Yearly Archives: 2012

Links 7/19/12

Quelle Surprise! New York Times’ “Deal Professor” Ignores Facts and Law to Defend Citi Employee Stoker in SEC Toxic CDO Case Rakoff Highlighted

While the New York Times’ DealBook section generally hews to a financial-services-industry-friendly line, presumably as a Faustian bargain for being a preferred leakee, there’s not even a weak defense for the article by the New York Times’ so called “Deal Professor” Steven Davidoff, “If Little Else, Banker’s Trial May Show Wall St. Foolishness.” It’s yet another brazen effort to diminish the seriousness of rampant fraud by arguing it was just carelessness. But to make his case, Davidoff misrepresents both the facts of the situation as well as the law. Since Davidoff’s lawyer union card is an explicit part of his brand at the Times, this story amounts to another credentialed effort to run the “nothing to see here, it’s too hard to get these guys” line that has become the Administration’s pet excuse for not going after one of its biggest sources of campaign funds.

Philip Pilkington: The New Monetarism Part III – Critique of Economic Reason

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

During the Great Depression and the war years monetary policy in Britain had proved largely ineffective. In the meantime it was shown that government spending could cure economic depressions and return the economy to full or even super-full employment. After the war most political parties in Britain were thus interested in using fiscal policy to generate full employment rather than rely on the vagaries of monetary policy. (This, it should be said, is the polar opposite of our rather more desperate situation today).

Wily conservatives, however, recognised that such policies would mean the expansion of government – which they didn’t like at all. So they tried to resurrect monetary policy as the government’s tool of choice.

Chris Cook: Libor and Oil Market Manipulation – Rage Against the Dying of the Light

By Chris Cook, former compliance and market supervision director of the International Petroleum Exchange

A generation of markets is dying and the era of the Middleman is coming to an end. The ‘Bezzle’ – as J K Galbraith described financial misbehaviour in a boom, revealed by a bust – is now coming to light.

Richard Alford: Why Economists Have No Shame – Undue Confidence, False Precision, Risk and Monetary Policy

By Richard Alford, a former New York Fed economist. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side.

In theory, there is no difference between theory and practice. In practice, there is. – Yogi Berra

Economic policymakers, pundits and academics continue to forecast the future course of the economy and predict the effects of possible policy initiatives with an air of scientific certainty. The high degree of confidence expressed in their forecasts, predictions and commentary continues unabated despite:

1. Only a small minority of economists and none of the central banks and treasury/finance ministries anticipated the financial crisis and the recession, and

2. At most only one of the currently competing macroeconomic models (which embody significantly different structures and implications for economic policy) can serve as a sound basis for policy.

The confidence and false precision in these forecasts and policy prescriptions reflect a continuing unwarranted faith in the models.

Links 7/18/12

Philip Pilkington: The New Monetarism Part II – Holes in the Theory

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

In the first part of this piece we looked at the Thatcher government’s monetarist experiment in the early 1980s. It did not end well. So we must ask: did the Thatcher government and the monetarists believe in what they were doing or were they cynically using monetarist policy as a device to destroy large parts of British industry in order to destroy the trade union movement?

Yanis Varoufakis: It is Now Official – The Eurozone’s Monetary Transmission System is Broken

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

Under normal conditions, the interest rates that you and I must pay on a home loan, a car loan, our credit card, a business loan are pegged onto two crucial rates. One is the rate that banks charge one another in order to borrow from each other. The other is the Central Bank’s overnight rate. Alas, neither of these interest rates matter during this Crisis. While such ‘official’ rates are tending to zero (as Central Banks try to squeeze the costs of borrowing to nothing), the interest rates people and firms pay are much, much higher and track indices of fear and subjective estimates of the Eurozone’s disintegration.

Cover Ups Are Worse Than Vanishing Data: The Facts About the FEC’s Data Downloads

Yves here. The revelation at Alternet by Thomas Ferguson, Paul Jorgensen and Jie Chen (and discussed at NC) that information about certain large donations in the 2007-8 election cycle had disappeared from the FEC website, and the removals could not possibly be corrections, appears to have led to a miraculous restoration of said information this morning. While that’s welcome, it also appears to have been accompanied by a sleazy campaign to discredit the researchers. Not smart, since they have dated downloads to prove that their charges were accurate.

By Thomas Ferguson and Paul Jorgensen and Jie Chen. Cross posted from Alternet

Enough is enough.

New Zealand’s Company Register: Even More Out of Control Than You Thought

My last post on this little mess implied that there was pretty slack official monitoring of the NZ Company Register for obviously false or impermissible registration information. But one or two other sightings invite the question: does anyone in New Zealand take Para 1, Section 377 of the Companies Act seriously, any more? 377 False statements […]

Links 7/17/12

Philip Pilkington: The New Monetarism Part I – The British Experience

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

While there are pretty stark dissimilarities between the current quantitative easing (QE) policies of many governments and the old monetarism that prevailed in the late-70s and early-80s, the reason that these both policies were ineffective is because they were based on the same flawed ideas. The key difference between the two is that where monetarism was implemented as a deflationary and contractionary policy, QE is currently being implemented as an inflationary and expansionary policy. As a result, examining the failure of monetarist policies thirty years ago provides important lessons considering QE and its offshoots.

Before looking at the similarities between these two doctrines, we will explore the actual historical trial of monetarism.

The Sucking Sound of Air Leaving the Economy

I’ve refrained from commenting much on the state of the economy over the last couple of years because it seems to have been largely irrelevant to the direction of many widely followed markets. While bonds, particularly the highest quality bonds, have continued to rally over time, par for what you’d expect in an economy facing deflationary pressures, on a day to day basis, bipolar risk on/off reactions have held sway. And even though there is no reason to expect anything better that a weak recovery in the wake of a balance sheet recession afflicting the world’s advanced economies, a peculiar tendency to look to ordinary recessions for comparisons plus undue faith in the confidence fairy has led many commentators to draw trend lines through improving data series and declare it to be a recovery. However, we seem to be at or may even have passed an inflection point, and policy makers seem remarkably unprepared to take action.

Why Were Millions in Heavy-Hitter Donations in 2007-8 Scrubbed from the Federal Elections Commission Database?

A political revelation, while not as momentous as the Libor scandal, does not reflect well on the Federal Election Commission, a post Watergate creation meant to provide transparency in political donations, or to put it more pointedly, to see who is trying to buy influence where. The short story is that a significant type of donor has disappeared from the FEC database for the 2007-8 election cycle, and the question is whether this was a huge fat-fingered error or an effort to remove information from the public view. The latter would be expressly contrary to the mandate of the FEC.

Thomas Ferguson, Paul Jorgensen, and Jie Chen present the details of this sordid mini-affair at Alternet. The background on the info that went poof: