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Archive for March, 2009
Sustainability 04/01/2009
Posted by rosshunter on March 31, 2009
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Economics 03/29/2009
Posted by rosshunter on March 28, 2009
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Big and Small « The Baseline Scenario
this is the key reason for size limitation – political power (imho)
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Second, one of the “future outcomes” you have to protect against is that the firms being regulated will try to change the regulations. So one prerequisite to a successful regulatory structure is limiting the political power of the firms being regulated. This is, ultimately, the most important reason why smaller is better.
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EzraKlein Archive | The American Prospect
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From 1982 to 1992, over 2000 financial institutions failed. This is not silly conjecture. A bunch of small but highly leveraged S&Ls was responsible for the S&L crisis, eventually coming in with a price tag of $160 billion. If we break the big banks down, but fail to regulate them properly, we’ll still have the same kind of dangers that brought us to the current mess.
Smaller is better – but it’s only part of the solution, not the solution to the problem of systemic risk.
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EzraKlein Archive | The American Prospect
the issues are size, and regulation (not antitrust because not collusion involved)
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Talking about this in terms of antitrust seems to be missing the point.
Krugman’s argument (which I completely agree with) isn’t primarily about the size of banks. It’s about the transformation of banking from a boring, safe, regulated field to an unregulated playground where smart con artists could make billions of dollars. His argument is that we need to roll this back and return banking to something more like it was in the several decades following World War II: a boring job done by boring men in boring gray flannel suits.
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The growth of the financial industry since 1980 appears linked to the Great Class Stratification since then also.
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“The growth of the financial industry since 1980 appears linked to the Great Class Stratification since then also.”
Well, of course, 1980 also marks the point where tax rates on the wealthy were slashed…
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Rather than bashing the financial sector, I’d rather see a large, vibrant, and adequately regulated financial sector, along with higher tax rates on the wealthy to make sure all of society benefits from the wealth created.
If some banker earns $100m in a year, I’m fine with that as long as the Treasury gets a reasonable cut of that money, say in the 50% – 55% range.
Wealth creation is a glorious thing, just as long as a fair share goes to the commons.
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Les Leopold, in his forthcoming book The Looting of America, addresses this as well, pointing out that a major reason the financial system was able to become so overly large and bubbly is the broken link between labor productivity and real wages. While productivity has consistently risen over time, real wages in the US have been utterly stagnant for more than 30 years and counting. Value was being created, but it wasn’t going to workers. It went, in ever increasing amounts, to the top tier which ended up with so much surplus capital on its hands, it didn’t know what to do with it other than gamble on absurd “investments” like subprime CDOs and swaps. Re-linking productivity to labors’ income would go a long way towards taming the financial beast, even absent radical antitrust reforms. (The reforms are a great idea as well, but no replacement for workers getting their due.)
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Ezra,
The antitrust laws are actually most restrictive when it comes to collusion, not monopoly. Price fixing is go-to-jail illegal regardless of how big the participants are.
Monopoly behavior, on the other hand, can be justified or excused. (The only defense to collusion is to deny it.) In addition, even if exclusionary conduct by a monopolist is found to be a violation, it will be a civil (and not criminal) charge.
The antitrust laws are meant to protect consumers by preserving competition. It doesn’t matter how big the competitors are except in a relative sense (market share) because higher shares can translate into pricing power and fewer players increases the risk of collusion.
I don’t think anyone has taken the position that Citi is so big that it can increase the cost of banking services and consumers will have no other option but to eat that price increase because other banks can’t or won’t compete effectively with Citi.
Your theory is interesting, but it’s not an antitrust theory.
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Naturally, the financial sector must claim some wealth as its own, since this process of intermediation requires effort, skill, trust, etc, but when the amount is 8% of GDP, one must ask, are they really doing so much to make wealth allocation in our economy more efficient that what they do is of more value than 8% of the economy? Or is the financial sector siphoning off wealth without sufficient strides in efficient financial intermediation to justify its slice?
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The point is, there is a limit to how much value financial intermediaries can add, because their role is to improve efficiency, not to create value independently, and efficiency can’t beat 100%. Is 8% too high a number? I can’t say a priori, but it’s not an unreasonable question.
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So while the banks were “too big to fail,” the problem from an antitrust perspective was not that they were too big. The problem was that they were no regulated enough. Banks have a special place in the antitrust laws, and have specific exemptions, because they are so regulated. And they got to be that size because of who they are regulated by.
The size of banks is governed by the Bank Merger Act, the Bank Holding Company Act, and the Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act). It gives the regulatory authority to the Comptroller of Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the Office of Thrift Supervision. So that’s who you can thank for the size of banks.
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So there you have it – the antitrust laws didn’t regulate the banks, the insurance, or the securities arms. The credit default swaps were unregulated. The SEC is mostly captured by the securities industry, and it’s enforcement arm was hobbled by 8 years of the Bush presidency. The Fed was under the control of Greenspan, and he had other things on his mind. And the OTS, Comptroller, and the FDIC couldn’t touch anything but the banking side, which, for the most part, is not what got us into this mess.
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So, while I appreciate the analogy to antitrust as a lawyer who loves the subject, it is unfortunately inaccurate. The problem is the securitization, and for that, we need to reform the SEC, the CFTC, and the Fed. We should unify the SEC and the CFTC, and make it so that any investment vehicle goes through one agency that makes sure it’s not a financial WMD. And that agency should have an enforcement arm to make bankers quake in their boots when they get a call from them.
The problem isn’t size. Banks can be big, be efficient, and not harm our economy. The problem is the regulation.
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I think of the problem less specifically as a regulation issue and more as a general problem of dependence. “Too big too fail” distracts. What we really mean, I think, is too important to fail. We’re too dependent on these companies to allow them to fail. They aren’t regular businesses anymore, they are more like public utilities. I think that means we ought to be looking for more safeguards against systemic failure in the same way we see it vital to managing the electrical grid or the water supply. It’s not only regulation that’s need, but resiliency in supply and distribution network, and lots of ways to reroute the flow (of capital, as with electricity and water).
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Op-Ed Columnist – The Market Mystique – NYTimes.com
and the story of how this change happened is told in Frank Partnoy’s Afterword to his book FIASCO, in the NPR piece bookmarked in this same time group.
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America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business.
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It all sounds primitive by today’s standards. Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation.
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After 1980, of course, a very different financial system emerged. In the deregulation-minded Reagan era, old-fashioned banking was increasingly replaced by wheeling and dealing on a grand scale. The new system was much bigger than the old regime: On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s.
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Frank Partnoy: Derivative Dangers : NPR
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In his 1997 book FIASCO: Blood in the Water on Wall Street, Partnoy detailed how derivatives — financial instruments whose value is determined by another security — were being used and abused by big financial firms.
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Excerpt: ‘FIASCO: Blood In The Water On Wall Street’
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Afterword
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This book is the story of my journey through the gluttony and dysfunctionality of 1990s Wall Street. But it also is a story about the roots of the 2008 market crisis. Today, when I am asked if anyone saw this crisis coming, I think back to the people I worked with in the derivatives groups at Morgan Stanley and First Boston, and my answer is yes. We invented the products that ultimately blew up the banks. We created the instruments at the center of the subprime mortgage meltdown.
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In what follows, I will connect the dots from the mid-1990s through the end of 2008. I will describe how investors and regulators ignored repeated warnings about the hidden dangers of derivatives. I will show you how derivatives were at the heart of the collapse.
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Indeed, the market declines that destroyed Niederhoffer brought down dozens of institutions that had bet secretly on currencies. However, the Asian crisis was not widespread enough to cause a systemwide collapse. The markets ultimately shrugged off the losses and by spring 1998 the derivatives markets were whirring again.
Regulators, especially Alan Greenspan, the Federal Reserve chairman, were elated that the derivatives markets seemed so resilient in the face of crisis. They agreed with bankers and their lobbyists that no rules were needed; the free markets worked fine on their own.
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When the dust settled after several more hearings, Congress decided to respond to the collapse of Enron, not, as a reasonable citizen might have expected, with rules that actually related to the collapse of Enron, but instead with a law called the Sarbanes-Oxley Act of 2002. SOX, as the law became known, was sweeping and highly controversial. It imposed costly governance reforms on public companies and had some positive impact. But it did nothing about derivatives.
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Even as the chorus of derivatives critics grew, regulators did nothing. James Grant wrote in detail about the dysfunctionality of credit-rating driven derivatives. Warren Buffett denounced derivatives as “financial weapons of mass destruction,” and George Soros exclaimed that derivatives would “destroy society.” But Congress remained silent.
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The Atlantic Online | May 2009 | The Quiet Coup | Simon Johnson
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The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
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by Simon Johnson
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Economics 03/26/2009
Posted by rosshunter on March 25, 2009
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Credit default swap – Wikipedia, the free encyclopedia
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- the seller need not be a regulated entity;
- in the United States CDS contracts are generally subject to mark to market accounting, introducing income statement and balance sheet volatility that would not be present in an insurance contract;
- Hedge Accounting may not be available under US GAAP unless the requirements of FAS 133 are met; if it were not possible to, it could increase income statement and balance sheet volatility if the CDS was purchased to hedge an exposure;
- The buyer of a CDS does not need to own the underlying security or other form of credit exposure; in fact the buyer does not even have to suffer a loss from the default event.[2][3][4] By contrast, to purchase insurance the insured is generally expected to have an insurable interest such as owning a debt.
A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults.[1]
CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the specified events occur. However, there are a number of differences between CDS and insurance, for example:
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- Either the investor delivers a defaulted asset to CITI Bank for a payment of the par value. This is known as physical settlement.
- Or CITI Bank pays the investor the difference between the par value and the market price of a specified debt obligation (even if AIG Corp defaults, there is usually some recovery; i.e., not all your money will be lost.) This is known as cash settlement.[ci
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument – typically a bond or loan – goes into default (fails to pay). Less commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having its credit rating downgraded. Credit Default Swaps can be bought by any (relatively sophisticated) investor; it is not necessary for the buyer to own the underlying credit instrument.[5]
As an example, imagine that an investor buys a CDS from CITI Bank, where the reference entity is AIG Corp. The investor will make regular payments to CITI Bank, and if AIG Corp defaults on its debt (i.e., misses a coupon payment or does not repay it), the investor will receive a one-off payment from CITI Bank and the CDS contract is terminated. If the investor actually owns AIG Corp debt, the CDS can be thought of as hedging. But investors can also buy CDS contracts referencing AIG Corp debt, without actually owning any AIG Corp debt. This may be done for speculative purposes, to bet against the solvency of AIG Corp in a gamble to make money if it fails, or to hedge investments in other companies whose fortunes are expected to be similar to those of AIG.
If the reference entity (AIG Corp) defaults, one of two things can happen:
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The spread of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount. For example, if the CDS spread of AIG Corp is 50 basis points, or 0.5% (1 basis point = 0.01%), then an investor buying $10 million worth of protection from CITI Bank must pay the bank $50,000 per year. These payments continue until either the CDS contract expires or AIG Corp defaults.
All things being equal, at any given time, if the maturity of two credit default swaps is the same, then the CDS associated with a company with a higher CDS spread is considered more likely to default by the market, since a higher fee is being charged to protect against this happening. However, factors such as liquidity and estimated loss given default can impact the comparison.
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Like most financial derivatives, credit default swaps can be used by investors for speculation, hedging and arbitrage.
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- If AIG Corp does indeed default after, say, one year, then the hedge fund will have paid $500,000 to CITI Bank, but will then receive $10 million (assuming zero recovery rate, and that CITI Bank has the liquidity to cover the loss), thereby making a tidy profit. CITI Bank, and its investors, will incur a $9.5 million loss unless the bank has somehow offset the position before the default.
- However, if AIG Corp does not default, then the CDS contract will run for 2 years, and the hedge fund will have ended up paying $1 million, without any return, thereby making a loss.
Credit default swaps allow investors to speculate on changes in an entity's credit quality, since generally CDS spreads will increase as credit-worthiness declines, and decline as credit-worthiness increases. Therefore an investor might buy CDS protection on a company in order to speculate that a company is about to default. Alternatively, an investor might sell protection if they think that a company is not going to default.
For example, a hedge fund believes that AIG Corp will soon default on its debt. Therefore it buys $10 million worth of CDS protection for 2 years from CITI Bank, with AIG Corp as the reference entity, at a spread of 500 basis points (=5%) per annum.
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- After 1 year, the market now considers AIG Corp more likely to default, so its CDS spread has widened from 500 to 1500 basis points. The hedge fund may choose to sell $10 million worth of protection for 1 year to CITI Bank at this higher rate. Therefore over the two years the hedge fund will pay the bank 2 * 5% * $10 million = $1 million, but will receive 1 * 15% * $10 million = $1.5 million, giving a total profit of $500,000 (so long as AIG Corp does not default during the second year).
- In another scenario, after one year the market now considers AIG much less likely to default, so its CDS spread has tightened from 500 to 250 basis points. Again, the hedge may choose to sell $10 million worth of protection for 1 year to CITI Bank at this lower spread. Therefore over the two years the hedge fund will pay the bank 2 * 5% * $10 million = $1 million, but will receive 1 * 2.5% * $10 million = $250,000, giving a total loss of $750,000 (so long as AIG Corp does not default during the second year). This loss is smaller than the $1 million loss that would have occurred if the second transaction had not been entered into.
Note that there is a third possibility in the above scenario; the hedge fund could decide to liquidate its position after a certain period of time in an attempt to lock in its gains or losses. For example:
Transactions such as these do not even have to be entered into over the long-term. If AIG Corp's CDS spread had widened by just a couple of basis points over the course of one day, the hedge fund could have entered into an offsetting contract immediately and made a small profit over the life of the two CDS contracts.
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- If Risky Corporation does not default on its bond payments, the pension fund makes quarterly payments to Derivative Bank for 5 years and receives its $10 million back after 5 years from Risky Corp. Though the protection payments totaling $1 million reduce investment returns for the pension fund, its risk of loss due to Risky Corp defaulting on the bond is eliminated.
- If Risky Corporation defaults on its debt 3 years into the CDS contract, the pension fund would stop paying the quarterly premium, and Derivative Bank would ensure that the pension fund is refunded for its loss of $10 million (either by physical or cash settlement - see above). The pension fund still loses the $600,000 it has paid over three years, but without the CDS contract it would have lost the entire $10 million.
Hedging
Credit default swaps are often used to manage the credit risk (i.e. the risk of default) which arises from holding debt. Typically, the holder of, for example, a corporate bond may hedge their exposure by entering into a CDS contract as the buyer of protection. If the bond goes into default, the proceeds from the CDS contract will cancel out the losses on the underlying bond.
Pension fund example: A pension fund owns $10 million of a five-year bond issued by Risky Corp. In order to manage the risk of losing money if Risky Corp defaults on its debt, the pension fund buys a CDS from Derivative Bank in a notional amount of $10 million. The CDS trades at 200 basis points (200 basis points = 2.00 percent). In return for this credit protection, the pension fund pays 2% of 10 million ($200,000) per annum in quarterly installments of $50,000 to Derivative Bank.
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Collateralized debt obligation - Wikipedia
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Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs are assigned different risk classes, or tranches, whereby "senior" tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk.
A few academics, analysts and investors such as Warren Buffett and the IMF's former chief economist Raghuram Rajan warned that CDOs, other ABSs and other derivatives spread risk and uncertainty about the value of the underlying assets more widely, rather than reduce risk through diversification. With the advent of the 2007-2008 credit crunch, this view has gained substantial credibility. Credit rating agencies failed to adequately account for large risks (like a nationwide collapse of housing values) when rating CDOs and other ABSs.
Many CDOs are valued on a mark to market basis and thus have experienced substantial write-downs on the balance sheet as their market value has collapsed.
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Mortgage-backed security - Wikipedia
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A mortgage-backed security (MBS) is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are typically made monthly over the lifetime of the underlying loans.[1][2]
However not all securities backed by mortgages are considered mortgage-backed securities. Housing Bonds (Mortgage Revenue Bonds) are backed by the mortgages which they fund, but aren’t MBSs.
Residential mortgages in the United States have the option to pay more than the required monthly payment (curtailment) or to pay off the loan in its entirety (prepayment). Because curtailment and prepayment affect the remaining loan principal, the monthly cash flow of an MBS is not known in advance, and therefore presents an additional risk to MBS investors.
Commercial mortgage-backed securities (CMBS) are secured by commercial and multifamily properties (such as apartment buildings, retail or office properties, hotels, schools, industrial properties and other commercial sites). The properties of these loans vary, with longer-term loans (5 years or longer) often being at fixed interest rates and having restrictions on prepayment, while shorter-term loans (1-3 years) are usually at variable rates and freely pre-payable.
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Why is hedge accounting necessary?
Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (for example interest rate risk, foreign exchange risk, commodity risk, etc).
Accounting for derivative financial instruments under International Accounting Standards is covered by IAS39 (Financial Instrument: Recognition and Measurement).
IAS39 requires that all derivatives are marked-to-market with changes in the mark-to-market being taken to the profit and loss account. For many entities this would result in a significant amount of profit and loss volatility arising from the use of derivatives.
An entity can mitigate the profit and loss effect arising from derivatives used for hedging, through an optional part of IAS39 relating to hedge accounting.
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Derivative (finance) – Wikipedia
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Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items (e.g., weather conditions, or other derivatives). Credit derivatives are based on loans, bonds or other forms of credit.
The main types of derivatives are forwards, futures, options, and swaps.
Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect. This activity is known as speculation.
Because the value of a derivative is contingent on the value of the underlying, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet.
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Subprime mortgage crisis – Wikipedia
The Joseph Stiglitz article cited at the end of this is a foundational review of five key mistakes made in US financial policy in the last thirty years, giving rise to the curent malaise. I highligted a lot of it in January:
http://rosshunter.wordpress.com/2009/01/04/what-im-reading-01042009/-
Credit default swaps
Credit defaults swaps (CDS) are financial instruments used as a hedge and protection for debtholders, in particular MBS investors, from the risk of default. As the net worth of banks and other financial institutions deteriorated because of losses related to subprime mortgages, the likelihood increased that those providing the insurance would have to pay their counterparties. This created uncertainty across the system, as investors wondered which companies would be required to pay to cover mortgage defaults.
Like all swaps and other financial derivatives, CDS may either be used to hedge risks (specifically, to insure creditors against default) or to profit from speculation. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. CDS are lightly regulated. As of 2008, there was no central clearinghouse to honor CDS in the event a party to a CDS proved unable to perform his obligations under the CDS contract. Required disclosure of CDS-related obligations has been criticized as inadequate. Insurance companies such as American International Group (AIG), MBIA, and Ambac faced ratings downgrades because widespread mortgage defaults increased their potential exposure to CDS losses. These firms had to obtain additional funds (capital) to offset this exposure. AIG’s having CDSs insuring $440 billion of MBS resulted in its seeking and obtaining a Federal government bailout.[143]
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Like all swaps and other pure wagers, what one party loses under a CDS, the other party gains; CDSs merely reallocate existing wealth [that is, provided that the paying party can perform]. Hence the question is which side of the CDS will have to pay and will it be able to do so. When investment bank Lehman Brothers went bankrupt in September 2008, there was much uncertainty as to which financial firms would be required to honor the CDS contracts on its $600 billion of bonds outstanding.[144][145] Merrill Lynch’s large losses in 2008 were attributed in part to the drop in value of its unhedged portfolio of collateralized debt obligations (CDOs) after AIG ceased offering CDS on Merrill’s CDOs. The loss of confidence of trading partners in Merrill Lynch’s solvency and its ability to refinance its short-term debt led to its acquisition by the Bank of America.[146][147]
Economist Joseph Stiglitz summarized how credit default swaps contributed to the systemic meltdown: “With this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else-or even of one’s own position. Not surprisingly, the credit markets froze.”[148]
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Sustainability 03/21/2009
Posted by rosshunter on March 20, 2009
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For any first-time visitors here because of the Rolling Stone special section “RS100: The people who are reinventing America,” this post is intended as an introduction to Climate Progress.
[My apologies to regular CP readers for yet another introductory piece — and of course, for the tasetless RS cover — but I’ve kinda started hangin’ with a bad crowd now. And who doesn’t like ice cream?]
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For the most part, the debate has ignored the cheapest, cleanest energy source: using electricity more efficiently. Reducing energy demand and consumption would mean that we could do more while using less. According to McKinsey & Company, improving energy efficiency could offset 85 percent of projected electricity demand in 2030. Energy saved via efficiency improvements costs significantly less than conventional base-load electricity.
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Even though efficiency reduces energy use, saves money, and reduce pollution, a win- win-win, most government and businesses are just awakening to the opportunities of efficiency investments. Uniting under the newly announced Campaign for an Energy Efficient America, more than 60 corporations and nonprofits strongly advocate a national Energy Efficiency Resource Standard (EERS) to mandate efficiency improvements across the country.
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Because these cars of tomorrow require the batteries of tomorrow, I am announcing that the Department of Energy is launching a $2 billion competitive grant program under the Recovery Act that will spark the manufacturing of the batteries and parts that run these cars, build or upgrade the factories that will produce them, and in the process, create thousands of jobs right here in America.
Show us that your idea or your company is best-suited to meet America’s challenges, and we will give you a chance to prove it. And just because I’m here today doesn’t exempt all of you from that challenge — every company that wants a shot at these tax dollars has to prove their worth.
We are also making a $400 million down-payment on the infrastructure necessary to get these cars on the road; and because these cars won’t leave the showroom unless consumers buy them, the Recovery Act includes a new tax credit of $7,500 to encourage Americans to plug one in at home.
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Like all Ponzi schemes, the system must collapse. When it does, the only jobs left standing will be those that are “green” — which can be defined as those jobs that do not plunder nonrenewable energy resources and natural capital and/or do not to destroy a livable climate.
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I expect most opinion makers and the majority of the public to get desperate about reducing greenhouse gas emissions in the 2020s. But desperation is not collapse. I have tended to think that the inflection point is around 2030.
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the UK government’s chief scientist, Professor John Beddington, laid out something very close to the collapse scenario in his speech yesterday to the government’s Sustainable Development UK conference in Westminster. He warned that by 2030, “A ‘perfect storm’ of food shortages, scarce water and insufficient energy resources threaten to unleash public unrest, cross-border conflicts and mass migration as people flee from the worst-affected regions,” as the UK’s Guardian put it.
You can see a five-minute BBC interview with Beddington here. The speech is now online, so I will excerpt it at length
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Sustainability 03/19/2009
Posted by rosshunter on March 18, 2009
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- Just 10 chimneys like the one proposed will offset
Global Warming. - Each chimney will produce ~330,000 Mega Watts of
electricity, which is equivalent to the amount of energy 15 super powerful nuclear
stations produce - Each chimney will induce rain generation in
surrounding areas and will produce roughly 70 million tons of water
precipitation every day, which is equal 4% of Mississippi river flow in New
Orleans or about 80 Jordan Rivers. - Each chimney will transform at least 300 square miles
of desert into arable land. - Each chimney will trap approximately 1,500,000 tons of CO2 per year in the newly created arable area.
Summary
The invention suggests employing a super tall chimney to facilitate heat exchange in
the atmosphere as a remedy to Global Warming. Calculations show that if we construct a chimney 5 kilometers (3 mile)
tall and 1 kilometer (0.7 mile) in diameter, we can expect the following amazing results:
The goal of this website is to explain the idea of
utilizing super-chimney technology as a unique way to avert global warming
catastrophe at the same time as generating clean energy and irrigation. After
looking through the information on this site you will understand how this
technology works, and — in fact — how simple it is!I suspect you might have questions, concerns, or criticism. In this
regard, I urge you not to hesitate to contact me at mike@superchimney.org. I
promise to do my best in replying to you in a timely fashion with more detailed
explanations and discussion.Sincerely,
Michael Pesochinsky
- Just 10 chimneys like the one proposed will offset
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Transition Towns WIKI :: Main / HomePage
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It all starts off when a small collection of motivated individuals within a community come together with a shared concern: how can our community respond to the challenges, and opportunities, of Peak Oil and Climate Change?
They begin by forming an initiating group and then adopt the Transition Model (explained here at length, and in bits here and here) with the intention of engaging a significant proportion of the people in their community to kick off a Transition Initiative.
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- awareness raising around peak oil, climate change and the need to undertake a community lead process to rebuild resilience and reduce carbon
- connecting with existing groups in the community
- building bridges to local government
- connecting with other transition initiatives
- forming groups to look at all the key areas of life (food, energy, transport, health, heart & soul, economics & livelihoods, etc)
- kicking off projects aimed at building people’s understanding of resilience and carbon issues and community engagement
- eventually launching a community defined, community implemented “Energy Descent Action Plan” over a 15 to 20 year timescale
After going through a comprehensive and creative process of:
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- that we used immense amounts of creativity, ingenuity and adaptability on the way up the energy upslope, and that there’s no reason for us not to do the same on the downslope
- if we collectively plan and act early enough there’s every likelihood that we can create a way of living that’s significantly more connected, more vibrant and more in touch with our environment than the oil-addicted treadmill that we find ourselves on today.
The community also recognises two crucial points:
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What is Repower America?
Repower America is the bold clean energy plan to “repower” our country with 100% clean electricity within 10 years.
First described in a speech last July by Al Gore, Repower America means new industries with high-paying jobs. It means lower energy costs. And, it means substituting clean domestic sources of energy and a transition away from dirty coal and foreign oil. Read about the goal here.
By making buildings and homes more efficient, ramping up renewable energy generation, constructing a unified national smart grid, and transitioning to clean and affordable plug-in cars, we can address our country’s economic and national security challenges—all while making huge strides to solve the climate crisis.
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Videos
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This Is Reality | The Details Behind The Facts
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There are no homes in America powered by “clean” coal today. There are no “clean” coal power plants selling electricity in America today. In fact, America does not have a single demonstration “clean” coal plant that captures and safely stores its carbon pollution. The technologies that capture or safely store CO2 have not yet been integrated with coal power at commercial scale. This means that the roughly 600 coal plants producing electricity in the US today are not preventing their global warming pollution from entering the atmosphere. Although the technologies are being developed and tested, in reality, there is no such thing as “clean” coal power in America today.
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Policy 03/19/2009
Posted by rosshunter on March 18, 2009
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CAN OBAMA DO TO WALL STREET WHAT REAGAN DID TO THE AIR TRAFFIC CONTROLLERS?
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The question is “why?” Why so little shame? Matt Yglesias has a provocative thesis, arguing that the virtuous selfishness prized by the market has been absorbed as an ethical philosophy. “We’ve somehow managed to construct something of a post-shame society,” he says, “in which elites have convinced themselves that the rational agent model of human behavior is not just a useful modeling tool, but an ethical guidebook. There’s something to be said for the idea of a sense of honor and personal responsibility. “
You might see more of that if only a single firm had failed. But when your entire peer group is experiencing the same catastrophe, it’s easier to convince yourself that you bear no personal responsibility. Indeed, why would you feel shame? In comparison to whom? Shame is relative. The people whose opinions matter to you, after all, are in no place to condemn. And if no one succeeded then it’s hard to say that any individual failed.
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It’s also the only approach with a chance of changing the culture of Wall Street. When Reagan fired the striking air traffic controllers, he signaled the coming of a new national culture: One in which dynamism would be prized and taxes would be lower and Labor’s power would diminish. This was, in part, the fulfillment of Reagan’s mandate. Elections are as much about the values of the country we want as the policies of the administration we choose. But it’s hard for a president to change national values. You can’t do it through a bill. You need the right moment. And AIG’s bonuses may provide that moment.
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What to Do About “Mad as Hell”
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A system of morality cannot exist without accountability. In this case, Wall Street needs to be pulled back into the social contract. Traders pride themselves on being gunslingers, but when there are too many gunslingers, they outnumber the law. That is still the prevalent situation. (The fired-up CNBC reporter who ranted against Obama’s plan to rescue distressed homeowners turned to traders on the floor and screamed, “Any of you guys want to bail out your neighbors?” The frightening part wasn’t the arrant selfishness on display. The frightening part was that he and his kind feel righteous.) The financial elite don’t want to change their ways. After grudgingly accepting a slap on the wrist, they fully intend to go back to business as usual.
What would it take to change a whole subculture that has escaped all ethical boundaries?
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Economics 03/19/2009
Posted by rosshunter on March 18, 2009
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TPMCafe | Talking Points Memo | Irony on Last Legs
it’s a cultural thing.
great comment by oleeb.
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Over the years, Wall Street, and not least AIG, spawned ingenious ways to spin off stupendously lucrative new business by putting technical reason to use in place of substantive reason. The economics departments and business schools did handsomely at cranking out expertise in the calculation of means when it was the ends that had gone haywire. The models they devoutly believed in, and taught to generation after generation, amounted to intellectual fraud. Their models described not the actual world but the portion of the actual world that institutions of the higher finance could manage by monetizing.
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There are some smart guys who work for these firms but we all know that the primary quality always sought by the business world has never been “best and brightest”. It has always been those who were most rapacious, willling to do anything to get ahead without any concern for ethics or morality. Yet, for as long as I can remember we have kissed these people’s asses because their worship of money has become the society’s highest and most desirable value. This immorality ethic has corrupted our entire society. We learn about the robber barons in our history classes and then naively assume that “those days are in the past” when right under our noses the American businessman has idolized and worshiped those crooks.
Our perverted culture has always rewarded the fast-talking hucksters and snake oil salesmen. The New Dealers understood this very well and that is why despite the screeching protests of the predator classes they insituted the reforms and regulations that kept the American economy on a relatively stable operating basis for so long. All the reforms and deregulation were justified with charts showing how complicated new methods could be used to “grow” profits and when questioned about the possibility of the excesses and mistakes of the past being made they basically said “oh well, nobody would ever take those kinds of foolish risks.” The Reublicans swallowed it and declared it the best meal ever prepared. With the addition of lots of sweetener by greasing enough palms (in terms of campaign contributions) the predator class convinced enough Democrats that it was a tasty dish as well. And that was that. Now look where we are.
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Confusion, Tunneling, And Looting « The Baseline Scenario
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Emerging market crises are marked by an increase in tunneling - i.e., borderline legal/illegal smuggling of value out of businesses. As time horizons become shorter, employees have less incentive to protect shareholder value and are more inclined to help out friends or prepare a soft exit for themselves.
Boris Fyodorov, the late Russian Minister of Finance who struggled for many years against corruption and the abuse of authority, could be blunt. Confusion helps the powerful, he argued. When there are complicated government bailout schemes, multiple exchange rates, or high inflation, it is very hard to keep track of market prices and to protect the value of firms. The result, if taken to an extreme, is looting: the collapse of banks, industrial firms, and other entities because the insiders take the money (or other valuables) and run.
This is the prospect now faced by the United States.
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The most important–and timely–management book of 2002. Rakesh Khurana pulls back the curtain on … the vogue for hiring celebrity outsiders over capable insiders… A thousand hosannas. Fortune [This] new book … will surely intensify the already hot debate on corporate governance… [It] seems wonderfully rational, not to mention impeccably well timed… Recent events, of course, should make people care about the problems he spotlights. Some chief executives have either looted their companies or mismanaged them in ways that have wiped out billions of dollars of shareholder value. — William J. Holstein The New York Times CEOs often write their own tickets when they ride to the rescue of a company in distress. Khurana details the ways that CEO accountability has diminished and compensation has skyrocketed (while workers’ pay, in real dollars, has gone down). — Adam Rogers Newsweek As Mr. Khurana patiently explains, the rise of the charismatic C.E.O. has been, on balance, a terrible trend for American business… C.E.O.s have justified their ludicrous, pharaoh-like paydays with talk about supply and demand, meritocracy and shareholder value–but as it turns out, there’s no steady correlation between any of these. — Stephen Metcalf New York Observer Searching for a Corporate Savior pulls back the curtain on how the system of CEO selection actually works… As a precondition to accepting the job, Khurana found, most candidates insist on taking both the chairman and C.E.O. titles as well as the right to stack the board with their cronies… [M]any of those C.E.O.s have transferred ungodly sums of money from shareholders to their own pockets. — Jerry Useem American Prospect Highly readable… Khurana shows that the damage caused by celebrities in the executive suites does not affect merely employees and investors but society as a whole. Toronto Globe and Mail Even if a company is in dire straits, is an outsider likely to be the best person to rescue it? Mr. Khurana insists that is rarely the case. As markets go
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naked capitalism: AIG Bailout Saved Goldman From Major Loss
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Gretchen Morgenson in the New York Times reports that Goldman and no other Wall Street firm was involved in the AIG rescue talks and an AIG failure would have created a hole as big as $20 billion in Goldman’s balance sheet.
This is special dealing, pure and simple. Even if AIG needed to be salvaged (there was considerable agreement on this point), having Goldman deeply involved in the process is cronyism. But that’s been a staple of this Administration.
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Road Map for Financial Recovery: Radical Transparency Now!
crowdsource regulation, a suggestion from Wired
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That’s why it’s not enough to simply give the SEC—or any of its sister regulators—more authority; we need to rethink our entire philosophy of regulation. Instead of assigning oversight responsibility to a finite group of bureaucrats, we should enable every investor to act as a citizen-regulator. We should tap into the massive parallel processing power of people around the world by giving everyone the tools to track, analyze, and publicize financial machinations. The result would be a wave of decentralized innovation that can keep pace with Wall Street and allow the market to regulate itself—naturally punishing companies and investments that don’t measure up—more efficiently than the regulators ever could.
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The revolution will be powered by data, which should be unshackled from the pages of regulatory filings and made more flexible and useful. We must require public companies and all financial firms to report more granular data online—and in real time, not just quarterly—uniformly tagged and exportable into any spreadsheet, database, widget, or Web page. The era of sunlight has to give way to the era of pixelization; only when we give everyone the tools to see each point of data will the picture become clear. Just as epidemiologists crunch massive data sets to predict disease outbreaks, so will investors parse the trove of publicly available financial information to foresee the next economic disasters and opportunities.
The time to act is now. An exhaustive study by the Transparency Policy Project at Harvard University’s John F. Kennedy School of Government—analyzing disclosure rules for everything from restaurant cleanliness to SUV rollover risk—found that there’s a very brief window after any calamity for government to institute changes. (Wait too long and the special interests start regaining their confidence and pushing back.) In the financial world, the old order is still trying to find its new shape. So the window is, briefly, cracked. Caveat vendor
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SSRN-Executive Compensation as an Agency Problem by Lucian Bebchuk, Jesse Fried
this is the paper referred to by Kwak in the baselinescenario piece adjacent
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Executive Compensation as an Agency Problem
Lucian Arye Bebchuk
Harvard University – Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)Jesse M. Fried
University of California, Berkeley – School of Law
Journal of Economic Perspectives, Vol. 17, pp. 71-92, 2003
Abstract:
This paper provides an overview of the main theoretical elements and empirical underpinnings of a managerial power approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as part of the agency problem itself. Boards of publicly traded companies with dispersed ownership, we argue, cannot be expected to bargain at arm’s length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an interest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers’ performance. We show that the managerial power approach can explain many features of the executive compensation landscape, including ones that many researchers have long viewed as puzzling. Among other things, we discuss option plan design, stealth compensation, executive loans, payments to departing executives, retirement benefits, the use of compensation consultants, and the observed relationship between CEO power and pay. We also explain how managerial influence might lead to substantially inefficient arrangements that produce weak or even perverse incentives.
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How Do You Like Them Free Markets? « The Baseline Scenario
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The basic problem is the old principal-agent problem: how do you get an agent to act on behalf of his principals, instead of looting them for his own gain?
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managers use their power over the board to maximize their own compensation while simultaneously weakening its links to their performance and making it as hard to understand as possible, in order to minimize shareholder outrage. Having observed the way CEOs get selected and compensated, and having read Rakesh Khurana’s book on CEO searches, and most importantly having a pulse, I’m surprised there is even a debate about this, but the paper is from 2003, so maybe the debate is over by now.
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That compensation is set by top executives and approved by the board, all of whom are bought into the myth of their own uniqueness; the shareholder, be he a teacher on Main Street or a mutual fund manager in Greenwich, doesn’t have a seat at that table. Put another way, compensation should theoretically be determined by the owner of the company – the person who gets the profits after salaries and bonuses are paid – but that person has been cut out of the negotiation by the weakness of our corpoorate governance practices.
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The other guess is that it’s just the equilibrium the industry reached. The conventional wisdom is that you have to pay the traders a lot, so everyone goes along with it, whether or not it’s true, because of the risk of stepping out of line. Whereas in chicken production, the conventional wisdom is that you can squeeze the workers. This conventional wisdom is more likely to arise in industries where labor is thought to be more important than capital, and you are therefore more afraid that the company will be hurt if the people walk out the door.
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Michael Lewis, in _Liar’s Poker_, describes how Salomon watched their most productive traders walk out the door (by not paying “enough”) and head up trading desks at other firms, thereby surrendering a monopoly on certain kinds of trading that made the firm incredibly profitable.
This was market action at work, but Wall Street learned the wrong lesson from it, as J.K. elaborates.
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EzraKlein Archive | The American Prospect
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Can we stop pretending this money is anything but looting? At this point, every sane employee of AIG, Citibank, and other “troubled” institutions is doing the nearest legal equivalent to going down to the safe in the basement and stuffing their pants full of cash.
Why? Because we’re letting them. There’s absolutely no reason not to–they’ve driven their companies into the ground while lining their pockets. Why would they stop now just because their companies are dead? There’s still assets to move from the company’s accounts into their own. The rational economic move here is to do it. More and faster!
And this nonsense that AIG created a bomb only it can defuse, so we have to pay these guys whatever they demand? Is this a joke?
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There are plenty of people who understand what they did better than the AIG traders do–for the simple reason that they understand that it was failure prone from the very beginning.
I absolutely agree. Furthermore, the idea of ponying up and then hoping they won’t blow up the bomb suggests they should twiddle their thumbs for 6 months, demand another $160 million, twiddle some more, repeat until people wise up and stop paying them off. At which point who knows how much more screwed up they will have managed to make everything.
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Axelrod And Emanuel Were Right (On The American Bank Oligarchs) « The Baseline Scenario
Simon chafing back in February
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So how do you get the message across? Obviously, we need the comprehensive stress test immediately and it has to be transparent and very tough. And this is where David Axelrod and Rahm Emanuel have apparently been exactly right in the past 10 days. According to press reports (NYT yesterday and WSJ last week), both have pushed for tougher symbolic and substantive actions that would hurt bankers’ pocketbooks and weaken the largest banks.
Remember, weakening the big banks and their bosses should not be seen as an unfortunate side effect of beneficial medicine. It is exactly what we need to do under these circumstances. Unless and until these banks’ economic and political influence declines, we are stuck with too many people who know exactly what they can get away with because their organizations are “too big to fail.”
And weakening these banks (or actually having some of them go out of business and be broken up) as part of a comprehensive system reboot – with asset revaluations at market prices and a complete recapitalization program – will help return the credit system to normal.
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The Tipping Point? « The Baseline Scenario
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I used to be confused about the cult expressing itself in terms like “best and brightest”, “talent”, “innovation” being used in ways that clearly had no relation to the English language.
This was obviously an Orwellian ideological language, but it took me awhile to figure out that the key is that all these terms are being used in a corporatist, not even a capitalist, sense.
Therefore, whereas innovation normally refers to creating some new real value, and talent refers to innate ability at some real endeavor, here innovation refers only to finding new ways to seek and collect rent, the talent referred to is that of a con man, and the pivotal figures are the lobbyist, the lawyer, the PR flack, the captured regulator, the corrupt politician.
I don’t doubt they’ve been so immersed in this ideology for so long they have come to completely believe in it, and are incapable of seeing anything from any other perspective.
This also goes to the inability of this administration to look at things any other way. Whether one’s gut response to these AIG bonuses was, “this is unconscionable, these contracts are on their face invalid, let’s figure out how to fix this, but fix it we must and shall”, as opposed to “contracts are sacred, and we can’t do anything about it”, is clearly a matter of ideology and political will.
(By now strict legalities have nothing to do with the matter.)
That’s why the exemplary adminstration response was Summers blathering about the “rule of law”, how we can’t “abrogate” and so on. This is because he’s a hard-core ideological warrior for corporatism and has dedicated his life to enabling looting operations like this one.
He may deplore, on a tactical level, the brazen shoddiness of this particular extraction. But he cherishes this basic outcome. So of course he’s going to claim it’s a legal fait accompli, when it is in fact no such thing.
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Economics 03/17/2009
Posted by rosshunter on March 16, 2009
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Obama’s response to the crisis | Pursued by Obamabears | The Economist
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tp1024 wrote:
March 12, 2009 18:30The Bush Bear Market
People fret that investors are not up to their jobs
Investors have been handling huge amounts of money ever since the establishment of current financial systems. In recent years however, these investors have had a worrying tendency to turn to financial institutions themselves, in order to invest their money. Those institutions would then use this reinvested money to lend it out to more investors who would go on to invest it, partly in ordinary business, partly in financial institutions yet again.
The inefficiencies created by this system have been astonishing. They served to raise the share of financial institution in GDP up to 14% and their share of the national corporate profits to 40%. The most profitable sector by far, despite its utter lack of producing either physical products or the services that modern economies supposedly consist of. It was this incredible profitability that caused investors to primarily turn to the financial sector when it came to investing their money.
The worrying question of the people of nations around the globe is now: Are investors up to the task of setting aside those financial institutions and put sorely needed investments efficiently and effectively into industries long neglected despite being vital to the lives of the people and the functioning of any economy?
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Solving the jobs crisis | The jobs crisis | The Economist
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The bare truth is that the more easily jobs can be destroyed, the more easily new ones can be created. The programmes that help today, by keeping people in existing jobs, will tomorrow become a drag on the great adjustment that lies ahead. As time goes by, spending on keeping people in old jobs will need to be cut, and replaced with spending on training them for new ones. Governments will have to switch from policies to support demand to policies to make their labour markets more flexible.
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Sustainability 03/16/2009
Posted by rosshunter on March 15, 2009
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An expensive approach to climate change | Cap and binge | The Economist
ap and Trade that Works
So far, cap and trade systems have not succeeded in reducing emissions of carbon dioxide from fossil fuel combustion enough to justify the economic hardship they’ve inflicted. The fundamental reasons for this failure are that the economic incentives and disincentives of this system have not hit the correct targets, and that the programs are prone to fraud and difficult to enforce. The following proposal corrects those problems.
1. Limit the scope of the cap and trade program to electric power generation. All fossil fuel use outside the program should be subject to a carbon tax (which could be implemented separately, perhaps with the tax rate following a price established by this program).
There are several reasons to confine the program to electric power generation only. First, limiting the number of pollution sources in the program makes it possible to enforce compliance, and second, electric power generation is fundamentally an energy conversion and delivery industry and not an energy consumer, and as such its incentives should be applied differently.
The most and least important reason to limit the scope of the program to electric power generation is that it makes the program politically possible right now. The electric power industry is already regulated, and many voters imagine cap and trade will solve the climate problem without costing them any money. Elected officials should be able to support this program without jeopardizing their re-elections.
2. Define a cap in terms of metric tons of carbon dioxide emitted per megawatt hour generated and sold.
Specifying emissions per megawatt-hour targets the generation mix rather than the total amount of power supplied to the grid, and will guide power company choices for new generation facilities and upgrades to existing facilities.
3. Distribute allowances that reflect the cap to all generators, including non-polluting generators, based on the amount of electricity they sell. Require allowances to be used to purchase fossil fuels fo
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Sustainability 03/13/2009
Posted by rosshunter on March 12, 2009
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The banks, the Fed and Treasury are playing a hiding game, if they do actually have a good idea of what the assets are worth – they don’t want the share prices to collapse (more than they have).
The astronomical amounts involved in credit default swaps are often mentioned, as in the WaPo piece referred to by JHM. But who are these amounts owed to, people on Mars? If someone is obliged to pay, someone else has to receive. To a considerable extent there is a colossal bookkeeping problem, which won’t be cleared up as long as people have reasons to hide the true situation.
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I have no quarrel with Dean’s comments here, but think we need to focus on a larger picture. Regarding the figures put forward in the Post op-ed cited by JHM, I would guess that the 5 to 30 cents on the dollar valuation is one that merely takes into account the orgy of asset inflation over the past couple decades, but NOT the fact that economic arrangements such as suburbia and the present food system are not viable without enormous energy inputs that are completely unsustainable. Surely the needed transformation of our economy and society in the face of the death trap we have set for ourselves is the number one priority, along with a new set of financial arrangements that must be completely subordinated to this goal – NOT shoring up the existing banks. I agree that along the way the banks will have to be placed in receivership, but the concern expressed in several of the comments over proper asset pricing and open books, is also, to my mind, something of a diversion from what is most important.
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Economics 03/13/2009
Posted by rosshunter on March 12, 2009
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This American Life – the Bad Bank explanation
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375: Bad Bank
Download a transcript.
The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset. -
Prologue.
Host Ira Glass plays clips from TV in a recent senate hearing and talks about how
confusing the current banking crisis is. But fortunately today, we have the
team that brought us our show that explained the mortgage crisis a year ago,
back to explain entire the banking system in 40 minutes. (3 minutes)Act One. The Collapse of the US Banking System Explained in Just 39 Minutes.
Alex Blumberg and Adam Davidson tackle a very tough subject: trying to
explain exactly what a bank is and does. They talk to a number of experts
about what has gone wrong in banking, but not before bringing us all up to
speed on some banking basics, like understanding a bank balance sheet, and a
bank’s assets and liabilities, and the squishy business of what banks say
about their balance sheets compared to what they are.Alex and Adam walk us step by step through the complications of the US
government buying up bad assets from banks, and explain why, when it comes
to footing the bill, the government might just prefer to not be in charge of
the very banks it is having taxpayers bailout. From a dollhouse, to a
hypothetical bank worth tens of dollars, to the trillions of dollars being
spent to keep banks afloat, Alex and Adam talk economy, and where we might
be headed. (39 minutes)Act Two. Clean Up Crew.
Not everyone hates the idea of “toxic assets.” Reporter Lisa Chow goes to New Jersey
to follow two guys on their quest to clean up some of America’s bad
mortgages—by buying them, and going straight to the homes themselves to
have a look at how dire the situation really is. (13 minutes)
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Economic Scene – The Looting of America’s Coffers – NYTimes.com
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And “Looting” provides a really useful framework. The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.
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Promised bailouts mean that anyone lending money to Wall Street — ranging from small-time savers like you and me to the Chinese government — doesn’t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today’s crisis look tame.
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Looters — savings and loans and Texas developers in the 1980s; the American International Group, Citigroup, Fannie Mae and the rest in this decade — can then act as if their future losses are indeed somebody else’s problem.
Do you remember the mea culpa that Alan Greenspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last fall? He said that he was “in a state of shocked disbelief” that “the self-interest” of Wall Street bankers hadn’t prevented this mess.
He shouldn’t have been. The looting theory explains why his laissez-faire theory didn’t hold up. The bankers were acting in their self-interest, after all.
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Sustainability 03/11/2009
Posted by rosshunter on March 10, 2009
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Building a green economy strong enough to lift people out of poverty — Green For All
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What’s the best way to give Americans of all socioeconomic backgrounds a tangible stake in fighting for issues like global warming?
Easy: Make it their livelihood. Every day, about 135 million people go to work in the U.S. Imagine what would happen if millions of those jobs — plus new ones created for people who are currently unemployed — were in fields like renewable energy, sustainable agriculture, and green building.
Our two crucial concerns about survival — the environment and making a living — would be combined. A person’s commitment to their job would also be their commitment to the planet.
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Overshoot: Ecological Basis of Revolutionary Change
classic text Overshoot: The Ecological Basis of Revolutionary Change – William Catton
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Circumstance: The Age of Exuberance is over, population has already overshot
carrying capacity, and prodigal Homo sapiens has drawn down the world’s savings
deposits.Consequence: All forms of human organization and behavior that are based on the
assumption of limitlessness must change to forms that accord with finite limits. -
The Industrial Revolution made us precariously dependent on nature’s dwindling
legacy of non-renewable resources, even though we did not at first recognize
this fact. Many major events of modern history were unforeseen results of
actions taken with inadequate awareness of ecological mechanisms. Peoples and
governments never intended some of the outcomes their actions would incur.
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GrowthBusters.com » Find Out More
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We are hooked on a system that depends on growth
It no longer provides the prosperity or happiness we seek
It is unsustainable
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Change Everything Now | Orion Magazine
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At the current rates, the world economy will be twice as big as it is today in seventeen years. That carries the potential for enormous additional destruction. The environmental movement has a lot of wonderful things about it, and it’s accomplished a lot. But it’s not up to this challenge of dealing with this amount of environmental loss and destruction.
The fundamental thing that’s happened is that our efforts to clean up the environment are being overwhelmed by the sheer increase in the size of the economy. And there’s no reason to think that won’t continue. So we have to ask, what is it about our society that puts such an extraordinary premium on growth? Is it justified? Why is that growth so destructive? And what do we do about it?
Capitalism is a growth machine. What it really cares about is earning a profit and reinvesting a large share of that and growing continually. Profits can be enhanced if the companies are not paying for the cost of their environmental destruction—so they fight [paying it] tooth and nail. The companies themselves are now quite huge, quite powerful, quite global, and no longer just the main economic actors in our society. They are the main political actors also.
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The Gospel of Consumption | Orion Magazine
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Today “work and more work” is the accepted way of doing things. If anything, improvements to the labor-saving machinery since the 1920s have intensified the trend. Machines can save labor, but only if they go idle when we possess enough of what they can produce. In other words, the machinery offers us an opportunity to work less, an opportunity that as a society we have chosen not to take. Instead, we have allowed the owners of those machines to define their purpose: not reduction of labor, but “higher productivity”—and with it the imperative to consume virtually everything that the machinery can possibly produce.
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Economics 03/07/2009
Posted by rosshunter on March 6, 2009
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Beat the Press Archive | The American Prospect
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The government is handing even more money to Citigroup and the NYT is doing its best to cover up. The NYT reports on the fact that the government’s preferred shares in Citigroup are being converted to common shares at a price of $5 per share, more than twice the market price.
The article describes this move as, “giving taxpayers more risk, but more potential for profit if the company recovers.” This is extremely misleading. At the point of the transaction, the government is effectively losing half of its money, which had already been invested at a return that was far below market rates.
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the government is getting 5%. Warren Buffett got 10% from Goldman Sachs (a far safer bet than Citi). So the government’s interest rate is less than half of the market rate.
Not satisfied with that sweetheart deal, the gov’t agreed to accept nearly worthless common shares instead of at least trying to get our money back. To add insult to injury, the only reason the common stock isn’t completely worthless is because of anticipated future gov’t bailouts.
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It might be of interest for some readers to take a look at a post “Citigroup arithmetic explained” on at the Baseline Scenario blog.
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Please excuse my ignorance. Could someone make it clear who will personally benefit from this government largesse? The holders of Citigroup stock or ?
Or is the theory that everyone benefits because the system does not collapse? Is such a theory true?
If the system collapsed, who would win? Holders of gold?
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Beat the Press Archive | The American Prospect
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The Post implies that the slowdown in non-residential construction in the United States is due to a lack of financing. While there has undoubtedly been a tightening of credit, this should not be surprising in an environment where vacancy rates are soaring and rents are falling. Builders look like extremely poor risks at present, since new buildings are likely to sit largely empty for many years after completion. Under such circumstances, lenders would be very hesitant to make loans even if the financial system were rock solid.
–Dean Baker
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This is another aspect of a larger observation- that for the past 10 years excess money has skewed the American economy towards finance and home and commercial construction. With that money gone we will move towards a new equilibrium, possibly making more stuff or making the same amount of stuff more efficiently and spending more on health (or something else). This will take time and pain and we should not expect to return to the past.
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Dean’s comment is definitely true, and reminiscent of the situation in the 1930s when lenders wouldn’t make new loans for the same reason. When Jesse Jones of the Reconstruction Finance Corporation (roughly the New Deal’s equivalent of TARP and TALF), who was the former CEO of Texas Commerce Bank, got sick of this and announced that the agency would start aggressively lending directly itself, he discovered that most of the credits were garbage, and the RFC largely stayed out of the market.
Calculated Risk shows that there was no bubble in office, at best a modest one in malls (probably nothing compared to the 1980s), but a frightening one in lodging. http://www.calculatedriskblog.com/2009/03/cre-investment-in-hotels-offices-and.html This is mainly a leverage story rather than an overbuilding story, as developers like General Growth and Harry Macklowe came to grief by funding the acquisition of long-term assets with highly leveraged short-term loans.
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The budget and the environment | Whom the cap fits | The Economist
The Economist, on Obama’s budget, with praise for climate consciousness now.
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Mr Obama also proposes to eliminate various tax breaks for oil firms, a step that his budget plan calculates would raise about $30 billion over the next decade. That is logical: there is no point in calling for cleaner energy while subsidising the dirty kind. It also serves a political purpose. Mr Obama can now label opponents of his plans as corporate lackeys, not to mention enemies of the working man.
The only big new spending scheme would be for research into cleaner forms of energy, which would receive $15 billion a year. But here and there throughout the budget Mr Obama suggests spending a little bit more on various programmes related to climate change, from NASA’s monitoring of greenhouse gases to the Department of the Interior’s efforts to protect vulnerable wildlife.
Simply including all these measures in the proposed budget is no guarantee that Congress will approve them. Mr Obama still faces an almighty dust-up over cap-and-trade, in particular. But by including it in his budget plans, he sends a more tangible signal of his determination to take on global warming than he could with a score of uplifting speeches
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A wishful first budget | Wishful, and dangerous, thinking | The Economist
about that Economist leader…
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solarflares wrote:
March 05, 2009 18:53There continues to be false hand-wringing about “big government” and “socialism” as President Obama attempts to put a plug in the dike and prevent further erosion of the US and global financial crisis. A large number of highly respected economists and European Finance Ministers have suggested that the biggest flaw in his plan is that it is “too little.”
The complaints, of course, emanate primarily from the apologists for the “rich and famous” that are purportedly the champions of “free enterprise” and capitalism. The truth is that this whole group has benefitted by an almost unprecedented period of power in business, finance, government, and – unfortunately – the media. They have done little for the “wealth” of the societies they come from but became, instead, the masters of the casino.
What, really, is the “danger” in Obama’s thinking? Is it that modern aristocracy will lose its privilege and that the other 90% of the population of the world will gain a little more power? It will take time to overcome the mythology of the Reagan/Thatcher years but no society that has survived that has had the levels of disparity that exist between the rich and poor that exist in the US and the UK. Short-term greed always leads to long-term upheaval.
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bampbs wrote:
March 05, 2009 17:38To expect an attempt at wholesale reform of the tax system in the midst of the worst economic collapse since the ’30s is spectacularly unreasonable. It is a fact that the GOP has been the party of fiscal nonsense, by cutting taxes and raising spending. The only periods since WW2 in which the national debt as a percentage of GDP increased were the 12 years of Reagan/Bush1 and the 8 years of Bush2. So calm down. I suggest we give President Obama more than a few weeks.
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A wishful first budget | Wishful, and dangerous, thinking | The Economist
The Economist has not been making much sense lately, and its leader on Obama’s proposed budget seems couched in rhetoric about taxing the rich that really doesn’t address the fundamentals of the US economy, or even the objectives of the budget. To complain about “growing government” in a time of a notoriously failing private sector seems rather ideological. A shame.
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Barack Obama’s budget
Wishful, and dangerous, thinking
Mar 5th 2009
From The Economist print editionThe president has not explained to Americans that if they want bigger government, they will have to pay for it
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Posted from Diigo. The rest of my favorite links are here.
Posted in Economics | Leave a Comment »
Policy 03/07/2009
Posted by rosshunter on March 6, 2009
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EzraKlein Archive | The American Prospect
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Finally, I want to be very clear at the outset that while everyone has a right to take part in this discussion, no one has the right to take it over. The status quo is the one option that is not on the table. And those who seek to block any reform at any cost will not prevail this time around.
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Posted from Diigo. The rest of my favorite links are here.
Posted in Policy | Leave a Comment »
The concept of “debating” climate change is the very core of the denialist dynamic.
As Joe Romm, at Climate Progress has often pointed out, there’s debate and there’s peer review, and these are two different things.
The truth of climate change is not derived from debate, it’s derived from the science.
And the science is overwhelmingly in favor of climate change as being a real dynamic that scientists are actually witnessing in contemporary time. And that consensus is a quantifiable fact.
Scientific consensus has been wrong before, no doubt about that, but as Ezra points out in this post – and this is really the focus we should hold to – there is discussion, and there is policy. Two different things.
I highly recommend Climate Progress as a source. Joe Romm dealt with the Dyson matter several days ago here
and has an new treatment of the mainstream media and its shortcomings here:
Must read Newsweek stunner: Why the
“status quo” establishment media’s coverage of global warming is so fatally useless, Part 1