Wildlife flee Kenyan forest fires BBC
Fixing a Genetic Flaw MIT Technology Review
Japanese savings shrink Japan Economy Watch
AIG furor may have helped funds in U.S. toxic plan Reuters
The Stimulus Package Considered against a Deteriorating Macro Backdrop Menzie Chinn, Econbrowser
The threat posed by ballooning Federal reserves John Taylor, Financial Times
Geithner’s trillion dollar gamble Eurointellingence. Not to toot our own horn, but note:
We have noticed that the US blogging community is a lot more positive about the Geithner plan than the Paulson plan, even though they are essentially the same plan minus some insignificant details, such as who is in charge of the bidding process. So in our view the reactions to the Geithner plan are very a good metric of the partisanship in the US blogging community. Some bloggers like Krugman, Johnson and Naked Capitalism have remained consistent throughout. Some of the others are merely telling us that they are Democrats, right or wrong.
Also, I don’t buy the Nemo analysis (not to say investors can’t make out well, but the deal is now effectively an option, and picking a distribution that is extreme maximizes option value. Some of the comments, however, give more useful input on likely economics).
Dark musings, 2009-03-24 Steve Waldman. Today’s must read. I must confess I missed this angle COMPLETELY, and it’s bloody obvious.
Antidote du jour:
13 comments
Comments are closed.
Dark musings, 2009-03-24 Steve Waldman. Today’s must read. I must confess I missed this angle COMPLETELY, and it’s bloody obvious.
link doesn’t work
try this one
correct link
Yves,
“Today’s must read. I must confess I missed this angle COMPLETELY, and it’s bloody obvious.”
~~~~
Cents on the dollar …
It is a faustian bargain for the tax payer. We have NO idea what is on the books of these Wall Street Banks and the off balance accounts by definition are worse!
One trillion in remedy for tens of trillions in growing problems is not an angle, it is another Ponzi Scheme being played on the tax payer.
“Legacy banks.”
An excellent coinage. Worth propagating.
Yves —
My post was not an “analysis”; it was an example. I do not believe it is obvious to non-experts how non-recourse loans are equivalent to a put option. In fact, I suspect most intelligent laypeople do not even know what a “put option” is. (Although I titled my post “the Geithner put” for a reason…)
My purpose was merely to provide an extremely simple concrete example. And to do a little exploration of who exactly winds up holding the bag.
Thanks for the link to the Dark Thoughts post, although I think Waldman is missinig one additional reason why the bankers would agree to take losses, if there are any, as part of the Geithner plan – the lack of criminal prosecutions and any accountability. It avoids receivership and/or nationalization which is accompanied by a change in management. Management that will not have the incentive to hide the massive fraud and looting that’s been going on in the financial sector.
It’s the same reason why there’s no calls to find out the real size of the problem or potential taxpayer exposure. The more light that shines on this mess, the worse it – and by extension the Masters of the Universe – look.
Under the proposed plan they get to keep their secrets at a relatively small cost. The taxpayer gets to stay in the dark and pay the biggest share. What’s not to love!
Yves,
Great catch on the Dark Musings link by Steve Waldman. His angle is the perfect cover for the perfect crime.
My faith in human genius is restored. My faith in human goodness, not so much….
That panda looks suspiciously happy…maybe he just received his AIG bonus?
Count me among the blogging community who see through what is yet another vile looting scheme.
Huh? Yves, you didn’t miss the dark musings angle at all – you said it back in Feb, here:
http://tinyurl.com/b3ayml
We can just see a bit more of the mechanism now, that’s all.
I don’t buy the Waldman analysis. It is always a mistake to give up something real today ($10B cash in the example)in exchange for a friendly feeling in the future(no “haircuts” on bonds. The folks at PIMROCK didn’t get rich by making stupid trades like this. And to do this deal with the government… I don’t believe it. PIMROCK, as its styled, means to make bucks on this NOW! Somehow.
The panda is very nice, but the plumed dinosaurs yesterday were truly wonderful. More dinosaurs! Fewer bankers!
Though I suppose, while the bankers are around and doing harm, we need to pay attention to them…
Who is paying hush-money to whom?
Who is blackmailing whom?
Who is running a protection racket against whom?
Those are the questions of the hour.
I actually like the Waldman analysis, though I too am doubtful that PIMROCK would not make money up front, but I assume they will gin up fees to cover any losses plus ensure a place at the trough to profit wildly down the road.
I see the comments on the Waldman piece mention conspiracy. There need be no overt conspiracy here. This is the genius of the market at work. Of course, it is a market of looting.
Hundreds of independent actors do not necessarily collude in setting up this system, but (by various actions of commission and omission) they each act in their own self interest and collectively help engineer a system that allows each individual the maximum opportunity to loot. Why do you think so many subprime zero-down mortgages were written? The few in charge had huge incentives to be paid up front and the many to later be burdened with any possible catastrophic unwinding had (on an individual basis) minimal incentives to be proactive in stopping it.
I like The Road to Serfdom as much as anyone, but even Hayek acknowledged that collective action was necessary in cases of clear market failure. Obviously, a man so enamored with the benefits of competition and the efficient allocation mechanism that competitive markets can provide would hate any market dominated by a network externality that created a monopoly. There are such things as market failure. Deal with it.
Markets do exceptionally well allocating goods and services that are tangible and consumed immediately. Markets has proven less adept in the financial arena with intangibles and especially in allocating intertemporal risk.
I wish this were easier for people to understand. Markets require vigilance. Democracies require vigilance. There need be no conspiracy, just skewed incentives.