links for 2008-10-08

• Balance sheet of the Federal Reserve - Econbrowser
• “Why is the Fed Paying Interest on Excess Reserves?” - macroblog
• Capitalism and Skepticism - Christopher Carroll
• If SS Was a Private Corporation it Would Sue Tom Brokaw - Dean Baker
• It is time for comprehensive rescues of financial systems - Martin Wolf
• Unfair to Brazil - Dani Rodrik
• Carbon Prices and Driving - The Bellows
• Boom goes the CDS - Free Exchange
• Tokyo Shares Lose 9.4 Percent as Other Asian Markets Slide - NYTimes.com
• More precisely, it's "Guys who LOOK nice finish first" - Richard H. Serlin
• The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong. - Daniel Gross

Comments

[anne]

http://www.nytimes.com/2008/10/08/world/europe/08italy.html?ref=world&pagewanted=print

October 8, 2008

U.N. Says Biofuel Subsidies Raise Food Bill and Hunger
By ELISABETH ROSENTHAL

ROME — A United Nations food agency called on Tuesday for a review of biofuel subsidies and policies, noting that they had contributed significantly to rising food prices and the hunger in poor countries.

With policies and subsidies to encourage biofuel production in place in much of the developed world, farmers often find it more profitable to plants crops for fuel than for food, a shift that has helped lead to global food shortages.

Current policies should be “urgently reviewed in order to preserve the goal of world food security, protect poor farmers, promote broad-based rural development and ensure environmental sustainability,” said a report released here on Tuesday by Jacques Diouf, the executive director of the United Nations Food and Agriculture Organization.

In releasing the report, the United Nations joined a number of environmental groups and prominent international specialists who have called for an end to — or at least an overhaul of — subsidies for biofuels, which are cleaner, plant-based fuels that can sometimes be substituted for oil and gas.

In a devastating assessment released this summer, the Organization for Economic Cooperation and Development concluded that government support of biofuel production in member countries was hugely expensive and that it “had a limited impact on reducing greenhouse gases and improving energy security.” It did have “a significant impact on world crop prices” by helping to raise them.

“National governments should cease to create new mandates for biofuels and investigate ways to phase them out,” the Organization for Economic Cooperation and Development concluded in its report. The organization includes European countries, the United States, Canada, Japan and Australia.

Still, Willy de Greef, secretary general of EuropaBio, a biotechnology industry group, said the world possessed the land and agricultural ability to produce enough food and fuel through subsidy programs.

“Of course these policies have to be developed with high quality sustainability criteria,” he said. But he added that that should include consideration of the fact that biofuels could help reduce poverty. “The development of biofuels will in fact create new revenue options for farmers all over the world, including poor farmers,” he said.

In the past eight years, as oil prices and concerns about carbon emissions have increased, a number of countries, including the United States, and the European Union have put into place subsidies and incentives to energize the fledgling biofuel industry.

As a result, the production of biofuels made from crops that could also be used for food increased more than threefold from 2000 to 2007, the Food and Agriculture Organization said. Support to encourage biofuel production in Organization for Economic Cooperation and Development countries amounted to more than $10 billion in 2006, the organization said.

But a host of studies in the past year concluded that the rush to biofuels had some disastrous, if unintended, consequences for food security and the environment. Less food is available to eat in poor countries, global grain prices have skyrocketed and precious forests have been lost as farmers have created fields to join the biofuel boom, the studies said.

Worse still, specialists say, so much energy is required to convert many plants into fuel that the process does not result in a savings of carbon emissions. The O.E.C.D.’s report said only two food-based fuels were clearly environmentally better than fossil fuels when considering the entire “life cycle” of their production: used cooking oil and sugar cane from Brazil. Sugar cane is far easier to convert to biofuel than most other crops.

Already this year, the European Union has stepped back from its target of having 10 percent of Europe’s fuel for transportation come from biofuel or other renewable fuels by 2020.

Last month, the European Parliament suggested that only 5 percent come from renewable sources by 2015, and that 20 percent come from new alternatives “that do not compete with food production.” ...

[hari]

Anne - I was shocked BO and McCain pushed for more strategic fire power in Hind Kush - not listening to the Commanders (UK) on the ground - insted of bringing Taliban factions to the negotiations table.

That part of the debate was not only irresponsible but foolhardy, at best, from my knowledge of the region. Brakaw actually gave them the lead by suggesting UK/UN experts alternative stratategy - without substantive response. Why?

[Co-sign]

"Treasury supplementary financing account."

Borrow money from overseas, and let the Fed use it to give short cash to businesses. Probably necessary during this panic, as foreign savers will no longer loan much to domestic private entities. Essentially, co-signing short term private loans until private entities can earn back trust with foreign lenders.

Eventually trust must be reestablished though. An end game plan to restore trust in private entities is needed. Foreign lenders must know that this will never happen again, and the books are open wide enough that foreign lenders can really tell who is solvent.

[Co-sign]

MW..."...lenders have moved from trusting anybody to trusting nobody."

Trust must be reestablished. Enough with opaque books and contaminating tranches with toxic waste. Co-signing will work for awhile, but our financial product must be squeaky clean for awhile to restore trust. Letting foreign lenders know who is trust-able will necessarily require also showing them who cannot be trusted. Otherwise, a permanent co-signing effort will be needed. Open the books, and also shine a light on what is in the tranches. Purge the toxic waste, and merge companies with failed business plans into companies with sensible business plans. Guarantee everything until the process is far enough along to restore trust.

[anne]

Hari:

Anne - I was shocked Obama and McCain pushed for more strategic fire power in Hindu-Kush - not listening to the Commanders (UK) on the ground - instead of bringing Taliban factions to the negotiations table.

Agreed; I was quite troubled by the international attitudes expressed during the debate, even shocked by the threatening harshness. The comments on Russia were intolerable from either a diplomatic or practical or honest perspective, but I am incapable of understanding why.

[anne]

Thinking of Iceland's financial crisis, I was suprised on learning of the turn to Russia for assistance, since Iceland is a Euro country, but Iceland has long done a significant amount of business in Russian markets and has a large banking presence in Russia so the call for assistance there makes sense and will surely be completely amicably.

[anne]

http://krugman.blogs.nytimes.com/2008/10/08/the-trouble-with-rate-cuts/

October 8, 2008

The Trouble With Rate Cuts
By Paul Krugman

The coordinated rate cut was the right thing to do. But I don’t expect much from it — because the relationship between Fed funds rates and the rates most businesses actually pay is very weak right now, thanks to the messed-up state of the financial system.

A quick illustration: in early July 2007, before the crisis, the target Fed funds rate was 5.25% and the rate on 30-day A2/P2 commercial paper — that is, CP issued by less-than-sterling borrowers — was 5.4%. On Monday of this week, the target Fed funds rate was 2%, down 325 basis points from pre-crisis levels, but the CP rate was 5.61% — up from pre-crisis levels.

So will this latest rate cut make any difference to borrowers? Maybe — but only to a few of them. We’re way past the point at which conventional monetary policy has much traction.

[anne]

http://krugman.blogs.nytimes.com/2008/10/08/a-morning-thought/

October 8, 2008

A Morning Thought
By Paul Krugman

The only thing we have to fear is fear itself. Fear and negative equity … The two things we have to fear are fear itself and negative equity, and the depleted capital of financial institutions … Amongst the things we have to fear are fear itself, negative equity, and the depleted capital of financial institutions.

Full text at http://people.csail.mit.edu/paulfitz/spanish/script.html .

[anne]

Referring to the complaint on Brazil, Brazil is much more China now than Brazil was once:

http://krugman.blogs.nytimes.com/2008/10/07/third-world-america-2/

October 7, 2008

Third World America?
By Paul Krugman

One thing I learned way back in grad school was that there was a big difference between the assets of first-world, mature-country central banks and those in rickety developing economies. The Fed and its peers had clean balance sheets, with basically nothing but Treasury bills on the asset side. Third world central banks, on the other hand, did a lot of direct lending to the private sector, and had all sorts of dodgy assets on their books.

Now the Fed is in the business of directly buying commercial paper, in some cases unsecured. Wow.

I'm not saying this is a bad idea — until Treasury comes back with a bailout plan that actually makes sense, Bernanke has to try everything he can to hold the system together. But it is shocking how fast things have gone downhill.

[anne]

The problem is, I would argue, that we are definitely not Sweden in the 1990s, nor Britain now, and we are not even a less sure Japan in the 1990s determined to insulate employees against the financial crisis. There is no sense in dominant economic discussion at present of the need to preserve employment here, and that above all is what worried me and reflects a fierce management-ordinary employee power imbalance in America.

[anne]

Russia is the evil who, what, when, where, how?

http://angryarab.blogspot.com/2008/10/reality-is-that-saakashvili-government.html

October 8, 2008

" 'The reality is that the Saakashvili government is the fourth one-party state that Georgia has had during the last 20 years, going back to the Soviet period,' he said. 'And nowhere has this been more apparent than in the restrictions on media freedom.' In its most recent report, Freedom House, a human rights research group based in New York, ranked Georgia, in terms of press freedom, on a level with Colombia and behind Nigeria, Malawi, Indonesia and Ukraine — the last a NATO aspirant, like Georgia. A 2008 State Department report on Georgia’s democratic progress said that respect for freedom of speech, the press and assembly worsened during the 2007 crisis and that there continued to be reports of 'law enforcement officers acting with impunity' and 'government pressure on the judiciary.' "*

* http://www.nytimes.com/2008/10/07/world/europe/07georgia.html

-- As'ad AbuKhalil

[anne]

Imagine then a Presidential debate, questions carefully selected and prepared, over just how evil Russia is, and both candidates understanding that the question must be accepted, the only matter being how to prevent Russia from being more evil than evil can be. There we have American diplomacy on display.

[anne]

http://angryarab.blogspot.com/2008/10/investigation-by-military-has-concluded.html

October 8, 2008

"An investigation by the military has concluded that American airstrikes on Aug. 22 in a village in western Afghanistan killed far more civilians than American commanders there have acknowledged, according to two American military officials. The military investigator’s report found that more than 30 civilians — not 5 to 7 as the military has long insisted — died in the airstrikes against a suspected Taliban compound in Azizabad." * (Oh, and don't feel sorry for the dead babies: they are all Taliban fighters. That is what the US military has said, and how dare you dispute claims of the US military).

* http://www.nytimes.com/2008/10/08/washington/08inquiry.html

-- As'ad AbuKhalil

[anne]

http://angryarab.blogspot.com/2008/10/investigation-by-military-has-concluded.html

October 8, 2008

"An investigation by the military has concluded that American airstrikes on Aug. 22 in a village in western Afghanistan killed far more civilians than American commanders there have acknowledged, according to two American military officials. The military investigator’s report found that more than 30 civilians — not 5 to 7 as the military has long insisted — died in the airstrikes against a suspected Taliban compound in Azizabad." * (Oh, and don't feel sorry for the dead babies: they are all Taliban fighters. That is what the US military has said, and how dare you dispute claims of the US military).

* http://www.nytimes.com/2008/10/08/washington/08inquiry.html

-- As'ad AbuKhalil

[anne]

As'ad AbuKhalil's fierce comment again reminds me of the nature of war and success and failure in war being almost impossible to distinguish since there is no way of allowing the dead to be witnesses. We will be successful in Afghanistan, as we have been in Iraq, but successful in our select frame that has the most limited meaning broadly and philosophically.

[Darn, I am sorry about the double comment which was entirely my fault as I try to learn how to properly use Firefox.]

[anne]

Focusing on the wish for a change in thinking, which might allow for reasonable policy change, if the evilness of Russia could be taken for granted by the debate moderator and Democratic candidate, notice that the coming bankruptcy of Social Security could be taken as beyond question by the moderator and beyond challenge by the Democratic candidate. So it goes.

[anne]

What I failed to notice in paying attention since December 2006, to the war we encouraged and supported in Somalia, was where the refugees from the country have been going. Many of the Somali displaced stay in Somalia or flee to the uncertain border areas of Somali-Ethiopia, but there are a steady number fleeing at much risk to Yemen which, however poor Yemen is, by international treaty accepts displaced Somalis. The irony of fleeing Somalia in the wake of a needless war for the poor-troubled regions beyond has been completely lost on us however.

[anne]

How important the loss of international news on public television is should be evident in considering that no American televised news simply showed the lengthy Georgian attack on Ossetia, that was only shown internationally. So Americans absent international news had no sense that Georgia had mercilessly and beyond all excuse attacked Russian civilians and peace-keepers and occupied Ossetia before Russia responded to protect Ossetians.

So we have even now a debate between Presidential candidates when Russian evil and not Georgian evil is the accepted issue. Secretary Rice set the dialogue on Georgia from beginning to end, with no meaningful press challenge when the challenge mattered thus setting the still prevailing attitude.

[anne]

http://video.on.nytimes.com/?fr_story=58d008e928c0756d1807ef6582e897754971274b

Palin's Girliness

Megan Carpentier of the blog Jezebel and Rebecca Traister of Salon discuss female politicians, such as Sarah Palin, who refuse to hide their femininity.

[Thus, the New York Times.]

[hari]

Let's deal with this thread of linked topics:

*Iceland is not an EU country - formerly part of Danish Kingdom. However the current politics of the regime is responsible for the economic malaise - they've invested in more commercial highscapers and developments than anyone else, I know of. And they had a strategy of making Iceland the money centre of realestate industry - and it has now failed miserably. Iceland may have to declare bankruptcy.

*Russia - interesting while US Presidential debate tried to make Russia into a scapegoat of American policy failures in Georgia and Caucasus, Medvedev is trying to get Russia back into G-8 and regulate its financial policy during this credit crunch malaise. In other words, Russia is seeking closer cooperation with G-7 while US candidates are fulfilling their own anti-Russian belligerency - to see who can be more outrageous.

*Global Financial Crisis - modern media has come to make this crisis even more constrained and tightrope. Fed/ECB and other CBs will try and get a handle on the credit markets, I suspect; but when and at what cost?

[anne]

Hari:

"Iceland is not an EU country."

I was quite wrong and careless, Iceland certainly does not use the Euro but has tried pegging the Krona to a basket of currencies. There is no particular Euro link.

[anne]

Having been wrong and careless, I wonder then would Iceland have been saved by being a Euro country or having pegged to the Euro a while ago?

[anne]

Evidently the attempt at currency pegging by Iceland has been unsuccessful. What then, and what was the point of the peg at this late date to begin with?

[lonesome moderate]

Iceland may have to go into default (which is apparently what countries do instead of declaring bankruptcy), but Pakistan will likely do so first: http://www.portfolio.com/views/blogs/market-movers/2008/10/08/the-sovereign-default-race-heats-up.

[hari]

Anne - I've been visiting Charlie Rose and found interviews with the following:

*Foreign Minister of Iran - very informative and of value.

*Foreign Minister Lavrov/Russia - Georgia and current attacks by Rice on *authoritarian* Russia + future relations.

You'll find both interviews extremely informative and valuable to understand why American policy is so foolishly distorted (incl. mainland China) during this critical global financial crisis. [I wish I knew how to link it up].

[hari]

If Iceland is not bailed out, it will have to declare official bankruptcy and may be more....[It's policy distortions are principally trying to outsmart City (Lon) into becoming next Dubai of world real estate.]

[hari]

FM/Lavrov interview with Charlie Rose provides detailed policy issues on Iran which Rice has imasculated as an ideological propaganda to hide her own professional defficiency to addres fundamental agreements with Russia, in pariticular, and IAEA.

US seems to be always moving goal posts and creating additional and/or new policy issues for the sake of fulfilling its own strategic outlook with Israel in the region. Israel is emerging as the critical chess piece in the whole regional peace issue, so I read the interview.

[lonesome moderate]

Hari - when you refer to "official bankruptcy", do you mean something other than simply going into some kind of default and forcing creditors to accept writedowns on their debt? Many countries have done that in the past (though none as rich as Iceland so far as I know), but I'm not aware of any official bankruptcy process.

[hari]

Official bankruptcy refers to state insolvency and that's the case emerging with Iceland. Gov economic policy allowed the real estate developments across the gloabl markets.

[Barkley Rosser]

hari,

"Israel is emerging as the critical piece"???? This is one of the stupidest statements I have seen in some time. Did Lavrov actually say that? Either it has long been the critical piece, or it is not. But emerging now? Not particularly more than at any other time.

Yes, I find Obama's rhetoric on Pakistan, which is more hawkish than McCain's and on Russia, which is about the same as McCain's, depressing. But then, he is far more pacifistic on our biggest foreign military engagement, Iraq. I hate to say it, but to stand on his far more dovish stance on Iraq compared to McCain with his surge rhetoric, pretty much demands that he sound hawkish elsewhere. I think that in office there is good reason to believe that he would not be quite so hawkish. They guy is indeed very smart, and pretty calm, heck, presidential even.

says...

BR: "I think that in office there is good reason to believe that he would not be quite so hawkish."

Could not agree more, at the height of hysteria and nationalist zeal, he voted against an illegitimate war in Iraq.

"The guy is indeed very smart, and pretty calm, heck, presidential even."

He and his campaign are definitely smart enough to play the election game and understand the necessity for bravado and broad appeal. "...heck, presidential even"...sounds like a reluctant concession? Curious

[rufus]

Oops...'that one'^, was mine
:)

[rufus]

AIG getting fresh billions from Fed, defends event

http://news.yahoo.com/s/nm/20081008/bs_nm/us_aig_retreat_3

NEW YORK (Reuters) - American International Group Inc could get nearly $38 billion in fresh cash under a program announced by the Federal Reserve on Wednesday, as the insurer tried to fend off criticism of a lavish event held days after getting an initial $85 billion government loan.

Under the new plan, the Federal Reserve Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash.

The securities were previously lent by AIG's insurance company subsidiaries to third parties. The Fed said the new program will allow the company to replenish liquidity used in settling transactions with counterparties.

AIG had drawn fire in Washington on Tuesday for spending $200,000 on hotel rooms and $23,000 on spa services at an event, just days after it got the emergency loan from the government to avoid bankruptcy in the middle of the worst credit crisis since the Great Depression.

As lawmakers grilled former top executives at a hearing, Rep. Elijah Cummings, a Maryland Democrat, said: "They were getting facials, manicures and massages, while the American people were footing the bill."

On Wednesday, AIG said the "business event," hosted by one of its subsidiaries, was for independent life insurance agents. It said the event was planned "months before" it received the loan last month, and no AIG executives from headquarters attended.

AIG's effort to correct the record on the event came after White House spokeswoman Dana Perino used the word "despicable" on Wednesday when asked about the AIG event.

"I understand why the American people would be outraged," she said at a White House briefing. "It's pretty despicable, to realize how callous somebody might be."

President George W. Bush did not intend to benefit industry titans when he approved the bailout of AIG and a wider $700 billion Wall Street rescue package, she said.

"Rewarding failure is something we have a very hard time swallowing," Perino added.

AIG said current Chief Executive Edward Liddy had written a letter to Treasury Secretary Henry Paulson to clarify the circumstances of the business event.

The company said Liddy assured Paulson that AIG now faces very different challenges, saying: "(W)e owe our employees and the American public new standards and approaches," and that the company is "re-evaluating the costs of all aspects of our operations..."

AIG said 10 employees from its subsidiary, AIG American General, attended the 100-guest event.

(Reporting by Jonathan Spicer, with additional reporting by Andy Sullivan, David Lawder and Glenn Somerville in Washington, and Juan Lagorio in new York; Editing by Tim Dobbyn)

[Patricia Shannon]

http://www.sciencedaily.com/releases/2008/10/081002103651.htm

Topsoil's Limited Turnover: A Crisis In Time

ScienceDaily (Oct. 5, 2008) — Topsoil does not last forever. Records show that topsoil erosion, accelerated by human civilization and conventional agricultural practices, has outpaced long-term soil production. Earth's continents are losing prime agricultural soils even as population growth and increased demand for biofuels claim more from this basic resource.

Top geomorphologist David R. Montgomery of the University of Washington says that "ongoing soil degradation and loss present a global economic crisis that, although less dramatic than climate change or a comet impact, could prove catastrophic nonetheless, given time."

Montgomery is an invited speaker in the Pardee Keynote Symposia, “Human Influences on the Stratigraphic Record,” on 9 October at the 2008 Joint Meeting of the Geological Society of America, Soil Science Society of America-American Society of Agronomy-Crop Science Society of America, and Gulf Coast Association of Geological Societies in Houston, Texas, USA.

In his talk on Montgomery will present the record of erosion, both in historic civilizations and today, and address the long-term implications for agricultural sustainability, including the possibility that unchecked anthropogenic erosion will in time undermine the foundation of civilization itself.

[anne]

Hari:

"Israel is emerging as the critical chess piece in the whole regional peace issue...."

A fair comment, since the Presidential and Vice Presidential candidates have been continually emphasizing support of Israel, or support of current and even perspective policy of the government of Israel to a degree that may be more pronounced than before.