iCount

ataxingmatter Linda Beale makes a statement:

The International Banking Association wants more tax goodies from Uncle Sam--for branches of foreign banks. The idea seems to be that anything that has been done for domestic banks ought to be available to them too--even when it is Treasury's decision not to enforce a clear statement of Congress in section 382 against domestic banks that acquire loser banks. They insist that Treasury shouldn't enforce the law in regards to foreign banks, either, so that they can save even more in their tax payments to the US.



The House already has a bill out to undo (though only prospectively) the Treasury override of Congressional law, sponsored by Lloyd Doggett, the nemesis of the corporate anti-tax lobbying group because of his dogged (no pun intended) support of a bill to codify the economic substance act. See this release. Senator Bernie Sanders' bill would apply retroactively, possibly affecting some of the deals done to garner the benefit, like Wells Fargo's takeover of Wachovia or PNC's of another loser bank. See, e.g., Lawmakers Try to End Tax Break on Bank Mergers, DealBook, Nov. 24, 2008.



I think the Notice should be made retroactively null and void, as in Sanders' bill (rather than Doggett's). But of course all the corporate lobbyists will holler that the world will come tumbling down if these deals aren't allowed to garner the tax benefits that they expected because of Treasury's invalid notice. Congress should ignore that. Corporate lobbyists are paid to whine and cry about the awful things that will happen to their patrons if Congress acts responsibly. Congress, on the other hand, is paid to act responsibly. And, if fact, these deals won't necessarily fall through without the section 382 tax break--Wells Fargo even claims in public documents that the tax breaks were of little consequence in its decision. See Another Bank Deal Uses Treasury's Tax Break, DealBook, Dec. 4, 2008.



The longer Congress waits to act, the more deals there will be, and the more the lobbyists will whine about "deal expectations" and dire consequences. The DealBook piece above indicates a deal between Capitol One and Chevy Chase Bank, where the TARP assets to which Capita One will gain access exceed the cash it will spend to get the bank, and then there are the tax losses--with the 2008-83 tax break--thrown in as a special extra sweetener. Nutto. Treasury's TARP program is basically serving the same greedy interests that speculated us into the mess we're in, and not doing much at all for ordinary taxpayers.



Whether or not the House and Senate act soon to undo the damage Treasury did with Notice 2008-83, Treasury should not take its action one step further. There is no reason at all to legitimize telling foreign banks that they too can disregard the law. At that rate, Treasury might as well decide to "enact" whatever tax policy it wants, whether Congress has done so or not. How about a freeze on all corporate taxes, since the Bush Administration professes to believe that such tax cuts are a good antidote to any ill. Or a zero percent tax on all capital gains (not just the first $32,550 for those who have no other income, which is scandalous enough in itself), since most of the Bush administration professes to believe that zero taxation on capital income would be good for the economy. If Treasury can simply decide not to enforce any particular law against any particular taxpayer, we are no longer a democracy governed by the rule of law. This is the same point that many have been making throughout this administration about the White House preference for "signing statements"--there represent a similar statement of executive intransigence and intention not to comply with the constitutional role of executing the laws enacted by Congress.

(bolding mine)

by rdan (noreply@blogger.com) on December 05, 2008 10:00 AM

by cactus



The Smartest Morons in the Room



Back when Enron imploded, I was wondering to myself about the motivation of some of the players. I can understand the greed and fraud, and the looking aside when fraud was being perpetrated. I like to believe that I would never get caught up in that, but I've never been placed in the situation some of these folks were in, namely where a little fraud could result in humongous rewards. (I've also been fortunate enough never to be placed in the reverse situation, where giving in to fraud was necessary for survival.) There's something to be said about that line in that old Catholic prayer, the Our Father: "lead me not into temptation."



So while I don't condone the behavior of the players perpetrators at Enron, I am at least able to understand it. But the stupidity is harder to fathom. Consider a guy like Andy Fastow, the CFO. Here was a dude who was, by all accounts, a smart guy, and he was at least as informed as anyone in the company about what was going on. Put another way - he should have been the first person to spot it when Enron's situation became untenable and its demise became unavoidable. That point would have given ample time to transfer some serious moolah out of the reach of the law (criminal or civil), not to mention himself and his family. He could easily be living the good life in some beautiful beach town far away right now, rather than being inmate #14343-179 at Oakdale Federal Detention Center in Louisiana. And if he had made his move early enough, he might even pulled this off.



Lately, I've been thinking of Enron again. See, there were some reputedly very smart people who engaged in some very shady business that was not sustainable and they had the information to know it was not sustainable... and they stuck around too long, finding themselves still at the party when the when the roof caved in. Sure, not everyone involved had access to enough information to know things couldn't last, but many, many of them did. And sure, the story isn't ending the Enron way - courtesy of our illustrious President, our esteemed future President, the honorable dude who was hoping to be our esteemed future President, and a whole host of other worthies in Washington, now we're all being looted in a desperate effort to keep these folks comfortable. But let's be realistic - this last batch of nation-wide theft could never have been anticipated by the folks at Goldman, Welfare, Queen, & Sachs and is merely, for them, a fortuitous accident. But the ending is nowhere near as happy for the Welfare Queen class as it would have been had they simply walked away a couple years ago, as for instance this fine fellow did, albeit inadvertently.



So what's going on? Does greed blind people? Are these folks really the imbeciles they appear to be in hindsight? To be honest, I'm starting to think folks like Fastow and Paulson really have little actual intelligence at all. They may have benefited from connections, and they may know some arcane subject pretty well, but clearly they cannot see how things connect to each other. And its a real shame that people like that are often those that get elevated to a point where they can do some serious damage. And the fact that this sort of thing keeps happening makes me wonder about the rest of us - me included - who tolerate living in a world where buffoons run the show. Perhaps those morons really are the smartest guys in the room.

____________________________________

by cactus

by rdan (noreply@blogger.com) on December 05, 2008 10:00 AM

rdan





The NYT describes the beginning role of the committee and chairman Elizabeth Warren to follow the money, in addition to GAO report.

...“You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.”



If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said...

...



Like much of the public, lawmakers “have just been stunned by these economic and financial developments,” she said. “There wasn’t time even to develop a coherent list of questions to ask Treasury about what it’s doing and what it plans to do — and whether either of those are likely to address what’s going wrong.”



She added: “Our role is to make sure that the right questions are asked as early as possible.”



In that spirit, she promised that Congress would get the panel’s first report on Dec. 10, “laying out the central questions that Treasury should be addressing as it spends the taxpayers’ money.”



Meetings with Treasury officials so far have made her question whether they understand that “household financial health is profoundly tied to the economic health of the nation,” she said. “You cannot repair this economy if you can’t repair those families, and I’m not sure the people directing the bailout see that as their job.”

In her view, the government should be trying to create more reliable customers for those banks by shoring up the fragile finances of the millions of American families that could not save, borrow or spend even if their banks were flush with capital.



“Any effective policy has to start with the households,” she said. “Years of flat wages, low savings and high debt have left America’s households extremely vulnerable.”



Ms. Warren, on the law faculty at Harvard since 1995, has written extensively and testified frequently before Congress on consumer credit laws and personal bankruptcy reform. She has been a member of several government advisory panels addressing consumer finance issues, and is the co-author of “The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke” (Basic Books, 2003).



Ms. Warren will also be responsible for getting the panel up and running quickly and steering it around the two other monitors put in place by the legislation, the Government Accountability Office, whose first report on the bailout is due Tuesday, and a special inspector general who is not yet on the job. (Neil M. Barofsky, a veteran federal prosecutor in Manhattan, has been nominated by the White House but is still awaiting Senate confirmation.)



The specific bailout investments, transactions and employment decisions need to be monitored closely to make sure they are appropriate and ethical, she said. “But we need to draw a distinction between policy oversight and procedural oversight,” she added. “I see our role as lying more in the policy realm, so I don’t think we duplicate those efforts.”



The panel is also required by law to provide Congress with recommendations for reforms to the financial regulatory structure, a report that she said it would deliver by Jan. 20.



Despite Ms. Warren’s ambitious timetable, the new Congressional panel is having a bumpy start.



Created with the law’s passage on Oct. 3, it existed only in theory until Nov. 14, when its first three members were appointed by the Democratic leadership in Congress. Besides Ms. Warren, they are Damon Silvers, an associate general counsel of the AFL-CIO and the panel’s new deputy chairman, and Richard H. Neiman, the state superintendent of banks for New York.

by rdan (noreply@blogger.com) on December 05, 2008 05:37 AM

rdan

SEC. 125. CONGRESSIONAL OVERSIGHT PANEL.

(a) ESTABLISHMENT.—There is hereby established the Congressional

Oversight Panel (hereafter in this section referred to as

the ‘‘Oversight Panel’’) as an establishment in the legislative branch.

(b) DUTIES.—The Oversight Panel shall review the current state

of the financial markets and the regulatory system and submit

the following reports to Congress:

(1) REGULAR REPORTS.—

(A) IN GENERAL.—Regular reports of the Oversight

Panel shall include the following:

(i) The use by the Secretary of authority under

this Act, including with respect to the use of contracting

authority and administration of the program.

(ii) The impact of purchases made under the Act

on the financial markets and financial institutions.

(iii) The extent to which the information made

available on transactions under the program has

contributed to market transparency.

(iv) The effectiveness of foreclosure mitigation

efforts, and the effectiveness of the program from the

standpoint of minimizing long-term costs to the taxpayers

and maximizing the benefits for taxpayers.

(B) TIMING.—The reports required under this paragraph

shall be submitted not later than 30 days after

H. R. 1424—28

the first exercise by the Secretary of the authority under

section 101(a) or 102, and every 30 days thereafter.

(2) SPECIAL REPORT ON REGULATORY REFORM.—The Oversight

Panel shall submit a special report on regulatory reform

not later than January 20, 2009, analyzing the current state

of the regulatory system and its effectiveness at overseeing

the participants in the financial system and protecting consumers,

and providing recommendations for improvement,

including recommendations regarding whether any participants

in the financial markets that are currently outside the regulatory

system should become subject to the regulatory system,

the rationale underlying such recommendation, and whether

there are any gaps in existing consumer protections.

(c) MEMBERSHIP.—

(1) IN GENERAL.—The Oversight Panel shall consist of 5

members, as follows:

(A) 1 member appointed by the Speaker of the House

of Representatives.

(B) 1 member appointed by the minority leader of

the House of Representatives.

(C) 1 member appointed by the majority leader of

the Senate.

(D) 1 member appointed by the minority leader of

the Senate.

(E) 1 member appointed by the Speaker of the House

of Representatives and the majority leader of the Senate,

after consultation with the minority leader of the Senate

and the minority leader of the House of Representatives.

(2) PAY.—Each member of the Oversight Panel shall each

be paid at a rate equal to the daily equivalent of the annual

rate of basic pay for level I of the Executive Schedule for

each day (including travel time) during which such member

is engaged in the actual performance of duties vested in the

Commission.

(3) PROHIBITION OF COMPENSATION OF FEDERAL

EMPLOYEES.—Members of the Oversight Panel who are fulltime

officers or employees of the United States or Members

of Congress may not receive additional pay, allowances, or

benefits by reason of their service on the Oversight Panel.

(4) TRAVEL EXPENSES.—Each member shall receive travel

expenses, including per diem in lieu of subsistence, in accordance

with applicable provisions under subchapter I of chapter

57 of title 5, United States Code.

(5) QUORUM.—Four members of the Oversight Panel shall

constitute a quorum but a lesser number may hold hearings.

(6) VACANCIES.—A vacancy on the Oversight Panel shall

be filled in the manner in which the original appointment

was made.

(7) MEETINGS.—The Oversight Panel shall meet at the

call of the Chairperson or a majority of its members.

(d) STAFF.—

(1) IN GENERAL.—The Oversight Panel may appoint and

fix the pay of any personnel as the Commission considers

appropriate.

(2) EXPERTS AND CONSULTANTS.—The Oversight Panel may

procure temporary and intermittent services under section

3109(b) of title 5, United States Code.

H. R. 1424—29

(3) STAFF OF AGENCIES.—Upon request of the Oversight

Panel, the head of any Federal department or agency may

detail, on a reimbursable basis, any of the personnel of that

department or agency to the Oversight Panel to assist it in

carrying out its duties under this Act.

(e) POWERS.—

(1) HEARINGS AND SESSIONS.—The Oversight Panel may,

for the purpose of carrying out this section, hold hearings,

sit and act at times and places, take testimony, and receive

evidence as the Panel considers appropriate and may administer

oaths or affirmations to witnesses appearing before it.

(2) POWERS OF MEMBERS AND AGENTS.—Any member or

agent of the Oversight Panel may, if authorized by the Oversight

Panel, take any action which the Oversight Panel is

authorized to take by this section.

(3) OBTAINING OFFICIAL DATA.—The Oversight Panel may

secure directly from any department or agency of the United

States information necessary to enable it to carry out this

section. Upon request of the Chairperson of the Oversight

Panel, the head of that department or agency shall furnish

that information to the Oversight Panel.

(4) REPORTS.—The Oversight Panel shall receive and consider

all reports required to be submitted to the Oversight

Panel under this Act.

(f) TERMINATION.—The Oversight Panel shall terminate 6

months after the termination date specified in section 120.

(g) FUNDING FOR EXPENSES.—

(1) AUTHORIZATION OF APPROPRIATIONS.—There is authorized

to be appropriated to the Oversight Panel such sums

as may be necessary for any fiscal year, half of which shall

be derived from the applicable account of the House of Representatives,

and half of which shall be derived from the contingent

fund of the Senate.

(2) REIMBURSEMENT OF AMOUNTS.—An amount equal to

the expenses of the Oversight Panel shall be promptly transferred

by the Secretary, from time to time upon the presentment

of a statement of such expenses by the Chairperson of the

Oversight Panel, from funds made available to the Secretary

under this Act to the applicable fund of the House of Representatives

and the contingent fund of the Senate, as appropriate,

as reimbursement for amounts expended from such account

and fund under paragraph (1).

SEC. 126. FDIC AUTHORITY.

by rdan (noreply@blogger.com) on December 05, 2008 05:29 AM

by cactus



Passing on Corporate Taxes to Consumers and the Bail-Out



There seems to be relatively irrational belief among many conservatives that corporate taxes are simply passed on to consumers in the form of higher prices. It leaves out the obvious - if companies felt they could simply raise prices, they'd do it whether there were taxes or not. After all, why leave money on the table? Conversely, if they feel the consumer is already paying as much as the consumer is willing to bear, they'll be very careful about passing on any increases in their own costs, and if there are any new costs (including taxes) they'll probably absorb the bulk of them. Put another way - he who is desperate pays, and he who is more desperate pays more. If the seller's supply curve is more inelastic than the buyer's demand curve, the seller will absorb more of the taxes - even taxes on the buyer. If the buyer's demand curve is more inelastic, the buyer will absorb of taxes, including corporate taxes.



Not that logic or empirical observation means much to the folks who believe this particular irrational belief. If they did, the belief wouldn't be irrational, after all. But it does raise a question - given recent events, how come we aren't seeing anyone arguing the flip side of the coin, namely that a subsidy (i.e., a negative tax) on corporations will be passed on to consumers? Shouldn't one of the proponents of the notion that "corporate taxes should be eliminated because they're paid for by consumers anyway" be telling us that by dumping untold trillions of dollars into assorted corporations, all of us who are unconnected with those corporations are going to collectively see our incomes increase by that amount? What am I missing?

______________________________________

by cactus

by rdan (noreply@blogger.com) on December 04, 2008 10:06 AM

Another health story by the Boston Globe gives new meaning to the term group practice:

When Dr. Gene Lindsey arrived to see his 4 p.m. appointment on a recent Thursday, his nine patients already were seated on folding chairs arranged in a semicircle around a table of snacks. Lindsey, a cardiologist, shook each patient's hand, rolled up his sleeves, and, for the next 90 minutes, examined them, one by one.



As he listened to lungs and hearts, he discussed their personal medical details out loud.



Since July, Lindsey has been seeing his Harvard Vanguard Medical Associates patients only in groups, formally called shared medical appointments. It's part of an ambitious plan by Harvard Vanguard to ease physician shortages, and reduce patient and doctor dissatisfaction over constantly feeling rushed during appointments.



Many patients, it turns out, are willing to sacrifice privacy and modesty for improved access to doctors. Patients willing to see their doctor in a group visit generally can get appointments far sooner. And many pa tients have similar problems and questions, and can learn from one another in the group visits. If a particular examination requires that a patient disrobe, the doctor and patient move into a private room for that portion of the checkup.



Doctors don't have to repeat the same information to patients individually throughout the day. And if the groups - offered in many specialties - are full, doctors make out better financially. Many insurers generally pay what they would if the doctor were seeing those patients individually. A doctor normally would see four to six patients in 90 minutes if he or she were seeing them one-on-one.



"It was fabulous," said Nicholas Poly, an 80-year-old retired engineer who saw Lindsey during the Thursday group visit. "I have problems similar to what other people have. I get to hear their questions too, and that's good."



While many patients seem to like group appointments, they are clearly not for everyone.



Walter Kelly, 89, began seeing Lindsey five years ago after he got a pacemaker for his heart murmur. "I was mostly curious," he said. "I am not an intensely private person so I don't mind sharing these sorts of things." But after attending two group visits, Kelly said he would rather see Lindsey individually if that were an option.



Harvard Vanguard found in a survey this year that 77 percent of patients who had attended one said they would do so again, 15 percent said they weren't sure, and 5 percent said they would not schedule another group visit.

This could be useful for patients as well...just be careful.

by rdan (noreply@blogger.com) on December 04, 2008 10:00 AM

hat tip radamisto



NYT notes:

...using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.



So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

by rdan (noreply@blogger.com) on December 04, 2008 10:00 AM

Kevin’s way too nice when he does this feature. Sure, he’ll include the occasional protesty song like Father Christmas, but he never does anything truly tasteless and irreverent, it seems. So on that note, I’d like to submit my song of the day: Weird Al’s The Night Santa Went Crazy:

Down in the workshop all the elves were making toys

For the good Gentile girls and the good Gentile boys

When the boss busted in, nearly scared ‘em half to death

Had a rifle in his hands and cheap whiskey on his breath

From his beard to his boots he was covered with ammo

Like a big fat drunk disgruntled Yuletide Rambo

And he smiled as he said with a twinkle in his eye

“Merry Christmas to all - now you’re all gonna die!”

The night Santa went crazy

The night Saint Nick went insane

Realized he’d been getting the raw deal

Somethin’ finally must’ve snapped in his brain

Well, the workshop is gone now, he decided to bomb it

Everywhere you’ll find pieces of Cupid and Comet

And he tied up his helpers, and he held the elves hostage

And he ground up poor Rudolph into reindeer sausage

He got Dancer and Prancer with an old German Luger

And he slashed up Dasher just like Freddy Krueger

And he picked up a flamethrower and he barbecued Blitzen

And he took a big bite and said “It tastes just like chicken!”

The night Santa went crazy

The night Kris Kringle went nuts

Now, you can’t hardly walk around the North Pole

Without steppin’ in reindeer guts

There’s the National Guard and the FBI

There’s a van from the Eyewitness News

And helicopters circling ’round in the sky

And the bullets are flying the body count’s rising

And everyone’s dying to know -”Oh Santa, why?”

My, my, my, my, my, my - you used to be such a jolly guy.

Yes, Virginia, now Santa’s doing time

In a Federal prison for his infamous crime

Hey little friend now, don’t you cry no more tears

He’ll be out with good behavior in seven hundred more years.

But now Vixen’s in therapy and Donner’s still nervous

And the elves all got jobs working for the postal service

And they say Mrs. Claus she’s on the phone every night

With a lawyer negotiating the movie rights.

(They talk about)

The night Santa went crazy

The night Saint Nicholas flipped

Broke his back for some milk and cookies

Sounds to me like he was tired of getting gypped

Wo, The night Santa went crazy

The night Saint Nick went insane

Realized he’d been gettin’ the raw deal

Somethin’ finally must’ve snapped in his brain

Wo, Somethin’ finally must’ve snapped in his brain

Tell ya, somethin’ finally must’ve snapped in his brain.

by tgirsch on December 04, 2008 05:27 AM

Today’s entry is Rudolph the Red Noses Reindeer. Because when you have kids, you get to watch all the old classics all over again. Besides, for a commercial ditty, it has a nice message about not judging people by their appearances. Though, now that I am watching the show with my entranced tots as I blog, it becomes clear that I had somehow completely forgotten that this thing sucks. No one can sing, no one can say a line without trying to eat the scenery, and that stop-motion animation is giving me seasickness. The Abdominal Snowman is the most subtle performance in the show. Plus, Rudolph’s Dad is a complete dick.

Still, it does have a really good message.

You know Dasher and Dancer, and Prancer and Vixen,

Comet and Cupid, and Donner and Blitzen,

But do you recall, the most famous reindeer of all?

Rudolph the Red-Nosed Reindeer

Had a very shiny nose,

And if you ever saw it,

You could even say it glows.

All of the other reindeer

Used to laugh and call him names;

They never let poor Rudolph

Join in any reindeer games.

Then one foggy Christmas Eve,

Santa came to say:

“Rudolph with your nose so bright,

Won’t you guide my sleigh tonight?”

Then how the reindeer loved him

As they shouted out with glee,

“Rudolph the red-nosed Reindeer,

You’ll go down in history.

by Kevin on December 04, 2008 01:20 AM

It’s a musical Randy Newman Advent Calendar!

Two overly enthusiastic Randy Newman fans have set themselves the task of writing a new Randy-Newman-esque theme song for a different movie that should have, but didn’t have, a theme song by prolific theme-song-writer Randy Newman, every day in December up until Christmas.

They’ve made it a little easier on themselves: each song is only 90 seconds long; they all use the same Randy-Newman-esque tune; and they all have the same chorus, with the appropriate movie name inserted and a quote at the end. So they really only have to write about 3 lines per song. But still . . .

The first wonderful offering is this:

Day 1 - The Godfather by Paul and Storm

Somethin’ bled

Here in the bed -

It’s that producer guy’s horse’s head!

Gang war’s begun,

Michael’s on the run -

Take the cannoli but leave the gun.

James Caan is leakin’

All over the place -

And near the end they shot Moe Greene in the face.

Nobody believed that he could win.

Go, Godfather, go!

You my friend.

Go, Godfather, go!

You got a reason to live.

(It was you, Fredo!)

(One of these guys sounds a lot like Randy Newman!)

There are more - a new one each day. Keep checking!

by KTK on December 04, 2008 01:19 AM

In one of the stupidest wastes of Treasury monies this month—a major accomplishment, though AIG hasn't hit the trough again yet, so there might be hope—the Treasury wants to subsidize new mortgages (link to CR):

Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage giants, which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. [amazement, not to mention emphasis, mine]

This will, of course, address the underlying problem perfectly:

Government officials are under pressure to stem foreclosures, which underpin much of the current financial crisis. Treasury has struggled for months to come up with a plan that would ease the market without appearing to bail out homeowners and lenders.

It's Deborah Solomon, so we expect lies and deception. So let's fix that last sentence:

Treasury has struggled for months to come up with a plan that would ease the market without appearing to bail out homeowners having already provided ridiculous amounts of money to the lenders.

There. Much better.







*Someone please break the news to the Ed Leamers of the world that those are tax dollars that are being used as "monetary policy," which will be just as much of a liability to future generations as his "fear of public goods spending," except that we get a boost to profits when we build public goods. Good thing he's not an economist or...never mind.

by Ken Houghton (noreply@blogger.com) on December 03, 2008 10:59 PM

This is the question raised by Brenda Rosser in a couple of posts at Econospeak Is it true? To which Barkley Rosser (no relation to Brenda and in fact living on the opposite side of the world-it really is an odd and small blogosphere sometimes) replies in part as follows:

Brenda,

The Chinese central bank has been buying lots of US Treasuries to help keep the dollar up and the yuan/rmb down, so that US citizens will continue to buy Chinese exports. It is that simple.

With apologies to Prof. Rosser (a huge ally in the Social Security debate) I suggest that rarely is anything related to such matters 'that simple'.



Not being an expert here I fall back on the only tools I really have. Which is to say official government data sets and a calculater. In this case I am going to start with this table which shows holdings of US Treasuries by month from Sept 2007 to Set 2008 MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES. And after a little examination of the numbers it would appear that the answer to Brenda's question is not in fact 'Well, duh' but instead 'Well lets see if we can make sense of the actual numbers'.



Because as usual everything is simple if you ignore the complexities.



The first thing to note is that while China was indeed the largest foreign single holder of Treasuries in Sept 2008 that is actually something new, for every other month shown Japan actually held more. Nor do the numbers show that China was buying aggressively, in four of the months in the table their net holdings actually dropped. If we would have been having this discussion in July (with data through June) the answer to Brenda's question, at least in relation to China would have been 'Well not really' with Chinese holdings increasing on average $4 bn a month over a nine month period. (Social Security's cash surplus loaned to Treasury over this period would have been about double that and its accumulated balance right at 4X that of China).



Still obviously China is the biggest single current player, after all in the three months from June to September they added $81 billion to their portfolio. On the other hand over that same period 'Carib Banking Centers' added $63 billion to theirs, while the UK (which includes tax sheltering Channel Islands) added $58 bn. Now given banking secrecy laws in these countries it is impossible to know how much of these asset purchases were on behalf of Americans or American based MNCs, but clearly it is a number well north of zero.



If we proceed to look at these numbers in percentage terms China is essentially holding steady, maintaining right at 20% of all such foreign holdings. That is as the U.S. stepped up borrowing they stepped up lending but only in proportion to the new debt being issued. Nor were they getting backstopped by the rest of East Asia: Japan, Hong Kong, Taiwan, Thailand all reduced their holdings modestly, while Korea and Singapore held fairly steady over this period.



If we back up and look at who dramatially stepped up over the course of the year we get some unexpected suspects, particularly is we look at the percentage increases: UK $120 bn to $338 bn, Carib Banking $99 bn to $185 bn, Oil Exporters $137 bn to $182 bn (no surprise there), but then we have Luxembourg going from $58 bn to $91 bn, Russia from $32 bn to $70 bn, and Norway from $22 bn to $52 bn. Now some of this can be explained by oil prices but by no means all, I don't recall that either the Caribbean or Luxembourg as being particularly dotted with oil wells. Nor would they seem to be huge net exporters to the U.S.



It is easy to get mesmerized by the sheer size of China and the fact that just about everything sold at WalMart (and most everywhere else) comes from East or Southeast Asia. But those who would explain everything by pointing to current trade accounts or the Chinese desire to prop up the yuan/rmbi have some explaining to do. Because there is a sea of money flowing to Treasuries (totalling up to more than 80% of the new demand) from outside Asia. And the question of how much of that money ultimately has American fingerprints on it is a good one, after all we know there are huge tax avoidance games going on, and some of that cash will inevitably end up in foreign held Treasuries.

___________________________

While I am at it can we get some overall perspective on the debt? If we visit the Treasury's Debt to the Penny we can see the following totals:

Debt held by the Public $6.4 trillion

Intragovernment holdings $4.2 trillion

Total $10.6 trillion Okay that is a lot of change. On the other hand it includes some $2.3 trillion in Social Security asset/liabilities/Special Treasuries/'phony IOUs' (pick one) that will not start being redeemed until 2023. In some sense our 'real debt' (that which could be dumped on the market tomorrow) is limited to that $6.4 trillion.



Still a lot of change. But to keep an apples to apples approach what was that number on Sept 30th? $5.8 trillion (my Hank P has been busy). How much of that was held by (ostensibly) foreign holders? $2.86 trillion. By China? $585 billion. Or 10% of all debt then held by the public, 5.5% of all total debt.



Frankly the notion widely promulgated over the last few years that the U.S. was hopelessly exposed to some decision by the CCB to dump Treasuries always seemed overblown. And the ability of Treasury to raise even more than that over a two month period ($5.8 trillion to $6.4 trillion since Sept 30th) seems to have proved the point. I am not so naive as to believe that the world will continue to effectively lend money to the U.S. for returns that are effectively negative for unlimited periods of time. But I do suggest that to reduce everything to the Current Trade balance with China and the willingness of the PRC to prop up exports by buying dollars is just that: reductionism that does in fact ignore the complexities, in part by not putting the numbers in context.

by Bruce Webb (noreply@blogger.com) on December 03, 2008 07:16 PM

Daily Reckoning provides this quote on the original week of the frantic search for legislation regarding the bailout:

Take Rep. Brad Sherman (D-California), a bailout critic. During debate over the bailout bill that passed the House Friday, he said of the previous bill that had failed, "Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop 2000-3000 points the first day, another couple thousand the second day, and a few members were even told that there would be martial law in America if we voted no."



Is Sherman engaging in hyperbole here? I daresay that's not the point. The mere possibility he's not engaging in hyperbole should send a chill down our spines.

Remember this note on Martial law and the last part of the national security update stating "..and other conditions." Has this little bit been changed?

by rdan (noreply@blogger.com) on December 03, 2008 11:00 AM

The Boston Globe has uncovered data showing that the amount insurance companies reimburse hospitals in Massachusetts can vary dramatically from hospital to hospital.

Private insurance data obtained by the Globe's Spotlight Team show that the Brigham [& Women's Hospital], Mass[achsetts] General, Children's Hospital[, all in Boston,] and a few others are, on average, paid about 15 percent to 60 percent more than their rivals by insurance companies such as Blue Cross Blue Shield of Massachusetts and Harvard Pilgrim Health Care. The gap is even more striking for many individual procedures, which can be two or three times more expensive in one hospital than in another.



A driving (but not the only) force behind this, the Globe reports, is Partners Health Care, originally formed as an alliance between Brigham and Mass General - both among the nation's top 10 hospitals according the US News & World Report's annual listing - to combat what the founders saw as the stinginess of insurance companies. Their prominence allowed them to tell the insurance companies, in effect, "pay us what we say or else" - the "or else" being that if a company balked, the hospitals would refuse to accept their insurance, which could cost the company thousands of subscribers panicking at the thought of being denied access to those top-drawer facilities. One company that tried to resist - Tufts Health Plan - caved within days.



The result is that Partners Health Care hospitals, overall and on average, get paid 30% more for the same services as non-affiliated hospitals.



It's important to note that these differences in no way correlate with quality of care and they persist even in cases not only of identical procedures using identical equipment but treatment by identical physicians - the only difference being what hospital their patient is in. In fact, sometimes the correlation is negative:



Massachusetts General Hospital, for example, earns 15 percent more than Beth Israel Deaconess Medical Center for treating heart-failure patients even though government figures show that Beth Israel has for years reported lower patient death rates.



Simply put, price does not equal quality. What it does equal is profit: Partners has netted $1.7 billion over the past few years.



Ultimately, this has done two things: shift the center of power in the health care industry in Massachusetts somewhat from the insurance companies toward the hospitals and drive up the cost of health insurance in the state. What it decidedly has not done is improve the quality of health care.



Nor has it improved access to health care; indeed, it may well have damaged it: Massachusetts requires that everyone in the state have health insurance and offers subsidized insurance to those who can't otherwise afford it. Rising premiums in the private market means more people who can't afford the cost, throwing them back on the state system, raising its cost and inhibiting the goal of universal coverage.

by rdan (noreply@blogger.com) on December 03, 2008 10:18 AM

by cactus



Revisiting an Early Look at the Recession



Now that the recession is officially here, I'd like to revisit a post I wrote in March entitled How is This Recession Not Like Other Recessions?.



In it, I note the following:

So in terms of politics... what we see is that the Fed is much more likely to cut real M1 by a lot when there's a Dem in office, and the economy has been much, much more likely to make it through such a cut in real M1 without suffering a recession when a Dem is in office. The end result, of course, is that the percentage of time that the economy is in recession when the President is a Republican is much higher than the percentage of time that the economy is in recession when the President is a Democrat.



Now, back to the current mess... since every single one of the seven previous recessions for which we can compute real M1 using data on the Fed's website was preceded by a cut of 3.5% or more in the three month real M1, the natural question is.... is that true this time too? As with many things involving GW, the answer is... No. If there's one recession that wasn't at last partly triggered by the Fed, this one is it.

This is not to say that the Fed wasn't partly at fault for creating the messy conditions, but it did not trigger the recession by shrinking the real money supply in the year leading up to the recession's start, unlike every other recession since 1959, the first year for which data on M1 is available on the Fed's website. Put another way - the cause of this recession is if not unique, its certainly extraordinary in the past few decades. And if its not a contraction in the money supply that's causing this, then its something "real." When the problem is a contraction in M1, well, the fix simply involves re-inflating the money supply. But something else has to happen when the recession is caused by something "real" - the "real" problem has to be fixed. One thing that ain't gonna fix it is throwing money at Goldman, Welfare, Queen & Sachs - its not Goldman's problems that precipitated the recession, after all. The economy had slowed down long before anyone realized what a hash the investment banks and AIG had made of their business.



So how long is this recession going to last? I really hope not long. But what if the problem really is the fact that the US economy doesn't produce much any more, and houses are way overvalued? I sure hope we don't have to wait until those problems are fixed.



The post also had something else that I like:

Which leads to my question from yesterday's post, yet again - why are we seeing a recession now, at this time, so soon after the last one. The last time we see a recession so soon after the previous one, Reagan was in office. The last time we saw a President with two recessions in his term, Nixon was in office. Unless the last few decades have been a major aberration, an ordinary business cycle shouldn't be bringing us to a recession so soon. So to repeat: why are we seeing a recession now, given that GW has gotten everything he's wanted - tax cuts, help from the Fed, reduced regulation, even two wars (and remember - Conservatives and libertarians credit WW2 with ending the recession, not FDR)? Could the conservative or libertarian model have predicted such a thing?

_________________________________

by cactus

by rdan (noreply@blogger.com) on December 03, 2008 10:00 AM

By Stormy



In Canada, all hell is breaking loose.



A newly form coalition of Liberals, NDP and the Bloc Québécois is challenging the recently elected conservative Harper minority government. The last time a coalition tried to wrest power from a sitting government--without resorting to a no-confidence vote that would lead to new elections--is over ninety years ago.



Harper, of course, is crying foul, but even some in his own party are suggesting he step down.



The coalition is a strange one. Stephane Dion, the head of the Liberal party, weakened by a disastrous election effort, is stepping down in May; consequently, if the coalition succeeds, he will be Prime Minister for only a few months. (Dion is not a very effective campaigner or spokesman.) The Bloc has its roots in a movement to declare Quebec independent. Huh, you say? The New Democrat Party have always been at war with the Liberals for Canada's left. Together, the coalition represents over sixty percent of Canada.



That such a coalition would form to oust a sitting Canadian government is very, very rare--and not done in haste. Having just been through an election, the coalition is not anxious to put the country through another major election so soon after the last one.



So what happened to bring all this about?



One word: Harper.



He is a Bush-lite, a twig off the neo-conservative branch.



As an American living in Canada, I kept telling my wife (Canadian) that Harper is bad news for Canada.



A control-freak, he runs the government exactly like the neo-cons here. No one talks unless they read the right script.



The well coiffed Harper made a strategic and fatal mistake. Thinking that the other parties would never work together, he initially tried to take away their funding. (Political party subsidies are based on the number of votes received during elections.)



Harper was making a grab for real and permanent power. Seeing his error, he retracted the proposal. Too late. The monster had been unmasked.



In the background, were Harper's corporate masters, ready to provide all the funding the conservatives would ever need. Sound like the U.S.? Indeed it does.



Already the other parties were dismayed at the Harper government's failure to offer a stimulus package to assist the auto and forestry industries.



Additionally, there are deep suspicions that Harper would criminalize abortions, despite Harper's protestations to the contrary. And then there is the "three-strikes and you are out" proposal and the failure to support child care for working women. And then there are the corporate tax cuts that many claim will just make the rich richer. All of which should sound familiar to Americans.



For those Americans who think Canada is just America's little twin brother, think again. Canada has a real and living social safety net.



There are deep suspicions that Harper will try to undo it.



The question now is: Will Harper succeed in holding onto power? And if the coalition succeeds, will it govern successfully?



Harper's counter attack is two-fold: Buy time and appeal to the electorate that all of this is unconstitutional. Then, by attacking the Bloc as an absurd coalition partner, try to divide and conquer. After all, the Bloc is a separatist movement. (Or is it, really?)



In short, pit the English speaking electorate against French Quebec. In making such an attack, Harper is risking the unity that is essential to Canadian well-being.



There really is no darkness to which this pretty-boy, scalawag will not descend.

by Stormy (noreply@blogger.com) on December 03, 2008 03:03 AM

UPDATE: Credit where due category: H/T to Felix Salmon for pointing to this chart at bignose.org, which gives you borrowings relative to GDP.



I often hate line graphs, especially when they include outliers that skew the axis, making it virtually unreadable. (This may be a result of seeing several papers this semester with Chilean/US$ exchange rates on a graphic from ca. 1970 forward.)



But this objection is because the historic outlier smoothes the view of current data. It doesn't apply when you're living through the outliers. And now that NBER has called the start of the recession, let's look at some of the evidence. The following three graphics are of two serieses from the Fed's H.3 Aggregate Reserves data, available from FRED.



First, let's look at the longest period possible, January 1929*-November 2007:

The Very Noticeable post-WW II increase of the Blue Line (Excess Reserves) is September, 2001. I think we can generally agree that the two-week period in the middle of the month during which very little shopping was done may have had something to do with it.



The rather high (per this graphic, defined loosely as > US$2B) Depository Borrowings are generally May to November of 1984 and April to November of 1988. Whether these have anything to do with the election is left as an exercise. (The pattern is not repeated in 1992 or later.) There are other noticeable high periods—basically, the last months of Richard Nixon's Presidency (May-Sep 1974) and a few months scattered from October 1979 to June of 1981, and a couple of subsequent outliers, but the Borrowings are generally below US$2B for the month until December of 2007.



Now let's look at the current century, January 2001-October 2008:

What was a noticeable Crisis Point on the previous graph is now a small bump in the road to Reserve Hell. The scale for Borrowings has gone from peaking at US$9B to US$700B. The scale of Excess Reserves has gone from peaking around US$20B to US$300B—all during the period since the Recession started.



And, just because I'm a cruel person, let's zoom in on the Recession itself: the past thirteen months of data, October 2007 - October 2008:

The scariest thing about this graphic is the reason it's on two axes. Note that it is even clearer from this graphic the borrowings from the Fed are far in excess of the Excess Reserves. (Don't let the narrowing fool you; the slope of the scale of the Borrowings is condensed much more than the scale of the Reserves.



In fact, if we look at the data, December 2007 is the point at which Borrowings first exceeds Reserves. A semi-helpful graphic of the difference:

For October and November, there are over US$1B more Reserves than there are Borrowings. We would be able to see that, except that in December of 2007 there are US$13B more in Borrowings, by April of 2008 the number exceeds US$100B, and it has basically been increasing ever since.**



There may be a few institutions out there lending, but they appear to be doing it primarily with borrowed funds.



*Month chosen because that is where the Excess Reserves data starts being measured. Depository Borrowings starts in 1919.



**There is a slight decline from June (ca. 169) to July (ca. 163.7), possibly due to tax rebate processing; by September, the excess is over US$200B and it soared in October to over US$380B.

by Ken Houghton (noreply@blogger.com) on December 02, 2008 11:51 PM

Projecting the long-term health of Social Security is of necessity subject to uncertainty, the known unknowns if you will. But you can if you like sample the short term health by consulting Treasury's Monthly Trust Fund Reports which gives balances to the penny with a one month lag, and compare them to the various projections of the 2008 Report. If it appears that the balances are coming in ahead of standard Intermediate Cost projections you can conclude that the outlook is by that amount better than expected. If those balances are coming in ahead of (fully funded) Low Cost then you have a limited reason to claim there may be no shortfall at all. On the other hand if the numbers look to not quite making it to IC levels then you want to pay some attention.



So how is Social Security holding up in the face of a recession now officially a year old? Well, looks like we need to pay some attention.



The 2008 Report projected that the year end balance in the OAS (Old Age/Survivors) Trust Fund would be:

Intermediate Cost $2.216 trillion and Low Cost $2.221 trillion up from a starting balance of $2.023 trillion



Actual numbers:

June (half year) $2.140 trillion

Aug (2/3rd) $2.164 trillion

Sept (Q3) $2.177 trillion

Oct $2.187 trillion



In June OAS had a balance up $117 bn from starting, if July to Dec simply duplicated that we would have a year end balance of $2.257 trillion or significantly ahead of even Low Cost numbers. But even then anyone who was paying attention knew there was trouble ahead and as things are playing out we will be lucky to end up within $10 billion of Intermediate Cost and so $15 billion from Low Cost. Not the best news but in perspective it means that our portfolio would only increase by 95% of expectations. (Note that this still translates to a big surplus for 2008, just not as big as we hoped.)



How did DI (Disability Insurance) fare? Well this is a real interesting story. Projections:

Intermediate Cost $219 billion and Low Cost $221 billion up from a starting balance of $214 billion



Actual numbers:

June (half year) $220 billion

Aug (2/3rd) $219 billion

Sept (Q3) $219 billion

Oct $218 billion



At mid-year things were looking pretty good, already the balance was up by some $6 billion and already beating IC projections. Certainly adding another billion and so matching Low Cost by year's end in principle was in reach. Except for those pesky numbers in the business pages. Not only is DI not adding to its balance in the second half of the year, it is losing a good part of the progress made in the first half.



What does all of this mean? Well on my reading it shows that Social Security is a pretty robust system. And this makes certain sense, an increase in unemployment that puts hundreds of thousands of people out of work (say from 5% to 6%) is from another perspective just over 1% of all covered hours (94%/95% = 1.1%). This doesn't mean we want to keep throwing these employment numbers at Social Security for an extended period of time, though I have never had much reason to discuss the more pessimistic High Cost scenario it like Low Cost is 'out there' and we are openly flirting with it right now. But even High Cost looks pretty good when your 401k is 40% plus off its peak.

by Bruce Webb (noreply@blogger.com) on December 02, 2008 06:24 PM

by cactus



My Essential Blogs



Most of us who read blogs have blogs we read regularly. Of those, there might be a handful we consider essential. That list is different for each of us, and no doubt changes over time for each of us.



Last week, I learned what my current list of essential blogs is, as I was traveling outside of the country and often had only sporadic access to the net. As I said, I often read quite a few others, but when I had a mere five minutes, this is the list I made sure I perused:



1. Angry Bear. Granted, I'm biased, but I think Rdan has assembled one heck of a crew and made this is into a great destination.

2. TBogg. Not economics at all, at least usually not, but when he's on, the eponymous TBogg is simply the best writer on the internet if you ask me.

3. Naked Capitalism. I don't know how Yves Smith does it. I simply don't.

4. Calculated Risk. Tanta's death is a loss - few people understood the mortgage banking business and had the talent and the opportunity to write about it to boot. I'm going to miss her writing. But Calculated Risk will one of the best places to get very complex, relevant, and information explained in an easy-to-understand and timely manner because of its founder.



By the way, before going on with this list, I should note that I've had occasion to correspond a couple times with Yves Smith and Calculated Risk. Both are as friendly and helpful as they are smart and incisive. I had one exchange with TBogg too, and he was quite friendly too.



Continuing with the list:



5. Krugman. I haven't always agreed with him (and on occasion, I've been right when I disagreed with him), and on occasion I've been very critical, but when it comes to being clear, incisive, and cutting to the chase, Krugman is the best.

6. Beat the Press. Dean Baker is very, very good.

7. Marginal Revolution. Alex Tabarrok and Tyler Cowen are smart, informative, and entertaining. And they often come at things from an angle I wasn't considering.

8. Economist's View. Mark Thoma is another one man shop who manage to produce way more than I can imagine a person producing. And his daily links are excellent.

9. Eschaton. Atrios' unashamedly liberal news blog is a great round-up of the days events.

10. Washington Monthly's Political Animal. This was a great blog when Kevin Drum ran it. Somehow, its even better now - Hilzoy and Steven Benen make this, in my opinion, the best single source for political analysis on the web.



So there's my essential list. I try to read more blogs than that most days, and many of the ones I read have a different bias. But these are the ones I read when that's all I have time for. What's your list?



The loss of Tanta is a blow to the blogosphere, but even by himself CR does one heck of a job.

________________________________

by cactus

by rdan (noreply@blogger.com) on December 02, 2008 11:43 AM

Boston Globe reports on local conditions for small businesses:

Even as consumer loans become harder to get, many small businesses in Massachusetts report they are still able to borrow money.



In Franklin, Stephen Dunn, president of design and manufacturing firm Core Concepts Inc., says Benjamin Franklin Bank has invited him to renew his $1 million line of credit. In Woburn, Mike Jenoski, president of Duplication Management Inc., a printing and Web services company, says Enterprise Bank is encouraging him to borrow to expand his business. And in Jamaica Plain, Katherine Mainzer, co-owner of Bella Luna Restaurant and the Milky Way Lounge, says she is about to close on a $360,000 loan from Citizens Bank to relocate.



While Mainzer, like other small business owners, is worried about the slumping economy, "We didn't see a clampdown" in lending, she said.



In fact, Massachusetts trade groups and bank executives report a continued flow of borrowing by small businesses, despite the credit crisis that has slowed other lending such as consumer auto loans and mortgages.



Among the 18 publicly traded banks in Massachusetts that have reported their earnings through Sept. 30, 12 said the total value of their loans increased 5.9 percent or more this year, compared with just five banks at the same point a year ago, according to a preliminary analysis by Milton bank analyst Suzanne Moot.



Five reported loan growth above 10 percent, including Danvers Bancorp at 13.3 percent and Enterprise Bank of Lowell at 11.9 percent. Much of the growth is the result of lending to small businesses, executives say.



Moot said it's difficult to draw broader conclusions about local lending until the Federal Deposit Insurance Corp. reports more specific figures for the state next week. Some business borrowers and lenders concede that loan terms have tightened, with banks raising interest rates or demanding more collateral.



Still, the reports filed by the publicly traded banks provide a counterpoint to the national concern that businesses can't borrow because banks are hoarding their cash, Moot said. "All the data we've got doesn't point to a slowdown in lending," she said.



Nationally, some economists have made similar points. In a paper last month for the Minneapolis Federal Reserve, three economists said bank credit continued to rise, at least through Oct. 15, as have the total amounts of loans and leases.



But Harvard Business School professors Victoria Ivashina and David Scharfstein said in their own paper that loan totals are growing partly because companies are drawing down previously arranged lines of credit. Also, several economists at the Federal Reserve Bank of Boston wrote this month that the amount of loans banks keep on their balance sheets is growing because they can no longer sell loans to be packaged into other securities.



Still, local business executives aren't complaining they can't get credit, or even that bank terms are too tight, said Brian Gilmore, executive vice president of Associated Industries of Massachusetts, a trade group representing 7,000 companies in Massachusetts.



"The whole psychology is that the sky is falling, even though it's not," Gilmore said.



Executives at Boston accounting and consulting firm Vitale, Caturano & Co. say the biggest impact of the financial crisis on lending so far is that banks are inspecting company books more closely before agreeing to make loans. "You feel like at least so far we're ducking a lot of the national issues," said Jeff Korzenik, Vitale Caturano's chief investment officer.



Some economists and bankers say smaller banks are picking up customers who aren't top priorities for big banks, which are grappling with subprime mortgages and other problems in their loan portfolios.

FDIC reportQ3 this week.

by rdan (noreply@blogger.com) on December 02, 2008 10:00 AM

forwarded by reader Corev







COMMENTARY:



President-elect Barack Obama wants to phase out coal-based electricity

generation, switch to renewable energy and follow Europe's lead on climate

change. That could prove difficult.



Coal generates half of all U.S. electricity. Wind provides less than 2 percent

of all electricity and cannot be relied on when it's needed. Europe's lead can't

even be defined, much less followed.



Nearly all EU countries signed the Kyoto Protocol and agreed to slash greenhouse

gas emissions to 7 percent below 1990 levels by 2012. As of 2008, however, many

of their emissions are well above their Kyoto targets. Italy's were 14 percent

above, Portugal's 17 percent, Denmark's 19 percent, Austria's 30 percent,

Spain's 37 percent. Whose "environmentally responsible" lead should we follow?



By comparison, U.S. emissions are some 23 percent above target levels we would

have agreed to, had we signed Kyoto. But America's carbon dioxide emission

growth rate has been just 0.2 percent per year since 2000, notes University of

Colorado climatologist Richard Keen.



Last year, the European Union solved its predicament by agreeing to slash

emissions 20 percent by 2020. Now, because of the financial crisis, many EU

countries and industries want to back away from even that. Perhaps they will

agree to 30 percent by 2030 (or 40 percent by 2040). Should America follow this

elastic example?



From Saturday's WaTimes:



(It's a pretty good synopsis of what is going on in the politics, especially EU,

of warming...Corev)

In 2006, Chancellor Angela Merkel promised to eliminate coal and nuclear power

in Germany. Today she wants to keep nuclear power, build new coal-fired plants,

and shield chemical, steel, manufacturing, cement and auto industries, by

reducing emission goals or providing free cap-and-trade permits.



Austria and Italy also want EU climate restrictions eased to help industries

that are struggling with high energy prices, the economic crisis, and

competition from less regulated overseas competitors that rely on coal for power

generation and easily undercut European production costs.



Italian ministers have called the EU climate action plan "politically correct

garbage" that "would kill any economic improvement" and "achieve very modest

environmental benefits" - on the order of reducing projected global warming by

0.1 degrees or less. Prime Minister Silvio Berlusconi insists any EU climate

deal be revisited in late 2009, after its real economic and employment costs

have been fully analyzed.



Poland and other former Eastern Bloc nations strongly oppose any EU climate

change plan that doesn't exempt them, because they depend on coal for up to 90

percent of their electricity and on Russia for up to 97 percent of their natural

gas. They were held back for 50 years under Communist dictators - and now are

loathe to let Brussels dictate future economic development.

Britain is likewise re-examining its commitments, because punitive climate taxes

and energy prices have forced 5.5 million households to live in "fuel poverty" -

and factory managers say they may have to close their doors and furlough workers

all winter, because of high fuel prices.



Following these examples makes sense. But that's probably not what Mr. Obama or

environmentalists have in mind.



Meanwhile, China and India are building new coal-fired power plants every month.

They put reducing rampant poverty ahead of speculative effects of future climate

change - and say they will be better able to adapt to climate changes (natural

or human) if they are rich and technologically advanced.



Impoverished African nations also want abundant, reliable, affordable energy, to

ensure safe water, refrigeration and modern hospitals, and reduce lung and

intestinal disease and death. But U.S. and EU greens say they must be satisfied

with pitiful amounts of intermittent energy from "sustainable" sources such as

wind and solar.



Al Gore prophesies ecological doom - but flies only private jets, owns a fancy

houseboat, and uses more electricity in a week than 28 million Ugandans together

use in a year. NASA climate alarmist James Hansen wants to squelch debate on

global warming science, and compares coal trains to Nazi death camp trains.



In the midst of all this, some Democrats are promoting new cap-and-trade

legislation that could be more damaging than Warner-Lieberman, which even

sponsors admitted would have cost nearly $7 trillion. They oppose oil and gas

drilling, and new coal, nuclear and hydroelectric plants.



Many want to "transform" our energy and economic system - from one that works to

one based on heavily subsidized "renewable" technologies that aren't ready for

prime time, and likely won't make a significant contribution for decades.



The Environmental Protection Agency is preparing regulations that would

micromanage every aspect of our energy system and economy.



Whose policies are more responsible, humanitarian, ethical and sustainable?



Hydrocarbons provide 85 percent of all U.S. energy. They are the foundation of

an economy that has brought us health and prosperity, but has been shaken to its

core. Wind and solar represent less than 1 percent - and provide only

intermittent auxiliary power.



The new "Lights out in 2009?" study warns that the United States "faces

potentially crippling brownouts and blackouts." Regions that experience

prolonged hot spells during summer months are especially vulnerable, because

many have minimal excess generation and transmission capacity.



We need to protect our economies, jobs, poor families and planet. We need

conservation and all forms of energy: whatever works best, at lowest cost, for

particular cities, states, regions and nations.



We can't afford policies that roll back economic and civil rights gains - or

reflect the "leadership" of increasingly isolated EU commissioners who insist

that punitive climate policies must be adhered to, for tiny environmental gains,

even in the midst of a near recession.



The incoming Obama administration should keep this in mind as it seeks to forge

bipartisan energy and economic policies.



Paul Driessen is senior policy adviser for the Congress of Racial Equality and

its Stop the War on the Poor campaign, and author of "Eco-Imperialism: Green

power - Black death."

by rdan (noreply@blogger.com) on December 02, 2008 09:59 AM

There are three regular AB posters who currently are residents of the Great White North.



So, naturally, it's a Brooklyn boy who breaks the news that a plurality is not always a majority:

The Liberals and New Democrats signed an agreement on Monday to form an unprecedented coalition government, with a written pledge of support from the Bloc Québécois, if they are successful in ousting the minority Conservative government in a coming confidence vote.

UPDATE: Apparently, another NYCite (though once and possibly-future Canadian) was on top of this too.



*with Canadian relatives and authors, yes, but still...

by Ken Houghton (noreply@blogger.com) on December 02, 2008 05:16 AM

UPDATE: For those who read here and not at CR, a link for Donations.



We knew she was home with her family, but it was over the U.S. Thanksgiving holiday...

Calculated Risk:



Sad News: Tanta Passes Away: My dear friend and co-blogger Doris “Tanta” Dungey passed away early this morning. I would like to express my deepest condolences to her family and friends...

Tanta was one of the people—along with CR, PGL, DeLong, and Mark Thoma (and probably a few others I've overlooked, such as Max Sawicky**)—who proved early on that long, informative blog posts about issues that might be considered arcane* could find an audience.*** Including people who knew what you were talking about and could provide complementary insights and information.



Via CR, David Streitfeld sums it up:

Thanks in large part to Tanta’s contributions, Calculated Risk became a crucial source of prescient analysis as the housing market at first faltered, then collapsed and finally spawned a full-blown credit crisis.



Tanta used her extensive knowledge of the loan industry to comment, castigate and above all instruct. Her fans ranged from the Nobel laureate Paul Krugman, an Op-Ed columnist for The New York Times who cited her in his blog, to analysts at the Federal Reserve, who cited her in a paper on “Understanding the Securitization of Subprime Mortgage Credit.”

There are a lot of people out there who are saying now that "we all knew there would be a crisis." Tanta is one of the main reasons for that.



She will be is missed.



*Robert Waldmann's investigative series on Credit Products is a current AB example.



**The lack of conservative economists on the list is not my fault; the Mankiws and Tyler Cowens of the world rarely if ever go into detail about the system or the implications surrounding their statements.



***UPDATE: See the Ubernerd posts, collected here.

by Ken Houghton (noreply@blogger.com) on December 02, 2008 04:36 AM

What Child Is This is a very good example of one of the things that I think has allowed Christianity to thrive: it’s complete and unashamed willingness to co-opt any and all cultural touchstones. The tune is actually Greensleeves, an English folk song about being cheated on. The original song is sad and earthy. The Christian version, while retaining the same solemn tune, is a loving tune about the birth of the Savior. This song is a small example of the tendency of Christianity to gleefully incorporate whatever local customs, holidays and folkways it encountered. I think that willingness goes a long way to explain Christianity’s acceptance.

Well, that and the willingness to kill anyone who didn’t convert.

What Child is This

What Child is this who, laid to rest

On Mary’s lap is sleeping?

Whom Angels greet with anthems sweet,

While shepherds watch are keeping?

[CHORUS]

This, this is Christ the King,

Whom shepherds guard and Angels sing;

Haste, haste, to bring Him laud,

The Babe, the Son of Mary.

Why lies He in such mean estate,

Where ox and ass are feeding?

Good Christians, fear, for sinners here

The silent Word is pleading.

[CHORUS]

Nails, spear shall pierce Him through,

The cross be borne for me, for you.

Hail, hail the Word made flesh,

The Babe, the Son of Mary.

[CHORUS]

So bring Him incense, gold and myrrh,

Come peasant, king to own Him;

The King of kings salvation brings,

Let loving hearts enthrone Him.

[CHORUS]

Raise, raise a song on high,

The virgin sings her lullaby.

Joy, joy for Christ is born,

The Babe, the Son of Mary

by Kevin on December 02, 2008 02:34 AM

By Stormy



Thomas Palley has a good take on the consequences of allowing the Big Three to disappear: Their disappearance not only may end any hopes of our closing our enormous trade deficit, but also may trigger a perfect economic storm.

Moreover, the automakers are essential for closing the trade deficit, and their demise could bring another surge in imports. The automakers are also the backbone of American manufacturing, driving advances in manufacturing technology that will be needed if America is to be a world leader in the coming “green” transportation revolution. Additionally, the Big Three are vital to national security, supplying important military transportation assets. Lastly, bankruptcy will impose massive costs on the government’s Pension Benefit Guaranty Corporation (PBGC), potentially undermining its financial stability.

The Big Three are already "huge debtors"

whose liabilities are held throughout the financial system. If they go bankrupt, the insurance industry, which is likely a large holder of these debts may quickly enter a spiral of collapse. Pension funds will also be hit, imposing further costs on corporations and households at a time when they are already financially stressed.

Furthermore,

...the greatest damage may come from the credit default swaps (CDS) market that brought down AIG. Huge bets have undoubtedly been placed on the bonds of GM, Ford, Chrysler, and GMAC, and bankruptcy will be a CDS triggering event requiring repayment of these bonds. Moreover, a Big Three bankruptcy will bankrupt other companies, risking a cascade of financial damage as their bonds and equities fall in value and further CDS events are triggered. This is the nightmare outcome that risks replicating the Crash of 1929.

There are undoubtedly colossal problems in Detroit, and the bosses of the Big Three automakers could never be convicted of an excess of imagination. Economic policy has also contributed to their current condition as trade agreements and an over-valued dollar promoted auto imports, and incoherent energy and environmental policy stifled innovation.

All of this must be fixed. But sacrificing the Big Three automakers will accomplish nothing while risking a tragic economic depression

There are no easy answers any more. We have undoubtably backed ourselves into a corner, with thoughtless tax policies for the rich, incoherent tax policies that might have guided our economic development, and a complete disregard for our manufacturing sector as we celebrated our miserable and miserly banking system that has skimmed, scammed, and leveraged its way to disaster.

by Stormy (noreply@blogger.com) on December 02, 2008 01:52 AM

Brad DeLong suggested a bit before the U.S. election that there was virtually no non-political reason for NBER not to admit the United States was in a recession.*



A little late, but they generally got it right. As Floyd Norris notes:

The National Bureau of Economic Research said today that the current recession began a year ago, in December 2007.



I’ve been arguing for some time that the recession started around then (between October 2007 and January 2008), but for much of that time it was a lonely vigil, with few economists in agreement until things fell apart in September.

I would still argue for October 2007;the "peak" in December was related more to a Certain Holiday than anything real. (It's not called "Black Friday" in honor of workers who get trampled.) But at least they called it, which will make it more difficult to argue that "the recession started on Obama's watch."



Sorry, New Economist.

by Ken Houghton (noreply@blogger.com) on December 01, 2008 06:47 PM

Kevin Drum incidentally mentioned the Nov 1940 collapse of 'Galloping Gertie', otherwise known as the Tacoma Narrows Bridge, in a post about a new technique about generating electricity from river or ocean currents. Which led me to pull up some footage and figure out how to embed it. (No it is not hard. But Old Dog/New Trick). I had not previously seen a color version. The whole thing is 5:56.

Update: Originally I thought this had nothing to do with economics but then realized it is not a bad visual metaphor for the current economic (hopefully only near) collapse. Hoocoodanode? Everybody knew the bridge swayed in high winds, hence the nickname. But no one it seems imagined it would literally encounter the perfect storm and shake itself to bits. RE speculators in Vegas and Riverside stirred up a storm that ended up freezing markets around the world. Hoocoodanode indeed.

by Bruce Webb (noreply@blogger.com) on December 01, 2008 06:21 PM

In memoriam for Tanta .



CR says it best. Tanta offered humor as well as wisdom in her posts she shared with us. She is in my prayers.



Dan

by rdan (noreply@blogger.com) on December 01, 2008 11:25 AM

rdan



hat tip Tim Schilling

by rdan (noreply@blogger.com) on December 01, 2008 10:10 AM

a whittle by ilsm



National Security pork!



I came across this at a National Security blog:



In this case congress is directing that Air Force buy long lead parts to build 20 more F-22 than defense wants. Certainly the fighter mob in Air Force wants more toys, and the industry wants more revenue.



This sets the administration up to wasting the money when the unneeded 20 are not bought. The paradigm in national security is to spend good after bad despite the extension of the losses.

But DoD strategy says there are better things to do than keep a plant profitable for a fighter that is too expensive and has no threat to overcome.



A $200 million super fighter for the war on bin Ladin.



This national security preference to pork and corporate welfare over better uses of the wealth is rather common.



Here is a point of change needed in the new administration, maybe a line item veto. by ilsm



Rdan here:



I would add this NYT picture and article of one man's journey through the revolving door of our protectors.

by rdan (noreply@blogger.com) on December 01, 2008 10:00 AM

By Robert Waldmann



Felix Salmon explains how to make a synthetic bond.

you buy a synthetic IBM five-year bond instead, taking advantage of the much more liquid CDS market. Essentially, you take the $100 million that you were going to spend on IBM bonds, and you put it into a special-purpose entity called, say, Fred. (In reality, it'll be called something really boring like Synthetic Technology Invetments Cayman III Limited, but Fred is easier to remember.) First, Fred takes the $100 million and invests it in 5-year Treasury bonds.



Next thing, Fred goes out and sells $100 million of credit protection on IBM in the CDS market, using the $100 million of Treasury bonds as collateral. The buyer of protection will pay $1.5 million per year (150 basis points) to Fred, and in return Fred promises to pay $100 million to the buyer in the event IBM defaults, less the value of IBM's bonds at the time. The buyer knows that Fred is good for the money, because it's already there, tied up in Treasury bonds.

He ends with teaser which frustrated super senior blogger Kevin Drum



"That's the story of the super-senior tranche, and will have to wait for another day."





Given this story about the use of CDSs, I understand why Felix Salmon is convinced that they are not financial WMDs and why he is so angry that AIG was allowed by counterparties to issue CDSs without posting collateral. I also think that the story is very different from CDS reality.



Over at his blog, I asked Felix Salmon three questions



1) Why wouldn't interest rate swaps serve just as well ?



2) Why set up Fred when Fred's assets must be worth more than Fred's liabilities so there is no obvious point limited liability 100% share ownership of Fred.



3) Also if 100% collateral is posted, how can the notional value of CDSs be greater than the US national debt ?



update: The title was supposed to be a joke "Frederal reserves" but Blogger appears to automatically correct misspelled titles.



Felix Salmon explains thing to me in a comment, which I pull back after the jump.



After the jump, I explain why I find these questions challenging





1) If I want to be long IBM bonds and Own Treasury bonds I can make a synthetic IBM bond with interest rate swaps can't I ? I think the cash flows with my counterparty are exactly the same, if neither of us goes bankrupt. Thus, I think that the immense popularity of CDSs must be based either on bankruptcy law (related to the super senior tranche ?) or on accounting standards and capital requirements, or both.



2) Why set up a a special purpose entity. I mean that has to cost something. They are set up for a reason, either to limit liability or to make balance sheets look better.



3) Clearly not every dollar in CDS was collateralized 100% by US debt. There isn't enough US debt. I think it must be true that most were only partially collateralized. AIG might be an extreme case, but I think it just must be true that CDSs were used to leverage up and not just to synthesize bonds.



OK now my efforts at answers. Remember I am very ignorant and mostly guessing.



On bankruptcy law, you have to realize that it's not your father's bankruptcy code.

Bo Peng explains

Generally speaking, in bankruptcy code, derivatives counterparty claim[s] can go right through Chapter 11 protection and force liquidation. Chicago Fed in fact had a research paper in 2004 (thanks to Seeking Alpha reader emrald) analyzing the original rationale behind and the unintended consequences -- cliche of the month? -- of this exceptional treatment of derivatives.

oh my.



I think this means that if Fred's parent (I'll call it Zeke) goes bankrupt, Fred's counter-party gets to grab the T-bills and no bankruptcy court can stop it. This would not be automatic from the definition of CDS, but Zeke and Fred's counter-party would both benefit from writing the contract that way.



Now if equity in Fred is counted as one of Zeke's assets and Zeke has a binding capital constraint, a fast one has been pulled. These assets are not part of the pool split up among creditors in the case of bankruptcy, because Fred's losses (value of collateral minus value of the CDS) go 100 cents on the dollar to the counter-party. Also if equity in Fred appears on Zeke's balance sheet, then Zeke's creditors may be mislead. If they assume that all equity in special purpose entities is quite likely worthless now, then a whole lot of crisis can be explained.



Clearly not all CDSs were used to make sythetic bonds. For one thing Lehman brothers had liabilities including CDSs on its balance sheet (OK its 10-Q report). For another they were listed at fair market value which was vastly below notional value until recently. Now it seems to me clear that if firms can goose their equity to debt ration they will and clear that CDSs are very useful for that purpose so long as they are not 100% collateralized.



I'd guess that Fred wouldn't own Treasury securities equal to 100% of notional value, but rather a lower ratio with a trigger that if the market price CDS reached ninety something percent of the value of the collateral, the collateral could be seized immediately. This means Fred could suck money out of Zeke or Zeke would have to lose 100-ninety something suddenly. Now a totally unexpected actual default would not be insured by Fred (which would go bankrupt). That is, this use of the CDS market would be to take opposite bets on the CDS price, not to insure risk. But, I mean we know that was going on.



OK finally my guess as to what "the super senior tranche" is. I think this refers to the money counterparties can seize immediately from a firm in Chapter 11 -- the little exception to the bankruptcy code. Since not quite everyone knows about this, it is an excellent way to dilute the positions of bond holders which, ex ante, profits both parties which wrote the financial derivative contract.



Felix answers.

Hi Robert -- I really was just trying to explain synthetic bonds, not anything about the larger CDS market. And synthetic bonds are really a very small part of the CDS market.



I'm not sure how you could possibly create a synthetic IBM bond using interest-rate swaps alone -- where would you get the credit-risk component from?



As for Fred's structure, it's worth remembering that these are synthetic bonds we're talking about here -- and the whole point of a synthetic bond is that it can be bought and sold in the secondary market, just like a normal bond. You can't talk about "Fred's parent" because no one ever needs to know who Fred's shareholder(s) might be.

Felix

So Felix notes that he was just talking about synthetic bonds, not claiming that making them was the main use of CDS. I should have said that I thought his example hinted at a reason for his calm views about CDSs, since the example he had in mind was of a very safe use. I was over psychoanalyzing a blog post, since the example was an answer to a question.



Felix also says that the purpose of the special purpose entity is that Zeke can sell Fred, Fred's assets on Zeke's books would have to be packaged into a SPE (Fred) for sale. It's still not so clear to my why st up the SPE immediately. I mean the story began with Zeke wants to buy IBM bonds, so Zeke creates Fred whose shares are, in effect, IBM bonds. Then Zeke sells Fred, apparently immediately (why pay to set up the SPE in advance of selling its shares ?).

by Robert (noreply@blogger.com) on December 01, 2008 06:15 AM

rdan



I have no idea how this transfer would be done if the funding happens for high mileage gpm and alternative fueled cars ($25 billion), or if it is accurate as an idea. Not having read the bill I would not know if money is restricted to the US. It does make sense to fund the best plants and technology from GM's point of view, and Brazil is clearly ahead.



But I do know it is probably easier for the financial companies who are not being 'micro-managed'. I remind you of cactus's post on welfare.



The Latin American Herald Tribune says the president of GM Brazil reveals plans:

General Motors (GM) plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.



According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."



"It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.



Meanwhile, he cut the company's revenue forecast for this year by 14% to $9.5 billion from $11 billion, as the economic crisis began to cause rapid slowdowns in sales.



GM already announced three programs of paid leave, and Ardila added that GM Brazil "is going to wait and see how the market behaves in order to know what decision to take" with regard to possible layoffs.



For Ardila, the injection in Brazil's automobile sector of 8 billion reais ($3.51 billion) recently announced by the federal and state governments of Sao Paulo "has already begun to revive sales," which fell by 12% in October.

by rdan (noreply@blogger.com) on December 01, 2008 12:01 AM

I have always had a sentimental attachment to Silent Night. When I was in Catholic grade school, it was the first Christmas song I ever learned. We kindergartners sang in it in that year’s Christmas Assembly. I learned all the versus by heart and my parents assured me I sounded amazing. Later, after I had children of my own, I heard the song and was struck by the fact that it was a tender lullaby as well as a song of worship. It humanizes Mary and her son in a way that is unusual if not unique among Christmas carols. I can almost see Mary crooning something low and gentle, like this song, to her infant.

I used to argue about that hummanity with my second college roommate. Jesus’ sacrifice, I maintained then and now, means nothing if Jesus Christ was not a human being. Without that fear and pain, it is not a sacrifice. There may be verses more important to understanding Jesus and Christianity than Mark 15:34, but they are few in number. Silent Night is the most human among the traditional Chirstmas carols and thus, to my eye, the most Christian.

Silent night, Holy night

All is calm, all is bright

Round yon Virgin Mother and Child

Holy Infant so tender and mild

Sleep in Heavenly peace

Sleep in Heavenly peace

Silent night, Holy night

Shepherds quake at the sight

Glories stream from Heaven afar

Heavenly hosts sing Hallelujah

Christ, the Savior is born

Christ, the Savior is born

Silent night, Holy night

Son of God, love’s pure light

Radiant beams from thy Holy face

With the dawn of redeeming grace

Jesus, Lord, at thy birth

Jesus, Lord, at thy birth

by Kevin on November 30, 2008 11:58 PM

rdan



Financial Times shows us that

One day after announcing strict limits on salaries and bonuses for its top tier of executives, AIG revealed that some of those executives will receive millions in “retention bonuses” next year.



In a regulatory filing on Wednesday, the insurance group disclosed that Jay Wintrob, an executive vice-president, had put off receiving the first installment of his $3m retention bonus from December to April 2009.



He will receive the second installment, originally scheduled to be paid out in December 2009, in April 2010. David Herzog, AIG’s chief financial officer, also opted for the later payment schedule.



The retention bonuses for 130 key executives were disclosed by AIG in September, after the US government rescued the firm from bankruptcy by purchasing 79.9 per cent of the company for $85bn. After the government takeover, Edward Liddy, the former Allstate chairman, was named chief executive and AIG offered retention bonuses to Mr Wintrob, head of AIG’s retirement services division, among others.



In October, AIG’s management was embarrassed by the disclosure that the company spent $440,000 on a weekend retreat in California for senior performers.



The company announced on Tuesday that Mr Liddy would be paid a salary of $1 for 2008 and 2009, and that Paula Rosput Reynolds, who joined AIG as chief restructuring officer in October, would receive no salary or bonus for 2008.



The company said the other five members of AIG’s seven-member leadership group would not receive annual bonuses for 2008 or salary increases through 2009.



AIG also said that the company’s senior partners, about 60 executives, would not earn long-term performance awards in 2008, not earn salary increases in 2009, and that the group’s annual bonuses would be limited.



An AIG spokesman said on Wednesday that retention bonuses were different from the annual bonuses included in Tuesday’s statement. In September, Mr Liddy pledged to sell off significant portions of AIG’s international operations in order to pay back the government loan. The company said at the time that retention bonuses would be necessary to maintain continuity and value at various AIG units.



“Retention bonuses are a better alternative for the repricing of option awards so long as they are reasonable, fully disclosed and truly needed to retain talent,” said Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County and Municipal Employees union.



“But in this market we don’t see much clamor for executives who made big bets, cannot make risk and were paid more than they are worth,” he added.

My initial reaction was simply "My God, they just can't help themselves, can they?"



Anybody know how this might be worth it to keep the men? Is inside expertise for the short term of a couple years worthwhile for a transition? How do we separate chaff from the wheat, so to speak? Also see Naked Capitalism.



Update: Comment section cleaned up.

by rdan (noreply@blogger.com) on November 30, 2008 11:21 PM