Friday, November 28, 2008

Head towards the light...

...a silly analysis by a Chinese statesman. The Euro imposes "discipline" to the extant its members find it palatable to adhere to its rules (and so long as the "rules" are subject to political interpretation given changing economic and political climates)

The economic climate is changing...and so are the rules.

Its an interesting opinion, and one that marches lock-step with post-modern communist ideology. I care less about the outcomes political thinkers attempt to engineer (as they so often fail miserably to do so)...I care far more about their analytical and emotional processes that categorize these outcomes as "desirable". Utopia has always been an excellent outcome to engineer, but thinkers such as Plato, Thomas More, and Marx each used a different calculus in heading towards the light.

This line of thinking applies to the U.S. as well given the current administration and pending supermajority in congress.

The Recapitulator also sends his condolences to those affected by the actions of terrorists in Mubai. Sushil, be well.

Britain's efforts to hold on to sterling are doomed to failure in a global economy dominated by powerful currency blocs, said Hong Kong's leader Donald Tsang.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 11:12PM GMT 27 Nov 2008

Mr Tsang, an elder statesman of Asian finance, said open trading states must adapt to the realities of modern finance.

"I do not believe in the sustainability of a small floating currency. Look at the pound, it's being attacked," he said in interview with the Daily Telegraph.

"The euro is a good move. People have to abide by the Maastricht criteria, so it imposes discipline. Other options are less palatable if you really want to become a big strong economic union."

Mr Tsang, the chief Executive of the Hong Kong Special Administrative Region of the People's Republic of China, is a veteran of East Asia's currency crisis of the late 1990s and the SARS epidemic. As a Beijing loyalist, he offers clues into the current thinking of the Chinese leadership. His comments on sterling are a warning sign that China may ultimately prove reluctant to buy large amounts of UK Treasury debt in the future.

Mr Tsang, as always wearing his signature bow tie, said it will be impossible for the Far East to launch its own currency union until China makes the renminbi convertible. This is not yet remotely on the agenda.

Wednesday, November 26, 2008

Signal filters.

People operate with different filtering devices to sort, process and deflect information. In my view elections in this country are sort of a vetting process whereby the electorate votes a preference for a set of signal filters.

A new executive administration brings new "signal filters" that determine policy going forward. This makes markets nervous as new investment decisions must be made in a changing environment.

Mr. Obama continues to demonstrate he knows this, and makes appointment after appointment that solidifies his pragmatic credentials.
Obama Plans to Retain Gates at Defense Department

WASHINGTON — President-elect Barack Obama has decided to keep Defense Secretary Robert M. Gates in his post, a show of bipartisan continuity in a time of war that will be the first time a Pentagon chief has been carried over from a president of a different party, Democrats close to the transition said Tuesday.

Mr. Obama’s advisers were nearing a formal agreement with Mr. Gates to stay on for perhaps a year, the Democrats said, and they expected to announce the decision as early as next week, along with other choices for the national security team. The two sides have been working out details on how Mr. Gates would wield authority in a new administration.

The move will give the new president a defense secretary with support on both sides of the aisle in Congress, as well as experience with foreign leaders around the world and respect among the senior military officer corps. But two years after President Bush picked him to lead the armed forces, Mr. Gates will now have to pivot from serving the commander in chief who started the Iraq war to serving one who has promised to end it.

In deciding to ask Mr. Gates to stay, Mr. Obama put aside concerns that he would send a jarring signal after a political campaign in which he made opposition to the war his signature issue in the early days. Some Democrats who have advised his campaign quietly complained that he was undercutting his own message and risked alienating war critics who formed his initial base of support, especially after tapping his primary rival, Senator Hillary Rodham Clinton, for secretary of state.

Tuesday, November 25, 2008

Flow reversal

Very important anecdotal article (the only kind of article this particular publication uses) regarding incentives of U.S. students. The "brain drain" that flowed from top engineering and mathematics universities is now reversing. Economic incentives create innovation. this is good news.

Engineering: Suddenly Sexy for College Grads
As the financial crisis deepens, science and math grads who once flocked to investment banking are now considering jobs in engineering

By Vivek Wadhwa

Early in his college career, Tyler Bosmeny assumed that after graduating, he would do what hundreds of other self-respecting Harvard University engineering, math, and science students do: take a job on Wall Street. "I had done a summer internship in investment banking, and part of me always figured that I'd be working in finance after Harvard," says Bosmeny, an applied mathematics major. But on graduation in June 2009, Bosmeny will work instead for an Internet startup he founded with five undergraduates from top schools who, like him, were on student newspapers. Called PaperG, the startup sells online advertising to local businesses.

Only three years ago Bosmeny could have written his ticket for an entry-level job in the financial sector with a starting salary north of six figures. Those days are over, at least for now. The global market crash and the contraction of the financial sector has dramatically changed the decision matrix for tens of thousands of promising math, science, and engineering graduates such as Tyler. Students who in years past would have flocked to Wall Street are considering careers in engineering and technology. Suddenly, science is sexy.

Ranjitha Kurra, a student at the Masters of Engineering Management program at Duke University, says she interned as a business analyst at Barclays Capital (BARC) this summer and had an offer for a full-time job. But following Barclays' recent acquisition of Lehman Brothers, Kurra was told she may not have a job when she graduates in December. She worries that even if Barclays were to meet its commitment, she might be laid off within months. She doesn't want to return to her home in India yet, so she is looking for a job in engineering, an area she thinks will be safer than anything in financial services.

Sure, the tech sector is shaky, too. Witness Intel's (INTC) Nov. 12 announcement that fourth-quarter sales will fall short of previous forecasts (, 11/13/08) and Cisco's recent disclosure that sales in the period that ends in January will decline. But few expect Silicon Valley to undergo the carnage suffered by Wall Street.

Monday, November 24, 2008

Fiscal stimulus...

...with the U.S. the next in line. All very interesting in timing and ordinal rank.
I have already commented on the competitive aspects of this. The U.S. is in position to know the fiscal packages its competitors have enacted. A good spot to be in.

-- Provincial government plans will add an additional 10 trillion yuan ($1.464 trillion) to a 4 trillion yuan stimulus package announced by the central government earlier this month, state television said. The central scheme included rail and infrastructure schemes as well as extra social spending to offset the sharp drop in demand for the exports which fuel China's economy.

-- China is also changing value added tax (VAT) to allow companies to deduct the cost of capital equipment, saving them about 120 billion yuan a year.


- An economic stimulus plan to be presented on Nov. 26 will include a significant budgetary expansion, the head of the EU executive said on Friday, as it signalled longer deadlines for countries to slash budget gaps.

-- German Economy Minister Michael Glos has said the plan envisaged, among other things, a 1 percentage point cut in value-added tax across the EU and that the total value of the stimulus was 130 billion euros ($163 billion).


-- The government has announced a package which will generate about 50 billion euros ($64.22 billion) in investment and contracts.

- A new lending programme of up to 15 billion euros will be introduced for German state-owned development bank Kreditanstalt fuer Wiederaufbau (KfW) to strengthen its lending activities. KfW's infrastructure programme for structurally weak local authorities will be raised by 3 billion euros.

-- Urgent investment in transport will be accelerated via a new programme totalling 1 billion euros in both 2009 and 2010.

-- Parliament has approved a rise in government net new borrowing in 2009 to 18.5 billion euros from 10.5 billion.


-- Hungary announced plans for a 1,400 billion forint ($6.88 billion), two-year stimulus package to kick-start economic growth. The package does not involve new spending but a regrouping of existing funds to assist small and medium-sized businesses.

-- 680 billion forints will be allocated to provide lending guarantees primarily to SMEs and 260 billion forints will provide liquidity for lending.


-- The government has announced a "liquidity impulse" of about 6 billion euros ($7.5 billion), including allowing companies to write down investments earlier than usual.

-- Companies will also receive temporary financial support from an unemployment fund to pay employees who will cut down on their working hours.


-- Prime Minister Vladimir Putin on Nov. 20 unveiled a $20 billion economic stimulus package and help for people hurt in the economic slowdown. He offered assurances there would be no repeat of the economic turmoil when the Soviet Union collapsed in 1991 and, 10 years ago, when the state defaulted on its debt.

-- The package will include a cut in profit tax, which accounts for 8.5 percent of budget revenues, to 20 percent from 24 now, and a new depreciation mechanism that will allow firms to reduce the profit tax further.

-- The government has already sanctioned state-run banks to support industry with billions of dollars of soft funding.

Saturday, November 22, 2008

Fleshing out the Obama doctrine...

I have maintained for some time that there is now a modern corollary to the Monroe Doctrine. This "Obama Doctrine" will emphasize the antipodes, and more specifically Latin America and Africa.

Obama's selections thus far for the Treasury (and I am of the opinion that Larry Summers will be Fed Chair) and other cabinet positions reinforce my opinion that this is a pragmatic administration.

Realpolitik is back (if indeed it ever left). The results from the G20 "coordination" meetings will be telling on this account.

Thus this article is corroborative evidence for the above thoughts:
Medvedev faces hard sell in Latin America
By Simon Romero, Michael Schwirtz and Alexei Barrionuevo
Friday, November 21, 2008

When President Dmitri Medvedev planned his forthcoming trip through Latin America, Russia seemed poised to present one of the most visible challenges in years to U.S. influence in the region.

With oil prices high, Russia was flush with cash and planning a range of measures, from helping Venezuela build a nuclear reactor to strengthening military ties with Cuba, a Cold War ally of the Soviet Union.

But when Medvedev reaches the region next week, he will find it drastically altered by events - and in some cases, less receptive to his overtures. Plunging oil prices and the global financial crisis, which have hammered Russia particularly hard, have raised questions about Russia's reliability as an economic partner, while Senator Barack Obama's victory in the presidential race has raised hopes throughout Latin America of a new era of improved relations with the United States.

In this rapidly changing landscape, most Latin American countries are recalibrating their political interests, frustrating Russian efforts to deepen regional ties as China did in the last decade.

"Russia's elites, including President Medvedev, look on China's rising diplomatic and economic successes in Latin America and in Africa with envy," said Stephen Kotkin, the director of Russian studies at Princeton University. "They also perceive an opportunity, much exaggerated, to send the U.S. a message in its supposed backyard."

But throughout the region, Medvedev faces a hard sell. In Cuba there are lingering suspicions about Russian intentions, after the Cuban economy collapsed when the Soviet Union withdrew in the 1990s, as well as a reluctance to alienate the incoming Obama administration that might push to end the trade embargo.

Brazil, Latin America's largest country, which also places a high priority on relations with an Obama administration, wants to engage Russia not as a source of weapons or military assistance but as an equal partner.

Thursday, November 20, 2008

Land grab...

Interesting...even more so in light the "Obama doctrine" that I have written about. That Madagascar (off the coast of mainland Africa) was the choice here by S. Korean operators is also important.

Land leased to secure crops for South Korea
By Javier Blas in London
Published: November 18 2008 18:45 | Last updated: November 18 2008 18:45
Daewoo Logistics of South Korea has secured farmland in Madagascar to grow food crops for Seoul, in a deal that diplomats and consultants said was the largest of its kind.

The company said it had leased 1.3m hectares of farmland – about half the size of Belgium – from Madagascar’s government for 99 years. It plans to ship the maize and palm oil harvests back to South Korea. Terms of the deal were not disclosed.

The pursuit of foreign farm investments is a clear sign of how countries are seeking food security following this year’s crisis – which saw record prices for commodities such as wheat and rice and food riots in countries from Egypt to Haiti.

Prices for agricultural commodities have tumbled by about half from such levels but countries remain concerned about long-term supplies.

The United Nations’ Food and Agriculture Organisation warned this year that the race by some countries to secure farmland overseas risked creating a “neo-colonial” system. Those fears could be increased by the fact that Daewoo’s farm in Madagascar represents about half the African country’s arable land, according to estimates by the US government.

Tuesday, November 18, 2008

More evidence...

...for conclusions listed in previous posts.

Russia to raise import duties
By Alan Beattie in London

Published: November 17 2008 18:14 | Last updated: November 17 2008 18:14

Russia said on Monday that it would push ahead with sharp rises in import duties in the near future in spite of signing the Group of 20 communiqué that promised not to introduce protectionist measures for a year.

Dmitry Pankin, deputy finance minister, said Moscow would increase tariffs on imported cars, a move that had already been planned to protect Russian car producers. Russia has also announced a general review of trade agreements, including commitments made as part of its application to join the World Trade Organisation. The review may result in duties being increased and import quotas for sensitive products being cut.

Nov. 18 (Bloomberg) -- Brazil and Argentina agreed to raise import
taxes on various products from outside the Mercosur trading bloc, O
Globo said.

A proposal for raising the tariffs was adopted at a bilateral trade
commission meeting in Buenos Aires and should be formally approved at
a Mercosur meeting in December, according to O Globo, which didn't say
where it got the information.

The higher taxes will be applied to imports of products including
wine, peaches, canned foods, textiles, pasta and wooden furniture, the

...and Devil take the hindmost.

Countries racing to devalue/bail-out/fiscal stimulus will have competitive advantage against those who are more lethargic or otherwise reluctant to do so. Yet more evidence to be skeptical of any coordination attempt amongst the G20 nations and particularly export dependent emerging and frontier markets.

Singapore May Weaken Currency in Recession, UBS Says (Update1)

By Patricia Lui
Nov. 18 (Bloomberg) -- Singapore, facing a slump in exports
amid a recession, may change its exchange-rate policy to favor a
weakening currency in April or sooner, according to UBS AG.
The Monetary Authority of Singapore, after ending its
policy of encouraging gains in the local dollar last month, may
be open to depreciation to help revive the $161 billion economy,
wrote Ashley Davies and Nizam Idris, currency strategists at the
world's second-biggest foreign-exchange trader. The U.S. Federal
Reserve, the Bank of Japan, the Bank of England and the European
Central Bank have all cut interest rates to combat recessions.
``Following the aggressive policy moves elsewhere, it now
seems unobjectionable for Singapore to ease monetary policy via
a weaker currency,'' Davies and Nizam wrote in a research report
yesterday. ``While our base case is for a change in policy at
the next meeting in April, it could happen earlier should
pressure on reserves mount.''
Singapore's dollar traded at S$1.5243 to the U.S. dollar as
of 9:08 a.m. local time, according to data compiled by Bloomberg.
It earlier touched S$1.5283, the lowest level since September
2007. The currency has declined 7.3 percent in the past three

Monday, November 17, 2008

Perverse Incentives...

and unintended consequences...companies taking shareholder capital to appear more sympathetic when they kiss the ring of the Treasury.

Lincoln, Aegon May Buy S&Ls With `Unsafe' Practices to Get Aid

By Andrew Frye and Linda Shen
Nov. 17 (Bloomberg) -- Four of the world's biggest insurers may acquire small banks that regulators have cited for improper practices to improve their own chances of getting cash from the $700 billion U.S. government bailout fund.
Lincoln National Corp. and Aegon NV, owner of Transamerica Corp., may buy savings and loan companies in Indiana and Maryland whose methods were found to be ``unsafe and unsound'' by the Office of Thrift Supervision. Hartford Financial Services Group Inc. is acquiring a Florida lender that was told by the OTS in May to curb lending. Genworth Financial Inc.'s target got a ``cease-and-desist'' order tied to potentially fraudulent loans.
Purchasing thrifts may allow insurers to qualify as savings- and-loan companies and tap the Treasury's Troubled Asset Relief Program. Hartford's $10 million acquisition of Sanford, Florida- based Federal Trust Corp. may entitle it to $3.4 billion of U.S. capital. Lincoln National in Philadelphia may win access to $3 billion by taking over Newton County Loan & Savings, which has three full-time employees and $7.3 million of assets.
``It's perverse,'' said Jason Arnold, a San Francisco-based analyst at RBC Capital Markets. ``Almost anyone can buy a thrift. At a certain point, regulators will have to put a stop to it.''

Congressional approval and monetary authority

I have written about the Fed's swap line transactions with several foreign banks. The total now exceeds $600 Billion. Again, these swap lines are collateralized by foreign currency. That the massive amounts involved are not subject to Congressional oversight and approval is a travesty and something I am investigating at the moment.

I can only recite the words of James Buchanan at this point in the discussion...

"...This framework role for government also was considered to include the establishment of a monetary standard, and in such fashion as to insure predictability in the value of the designated monetary unit. It is in the monetary responsibility that almost all constitutions have failed, even those that were allegedly motivated originally by classical liberal precepts. Governments, throughout history, have almost always moved beyond constitutionally authorized limits of their monetary authority."

Friday, November 14, 2008

Contagious nationalism

There are some very important risks going forward with regards to the Governments "expanded" role in the private sector. The realization that a team of central planners cannot hope to allocate scare resources efficiently, be they high priest of the FED or otherwise, has been totally lost. The Government must appear to be doing something...there will be plenty of parties to blame and have justice department/attorney general/FBI/SEC, etc. pursue and prosecute once their prescriptions fail.

So, here is a brief list of the "meta" (whatever that means) risks involved:

1. Informational risks - this broad category encapsulates risks involving inefficient transfer of information (which, dear reader, is the reason detre' of prices) which will cause mis-allocation of resources.

2. Expansion of executable authority by Governmental powers. This category includes nationalization of pension funds, both public and private, individual retirement funds, here-to-fore tax free investment accounts, etc. This is extremely dangerous for any republic (see Argentina). This of course need not be so as Government can spend what it wishes without regard to revenue constraints. A large fiscal package is the only remedy that has a chance of working.

3. Emphasis on populist notions of "class warfare" and "protectionism". This list of governments who have resorted to these out-dated notions is not an enviable one.

4. Global competition. I am deeply skeptical of the "cooperation" that G20 powers and have pledged to each other and their corresponding constituents. The volatility will create opportunities for countries to break with the system (either overtly, or more likely than not covertly). Paraphrasing one of my professors (warning, pompous reference ahead) at "Chicago Booth": "if the benefit of cooperation is less than the cost of cooperation, cooperation will be avoided". Countries will break ranks to attract capital.

It is clear the Fed and the Treasury are severely "challenged" by the credit crisis, as the soup-line of institutions lining up for TARP funds grows daily.

Wednesday, November 12, 2008

Government doing what it does best...

...creating more volatility, causing participants to scurry about moving resources in a flurry of activity.

In this case, its the Treasury department and Mr. Paulson. I will repeat: proximity to governmental invervention and regulatory processes is the largest risk factor as well as largest assets companies have. The U.S. government has ensconced themself as by far the most important player in the development of the financial world going forward. The most important, most competitive market in the world right now is access to U.S. officials.

Paulson says troubled assets will not be purchased
Wednesday November 12, 12:40 pm ET
By Martin Crutsinger, AP Economics Writer
Paulson: bailout program won't purchase troubled assets; focus remains on financial markets

WASHINGTON (AP) -- The government has abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets.
Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.

Paulson said 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.

"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

On the issue of using the $700 billion bailout package to provide help to ailing auto companies, Paulson said the administration preferred an approach that would accelerate support to that industry from other legislation Congress passed this fall.


"Decoupling" as some sort of meta concept that would magically allow governments and economies to escape the credit crisis and related fallout was doomed from the beginning. This was a concept promulgated by the same consultants who put so many pension funds into long-only commodities indexes with the predictable results.

Merrill chief sees severe global slowdown
By Greg Farrell in New York

Published: November 11 2008 14:42 | Last updated: November 11 2008 20:06

The global economy is entering a slowdown of epic prop­ortions
comparable with the period after the 1929 crash, John Thain, chairman
and chief executive of Merrill Lynch, warned on Tuesday.

Speaking at the company's annual banking and financial services
conference, Mr Thain said while he was cautiously optimistic about the
future of the financial services industry, he lacked optimism about
the near-term prospects of the US economy and global markets.

"Right now, the US economy is contracting very rapidly. We are looking
at a per­iod of global slowdown," he told investors. "This is not like
1987 or 1998 or 2001. The contraction going on is bigger than that. We
will in fact look back to the 1929 period to see the kind of slow­down
we're seeing now."

Mr Thain also said the economic problems afflicting the US, where
housing prices and other asset values were falling, would wreak havoc
across the world.

"There is no such thing as decoupling," he said, referring to the
popular theory that emerging markets could sustain reasonable growth
even while the world's leading economies suffered recessions. "All
equity markets are linked. Each individual economy will be more or
less affected, depending on reliance on global trade and commerce."

Monday, November 10, 2008

The magnanimity...

...of the paper dragon once again "surprises" us.

In an export-driven economy that benefits from currency depreciation, this was certainly not motivated by a desire to help the rest of the world.

Another round of competitive devaluations. This will be fun.

By Joe Mcdonald, AP Business Writer
China's premier says stimulus package `biggest contribution' to world; Asian stocks rise

BEIJING (AP) -- China's massive stimulus package will help contribute to global stability by boosting investment in the world's fourth-largest economy and consumer spending, the nation's top economic official said Monday.
Faced with the prospect of zero export growth, closing factories and mass layoffs, China joined moves by governments around the world to cushion the blow of the global slowdown with the announcement of the $586 billion package.

Stock markets in Japan, Hong Kong and mainland China soared in response.

The plan calls for higher spending on roads, airports and other infrastructure, tax deductions for exporters and more aid to the poor and farmers. Spending on health and education will increase, as well as on environmental protection and high technology.

"We must implement the measures to ensure a fast and stable economic development," Premier Wen Jiabao said at a meeting of government leaders, according to a report read out on the state television. "They are not only the needs of the development of ourselves, but also our biggest contribution to the world."

The announcement comes before Preisdent Hu Jintao attends a meeting this week in Washington of world leaders to discuss a response to the global crisis.

Exporters say orders have fallen sharply, leading to an increase in factory closures and layoffs. Chinese economic growth fell to 9 percent in the latest quarter, its lowest level in five years, and analysts expect export growth to fall as low as zero in coming months as global demand weakens.

Parallels and historical lessons.

Due to recent events, there has been an explosion of interest in incentive structures and management oversight (or the lack thereof). The parallels to recent events are obvious. I tend to pay attention to studies investigating policy, incentives, and subsequent outcomes in similar institutional and political environments. Humans are guided by incentives and disciplined by constraints. "Business cycles" are a misnomer - they are human behavior cycles.

Thus, this paper is making the rounds...

Looting: The Economic Underworld of Bankruptcy for Profit

George A. Akerlof
University of California, Berkeley; National Bureau of Economic Research (NBER)

Paul M. Romer
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

April 1994

NBER Working Paper No. R1869

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust.

In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds.

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

Sunday, November 09, 2008

The Academic vs. The Salesman...

If only we were privy to the full transcripts of their conversations.

By Jon Hilsenrath, Deborah Solomon and Damian Paletta

WASHINGTON -- Federal Reserve Chairman Ben Bernanke reached the end of his
rope on Wednesday afternoon, Sept. 17. Lehman Brothers Holdings Inc. had
collapsed. American International Group Inc. had been effectively nationalized
with $85 billion of Fed money. Investors were stampeding out of money-market
mutual funds. Credit markets were reeling, stocks were wobbling and bank
failures loomed.

Mr. Bernanke called Treasury Secretary Henry Paulson. The Fed chairman, a
Princeton academic with an occasional quaver in his voice, leaned toward the
speakerphone on his office coffee table and spoke unusually bluntly to Mr.
Paulson, a strong-willed former college football player and Wall Street

The Fed had been stretched to its limits and couldn't do it any more, Mr.
Bernanke said. Although Mr. Paulson had been resisting such a move for months,
Mr. Bernanke said it was time for the Treasury secretary to go to Congress to
seek funds and authority for a broader rescue. Mr. Paulson didn't commit, but
by the next morning, he had.

In public, Messrs. Bernanke and Paulson marched in lock step. Behind the
scenes, the two men and their lieutenants sometimes tussled -- over the fate of
Lehman Brothers, how to handle Congress and the limits of the Fed's authority.

At times, each man felt handcuffed by legal limits on his own power, and
consequently pushed the other to move more aggressively. Their differences
helped define the government's approach to the crisis.

The debates helped shape an ad hoc strategy that at times sowed confusion
about Washington's approach, and sparked criticism of the nation's two top
economic physicians at a time when restoring confidence was a top priority.

Thursday, November 06, 2008

Rate Compression

See posts of 2 May and 25 September, and 6 October on this blog for more information. The coordination is interesting as well...increased economic chaos makes for strange bedfellows. Some pundit types are claiming this type of intervention is "without precedent", which is of course foolish.

Examples of economic coordination can be found from the city-states of Greece to colonial Europe.

BOE Leads European Central Banks in Rate Cuts as Economies Slow

By John Fraher

Nov. 6 (Bloomberg) -- The Bank of England led European central banks in reducing borrowing costs to counter the worst financial crisis in almost a century, cutting its key rate by 1.5 percentage points to the lowest level since 1955.

The U.K. central bank reduced its key rate by the most since 1992, taking it to 3 percent. The European Central Bank lowered its benchmark by 50 basis points to 3.25 percent and Swiss policy makers cut their main lending rate by the same margin to 2 percent after an unscheduled meeting.

``It's absolutely staggering and deeply impressive,'' said Brian Hilliard, director of economic research at Societe Generale in London. ``They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.''

Wednesday, November 05, 2008

Shot across the bow

Russia trying to guage the reaction of the new administration-elect, while simultaneously determining the qualities of its own allies. This is a time where Russia will be most distrustful of its competitors and its friends.

MOSCOW — In a wide-ranging attack on the United States as it elected a new president, the Russian leader Dmitri A. Medvedev warned on Wednesday that Moscow might deploy short-range missiles in the Baltic enclave of Kaliningrad to counter a perceived threat from a proposed American missile defense shield in eastern Europe.
His remarks, in his first state of the nation address since assuming the presidency in May, coincided with the election of Barack Obama and offered a chill glimpse into the potential issues and tensions confronting the new American leader when he takes office in January.
Mr. Medvedev did not specifically congratulate Mr. Obama on his victory, saying only that he hoped that “our partners — the new U.S. administration — will make a choice in favor of full-fledged relationship with Russia.”
At the same time, however, he spoke of a “new configuration for the military forces of our country” that would include abandoning plans to dismantle some missile regiments.

Monday, November 03, 2008

How will they attempt to form popular opinion?

In times like these, with a communist power (and holder of the world's largest population) experiencing an economic crisis, it helps to understand what their "playbook" may look like in these situations.
"Propaganda" by Jacques Ellul is one of the best books on the subject of fooling the populace, and the following quotation is important today:

"...The more complex, general, and accelerated political and economic phenomenae become, the more do indivduals feel concerned, the more do they want to get involved. In a certain sense this is democracy's gain, but it also leads to more propaganda. And the individual does not want information, only value judgements and preconceived positions...he feels his weakness, his iconsistency, his lack of effectiveness. He realizes that he depends on decisions over which he has no control, and that realization drives him to despair. Man cannot stay in this situation too long. He needs an ideological veil to cover the harsh reality, some consolation. A raison d' etre, a sense of values. And only propaganda offers him a rememdy for a basically intolerable situation."

The answer that the Paper Dragon will provide for its citizens for the current malaise is "its America's fault...the transition from our system to a more open one is a faustian bargain"

Of course, we here in America have been (warning: mixed metaphors coming up) "bombarded" with "massive waves" of "unrelenting" propaganda. Our political "leadership" is listless and unaware of the basic human condition that caused this.

Human beings extrapolate their present condition (be it in plenty or in want) to infinity. Plentiful times cause greed when fear and prudence is justified, and scarce times cause fear when greed and risk-taking is the rule of the day.

The price of citizenship...

...has gone higher.

When there are no viable alternatives (where are you going to move if you are dissatisfied with your present citizenship given the world's economic conditions?), it is natural for monopoly providers to squeeze their customers. Governmental security (law and order) services are no different as it hold monopoly power over violence and imprisonment.

We expect the price to increase given a Democratic victory.

By David S. Hilzenrath
Washington Post Staff Writer
Saturday, November 1, 2008; D01

At the Beverly Hills office of criminal defense lawyer Edward M. Robbins Jr., anxious new clients are showing up with an unexpected problem.
The clients put money in Swiss bank accounts, where it was supposed to stay secret. But now those depositors fear the U.S. Internal Revenue Service and the Justice Department will gain access to their bank records, Robbins said.
"They're coming in from the cold. They're nervous," Robbins said.
And with good reason, the former federal prosecutor said. A lawyer who specializes in tax cases, Robbins thinks the government is gearing up to prosecute large numbers of Americans for failing to disclose foreign accounts on their tax returns and evading taxes on income generated by the accounts.
"If I were one of these guys with 10 to 50 million in my account, I'd be having an aneurysm," Robbins said. "It's an extremely dangerous situation for these guys."
The legendary secrecy of Swiss banks has come under fresh assault lately from U.S. and European authorities who say their citizens have used the privacy to hide assets and dodge taxes.