Gerry Canavan

the smartest kid on earth

Posts Tagged ‘liquidity crisis

Back Home Just in Time for the Economic Collapse Links

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* Fantasy Premier League is starting up again! Email me for our league code or leave a request in the comments.

* My old friend Julie takes the critical thinking skills she honed on the Randolph High School debate team and takes them to the Center for American Progress with a piece on the war on diversity education.

* Jaimee reviews #13 and #14 in the Carolina Wren Press poetry series.

The final section of Pratt’s collection calls on us to transcend our economic predicaments. “Street of Broken Dreams” delves into the mortgage crisis: “No way to tell who owns my neighborhood homes/ until the for-sale-by-bank signs grow overnight.” It is a poem that celebrates the people who resisted their neighborhood home foreclosures, ending with their imagined chants: “We demand. Not rabble and rabid, not shadow, not terror,/ the neighbors stand and say: The world is ours, ours, ours.”

* Also in breaking Jaimee news: her pop culture icons will be hanging in Bean Trader’s on 9th Street starting August 1.

* America eats its future: Debt Ceiling Plans Take Aim At Graduate Student Loans.

* Not-so-post-racial America: As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009, the typical Hispanic household had $6,325 in wealth and the typical white household had $113,149.

* And House Democrats are finally starting to say what I’ve been saying all along. Even if the Republicans are capable of delivering any deal at all—which is by no means clear—there’s no deal they can offer that’s better than eliminating the debt ceiling altogether in one fell swoop. And as I’ve been saying eliminating the debt ceiling completely is now the only way left to calm the markets and prevent a potentially catastrophic downgrade:

Asian stock markets fell Thursday as uncertainty over the U.S. debt ceiling debate continued to weigh market sentiment, while concerns over a stronger yen dragged exporters in Tokyo.

“The scary part of the story is the fact that markets have not priced-in the U.S. defaulting on its debt. Should the unthinkable happen in the next week then a throw back to the chaos of 2008 would again become a reality,” said CMC Markets analyst Ben Le Brun. “Should the majority of opinion be correct and the U.S. does avoid a default, global markets do appear as if they are positioned for a relief rally of sorts. Until then investors should brace themselves for more pain.”

Thirteen Ways of Looking at a Sovereign Debt Crisis

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…at the Atlantic. #13 in particular is the one that’s got my hair on fire, in no small part because it gives us #7, 8, and 9 as a bonus.

‘Riskless Return’

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Ezra Klein on my broken record: If the federal government’s borrowing costs rise, so will everyone else’s. Mortgages rates will jump, car loans will be harder to come by, universities won’t be able to float bonds, cities won’t be able to fund themselves.

Treasuries are supposed to set the rate of “riskless return” — the price of loaning someone money and knowing, with perfect certainty, that they’ll pay you back, with interest. So when lenders decide how much to charge, they start with the riskless rate and then add to it to cover the risk that you won’t pay them back, and the inconvenience of having to wait for you to pay them back.

It’s a practice called benchmarking, and it’s everywhere: in your mortgage, your credit card, your car payments, the loan you took out to hire three new employees at your business. It’s even common internationally. The fact that Brazilian loans tie themselves to the American government’s debt just shows the high esteem in which the world holds us.

But if the rate on 10-year Treasuries rises, it means rates rise for everything else, too. That’s why economists consider the Federal Reserve’s power to affect interest rates — a power it has virtually exhausted during this crisis — so potent: if you can move the basic interest rate, you can move the whole economy.

End of the World Blues

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So what happens if the U.S.’s bond rating does get downgraded? Some 7,000 top-rated munis would be automatically downgraded if the U.S. government lost its AAA rating. In addition the credit ratings of a host of state and local governments, housing bond programs, higher education and non-profit institutions, and other entities dependent on the federal government would be reviewed, Bloomberg reports. 

And it could get much worse than that. There are huge swaths of the global economy that are predicated on the idea that the U.S. government will absolutely never default. Additionally, there’s no telling what sorts of CDS-style time-bombs and investment-product doomsday machines are out there waiting to be triggered if the U.S. were to be downgraded as a result of all this political posturing. Recall that the stock market crash of 2008 was triggered in large part by the downgrading of a single firm’s credit rating. The U.S. is orders of magnitude more important to the world economy than AIG.

In short, the Republicans have completely lost their minds.

‘Much of What Investment Bankers Do Is Socially Worthless’

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Think of all the profits produced by businesses operating in the U.S. as a cake. Twenty-five years ago, the slice taken by financial firms was about a seventh of the whole. Last year, it was more than a quarter. (In 2006, at the peak of the boom, it was about a third.) In other words, during a period in which American companies have created iPhones, Home Depot, and Lipitor, the best place to work has been in an industry that doesn’t design, build, or sell a single tangible thing.

The New Yorker asks “What Good Is Wall Street?” Via MeFi.

Written by gerrycanavan

November 23, 2010 at 11:00 am

Saturday Afternoon

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* We live in a world where Stephen Colbert testifies before Congress in character.

* “Karl Marx was right. We should struggle like he said in 19th century Europe. Chinese factories now are just like factories in 19th century Europe. And just like Karl Marx said, only through struggle with the capitalists can we gain our rights,” Liu says. Via Vu.

* Žižek: The key to actual freedom resides rather in the ‘apolitical’ network of social relations, from the market to the family, where the change needed for effective improvement is not political reform, but a transformation in the social relations of production. We do not vote about who owns what, or about worker–management relations in a factory; all this is left to processes outside the sphere of the political. It is illusory to expect that one can effectively change things by ‘extending’ democracy into this sphere, say, by organizing ‘democratic’ banks under people’s control. Radical changes in this domain lie outside the sphere of legal rights. Such democratic procedures can, of course, have a positive role to play. But they remain part of the state apparatus of the bourgeoisie, whose purpose is to guarantee the undisturbed functioning of capitalist reproduction. In this precise sense, Badiou was right in his claim that the name of the ultimate enemy today is not capitalism, empire or exploitation, but democracy. It is the acceptance of ‘democratic mechanisms’ as the ultimate frame that prevents a radical transformation of capitalist relations… Some analysis of Žižek’s analysis from Andrew Seal at the link.

Great moments in political honesty: John Raese, the Republican Senate hopeful in West Virginia, was asked this week about his background. “I made my money the old-fashioned way, I inherited it,” Raese boasted. “I think that’s a great thing to do.” He went on to say “a key part” of his platform is lowering inheritance taxes on multi-millionaires.

* How greedy subprime borrowers destroyed the economy by forcing virtuous lending conglomerates to commit fraud.

* And your AskMetaFilter of the day: What are your favorite articles on The Wire? I cleared out my Wire tag but there’s more at the link that I’d missed.

Towards a Grand Unified Theory of Apocalypse

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This Probably Ends with a Requirement That Every American Must Open a Bank Account

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President Obama on Thursday will publicly propose giving bank regulators the power to limit the size of the nation’s largest banks and the scope of their risk-taking activities, an administration official said late Wednesday.

Obama vs. the banks? Kevin Drum and Simon Johnson have more.

This Morning’s Must-Listen Economic Podcasts

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…are Frontline‘s “The Warning” and “The Card Game.” Both are from earlier this fall.

More Stuff

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* Whoa: The UN international climate change conference is in chaos as the G77, which represents 130 developing countries “pulled the emergency plug” suspending the talks over wealthy countries’ reluctance to discuss a legally binding emissions treaty. I hope this is just a negotiating tactic in response to the so-called “suicide pact” and not a true collapse of the talks.

* If anyone tries to tell you that uncertainty about climate change is a reason for inaction, he’s either a fool or a scoundrel. Probably a bit of both.

* Two from ChartPorn: an interactive map showing the estimated effects of a 4 Celsius degree change in global temperatures and Climate Anomalies, 2007-09.

* Now we see the violence inherent in the system: Hundreds of billions in crime money knowingly laundered by banks during credit crunch.

The Observer reports that an estimated $352bn of drug and mafia money was laundered by the major banks at the peak of the credit crunch, while regulators turned a blind eye, since the highly liquid criminal underworld was the only source of the cash necessary to keep the banks’ doors open.

* ‘In the lawless mountain realms of Asia, a Yale professor finds a case against civilization.‘ Via MeFi.

In Zomia’s small societies, with their simple technologies, anti-authoritarian tendencies, and oral cultures, Scott sees not a world forgotten by civilization, but one that has been deliberately constructed to keep the state at arm’s length. Zomia’s history, Scott argues, is a rejection of the mighty lowland states that are seen as defining Asia. He calls Zomia a “shatter zone,” a place where people go to escape the raw deal that complex civilization historically has been for those at the bottom: the coerced labor and conscription into military service, the taxation for wars and pharaonic building projects, the epidemic diseases that came with intensive agriculture and animal husbandry.

* Nicholas Stephanopoulos on phasing out the filibuster. Via Matt Yglesias, who notes the real problem with this proposal:

If we actually were in a situation where Democrats were clamoring for a restoration of majority rule and Republicans were blocking it, then I think a clever compromise would be just what the doctor ordered. But as best I can tell only Tom Harkin has any real interest in doing this. A few public option stalwarts, like Sherrod Brown, have pressed for the use of reconciliation to do health care. But even on this proponents of majority rule seem to be a minority of the Democratic caucus. Which is to say that the issue is less that Republicans are insisting on the filibuster in order to preserve their ability to block legislation than it is that Democratsare insisting on a supermajority rule in order to preserve each individual member’s ability to make demands.

* And I’ve used this precise argument from xkcd many times with regard to both climate change and evolutionary biology. It’s logically sound, but, alas, gets few results.

Happy Saturday

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Happy Saturday. You’ve earned it.

* On the Yankee payroll. Via Barking Up the Wrong Tree.

In 2002, the Yankees spent $17 million more in payroll than any other team.

In 2003, the Yankees spent $35 million more in payroll than any other team.

In 2004, the Yankees spent $57 million more in payroll than any other team. I mean, it’s ridiculous from the start but this is pure absurdity. Basically, this is like the Yankees saying: “OK, let’s spend exactly as much as the second-highest payroll in baseball. OK, we’re spending exactly as much. And now … let’s add the Oakland A’s. No, I mean let’s add their whole team, the whole payroll, add it on top and let’s play some ball!”

In 2005, the Yankees spent $85 million more than any other team. Not a misprint. Eight five.

In 2006, the Yankees spent $74 million more than any other team.

In 2007, the Yankees spent $40 million more than any other team — cutbacks, you know.

In 2008, the Yankees spent $72 million more than any other team.

In 2009, the Yankees spent $52 million more than any other team.

Congrats again on that World Series.

* Ryan recommends Paul Fry’s literary theory course from Yale Open Courses. I’ve downloaded all the lectures and they’ll be joining me on my run tomorrow.

* First, Let’s Kill All the Credit Default Swaps. Related: an NPR interview on The Greatest Trade Ever, which tells the story of how a middle-of-the-road hedge fund manager made billions during the financial collapse.

* Al Gore, revolutionary.

When making his Oscar-winning 2006 documentary, An Inconvenient Truth, Gore arguably had it easy: it’s fairly straightforward to grip an audience when you’re portraying scenes of apocalyptic destruction. The new book pulls off a considerably more impressive feat. It focuses on solving the crisis, yet manages to be absorbing on a topic that is all too often – can we just come clean about this, please? – crushingly boring. Importantly, it seeks to enlist readers as political advocates for the cause, rather than just urging them to turn down the heating. “It’s important to change lightbulbs,” he says, in a well-burnished soundbite, “but more important to change policies and laws.” Or perhaps to break laws instead: peaceful occupations of the kind witnessed recently in the UK, he predicts, are only going to become more widespread. “Civil disobedience has an honourable history, and when the urgency and moral clarity cross a certain threshold, then I think that civil disobedience is quite understandable, and it has a role to play. And I expect that it will increase, no question about it.” People sometimes express incredulity that Gore, who was groomed for the presidency almost since birth, seems so resolved that he’ll never return to electoral politics. But here’s a vivid example of the benefits of life on the outside: how many serving politicians would feel able to come so close to urging people to commit trespass?

A friend reminds me that Al Gore was elected President of the United States 9 years ago today.

* And Barbara Ehrenreich’s new book argues that positive thinking is destroying America.

10.2%

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The news from the economy remains pretty grim.

Written by gerrycanavan

November 7, 2009 at 1:19 am

Tuesday Night

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Tuesday night.

* First on the Threatdown: coyotes!

* Winooski, Vermont: Great Domed City of the North.

* “How Health Care Reform Won.”

* Is Metroid Prime the Citizen Kane of video games? Hard to pick Metroid Prime over, say, Ocarina of Time, just in the GameCube category alone.

* CNN, always three weeks behind the story, asks whether Obama has lost his mojo in the very moment it becomes apparent that his polls numbers are again rising.

* Also in poll news: contrary to Nate Silver’s recent NJ-GOV analysis it does seem clear that Corzine is moving sharply upward in the polls.

* “Wall Street’s Near-Death Experience.”

* And Life celebrates dumb inventions of the 1950s and ’60s.

Written by gerrycanavan

October 7, 2009 at 3:29 am

TBTF

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Naked Capitalism has a somewhat speculative but persuasive take (via Vu) on why the government still isn’t breaking up the too-big-to-fail banks.

…the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.

Written by gerrycanavan

October 4, 2009 at 3:45 pm

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Easy Money

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Wall Street has apparently learned nothing from nearly toppling the global economy last year.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

Awesome. See you in a few years for the next crash.

Written by gerrycanavan

September 8, 2009 at 2:42 am

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