 1933, the downsides of Schumpeter/Kontratieff waves and lesser cycles have in the past caused immense human misery and immense, if pre-nuclear, wars. They must be meliorated better than they were in the first half of the 20th century.

And I will end this comment on comments as I did my initial contribution. Depending on Schumpeterian innovation on the one side, and developing-country competition on the other, we may be in for a long trough—the “secular stagnation” of the 1930s.

In that case, I am firmly on the ultra-Keynesian (and what may be the Krugman) side with regard to means of melioration. Secular stagnation may mean secular deficits; so be it, it is better than the alternatives.

Aug 21, 2009? Harry Schoell, the chief executive of Cyclone, said:

“We completely understand the public’s concern about futuristic robots feeding on the human population….”

ROFL

Justin Fox:

Who Has All the Answers?

There is no grand, unifying theoretical structure in economics.

We do not have one model that rules them all.

Instead, what we have are models that are good at answering some questions – the ones they were built to answer – and not so good at answering others.

Steven Attewell says it’s the fight worth having.

“This woman is being put into a position she is not even remotely prepared for. She hasn’t spent one day on the national level. Neither has her family. Let’s wait and see how she looks five days out, ” said George W. Bush. “What is she, the governor of Guam?”

Wealthcare.
We have not resolved wealth and virtue:

Ayn Rand’s arguments are against pure communism, which has been demonstrated by her fictional world. A good writer, but a bizarre philosophy that she could not see an oligarchy or aristocracy being birthed of unregulated, malicious side of capitalism, as are all inherent evils in every aspect of society. The concept is as utopian as Marxism.

Brookings Institution and Pew Charitable Trusts reported, the United States ranks near the bottom of advanced countries in its economic mobility.

It expresses its opposition to redistribution not in practical terms–that taking from the rich harms the economy–but in moral absolutes, that taking from the rich is wrong. It likewise glorifies selfishness as a virtue. It denies any basis, other than raw force, for using government to reduce economic inequality. It holds people completely responsible for their own success or failure, and thus concludes that when government helps the disadvantaged, it consequently punishes virtue and rewards sloth. And it indulges the hopeful prospect that the rich will revolt against their ill treatment by going on strike, simultaneously punishing the inferiors who have exploited them while teaching them the folly of their ways.

It’s a billion pound book. To read it all it would take 57,000 years.

Keio University has developed a small robot that folds laundry on a big table.

For t-shirts or pants.

Easy chair and TV remote not included.

Video at Youtube.

Inside Sarah Palin’s church: A radical Pentecostal, God began to speak to her about politics.

Rooted in an explicitly anti-intellectual creation myth where Satan had sex with Eve and gave birth to Cain—the so-called ‘Serpent Seed’, through Cain came all the smart, educated people—the intellectuals.

“We come against that python spirit. We come against that spirit of witchcraft as the body of Christ. Right now in the name of Jesus!

“Ooooh-raba-saka-ta-la. Come on, pray, pray!

“Raba-sandalalala-bebebebekalabebe. Shanda-la-bebebeka-lelebebe. That’s why we come against all forms of witchcraft. All the python spirits that are released against the body of Christ . . . and bring this nation into the Kingdom.”

Onward for an anointing:

We will put our feet against the head of the enemy and crush the python spirit by stepping on the enemy’s neck.

That’s because the institution itself is fatally flawed.

If the American or European central bank broke down, and investigations were held into the relationships, all holy hell would likely break loose.

How can it be otherwise?

These central banks are run by small groups of (mostly) men, who grow up with each other and go to the same clubs and run in the same social circles and have the same interests.

For all of the wrong reasons:

1. Nobel prize winning economist Joseph Stiglitz said yesterday that the U.S. government is wary of challenging the financial industry…
2. Economic historian Niall Ferguson asks, “Guess which institutions are among the biggest lobbyists and campaign-finance contributors?”
3. Manhattan Institute senior fellow Nicole Gelinas agrees, “The too-big-to-fail financial industry has been good to elected officials and former elected officials…”
4. Investment analyst and financial writer Yves Smith says, “Major financial players [have gained] control…”
5. William K. Black – the senior regulator during the S&L crisis, and an Associate Professor of both Economics and Law at the University of Missouri – says, “There has been no honest examination of the crisis because it would embarrass CEOs and politicians…”
6. Harvard professor of government Jeffry A. Frieden says, “Regulatory agencies are often sympathetic to the industries they regulate. This pattern is so well known among scholars that it has a name: regulatory capture.”

Dana Blankenhorn:

The idea of reporters as truth-tellers is an important part of democracy.

It keeps people on their toes — in business, in sports, in entertainment, in politics. Sure, a lot of reporters cross ethical lines. Sure, there are gazillionaires who use their control of media outlets for their personal advantage. Such corruption is routine.

But this lesson has not been driven home. There are enormous long-term benefits in accepting the role of reporters as truth-tellers.

To insisting on it.

Charles Hughes Smith asked himself how much of his money goes to cartels and monopolies. The answer: most of it.

1. Mortgage: Most mortgages are processed and serviced by a mere handful of big players, so regardless of who owns your mortgage now, the mortgage/banking cartel is more than likely collecting a nice piece of it, and a chunk of the origination fees as well.
2. Utilities: For heat, water and electricity, your money likely goes to a monopoly.
3. Telecom: Phone, Internet and mobile services are divvied up amongst a handful of major providers.
4. Food: A handful of corporations dominate the supermarket business, a handful of businesses dominate food distribution, a handful dominate the market for bulk grain and commodities like sugar, and a handful of global food giants manufacture most of the packaged food in the supermarkets.
5. Eating out: A huge percentage of meals-away-from-home are served by a handful of firms.
6. Media: News and entertainment industries are dominated by a handful of global corporations, so whatever money you spend on media and entertainment flows to a cartel.
7. Cars: A handful of global auto manufacturers also handle the majority of auto financing.
8. Retail: Most discretionary and consumer spending is to a few chains.
9. Medical: The big bucks flow through a handful of HMOs or insurers to a handful of hospital chains, and the vast majority of all those funny little pills you get by the boatload every month are manufactured and marketed by a handful of global pharmaceutical giants.
10. Garbage: Waste Management dominates the trash-service market.

Your state and local governments are behaving like a cartel too. As are political parties.

Playing in the Presidium.
Yay for Ronald Reagan!
What free market?!

“I criticized Bernanke for many of the mistakes he made before the crisis,” Roubini said. “But I give him credit for his actions that led to the avoidance of another Great Depression.”

It was 24,992 people making money and eight guys losing it.

A respected vice-president says the private elevator to the 31st Floor purposely hid the incompetence of Lehman leadership from its 25,000 employees.

A very small number had direct exposure and what they witnessed was staggering.

In the four years McDonald worked for the company he never once saw Fuld. Top management never saw Fuld either.

This lack of interaction meant that warning calls from traders on the frontline were not heard, and certainly not heeded, in the years leading to the collapse.

“The most important players were Mike Gelband, managing director and global head of fixed income; Alex Kirk, managing director and global head of high-yield and leveraged loans; and my immediate boss and best friend, Larry McCarthy, managing director and global head of distressed bond trading. Then there was Richard Gatward, managing director and global head of convertible securities trading; Christine Daley, managing director and head of distressed debt research; Madelyn Antoncic, managing director and chief risk officer; and myself.

“Most of these brave leaders implored the chairman, and our president Joe Gregory, to change course.”

They turned their backs on many warnings. They were betting the ranch.

Larry McDonald called the sub-prime bubble early and started to short mortgage lenders such as Countrywide, Fannie Mae and Freddie Mac. All the while Lehman was increasing its exposure to the very same products.

“For every dollar I was making, they were losing six. I was making money betting against the edicts that were coming out of the 31st floor.”

He believes jealousy played a part in the board’s insatiable desire for the toxic assets that would ultimately sink it.

“They were chasing all of this real estate stuff because Blackstone, which was founded by former Lehman guys, was doing it and there’s always been this intense rivalry between the two. Goldman Sachs was big in it too. It was Goldman-envy and Blackstone-envy.”

Instead of reviewing the bank’s risk management systems, the executive directors would have endless meetings discussing the corporate dress code as Fuld was a stickler for appearances.

A dangerous lack of awareness about the technical financial products the bank was playing with didn’t help matters.

I think the board was afraid of interacting with the people who genuinely understood things like credit derivatives because they might get caught out.

“The management team was from a different era, they weren’t 21st century financial people.”

McDonald’s book ‘A Colossal Failure of Common Sense: The Incredible Inside Story of the Collapse of Lehman Brothers‘ points the finger of blame at Fuld and his board, accusing them of taking dangerous risks in pursuit of short-term profits.

Lawrence McDonald at New Statesman, “We all knew it was coming.“

Summary link at The Times.

Naked Capitalism:

It is simply not true that we need the mega-banks.

Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don’t really need credit in the first place.

In fact, as many top economists and financial analysts have said, the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.

In a nutshell this is what happened:

Bernard L. Madoff’s massive fraud stunned some of the wealthy denizens of Malibu Colony, especially when a couple devastated by the scheme surrendered their oceanfront home to Wells Fargo Bank.

But some neighbors say the real shocker came when they saw one of the bank’s top executives spending weekends in the $12-million beach house and hosting eye-catching parties there. What’s more, Wells Fargo spurned offers to show the property to prospective buyers, a real estate agent said.

“It’s outrageous to take over a property like that, not make it available and then put someone from the bank in it,” said Phillip Roman, an 18-year Colony resident who lives a few homes away from the property.

Residents identified the house’s occupant as Cheronda Guyton, a Wells Fargo senior vice president who is responsible for foreclosed commercial properties.

Update 9/15 – Wells Fargo fires executive who partied at repossessed Malibu mansion

“For an executive at the US bank Wells Fargo, a repossessed $12m beach house in southern California proved just too tempting.

The financial institution has fired a top loans officer for using a luxurious Malibu property for a series of family getaways, culminating in a summer party at which guests arrived by yacht.”

The Atlantic:

On every major measurement, the Census Bureau report shows that the country lost ground during Bush’s two terms.

While Bush was in office, the median household income declined, poverty increased, childhood poverty increased even more, and the number of Americans without health insurance spiked.

That ain’t the half of it.

Bruce Hood, Bristol University:

Our research shows children have a natural, intuitive way of reasoning that leads them to all kinds of supernatural beliefs about how the world works.

As they grow up they overlay these beliefs with more rational approaches but the tendency to illogical supernatural beliefs remains as religion.

NYTimes:

Nationwide, polluters have violated the Clean Water Act more than 500,000 times. “How is this still happening today?” she asked.