cdetrio da juggaer's List: science

• John Galt Plan Might Save U.S. Financial System: Caroline Baum  
   

  Commentary by Caroline Baum

   
         

  March 10 (Bloomberg) -- Let's face it: The Federal Reserve must be scared to death as it watches the financial system unravel.

• By late last week, events seemed to be spinning out of control. Credit spreads were blowing out, with tax-exempt municipal bonds out-yielding Treasuries by a record and the spread between Fannie Mae mortgage-backed securities and government bonds hitting a 22-year high. Treasury bill yields were collapsing (further). The U.S. dollar was sinking like a stone. And commodity prices, in their lofty ascent, had all the makings of a market unhinged from the fundamentals, which, after all, is the definition of a bubble.

   

  Mortgage foreclosures hit an all-time high in the fourth quarter of last year while homeowners' equity, or the value of a home less the outstanding mortgage, sank to an all-time low of 47.9 percent.
• This measure of owners' equity has been declining since the Fed started collecting data in 1945.
• Margin calls are causing forced selling of assets (often what investors can sell, not what they'd like to sell), which makes them cheaper, which triggers additional margin calls and more forced selling. No wonder the Fed announced two initiatives early Friday before the New York Stock Exchange opened to address ``heightened liquidity pressures.''

• Galt's Solution

   

  The following day, Fed Chairman Ben Bernanke encouraged mortgage servicers to write down a portion of the principal on home loans, which would give owners some equity and discourage foreclosure. He advocated a bigger role for the Federal Housing Administration, a Depression-era agency that insures mortgages. Congress envisions an even larger role for the federal government.

   

  Any day, I expect some government official to unveil the John Galt plan to save the economy.

   

  Galt, the hero of Ayn Rand's magnum opus ``Atlas Shrugged,'' stops the world by going on strike. He and the ``men of the mind'' literally withdraw from the world after watching their wealth confiscated by the looters (the government).

   

  Toward the end of Rand's 1,000-plus page novel (or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to ``tell us what to do.''

   

  Galt refuses, or rather tells them ``to get out of the way.''

   

  Road Is Cleared

   

  You probably can sense where I'm going. Today's economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value.

   

  That's not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige.

   

  We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It's a tough way to run an economy.

3 more annotations...

• Chavez Roils Latin America as Friend of Cocaine-Peddling FARC  
   

  By Helen Murphy and Matthew Walter

• March 10 (Bloomberg) -- Last year, the Revolutionary Armed Forces of Colombia -- one of the world's oldest and biggest guerrilla groups -- was a fading insurgency. After a five-year Colombian offensive, the FARC had retreated to the jungles, its ranks thinned by casualties and desertions.

   

  Then Venezuelan President Hugo Chavez publicly befriended the group, negotiating freedom for some of its 750 hostages, helping disseminate its propaganda and touting his regular correspondence with FARC founder Manuel Marulanda. The intervention by Chavez, a self-described revolutionary socialist long suspected by Colombia of supporting the rebels, revived the FARC with a modicum of legitimacy.

   

  It also set the stage for events that have roiled Latin America, after Colombia's insurgent-hunting incursion into Ecuador prompted Chavez and Ecuadorean President Rafael Correa to send troops to the border. Chavez threatened war if Colombian President Alvaro Uribe's troops entered Venezuela, where Colombia thinks Marulanda, 77, hides.

   

  Without Chavez's embrace of the FARC, the raid ``wouldn't have gotten all this worldwide attention and wouldn't have become an international crisis,'' says Peter Hakim, president of the Inter-American Dialogue, a Washington research group. ``Without Chavez, who knew how to grab the international attention, this would have been handled very differently.''

   

  Turmoil in the area helped drive up crude oil prices 3.3 percent last week to $105.15 a barrel in New York, even after Colombia and Ecuador agreed to have the Organization of American States investigate the March 1 raid. Venezuela supplied 14 percent of U.S. oil imports last year.

• Foreign direct investment in Colombia soared in 2007's third quarter to $2.4 billion, up 11-fold from the same period in 2002, while the economy grew 6.8 percent in 2006, up from 1.9 percent in 2002. Trade between Colombia and Ecuador and Venezuela totals $8 billion a year. Chavez threatened that commerce by warning he might seize Colombian companies' assets in his country and close the border.

   

  The crisis may have helped Colombia's bid for a free trade accord with the U.S. On March 4, President George W. Bush urged Congress to approve the deal, saying it's ``a matter of national security.'' Congress has yet to schedule a vote on the pact.

• He also called the FARC a ``real army'' and asked governments worldwide to change its status from terrorist to belligerent, an international-law designation afforded to military units that respect human rights. Only Nicaraguan President Daniel Ortega agreed.

   

  Days later, the FARC kidnapped six more hostages, four of whom were released March 6. Chavez has continued working to free captives, persuading the FARC let four more go Feb. 27.

   

  ``For a group that has no political support in Colombia, this has given them a new stage regionally, if not in the world,'' says Cynthia Arnson, director of the Woodrow Wilson Center's Latin American program in Washington.

   

  Michael Shifter, vice president of the Inter-American Dialogue, a Washington-based policy center, says there long have been suspicions that Chavez's ideological alliance with the FARC went beyond talk. ``His recent actions simply reaffirm the suspicions,'' he says.

• Going Public

   

   Colombia went public with its suspicions about Chavez and >  the FARC on March 3, when national police commander Oscar >  Naranjo accused him of supporting the rebels for years. He said >  the allegation was supported by files on a laptop computer that >  belonged to Raul Reyes, a rebel leader killed in the Ecuador >  raid. Naranjo said the files showed that Chavez had funneled at >  least $300 million and assault rifles to the group. >

   

   President Uribe on March 4 said he would ask the >  International Criminal Court in The Hague to press charges >  against Chavez for backing the FARC. >

   

   Chavez denied providing the FARC with anything other than >  moral support, condemning ``kidnapping and any terrorist act'' >  on a Jan. 16 trip to Nicaragua. Chavez called Colombia's >  allegations ``laughable'' on March 5. >

   

   Former FARC fighters say they were told that Venezuela >  supplied their arms. ``Most of our guns and ammo came from >  Chavez,'' Juan Humberto Manaideke, 19, said in an interview. >  ``The talk was that he was our biggest supporter.'' Manaideke >  says the FARC pressed him to join at age 11, and he escaped >  three years ago. >

• Colombia went public with its suspicions about Chavez and the FARC on March 3, when national police commander Oscar Naranjo accused him of supporting the rebels for years. He said the allegation was supported by files on a laptop computer that belonged to Raul Reyes, a rebel leader killed in the Ecuador raid. Naranjo said the files showed that Chavez had funneled at least $300 million and assault rifles to the group.

   

  President Uribe on March 4 said he would ask the International Criminal Court in The Hague to press charges against Chavez for backing the FARC.

   

  Chavez denied providing the FARC with anything other than moral support, condemning ``kidnapping and any terrorist act'' on a Jan. 16 trip to Nicaragua. Chavez called Colombia's allegations ``laughable'' on March 5.

   

  Former FARC fighters say they were told that Venezuela supplied their arms. ``Most of our guns and ammo came from Chavez,'' Juan Humberto Manaideke, 19, said in an interview. ``The talk was that he was our biggest supporter.'' Manaideke says the FARC pressed him to join at age 11, and he escaped three years ago.
• In 2004, Chavez ordered force used against the FARC after an attack on soldiers protecting state oil-company workers, Baduel said. ``After these expressions of solidarity and support from some in the Venezuelan government, you can assume the guerrillas have increased their presence in our territory,'' says Baduel. ``If these forces are Venezuela's friends, what's the protocol if they cross into our territory? It's a big dilemma.''

• Willful Ignorance

   

  The U.S. and Colombia have accused the FARC of involvement in drug trafficking along the Venezuela-Colombia border. A top U.S. drug enforcement official, John Walters, told reporters in Bogota on Jan. 20 that Venezuela willfully ignores more than 200 metric tons of cocaine moving across its Colombian border. Chavez ended anti-narcotics cooperation with the U.S. in 2005, accusing American Drug Enforcement Administration agents of spying.

   

  Mildred Camero, Venezuela's top drug-enforcement official from 1999 to 2005, says she was fired after telling higher-ups that corrupt Venezuelan officials protected the leader of Colombia's biggest cocaine cartel, Wilber Varela, as he moved between the two countries.

   

  ``We had evidence, through informants, that Varela was actually moving around Venezuelan territory with complete ease,'' Camero said in an interview. ``He even had a Venezuelan I.D.'' Varela was found shot to death in western Venezuela on Feb. 1.

   

  On state television on Jan. 28, Venezuela's current anti- drug chief, Nestor Reverol, pointed to a 2005 United Nations World Drug Report to defend the country's record. It shows Venezuela is No. 3 in cocaine seizures. Reverol's press office didn't respond to interview requests.

6 more annotations...