links for 2008-03-20

• Commodity prices (wonkish) - Paul Krugman Blog
• Woodburn, Ore.: a microcosm of immigrant shifts in America - EurekAlert
• Pineapple Dreams - Olivia Judson
• Most republicans think US health care best; democrats disagree - EurekAlert
• Stuff of Life Is Detected on a Distant Planet - New York Times
• Fed Tiptoes Through Minefield With Cut to 2.25% - John M. Berry

Comments

[anne]

http://judson.blogs.nytimes.com/2008/03/18/pineapple-dreams/index.html

March 18, 2008

Pineapple Dreams
By Olivia Judson

The other day, I went to the supermarket to buy a pineapple. I didn't select the one that smelled the ripest, but the one with the most impressive leaves: tall, bushy and uncrushed by the journey from Costa Rica. When I got it home, I put it in the kitchen sink, turned on the tap, and watched how the water gathered and formed pools in the spaces between the leaves. And I began to imagine that I was not a human in an apartment in London, but a small frog in a tropical forest, climbing up the leaves of a plant like a pineapple, looking for a pool where I could deposit the tadpole I'm carrying on my back.

As I tried to envision the pineapple's leaves soaring above my tiny frog self, like the shells of the Sydney Opera House, a passage from the wonderful though admittedly specialized book "Mites of Moths and Butterflies" ran through my head:

The magic of the microscope is not that it makes little creatures larger, but that it makes a large one smaller. We are too big for our world. The microscope takes us down from our proud and lonely immensity and makes us, for a time, fellow citizens with the great majority of living things. It lets us share with them the strange and beautiful world where a meter amounts to a mile and yesterday was years ago.

I would love, for a few days, to be shrunk down — perhaps not so small as to be microscopic but, say, about the size of my thumbnail — and splash around in the pineapple pools. I might not come back alive, though: when you're that small, enemies are everywhere. Even the plants might attack you.

Pineapples are members of a large and diverse group of plants called bromeliads, which are native to Central and South America and the Caribbean (one species is native to west Africa). Some bromeliads live, like regular plants, rooted to the ground. Others are epiphytes: they live on the branches of trees. This isn't usually a parasitic relationship — they don't take nutrients from the trees, just support.

But whether they live on the ground or high in the air, the typical bromeliad has, as a pineapple does, a central cone of leaves that collects rain water. At the base of the cone, other leaves open outward; the leaf stems are deep, and rain collects there, too, giving each plant cascading tiers of pools. The biggest bromeliads hold as much as two liters (just over two quarts) of water.

And so it is that the forests of the American tropics are studded with miniature lakes, at a variety of elevations above the forest floor. The density can be prodigious. A study in one forest found 175,000 bromeliads per hectare (2.5 acres); at this density, they may sequester as much as 50,000 liters (more than 13,000 gallons) of water per hectare of land.

Islands and lakes (which are islands of water surrounded by land) are famous for being evolutionary laboratories. Isolation allows the evolution of unique and specialized flora and fauna. Island chains like Hawaii and the Galápagos, and lake systems like the Great Lakes of Africa, are famous for the unusual species that have evolved there. The leaf pools of the bromeliads are islands made tiny.

Like more familiar, large-scale lakes, the number of species in a bromeliad is related to its size. But despite being around 20 quadrillion times smaller in volume than Lake Tanganyika, a bromeliad leaf pool can be home to quite a menagerie.

One study of 209 plants from the lowlands of Ecuador found 11,219 animals from more than 300 species. Of these, some were tourists — just passing through. But many of the others are found only on bromeliads. There are bacteria and flatworms, mosquito larvae, jumping spiders and tadpoles, as well as an array of organisms entirely alien to most of us. Among the most charismatic aliens are ostracods, which have minute hinged shells (perhaps just one millimeter — 1/25th of an inch) that resemble clam shells; but unlike clams, ostracods have two pairs of legs and two pairs of antennae. And just as the finches on different islands of the Galápagos have evolved into closely related, but distinct, species, so have bromeliad ostracods.

There are tiny salamanders, perhaps just 2.5 centimeters (an inch) from the ends of their snouts to the base of their tails: it's surprising to think that an animal with a backbone can get that small. And though they have simple brains, they are astonishing in other respects. Their tongues, with which they catch insects, can extend almost the length of their bodies, and zoom out with extraordinary speed and power: they can project their tongues 1.5 centimeters (3/5ths of an inch) in 7 milliseconds. Calculations on the ballistics of salamander tongues show that the muscular power of the launch is ten times higher than the instantaneous power output of any other known vertebrate muscle.

And if that's not wacky enough, how about this: among the inhabitants of bromeliad pools are other species of bromeliad. Sometimes, these bromeliads-within-bromeliads are carnivorous, digesting any insects that get trapped inside. See what I mean about the dangers of being small?

But of all the creatures that make their homes on these plants, here's the one that particularly captures my imagination: Metopaulias depressus, a reddish-brown crab from the bromeliads of Jamaica....

[anne]

http://krugman.blogs.nytimes.com/2008/03/20/credit-crisis-for-make-harm-glorious-republic/

March 20, 2008

Credit Crisis For Make Harm Glorious Republic
By Paul Krugman

Global contagion, from Bloomberg: *

"Kazakh homebuyers are being left out in the cold by the global credit shortage.

"In Almaty, the biggest city in the oil-rich Central Asian state, about 30 people on March 18 rallied against the hole in the ground where their new apartments should be. Work stopped after builder AO Corporation Kuat couldn’t get funding."

* http://www.bloomberg.com/apps/news?pid=20601109&sid=aJz9eZJdOSQs&refer=home

[ddt]

Commodities: Latest Boom, Plentiful Risk - NYT
http://www.nytimes.com/2008/03/20/business/20commodity.html

The booming commodities market has become increasingly attractive to investors, with hard assets like oil and gold perhaps offering a safe hedge against inflation, as well as the double-digit gains that have fast been disappearing from the markets for stocks, bonds and real estate.

Enlarge This Image

Chip East/Reuters
A trader made his offer in the oil options pit of the New York Mercantile Exchange a few days ago.
Multimedia

Graphic
Commodities Boom
Undeterred by the kind of volatile downdrafts that sent oil plunging 4.5 percent Wednesday, to settle at $104.48 a barrel, large funds and rich individual investors have sent a torrent of cash into this arcane market over the last year, toppling records for new money flowing in.

Small investors are plunging in, too, using dozens of new retail commodity funds to participate in markets that by one measure have jumped almost 20 percent in the last six months and doubled in six years.

But this market, despite its glitter, offers risks of its own, including some dangerous weaknesses that are impairing the ability of regulators to police fraud and protect investors. Commodities are also vulnerable to the same worries affecting the rest of Wall Street, where on Wednesday the Dow Jones industrial average plunged almost 300 points, erasing more than two-thirds of Tuesday’s steep gains.

Moreover, the biggest speculators and lenders in the commodities markets are some of the same giant hedge funds, commercial banks and brokerage houses that are caught in the stormy weather of the equity, housing and credit markets.

As in those markets, an evaporation of credit could force some large investors — especially hedge funds speculating with lots of borrowed money — to sell off their holdings, creating price swings that could affect a host of marketplace prices and wipe out small investors in just a few moments of trading.

“Right now is a very scary time” for commodity market regulators, said Michael Riess, a director of the International Precious Metals Institute, a consultant to commodities investors for more than 30 years. “It’s not a question of overregulating or underregulating. It’s a question of just being swamped by volume, volatility and a dramatic shift toward speculative interests.”

Developments on Wall Street in the last few days underscored the new risks. Both Bear Stearns and its prospective new owner, JPMorgan Chase, are important clearing brokers that process and guarantee their clients’ trades in the commodities markets.

Officials at the exchanges where those trades occur had to monitor Bear Stearns’s financial situation carefully throughout last week to ensure that its cash shortage did not affect its commodity positions or those of its clients.

Walter L. Lukken, who heads the federal agency that regulates most commodity markets, said his staff had been able, so far, to cope with both the markets’ growth and the recent tremors from Wall Street.

"Even with the enormous volume coming through,” said Mr. Lukken, acting chairman of the Commodity Futures Trading Commission, “we think we have gotten a very good handle on the market. You can’t catch them all, of course, and you worry that something will get past the goalie. But we have been able to scale up the regulatory monitoring system to deal with increasing volume.”

Regulators and exchange officials take comfort from the rising commodity prices, which reduce the risk that lenders will grow nervous about their collateral and withhold new credit. Despite a broad commodities sell-off yesterday, a Commodity Research Bureau index remains almost 40 percent higher than a year earlier.

But it has been a roller coaster: commodity prices can record daily percentage changes that dwarf typical movements in stocks. Yesterday, when crude oil gave back some of its 85 percent annual gain and gold dropped almost 6 percent after an annual gain of 44.5 percent, the Standard & Poor’s 500-stock index fell 2.4 percent, leaving it down 7.4 percent over the last year. On its worst single day over the last year, it fell 3.2 percent.

So stock market investors seeking these formidable gains will find themselves on unfamiliar terrain. The heart of commodities markets is the so-called cash market, a “professionals only” setting where producers sell boatloads of iron ore, tanker ships full of oil and silos full of wheat for immediate use.

Wrapped around that core are the commodities futures markets. Here, hedgers and speculators trade various versions of a derivative called a futures contract, which calls for the delivery of a specific quantity of a commodity at a fixed price on a particular date.

Futures contracts trade both on regulated exchanges and in the immensely larger but less regulated over-the-counter market, where banks and brokers privately negotiate futures contracts with hedgers and speculators around the world.

Multimedia

Graphic
Commodities Boom
The prices at which all these contracts trade indicate the potential strength of demand and supply for commodities still in the ground or in the fields. That makes them important to everyone who produces, buys and uses those goods — wheat farmers, baking companies, grocery shoppers, oil companies, electric utilities and homeowners.

Prices here can also influence the values of the increasingly popular exchange-traded funds, or E.T.F.’s, that focus on commodity investments. Born barely four years ago, these funds had net assets of $32.8 billion in January, compared with less than $4.8 billion in 2005.

But as the futures markets have grown, the ability of federal regulators to police them for fraud and manipulation has been shrinking, as a result of legislative loopholes and adverse court decisions. And despite widespread agreement that these regulatory gaps are bad for investors and consumers, they have not yet been repaired.

The oldest of these is the so-called Enron loophole, an 11th-hour addition to the Commodity Futures Modernization Act of 2000 that gave an exemption to private energy-trading markets, like the one operated by Enron before its scandalous collapse in 2001. Regulators later accused Enron traders of using this exempt market to victimize a vast number of utility customers by manipulating electricity prices in California.

Related to that loophole is a broader one for a category called exempt commercial markets, envisioned in the 2000 law as innovative professional markets for nonfarm commodities that did not need as much scrutiny as public exchanges.

What lawmakers did not anticipate was that one of the exempt markets, the IntercontinentalExchange, known as the ICE and based in Atlanta, would become a hub for trading in a product that mirrors the natural gas futures contract trading on the regulated New York Mercantile Exchange.

In 2006, traders at a hedge fund used the ICE’s look-alike contract as part of what regulators later asserted was a scheme to manipulate natural gas prices, again at great cost to users. The fund denied the accusation, and civil litigation is pending.

That case persuaded the commission that it needed more power to police these exempt markets, at least when they help set commodity prices. But so far, it has not received it, despite repeated requests to Congress.

Another attempt to close these loopholes is attached to the pending farm bill, which is scheduled to emerge from a Congressional conference committee next month. But this latest effort, too, faces market and industry opposition.

The courts have also curbed the commission’s reach. In three cases since 2000, judges have interpreted federal law to severely limit the commission’s ability to fight fraud involving both over-the-counter markets and specious foreign currency contracts used to victimize individual investors.

The commission has filed appeals, but a far quicker remedy would be for Congress simply to revise the laws, as the commission requests.

Mr. Lukken said he was confident that passage of the commission’s proposed language as part of the farm bill would address those shortcomings, as well as the exempt-market problem.

Finally, the commodities market has not yet dealt with what some economists say are inherent conflicts that have arisen as the futures exchanges, which have substantial self-regulatory duties, have been converted into for-profit companies with responsibilities to shareholders that could conflict with their regulatory duties. (For example, shareholders may benefit when an exchange’s regulatory office ignores infractions by a trader who generates substantial income for the exchange.)

By contrast, when the New York Stock Exchange and Nasdaq became profit-making entities, they spun off their self-regulatory units into an independent agency, now called the Financial Industry Regulatory Authority.

The C.F.T.C. never encouraged that approach, trying instead — so far unsuccessfully — to adopt principles that would encourage the for-profit exchanges to add independent directors to oversee their self-regulatory operations.

Independent directors do not owe any less loyalty to shareholders than management directors would, said Benn Steil, director of international economics at the Council on Foreign Relations. "The statutory regulators have got to acknowledge these conflicts and act accordingly," he said.

His view is opposed by Craig Donohue, chief executive of the CME Group, the for-profit company that operates the Chicago Mercantile Exchange and the Chicago Board of Trade and may soon merge with the New York Mercantile Exchange.

“We succeed because we are regulated markets, among other things. That’s part of our identity and brand,” Mr. Donohue said. Effective self-regulation, he added, is “very consistent with the shareholder interest.”

Mr. Lukken nevertheless plans to push ahead with his call for more public directors. “The important point is trying to minimize and manage conflicts,” he said. “Public directors are uniquely qualified to balance the interests of the public as well as the requirements of the act.” Although the effort has been delayed, he added: “This is not an indefinite stay. It’s a priority of mine that we hope to complete in the coming months.”

But some with experience in the commodities market remain nervous about the new money pouring in so quickly.

Commodity trading firms that have survived for any length of time have excellent risk-management skills, said Jeffrey M. Christian, managing director of the CPM Group, a research firm spun off from Goldman Sachs in 1986. Mr. Christian said he was less certain how the newcomers would deal with risk.

“You have the stupid money coming into the market now,” he said last week. “And I think the smart money is beginning to get a little frightened about what the stupid money will do.”

[ddt]

Commodity prices part speculative - IMF
http://www.ft.com/cms/s/0/f01997e4-f677-11dc-bda1-000077b07658.html

The strength of commodities prices, such as crude oil, this year is explained in a large part by speculative factors such as investors piling into the new asset class and the weakness of the US dollar, the International Monetary Fund said on Thursday.

The warning came as commodities prices fell across the board, with oil prices dropping below the $100 a barrel level, gold prices tumbling 10 per cent from their recent record above $1,000 a troy ounce and sharp falls in base metals and grains.

EDITOR’S CHOICE
In depth: Commodities boom - Mar-06

Commodities lower amid dollar rally - Mar-20

Oil watchdog to analyse record highs - Mar-12

Analysts differ about commodity bubble - Mar-10

John Authers: Commodities’ rally may signify trouble - Mar-07

Commodities saving grace for investors - Mar-05

Commodities prices fell as investors, who have poured record amounts of money into raw materials so far this year, cut leverage and fled into cash and short-term US treasuries and bonds. The yield of the three-months US Treasury fell to a 50-year low of 0.56 per cent on Wednesday.

John Reade, metals strategist at UBS in London, said: “It seems as if large-scale deleveraging is occurring across many asset classes and commodities – as profitable and recently fashionable trades – are being caught up in this trend.”

The fall in commodities prices, if sustained, could push down inflationary pressures both in developed and developing economies, analysts said. Until now, rising commodity prices have led to pressures on inflation, reducing central banks’ room of manoeuvre to insulate their economies from the impact of the credit squeeze.

The IMF said that the constellation of dollar depreciation and falling short-term real interest rates “has pushed up commodity prices through a number of channels, including by enhancing the attractiveness of commodities as an alternative asset.”

“Overall, these financial factors seem to explain a large part of the increase in crude oil prices so far in 2008, as well as the rising prices of other commodities,” it said.

It added that as global economic growth is widely expected to decline this year and in 2009, “prices of most commodities should eventually start easing.” However, it added that “unless there is a substantial global downturn, however, the extent of easing may be small, given the current tight balances in some commodity markets.”

The IMF said that in all recent global downturns, commodity prices declined sharply, “suggesting a disconnect between commodity prices and the ongoing slowdown.”

However, it added that much of the apparent disconnect reflected the fact that developing countries, which have been responsible for the bulk of recent commodity demand growth, have so far been less affected by the slowing growth.

“The resilience of high commodity prices will depend on the extent of spillovers of slowing growth in advanced economies to the rest of the world,” it said.

Crude oil prices fell to a three-week low below $100 a barrel. Nymex May West Texas Intermediate drop $3.34 to $99.20 a barrel, well below the all-time high of $111.80 a barrel it set earlier this week.

In the base metals market, copper dropped to a month-low. On the London Metal Exchange, three-months forward copper fell 2.8 per cent to $7,710 a tonne while aluminium dropped 2.8 per cent to $2,837 a tonne.

Agricultural commodities also fell sharply. CBOT May corn fell to a month-low of $5.08 a bushel, down 3.7 per cent on the day. CBOT May wheat also dropped to a month-low of $10.36 a bushel, down 3.5 per cent on the day.

CBOT May soyabeans plunged to a two-month low of $12.07 a bushel, down nearly 4.0 per cent on the day.

[paine]

there are many reasons the extended allegory
is today
as dead as the mid eval catholic church

somethings are even more tedious then algebra

but mark as much as the fabric bores me
i commend your pains taking reweave

[anne]

Paine:

there are many reasons the extended allegory
is today
as dead as the mid eval catholic church

[Agreed and interesting, but in reference to what comment?]

[anne]

http://krugman.blogs.nytimes.com/2008/03/20/fed-funds-question-seriously-wonkish-and-possibly-dumb-too/

March 20, 2008

Fed Funds Question (Seriously Wonkish, and Possibly Dumb Too)
By Paul Krugman

The target Fed funds rate is now 2.25%. Everyone expects it to be reduced further; Citi economists predict * that it will be down to 1% by mid-year.

But I have a possibly naive question: can the Fed really cut the Fed funds rate that far? I don’t mean “can” in the sense that other concerns will give them pause; I mean literally — does the Fed really have that ability?

Bear with me while I talk this through. The Fed actually conducts monetary policy through open-market operations in Treasuries: the FOMC tells the open-market desk to buy or sell Treasuries from banks until the Fed funds rate is close to the target. Normally this puts Treasury interest rates close to the Fed funds rate, since one short-term loan to a very safe customer is a lot like another.

But right now Treasury interest rates are much, much lower than the Fed funds rate — around half a percent on both 1-month and 3-month bills. Weirdness like negative rates on repos aside (I’m still trying to wrap my mind around that one), basically the Fed can only drive Treasury rates down by about another half-point — which would still seem to leave Fed funds well above 1%.

How is it possible for the Fed funds rate to be higher than the Treasury rates? Well, one interpretation is that banks don’t trust each other — not even for overnight loans. Fed fund loans, after all, are unsecured.

In other words, the Fed funds rate may be more like LIBOR than the Treasury rate — and it may be being held up by a premium similar to the TED spread. **

Am I being really stupid here? Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?

* http://blogs.wsj.com/economics/2008/03/20/citi-economists-interest-rate-cuts-ahead-lots-of-them/

** http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND

[anne]

[Please notice much to my surprise and sadness, the Council of Foreign Relations chose to use Amity Shlaes to review the work of Stiglitz and Bilmes:

http://www.cfr.org/publication/15781/ .

But, why should I be the least surprised?]

[anne]

Of course, the Washington Post today derided proposals by Barack Obama and Hillary Clinton to withdraw troops from Iraq, though the withdrawal plans would at least in Obama's plan leave enough troops to gain no cost reduction if Stiglitz is correct in cost understanding, while there would still be a troop presence with Clinton's plan.

http://www.washingtonpost.com/wp-dyn/content/article/2008/03/19/AR2008031902908.html

[anne]

Beyond Amity Shlaes and Tunku Varadarajan on one side and Mark Thoma on the other, economists are just not willing to discuss the work.

http://www.ft.com/cms/s/07d4beda-e8c3-11dc-913a-0000779fd2ac,dwp_uuid=ebe33f66-57aa-11dc-8c65-0000779fd2ac,print=yes.html

War is evidently costless to so many of us.

[anne]

A powerful array of influences will do all that can be done to keep us in Iraq no matter who is the coming President, and countering such forces will be difficult and need to be done with no illusion of Republican or conservative support. There will be no such support; quite the opposite and the reason I am little hopeful in bi-partisan relations should a Democrat be elected President. Only a thoroughly determined President and significant Congressional majority may be able to counter oppostion.

Stiglitz shows us that leaving tens of thousands of soldiers in Iraq will cost as at least as much as the astounding sum we are currently spending. So, partial leaving will almost surely not be materially leaving.