Israelis and Gazans reflect on the war, one year on BBC
More herbicide use reported on genetically modified crops Christian Science Monitor (hat tip reader Michael T)
Search for extraterrestrial life is growing SFGate (hat tip reader John D)
International outcry after Chinese dissident Liu Xiaobo sentenced to 11 years Times Online which was followed by a China Digital Times story on how searches for the sentence were blocked by the Chinese government (hat tip reader Michael T)
Tanker Glut Signals 25% Drop on 26-Mile Line of Ships Bloomberg (hat tip DoctoRx)
Why Christmas Eve? Tim Duy
Technology Predictions Are Mostly Bunk Wall Street Journal (hat tip reader John D). Now it’s official….
So Much for the Power of the Brand Michael Panzner
War on Wall Street as Congress Sees Returning to Glass-Steagall Bloomberg (hat tip reader Peter G). The problem is that this is a 1930s remedy for 2010 problems. On my top ten list of reforms, this does not rate, since reconstituted investment banks would have the same safety net underneath them as commercial banks. Remember, what governments around the world rescued last year was the credit market, not just the banking system.
Fed to offer term deposits to banks Financial Times
Information for Arrow Drivers Examiner and Arrow Trucking Customers Also Affected By Shutdown Newson6. This is an oddball story, courtesy reader John L. A trucking company folded. The trucks are without fuel where they stand. The cargo is usually bonded to some degree. The bonders are the ones with the muscle. The problem would be getting the cargo where you needed it to go, particularly now that the trucker is also being asked to front for the fuel. The last reported offer of $200 seems a tad light.
Was the GFC a mathematical error? Steve Keen, Business Spectator (hat tip Crocodile Chuck). Today’s must read.
Antidote du jour (hat tip reader Barbara):
21 comments
Comments are closed.
“The sorry truth is that many households underwater on their mortgages are likely better off defaulting (this is not a suggestion to strategically default; consult your attorney when contemplating that option), and so likely is the economy as a whole, than accepting a modification that does not involve a significant principle reduction. The only people who do not recognize this are, sadly, policymakers, who have trouble comprehending the possibility of a bubble that led to prices far above ability to pay.”
Yup…and Yup
When I think about it, I can understand trailer park denizens believing in Palin – and I think I can now see why the Fed and Treasury officials have such a fervent belief in saving the banks. It is more akin to a social/religious belief than any objective, rational analysis. They hang out together, so they buy Blankenfeld’s theories.
During 2005, 2006 and 2007, private financial institutions made a shit load of imprudent and/or fraudulent loans to imprudent and/or fraudulent households. Many, if not most, of these households will never repay those loans.
Enter the government. The government is owned by the imprudent/fraudulent financiers, and the only interests it is concerned with are those of the imprudent/fraudulent financiers.
So the government buys up loans–good, bad or indifferent, it really has no criteria–from the financiers at full value, even though it had no legal obligation to do so.
The federal government is now the owner of trillions of dollars of loans, a large percentage of which were made imprudently or fraudently, and a goodly percentage of which debtors cannot or will not repay.
Of course the government cannot come out and explicitly declare that it is doing all this to bail out imprudent/fraudulent financiers. Instead, it does all this in the name of the American homeowner.
But one thing is very clear. Imprudent/fraudulent financiers are not to be punished under any circumstances–their immunity is absolute. As to imprudent/fraudulent households, the jury is still out.
And prudent/honest households? Well, if one follows the policy outcomes of the Bush/Obama administration, it is clear that these are the guilty ones who must be made to pay.
If Steve Keen is right on equilibrium and I suspect he is then the US treasury will most likely make some real blunders this year.
Can I second that Brick, along with the caveat, I get the feeling Keen also realizes that you can not model economy’s of such scale with any real value, save academic musings.
I would further my statement by adding our economy is in a state of strategic retreat abetted by idealogical stasis, believing a defensive structure which will weather the worst of the storm is in place, until the very ground its based on liquefies.
Financial Dardanelles Campaign or Gallipoli where the brass sit drinking tea whilst the troops are getting their asses shot off me thinks or a year late and a trillion short.
Skippy…One word keeps floating to the top of my mind these days…’avarice’ and what ever means it takes…Fait accompli…an action which is completed before those affected by it are in a position to query or reverse it…aka fraud.
PS Many pedophiles, rapists tell their victims that it was their fault for tempting them so…eh…right kid dynamite sooo tempting the stupid marks and their money ummmmmm….money.
My understanding from the Chinese press is that Liu Xiaobo was not put in jail for writing a book. He was put in jail for orchestrating the riots a few months ago in Xinjiang province, which the western press fails to mention.
Even though Tim Duy starts off well with the almost obligatory Geithner working for Goldman Sachs rather than the taxpayer, he falls into the trap of saying that somehow policymakers don’t get that there was a housing bubble. No way! They know it and they are trying to deal with the fallout in whatever way helps Big Finance. Putting Fannie/Freddie as wards of the state just continues to socialize the losses while leaving the bondholders as well as stockholders of failed financial institutions rescued by you and me.
BTW, one should wonder about a Professor who repeatedly talks about mortgage principle reduction rather than principal reduction.
There sure has been a reduction of principles the last couple of years!
Keen’s point about Perron and Frobenius is kind of a cheap shot. Their result would falsify equilibrium modeling iff all I/O relationships were linear. But of course none of those relationship are linear. So they proved that equilibrium is unattainable not in the real world, but in the economists’ hypersimplified conceptual world. To be fair, Keen does write, “…to say nothing of a real economy.” Keen is just playing Heraclitus to the Parmenides act of the neoclassical guys. That’s metaphysics; it’s fun but it’s not why economists are always so hopelessly wrong. Economists are always wrong because their profession has been suborned to prop up the status quo – doesn’t matter whether they call it equilibrium or disequilibrium or the holy spirit or what. They don’t get paid to be right, they get paid to suck up. I wish I had a nickel for every time James Hamilton used some textbook baby model to prove everything was fine before the crash.
“Keen’s point about Perron and Frobenius is kind of a cheap shot. Their result would falsify equilibrium modeling iff all I/O relationships were linear.”
Is it a cheap shot? I presume from your remarks that the Perron–Frobenius theorem applies only in linear cases (my dynamics isn’t good enough to confirm or deny that). But does that mean in a non-linear case you can assume that the system has a stable equilibrium? I seriously doubt it (please correct me if I’m mistaken). As such Keen is saying that even in the idealized world of linearized models you can’t assume that a stable equilibrium exists, so it’s an even more absurd assumption in real world non-linear cases. It’s a devastating critique rather that a cheap shot.
That’s such a good question that I actually went & tried to look it up. The original result looks like it applies to linear differential equations. Somebody extended it to linear difference equations. In any case, far be it from me to say that nonlinearity makes things stable again. I could imagine how it might, or how it might not, but that property of linear systems tells me nothing about the nonlinear case. I just think that reductive math is the least of their problems.
“I just think that reductive math is the least of their problems.”
I certainly agree that it’s far from their only problem, but the “bad math” argument is one of Steve Keens’ signature issues. I think he has a good point too. If you can show that the math that the neoclassicists pride themselves on is flawed, then they’ve obviously got no claim to scientific validity. In fact it’s the worst form of scientism – a flawed mathematical veneer for people who are overly impressed by the mere presence of mathematical hieroglyphics.
Don’t worry though, he also attacks them for plenty of other reasons, like ignoring empirical results. Nor am I just talking subtleties of econometrics. His favorite is the canard that fiat money creation precedes credit money creation, when just the opposite is true. Hence the foundation of much monetary theory is completely wrong.
From http://www.debtdeflation.com/blogs/2009/09/19/it%E2%80%99s-hard-being-a-bear-part-five-rescued/:
“The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth. Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.”
I took a look at that weblog, it’s great.
DoctoRx, I wish you were right that Geithner and Summers are knaves and not fools, but I am afraid that that all their actions, and the actions of the mentor Rubin, from the period of 2005 to the present, has been marked in a belief that “U.S. Housing Prices only go up,” and that the aberration is the collapse in prices. They share with Alan Greenspan a reflexive belief that interventions to support asset prices, as documented in Barry Rithholz’s and Dean Baker’s books on the crisis, particularly where great interests and wealth are involved, are proper (even though in the end they only extend the crisis), but interventions to prevent such bubbles would be improper meddling. And as Dean Baker remarks, there is no accoutability for this tribe as Larry Summers simply states when asked about his bad economic predictions of last January that his forecasts were “within the mainstream” and hoocoodhavkwn. As Keynes remarked of bankers, a conventional sucessful economist is not one who is right in his or her forecasts or comes up with a penetrating new idea, but who is as conventionally wrong as his fellow economists.
Glass-Steagall is both a bellwether and a metaphor. We will know when government and our political elites are serious about reform when we see it re-instituted. It is a metaphor to stand for the separation of commercial banking and insurance from investment banking. I would restrict the relationships of money markets to investment banks and I would cut off all credit lines and guarantees from government to the investment banks.
Re mortgages, defaulting is an option but the need to walk away is I think oversold. The MERS fiasco, the systemic fraud which lost so much of the paperwork, and the slicing and dicing of derivatives mean that it is almost impossible to tie the deed to the promissory note or even be sure who the holder of either is.
NYTimes published an editorial today “Betting against All of Us” highlighting their Christmas eve article about GS synthetic CDOs
http://www.nytimes.com/2009/12/29/opinion/29tue2.html?_r=1&ref=todayspaper
I thought you might like to add it to the links.
Trying to shift the blame to mathematics away from basic greed will probably be tried several more times.
As was probably mentioned somewhere on this site, this is a human problem. The guy/girl who could made the investment models work that obfuscated the risk profile and sold the project was the one promoted, not the one markedly less thrilling and defining the risks as possible events. It is easy to imagine that the manager with an eye on risk management does not get far on either the buy or sell side. They are marginalized in the evil-regulatory-required-risk-departments.
Hopefully, the history will be summarized as ordinary greed run amok.
Some advice on Steve Keens:
a. Read the article Yves linked to.
b. Read his blog http://www.debtdeflation.com
c. Read his book “Debunking Economics: the naked emperor of the social sciences”
Agree with him or not, he has some devastating critiques of mainstream (neoclassical) economics. Particularly interesting these days is his building on Minsky. He and others have constructed some interesting models, backed by empirical evidence, that show excessive debt levels inherently lead to financial instability. And the charts on his blog show how outrageously indebted the US and Australia are. As such debt deleveraging has to be part of the economic fix, and total indebtedness levels should in the future be carefully monitored by central banks. Inflation ain’t the only evil they need to watch for.
On the Arrow trucking saga, the driver’s aren’t being asked to get the loads delivered. They are being asked to facilitate the repossession of the tractors. To my knowledge no provision has as yet been made for the loads. This is probably not the last trucking company to fold abruptly. Many are only living on forbearance from lenders and vendors.
Some interesting stats on shipping…
18 million actual containers make 200 million container shipments per year. Averaging to a 28-foot container, that yields a container train 1,061,000 miles long.
That’s a lot of crap.
FINRA and the SEC are the ones that need to be investigated! We need something like the Spainish judiciary tackling this issue, like they’re doing with former Latin American dictators in issing international arrest warrants for crimes against humanity. Didn’t they issue a warrant for Kissinger? Can you imagine the head of the SEC contemplating how the agency’s actions might be viewed by the Spanish judiciary. If this government isn’t going to take these outlaw regulators to task, I say extradite the lot of them! http://www.theaustralian.com.au/business/industry-sectors/us-regulators-investigate-sale-of-toxic-assets/story-e6frg96f-1225814584281
In light of recent news stating that the U.S. government will be investigating Wall Street, the second to last sentence rings loudly.
“How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way, because where information is concerned we really are a freer people than they were, so our failure is far less excusable, far more disgraceful. That you are reading this blog is proof that we still enjoy free speech in this country, whatever state of captivity or foolishness the so-called “mainstream media” may be in. By submitting to lies and illusions, therefore, we are discrediting the idea that freedom of speech and action has any value. How dangerous is that?”
http://kunstler.com/blog/2009/12/forecast-2010.html#more
I took a quick peak at “Search for extraterrestrial life is growing.” I regret to discover that, still no benevolent extraterrestrial life willing to backstop the U.S. Treasury has been found. Pity because time is running short. (Come to think of it, the Treasury Department, when they dropped their Christmas Eve hyperinflationary bomb, might as well have offered added emergency funding to NASA to help in this effort to secure a stronger backstop for the financial system.)