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The Fog of Numbers - Clusterfuck Nation
The number problems we face are now hopeless. America will never be able to cover its current outstanding debt. We're effectively finished at all three levels: household, corporate, and government.
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ity to really care about the place they called home.
It's especially ironic that given our preoccupation with numbers, we have arrived at the point where numbers just can't be comprehended anymore. This week, outstanding world derivatives were declared to have reached the 1 quadrillion mark. Commentators lately -- e.g. NPR's "Planet Money" broadcast -- have struggled to explain to listeners exactly what a trillion is in images such as the number of dollar bills stacked up to the planet Venus or the number of seconds that add up to three ice ages plus two warmings. A quadrillion is just off the charts, out of this world, not really subject to reality-based interpretation. You might as well say "infinity." We have flown up our own collective numeric bung-hole. -
While extremely allergic to paranoid memes and conspiracy theories, I begin to wonder about the impressive volume of World Wide Web chatter about an upcoming bank holiday -- meaning that the US government might find itself constrained to shut down the banking system for a period of time to deal with a rapidly developing emergency that might prompt the public to make a run on reserves. God knows, there are enough black swans crowding the skies these days to blot out the sun. I hesitate to suggest that readers who are able to should consider stealthily withdrawing a month's worth of walking-around money from their accounts.
The week past, some so-called "conservative" political action groups (read: brownshirts pimped by corporate medical interests) trumped up a few incidents of civil unrest at "town meetings" around the country, ostensibly to counter health care reform ideas. The people behind these capers may be playing with dynamite. It's one thing to yell at a congressman over "single payer" abstractions. It'll be another thing when the dispossessed and repossessed Palin worshippers, Nascar morons, and Jesus Jokers haul the ordnance out of their closets and start tossing Molotov cocktails into the First National Bank of Chiggerville.
FT.com / Investor's notebook - Insight: The threat of a return to thrift
Pessimism on consumer led economic growth.
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The result was that people gave up saving. Why save from income if rising asset prices did your saving for you while you slept? Why not consume more than you earn if you can borrow cheaply using your constantly rising wealth as the asset to borrow against?
When Volker walked into the Fed 30 years ago, the US national savings rate had been relatively static for decades at around 20 per cent of GDP and total US debt to GDP was about 160 per cent. Household debt was 47 per cent of national income. When the credit bubble burst in August 2007, the national savings ratio had fallen to 14 per cent of GDP and debt had risen to 350 per cent with household debt at just under 100 per cent of GDP. Even today, household debt in the US, although now contracting, still exceeds the level at the beginning of this crisis.
The disinflationary forces that drove the switch from thrift to leverage are over. This means the next decade will be one of replacing leverage with thrift. That will hurt retail spending.
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This will set off feedback loops between the real economy and financial one, in the opposite direction to that we have been experiencing. It will cause consumer incomes and employment to deteriorate, along with the real economy, giving rise to increased defaults on consumer credit, commercial real estate and other loans, as well as, of course, housing mortgages. The default ratio on prime mortgages is already well above the US treasury’s stress test limit set for the banks. And the default rates on consumer debt, including credits, are rising very fast. The credit crisis hit to banks’ balance sheets is far from over.
Ah, Wall Street. Seeing the real you at last. » New Deal 2.0
Financial innovation was presented to us in a way that suggested that great things were happening for mankind. The presentations were usually vague. To understand them, we had only the power of our own imaginations, or perhaps, failing that, our awe in the face of this powerful expertise, confidently propelling us to a greater future....
Malarky. This is all code for defer to the wishes of those who make money from these techniques.
Douglas Rushkoff » Life Inc: Introduction
, but people of all social classes making choices that go against their better judgment because they believe it’s really the only sensible way to act under the circumstances. It’s as if the world itself were tilted, pushing us toward self- interested, short- term decisions, made more in the manner of corporate share-holders than members of a society. The more decisions we make in
this way, the more we contribute to the very conditions leading to this awfully sloped landscape. In a dehumanizing and self-denying cycle, we make too many choices that—all things being equal—we’d prefer not to make.
Information Arbitrage: The US Government: Over-engineering for Under-performance
And recent bank earnings are only one shining example of why we are now locked into a painful, protracted process of false hope, failure and rebirth, when we could have chosen quick, deep pain, and transitioned to real hope and rebirth in a much shorter time-frame. But the US Government does not believe the US citizen can withstand such pain; they'd rather take the path of least resistance, delay the inevitable, buy time and pray that we - the collective "we" - get bailed out.
Jeffrey Sachs: The Geithner-Summers Plan is Even Worse Than We Thought
Two weeks ago, I posted an article showing how the Geithner-Summers banking plan could potentially and unnecessarily transfer hundreds of billions of dollars of wealth from taxpayers to banks... Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.
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Several news stories suggest some grounding for these fears. Both Business Week and the Financial Times report that the banks themselves might be invited to bid for the toxic assets, which would seem to set up just the scam outline above. What is incredible is that lack of the most minimal transparency so far about the rules, risks, and procedures of this trillion-dollar plan. Also incredible is the apparent lack of any oversight by Congress, reinforcing the sense that the fix is in or that at best we are all sitting ducks.
The world economy is tracking or doing worse than during the Great Depression | vox - Research-based policy analysis and commentary from leading economists
Often cited comparisons – which look only at the US – find that today’s crisis is milder than the Great Depression. In this column, two leading economic historians show that the world economy is now plummeting in a Great-Depression-like manner. Indeed, world industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better.
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To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.
AIG: Before CDS, There Was Reinsurance | The Big Picture
Some inflammatory suggestions about fraudulent use of "side letters" in the re-insurance industry. Where there's a will to bend the rules there is a way to make money.
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In an effort to resolve this conundrum, over the past several months The IRA has interviewed a number of forensic experts, insurance regulators and members of the law enforcement community focused on financial fraud. The picture we have assembled is frightening and suggests that, far from just AIG, much of the insurance industry has been drawn into the world of financial engineering and has thus become part of the problem. Below we present our preliminary findings and invite your comments.
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The key thing to understand is that if you look at many of these reinsurance contracts between ROA and Gen Re, they look perfect. They appear to transfer risk and seem to be completely in order. But, if you don’t get to see the secret agreement, the side letter that basically says that the reinsurance contract is a form of window dressing, then you cannot understand the full implications of the transaction, the reinsurance agreement. Not, several experts speculate, can you understand why AIG decided to migrate away from reinsurance and side letters and into CDS as a mechanism for falsifying the balance sheets and earnings of non-insurers.
Space storm alert: 90 seconds from catastrophe - space - 23 March 2009 - New Scientist
The most serious space weather event in history happened in 1859. It is known as the Carrington event, after the British amateur astronomer Richard Carrington, who was the first to note its cause: "two patches of intensely bright and white light" emanating from a large group of sunspots. The Carrington event comprised eight days of severe space weather.
Open Left:: In Which I Come Out As A Conservative
Right now, the Obama Administration seems to be devoting its rhetorical resources to countering Republican critiques, rather than attacking the whole mindset, and explaining why it has created both false and unreasonable expectations, which cannot be a guide to judging the pace and nature of recovery. In short, it is doing nothing to prepare the American people for the likely severity and difficulty of what lies ahead.
How Do You Like Them Free Markets? « The Baseline Scenario
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According to Bebchuk and Fried, the basic dynamic at work is that directors like being on boards (it’s a lot of money for not much work, and it’s prestigious), CEOs control who is on the board of directors, CEOs control the information that goes to boards, and board members have weak incentives to act on behalf of the shareholders (they generally don’t own much stock). The only real checks on CEO pay are public outrage (hence the usage of hard-to-understand things like deferred compensation and pension benefits) and large and powerful shareholders.
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But a similar problem applies to all Wall Street compensation. Just like CEO compensation depends on the myth that there is a small group of people with the ability to be CEOs, Wall Street compensation depends on the myth that there is a small group of people with the ability to work on Wall Street. (A myth that is pretty well belied by the fact that every year a flood of college and business-school graduates whose only common trait is that they all want to make money comes to Wall Street, and during the boom they all made lots of money.) 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.
Stumbling and Mumbling: Bonuses, power and inequality
why have banks paid [giant bonuses] for so long?
The popular answer is that banks need to attract the best talent. Yeah, right..... Traders must be bribed not to plunder the firm. If you don’t pay them millions, they’ll sell the banks’ assets cheaply to rival firms for which they then go and work. They are paid fortunes not because they have skill, but because they have power.
Cites & Insights 8:12 - Writing about Reading
They’re at it again.
The doom-cryers who assert we don’t read any more—or, if we do, it’s not the right kind of reading, not the literary reading we all used to do every single day back in the Golden Age of universal literacy.
Economic upturn in two months: Expert-India Business-Business-The Times of India
During this season of gloom, when experts say the economy will not look up till at least 2010, Eliyahu M Goldratt begs to differ.
We're on the brink of disaster | Salon
Indeed, if you want to be grimly impressed, hang a world map on your wall and start inserting red pins where violent episodes have already occurred. Athens (Greece), Longnan (China), Port-au-Prince (Haiti), Riga (Latvia), Santa Cruz (Bolivia), Sofia (Bulgaria), Vilnius (Lithuania) and Vladivostok (Russia) would be a start. Many other cities from Reykjavik, Paris, Rome and Zaragoza to Moscow and Dublin have witnessed huge protests over rising unemployment and falling wages that remained orderly thanks in part to the presence of vast numbers of riot police.
Economists are the forgotten guilty men | Anatole Kaletsky - Times Online
"On those two dubious adjectives “rational” and “efficient” an enormous theoretical superstructure of models, regulatory prescriptions and computer simulations was built. And without this intellectual framework, the bankers and politicians would never have built the towers of bad debt and bad policy that have come crashing down."
FT.com / UK - The inside story on reforms is that there is no story
"I've been calling around to get a sense of the progress being made on structural reforms of the US securities markets. The answer is: very little, if any. The inside information I can whisper to you is that the inside has no information."
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To identify what has to be done to put securities markets, banking and regulation on a sound basis for the future, the people at the top might have to admit to the specifics of their own past mistakes. They would also need a command of detail of the workings of the financial system that they have avoided acquiring over the years, since it was much more advantageous to spend one's time scheming and toadying.
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There is a widespread assumption that the Federal Reserve is available as a universal, supreme regulator of all financial risk. However, the Fed staff are preoccupied with figuring out the details of the various "temporary" support programmes. Not many of them have operating experience in financial markets; they were employed to take the long view on monetary policy, not for the tactical execution of investment programmes. Those are very different disciplines.
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