links for 2008-10-09

• There's No Easy Way Out of the Bubble - Vernon Smith
• Back to the Great Depression Debates - Econbrowser
• In Praise of Bernanke - Economix
• TARP: a simple model - Worthwhile Canadian Initiative
• Taking Hard New Look at a Greenspan Legacy - NYTimes.com
• How to Recapitalize the Financial System - Greg Mankiw
• Bush Administration Needs Credibilty - Capital Gains and Games
• U.S. May Take Ownership Stake in Banks - NYTimes.com
• The Credit Crisis as just one aspect of "Deregulatory State" - ataxingmatter
• TED Spread: How High Is Financial Risk Today? - Businomics Blog
• Temporary Price Changes and the Real Effects of Monetary Policy - NBER
• Wendell Cox, Ladies and Gentlemen - The Bellows
• Five decades of evidence on financial crisis: How long? How deep? - Vox EU
• Too many bankers? - Vox EU
• Fed Trying to Find What Works in Bank Debacle - John M. Berry

Comments

[anne]

http://krugman.blogs.nytimes.com/2008/10/08/to-do-not-to-do/

October 8, 2008

To Do, Not to Do
By Paul Krugman

Follow the leader [Gordon Brown]

Readers ask what I think should be done about the financial crisis. The answer is, what Gordon Brown in doing in Britain: a bailout, yes, but one that gives the government an ownership stake in the bailed-out institutions. That plus a serious fiscal stimulus plan that includes emergency aid to state and local government.

The Brown plan, by the way, is 50 billion pounds; scaled by GDP, that would be the equivalent of a $500 billion plan here. The headline number would be smaller than the Paulson plan, but the probable effectiveness much, much greater. Not so incidentally, my reading of the TARP (Troubled Asset Relief Program) as passed is that thanks to the equity participation provisions, it could be converted into a version of the Brown plan at the Treasury secretary's discretion; let's hope that he does so discrete, or something like that, as soon as possible. (Brad DeLong seems to agree; * the Brown plan is a close relative of the Elmendorf plan.)

Meanwhile, John McCain's bailout plan manages to take everything that's wrong with the Paulson plan and make it worse. I'll outsource ** the explanation to Brad.

Starting already? Justin Fox catches *** something in Paulson's press conference today:

Did anybody else notice that when Hank Paulson was describing in his press conference today what the Emergency Economic Stabilization Act enables Treasury to do, the first thing he listed was "to inject capital into financial institutions"?

That wasn't how Treasury initially advertised its Troubled Asset Relief Program. It was sold as a way to get the market for mortgage securities moving (or, to use the jargon, liquid). Lots of academic economists objected that liquidity wasn't the problem, it was insolvency. What Treasury needed to do was recapitalize financial institutions and take equity stakes in return....

None of the people asking questions at the press conference really seemed to pick up on this, of course (&%%$# Washington journalists!). Along with Paulson's affirmation that the FDIC was going to use its "systemic risk" powers to protect depositors and unsecured creditors "as appropriate," I take it as one more sign that we're headed toward a Swedish solution of our banking crisis—recapitalization and temporary nationalization of much of the banking system.

* http://delong.typepad.com/sdj/2008/10/john-mccains-ne.html

** http://delong.typepad.com/sdj/2008/10/john-mccains-ne.html

*** http://time-blog.com/curious_capitalist/2008/10/treasury_prepares_for_a_tarpan.html

[anne]

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?ref=business

September 23, 2008

Stopping a Financial Crisis, the Swedish Way
By CARTER DOUGHERTY

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a very different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy kept banks on the hook and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

"If I go into a bank," said Bo Lundgren, who was Sweden's finance minister at the time, "I'd rather get equity so that there is some upside for the taxpayer."

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today's dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. "The public will not support a plan if you leave the former shareholders with anything," he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden's banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden's currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt's conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation's 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden's largest bank. Mr. Wallenberg, the scion of the country's most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

"For every krona we put into the bank, we wanted the same influence," Mr. Lundgren said. "That ensured that we did not have to go into certain banks at all."

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden's crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

"The only thing that held back an avalanche was the hope that the system was holding," said Leif Pagrotzky, a senior member of the opposition at the time. "In public we stuck together 100 percent, but we fought behind the scenes."

Looking back, Swedish officials say the tough-love approach toward the banks paved the way for success. It eliminated "moral hazard," the problem of relieving investors of bad decisions. And, much as it might be a shock in the United States, the demise of shareholders also underpinned the political consensus that helped restore stability to financial markets even before the bailout was truly under way.

While government ownership of banks goes against the American grain, Mr. Lundgren worries that if the American bailout rests on a thin reed, politically speaking, it could fail.

The Treasury is now planning to purchase the distressed assets outright, without demanding equity. If it wants to restore the banking system's creditworthiness, it will have to err on the side of paying too much money to the banks that caused the crisis, Mr. Lundgren fears.

"If the valuation is bad, from the taxpayer's point of view, you lose," Mr. Lundgren said. "And that decreases the legitimacy of the plan."

[anne]

http://www.nytimes.com/2008/10/09/business/worldbusiness/09icebank.html?ref=world&pagewanted=print

October 9, 2008

In Flailing Iceland, Disbelief and Regret
By ERIC PFANNER

REYKJAVIK, Iceland — People go bankrupt all the time. Companies do, too. But countries?

The global financial crisis has laid waste to some major banks and other financial institutions in the United States and Europe, but Iceland may be the first country to face the prospect of going bust along with them.

After a decade-long binge in which Iceland's banks, and some of its citizens, expanded beyond their means, the bill has come due. While the full effects of the potential crash have not hit yet, some Icelanders like Bubbi Morthens are already feeling the pain.

"There is a lot of fear in society and there are people who are losing everything," Mr. Morthens said Wednesday after singing at an impromptu midday concert in central Reykjavik intended to lift people's spirits.

Mr. Morthens is a former fish industry worker turned rock singer who is now known as the Elvis of Iceland. Like many of his compatriots, he did well when Iceland was riding high, accumulating considerable wealth.

Then, the financial crisis gripping his country intensified last month. The government seized control of Iceland's third-largest bank. Mr. Morthens said he lost his life savings, which he had invested mostly in the bank's stock.

"What is important at a time like this is not picking out whom to blame," he said. "We have a government that is trying to do their best, but we will have to see what they come up with. Maybe it is a new dawn for Iceland."

The government's attempts to get ahead of the problems cascading through its financial system have not restored confidence. In just 24 hours, for instance, it abandoned an effort to peg its currency to a basket of others.

In a country raked by icy North Atlantic winds and dotted with volcanoes and geysers, where people live with the threat of earthquakes and maritime disasters, few seem to be losing their cool over the financial crisis — yet.

Still, with the country facing the imminent threat of "national bankruptcy," as Prime Minister Geir H. Haarde put it earlier this week, many people are talking about an epochal change. The only problem is that nobody knows what that might mean.

Nations have gone bankrupt before, of course, but countries like Argentina — not a country that thinks of itself as closer to Europe than the developing world.

What it means for Iceland so far, people here say, is that the days when the economy seemed capable of gravity-defying feats are gone. So are the days when Icelandic investors went on an international buying spree, adding some of the biggest names of the British and American retail industries to their portfolios.

So too, they conclude, are the days when ordinary citizens effortlessly joined in the fun, taking out second mortgages to finance their own trips abroad or at least to the Laugavegur, the main shopping strip in Reykjavik.

"It's difficult; the landscape is very difficult," said Franch Michelsen, a watch dealer in downtown Reykjavik, as he took a break from cleaning his shop window on Wednesday.

People are still buying watches costing up to 100,000 Icelandic kronur, or about $900, he said. Above that price, there is a flight to quality similar to the one that has galvanized the financial markets. Buyers are apparently interested only in the biggest name, the most liquid investment, Mr. Michelsen said — in this case, Rolexes.

"People want something they can take anywhere in the world and sell it," he said.

This capital city of 120,000 still displays the fruits of the decade-long economic boom that followed the deregulation of Iceland's financial sector in the 1990s — hip cafes, lobster restaurants and stylish shops selling outdoor gear.

After the government nationalized Mr. Morthens's bank, Glitnir, in September, some people rushed to grocery stores, worried about possible shortages on a remote island where fish is one of the few foods that does not need to be imported.

But the shelves are still stocked, and any such hoarding this time around seems to have eased.

Instead, the financial situation is playing out in a parallel universe inside the offices of Glitnir and the other two big banks, Landsbanki and Kaupthing.

The government had originally planned to take a 75 percent stake in Glitnir, but said Wednesday that the bank was in even worse shape than it had thought and would be handed over to financial regulators. Landsbanki, the nation's second-largest bank, was nationalized on Tuesday.

But not just bankers are getting hurt. Some Icelanders with recently acquired mortgages face a double threat. Home prices have been falling, and analysts expect them to decline further. But many of these mortgages were taken out in foreign currencies — marketed by the banks as a way to benefit from lower interest rates abroad, as rates in Iceland rose into the double digits over the last year.

Now, with the Icelandic krona plunging, homeowners have to pay back suddenly far more expensive euro- or dollar-value of their mortgages — a kind of negative equity, squared.

The Rev. Karl Sigurbjornsson, the bishop of Iceland, who leads the state-sponsored Lutheran church, says he worries about how the prospect of financial suffering will affect a society that "was led to believe that it was unlimited growth forever."

"What will happen when the dust settles?" he asked during an interview in his office. "A lot of people will be very angry. It will be a challenge for our society," which in the past placed a premium on cohesion rather than the pursuit of wealth.

What will happen next? Analysts say events in the financial sector are moving too fast to make useful economic forecasts.

Some in this country of 300,000 think the economy will prove to be resilient, regardless of what happens to the banks or even the country's finances. They point to Iceland's recent prowess in heavier industries like aluminum production — Alcan and Alcoa both have plants here — and alternative energy.

For instance, Eyjolfur Rafnsson, chief executive of Mannvit Engineering, which designs geothermal and hydroelectric power plants, said he had seen no negative effects on his business from the financial crisis. The company plans to open an office in Budapest next week, adding to international sites in Germany and Britain.

He said he even saw some possible benefits for his company, if not for Iceland as a whole. Because of the fall in the value of the krona, he said, "today we can compete anywhere in the world, except maybe India." ...

[anne]

http://krugman.blogs.nytimes.com/2008/10/09/doing-the-right-thing/

October 9, 2008

Doing the right thing?
By Paul Krugman

A tentative cheer: Paulson may have been dragged kicking and screaming into doing the right thing * to rescue the financial system:

"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials."

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Let’s give thanks to Chris Dodd, ** who insisted on the provision that makes this possible — and to Gordon Brown, *** for showing the way.

* http://www.nytimes.com/2008/10/09/business/economy/09econ.html

** http://krugman.blogs.nytimes.com/2008/09/22/daddy-doesnt-know-best/

*** http://krugman.blogs.nytimes.com/2008/10/08/to-do-not-to-do/

[anne]

The first right thing was always to have learned from Sweden, while the second right thing will be to learn from Japan. But, a slanted writing of history makes learning fiercely difficult and we have long written the history of Sweden in a way that makes innovative public-private partnerships suspect.

Sweden was the earliest of countries to have recovered from the Depression by most actively applying Keynesian ideas under the leadership of the Myrdals, while handling the financial crisis of the 1990s correctly and correctly setting up public-private model for Social Security. The Swedish health care insurance system is another fine but ignored model.

Japan handled the deflation of the 1990s properly from the perspective of the general economy, in deciding to protect employment from the beginning to end and not being otherwise influenced by complaints of American and British analysts. We not a spending to protect jobs, we needed Secretary Paulson to have acted to protect jobs, which was not done.

[anne]

Secretary Paulson has been a disaster so far, failing to recognize the seriousness of mounting mortgage failures and the mounting financial crisis as products based on mortgages became increasingly suspect, failing to rescue Lehman Brothers both for the jobs and for the credit relationships involved, failing to look to the Swedish model, failing to understand the need for corrective-stimulating spending policy.

[anne]

Learning lessons properly is of special importance in terms of the reluctance we now find in looking to what was a wildly successful New Deal period that has been repeatedly claimed unsuccessful by those who chose to slant history. We are paying an important price for denying our New Deal heritage, especially Republicans but Democrats as well who have been so reluctant to look to the Roosevelt Administration for economic policy models even though policies always need to be modified with time and not adopted intact. Republicans have been economically destructive and politically self-destructive, and seemingly still have no sense why.

[dd]

The New York Times
http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?hp=&pagewanted=print

October 9, 2008
The Reckoning
Taking Hard New Look at a Greenspan Legacy
By PETER S. GOODMAN

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest.

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.

Derivatives were created to soften — or in the argot of Wall Street, “hedge” — investment losses. For example, some of the contracts protect debt holders against losses on mortgage securities. (Their name comes from the fact that their value “derives” from underlying assets like stocks, bonds and commodities.) Many individuals own a common derivative: the insurance contract on their homes.

On a grander scale, such contracts allow financial services firms and corporations to take more complex risks that they might otherwise avoid — for example, issuing more mortgages or corporate debt. And the contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur.

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately.

But whatever history ends up saying about those decisions, Mr. Greenspan’s legacy may ultimately rest on a more deeply embedded and much less scrutinized phenomenon: the spectacular boom and calamitous bust in derivatives trading.

Faith in the System

Some analysts say it is unfair to blame Mr. Greenspan because the crisis is so sprawling. “The notion that Greenspan could have generated a totally different outcome is naïve,” said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford.

Mr. Greenspan declined requests for an interview. His spokeswoman referred questions about his record to his memoir, “The Age of Turbulence,” in which he outlines his beliefs.

“It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade,” Mr. Greenspan writes. “The worst have failed; investors no longer fund them and are not likely to in the future.”

In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably.

“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market.

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.

As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets.

Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves.

“Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government.

Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead.

“I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ”

Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks.

Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said.

“There is nothing involved in federal regulation per se which makes it superior to market regulation.”

Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said.

But he called that possibility “extremely remote,” adding that “risk is part of life.”

Later that year, Mr. Markey introduced a bill requiring greater derivatives regulation. It never passed.

Resistance to Warnings

In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives.

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury.

“All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.”

Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation.

In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was “highly problematic.”

On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.

Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were “joined at the hip on this,” he said. “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.”

Ms. Born soon gained a potent example. In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms.

Despite that event, Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed.

In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.

Mr. Greenspan, according to lawmakers, then used his prestige to make sure Congress followed through. “Alan was held in very high regard,” said Jim Leach, an Iowa Republican who led the House Banking and Financial Services Committee at the time. “You’ve got an area of judgment in which members of Congress have nonexistent expertise.”

As the stock market roared forward on the heels of a historic bull market, the dominant view was that the good times largely stemmed from Mr. Greenspan’s steady hand at the Fed.

“You will go down as the greatest chairman in the history of the Federal Reserve Bank,” declared Senator Phil Gramm, the Texas Republican who was chairman of the Senate Banking Committee when Mr. Greenspan appeared there in February 1999.

Mr. Greenspan’s credentials and confidence reinforced his reputation — helping him to persuade Congress to repeal Depression-era laws that separated commercial and investment banking in order to reduce overall risk in the financial system.

“He had a way of speaking that made you think he knew exactly what he was talking about at all times,” said Senator Tom Harkin, a Democrat from Iowa. “He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?”

In 2000, Mr. Harkin asked what might happen if Congress weakened the C.F.T.C.’s authority.

“If you have this exclusion and something unforeseen happens, who does something about it?” he asked Mr. Greenspan in a hearing.

Mr. Greenspan said that Wall Street could be trusted. “There is a very fundamental trade-off of what type of economy you wish to have,” he said. “You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either,” he said.

Later that year, at a Congressional hearing on the merger boom, he argued that Wall Street had tamed risk.

“Aren’t you concerned with such a growing concentration of wealth that if one of these huge institutions fails that it will have a horrendous impact on the national and global economy?” asked Representative Bernard Sanders, an independent from Vermont.

“No, I’m not,” Mr. Greenspan replied. “I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.”

The House overwhelmingly passed the bill that kept derivatives clear of C.F.T.C. oversight. Senator Gramm attached a rider limiting the C.F.T.C.’s authority to an 11,000-page appropriations bill. The Senate passed it. President Clinton signed it into law.

Pressing Forward

Still, savvy investors like Mr. Buffett continued to raise alarms about derivatives, as he did in 2003, in his annual letter to shareholders of his company, Berkshire Hathaway.

“Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers,” he wrote. “The troubles of one could quickly infect the others.”

But business continued.

And when Mr. Greenspan began to hear of a housing bubble, he dismissed the threat. Wall Street was using derivatives, he said in a 2004 speech, to share risks with other firms.

Shared risk has since evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn.

The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers, and imperiled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives.

In recent months, as the financial crisis has gathered momentum, Mr. Greenspan’s public appearances have become less frequent.

His memoir was released in the middle of 2007, as the disaster was unfolding, and his book tour suddenly became a referendum on his policies. When the paperback version came out this year, Mr. Greenspan wrote an epilogue that offers a rebuttal of sorts.

“Risk management can never achieve perfection,” he wrote. The villains, he wrote, were the bankers whose self-interest he had once bet upon.

“They gambled that they could keep adding to their risky positions and still sell them out before the deluge,” he wrote. “Most were wrong.”

No federal intervention was marshaled to try to stop them, but Mr. Greenspan has no regrets.

“Governments and central banks,” he wrote, “could not have altered the course of the boom.”

Copyright 2008 The New York Times Company

[anne]

http://www.nytimes.com/2008/10/10/books/10nobel.html?hp&pagewanted=print

October 10, 2008

French Writer Wins Nobel Prize
By ALAN COWELL

The academy called Jean-Marie Gustave Le Clézio an “author of new departures, poetic adventure and sensual ecstasy.”

[OMG, not the French, never the French.]

[anne]

To show what American insularity is about try and find an English language translation of a work by Jean-Marie Gustave Le Clézio at a library. Not that Le Clézio is not adored in France, however only 12 ot 40 works have ever been translated to English. Heck, try and find a work in French, try or find a serious review of a work, English or French, by an American reviewer.

[dd]

As a follow up on the Greenspan derivatives article notice what unit is sucking dry the Fed largesse at AIG:
"A.I.G. said Wednesday that it would use the $37.8 billion from the Fed to improve the liquidity of its securities lending business, which is losing cash rapidly. By stopping that flow, A.I.G. said, it would be able to preserve more of the Fed loan and use that money more effectively to wind down the affairs of A.I.G.’s troubled structured finance division, known as the financial products unit."
http://www.nytimes.com/2008/10/09/business/economy/09insure.html?hp

FPU aka the black hole.

[anne]

http://bits.blogs.nytimes.com/2008/10/08/godfather-tells-start-ups-to-fire-people-and-raise-cash/

October 08, 2008

Godfather Tells Start-Ups to Fire People and Raise Cash

Angel investor Ron Conway sent his portfolio companies an e-mail with a stark warning and advice from the last economic crisis.

[Employment must be protect, but is not being protected.]

[dd]

Next up: Lehman CDS "auction" settlement. If that goes smoothly and counterparties can settle up then things will turn around. If not, it will trigger another default go round.
Info here:
Search:
FACTBOX-Lehman CDS settlement auction timeline
http://malaysia.news.yahoo.com/rtrs/20081008/tbs-lehman-swaps-factbox-7318940.html

Notice too that Markit's attempt at CDS trading can not find "party" agreement and so has been postponed yet again. Interesting that such an integral instrument resists even the appearance of a public market quote.
http://www.bobsguide.com/guide/news/2008/Oct/3/Markit_LCDX_Index_Roll_Postponed.html

No wonder Hank is thinking of taking "ownership" interest in banks that no doubt have substantial exposure to Lehman CDS either directly or through their leveraged clients who may lack ability to make good the bets. Once again that bad decision on Lehman haunts.

Good thing Monday is a bank holiday. Gives more breathing room to work it out.

[hari]

Anne - Myrdal was not only the 2nd Economic Laureate (after Samuelson) but also the *ideologue* of Social Democratic Party of Sweden. So he had a lot of opportunity, with Alva (his wife) to redefine the social democratic order of society. Women's liberation was the work of Alva Myrdal, including day-care-home for preschool children.

It's so funny you always invoke the Swedish model, as if it's easy to replicate. You've to consider the evolution of Swedish economic history - from depression - to postwar advancement, as an OECD indusstrial leader in transnational companies like Ericsson and Volvo.

BTW Myrdal was my mentor. I joined him when *Asian Drama* was in its final edition. K Gailbraith was one of his great (proifessional) pals - gives you an idea of our intellectual climate at the time (*Challenge to Affluence*).

[dd]

Hope Mark doesn't mind; but this Lehman debacle is amazing and no doubt will be much discussed if the auction fails or counterparties are insolvent. Then too there is the specter of the Federal Home Loan Bank of Atlanta dealing in derivatives with Lehman:
"Many of the firms now filing claims against Lehman face just that situation. For instance, the Federal Home Loan Bank of Atlanta had a long­standing derivative deal with Lehman to protect against interest rate changes. When Lehman collapsed, the Atlanta bank's agreements were worth $757 million. But it had put up $936 million as collateral. According to court documents, Lehman ignored management's demands to return the extra $179 million."
http://www.businessweek.com/magazine/content/08_42/b4104000160047_page_2.htm

Knew about Freddie and Fannie but this is the first reference to the FHL banking system dealing in derivatives then again it also offers an alternative secondary mortgage market:
"An innovative component of the FHLBanks member services is their acquired mortgage assets (AMA) or mortgage programs. These FHLBank mortgage programs serve as an alternative to the secondary mortgage market."

More worries as it seems derivatives and questionable mortgage products are embedded throughout the banking system instead of isolated in one sector as was the S&L crisis.

[anne]

The problem for the present is not derivatives, the problem is not derivative-underlying mortgages, rather the difficulty is with credit flows as such no matter the security of the security, and that was what Secretary Paulson failed to understand at least soon enough and that is unforgivable because a Paul Krugman among other analysts was noticing the danger from spring 2007 on as the danger and warnings repeated with no pronounced action. Even now, there is more a suggestion of action where the Treasury must begin to act as a banker immediately.

The Japanese always assured credit flows through the 1990s sustained deflation; there was never a concern in Japan. The flows were assured informally by public-private discussion, but there was never a hint of disagreement and the government always insisted that the economy would be protected in turn as the financial system was protected.

[anne]

I immediately thought that possibly Lehman Brothers financial linkages were so limited that the Treasury had no reason to rescue the company, though that never made any sense. Lehman was too important to bond or bond-derivative investors to turn from. Secretary Paulson made a mistake that I have no explanation for.

[anne]

http://www.nytimes.com/2008/10/09/world/asia/09afghan.html?ref=world&pagewanted=print

October 9, 2008

U.S. Study Is Said to Warn of Crisis in Afghanistan
By MARK MAZZETTI and ERIC SCHMITT

A draft report by U.S. intelligence agencies casts serious doubt on the ability of the Afghan government to stem the Taliban's rise.

[Oh.]

[anne]

http://www.nytimes.com/2008/10/09/world/europe/09gates.html?ref=world&pagewanted=print

October 9, 2008

Europe Asked to Send Afghanistan More Troops
By DAN BILEFSKY

The call by U.S. defense secretary, Robert M. Gates, came as NATO struggles to combat an emboldened Taliban in the region.

[Where are the French, when we need them?]

[dd]

Credit flows can only be established if the entire structured product system is bypassed so bankers have no need to hoard cash. No matter where liquidity is injected it will be diverted to immediate settlement concerns and concerns for future liabilities.

[anne]

http://angryarab.blogspot.com/2008/10/i-wish-that-those-liberal.html

October 8, 2008

I wish that those liberal environmentalists would care about the Iraqi and the Afghan people as much as they care about whales. *

* http://www.latimes.com/news/local/la-na-scotus9-2008oct09,0,4189669.story

-- As'ad AbuKhalil

[Devastatingly so.]

[Julio]

Greenspan was just brilliant. Already in 2003 he said:

“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it..."

I.e. the Masters of the Universe.

"...to those who are willing to and are capable of doing so,”

I.e. the people.

[hari]

Gates is asking MPA action by NATO on Georgia and Ukraine by Dec end. He must be crazy to push it just before Bush era ends. There is no hope of support from Berlin and Paris, at his juncture.

Lavrov told Charlie Rose that Russia has originally agreed to assist US in trying to control the poppy trade via Hindu Kush. For some reason, the joint committee has never met, Lavrov said.

Recall the drug enters Europe thru Russia and is main source of Taliban income.

[anne]

http://angryarab.blogspot.com/2008/10/this-is-also-why-real-albeit-very.html

October 9, 2008

"This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society." *

* http://www.newleftreview.org/?page=article&view=2731

-- As'ad AbuKhalil

[Well argued, indeed.]

[Julio]

The academy called Jean-Marie Gustave Le Clézio an “author of new departures, poetic adventure and sensual ecstasy.”I may be stereotyping the French, but I think they meant "poetic adventure, sensual ecstasy, new departure" in that order.

says...

States’ Actions to Block Voters Appear Illegal
The New York Times
By IAN URBINA
Published: October 8, 2008

http://www.nytimes.com/2008/10/09/us/politics/09voting.html

Tens of thousands of eligible voters in at least six swing states have been removed from the rolls or have been blocked from registering in ways that appear to violate federal law, according to a review of state records and Social Security data by The New York Times.

The actions do not seem to be coordinated by one party or the other, nor do they appear to be the result of election officials intentionally breaking rules, but are apparently the result of mistakes in the handling of the registrations and voter files as the states tried to comply with a 2002 federal law, intended to overhaul the way elections are run.

Still, because Democrats have been more aggressive at registering new voters this year, according to state election officials, any heightened screening of new applications may affect their party’s supporters disproportionately. The screening or trimming of voter registration lists in the six states — Colorado, Indiana, Ohio, Michigan, Nevada and North Carolina — could also result in problems at the polls on Election Day: people who have been removed from the rolls are likely to show up only to be challenged by political party officials or election workers, resulting in confusion, long lines and heated tempers.

Some states allow such voters to cast provisional ballots. But they are often not counted because they require added verification.

Although much attention this year has been focused on the millions of new voters being added to the rolls by the candidacy of Senator Barack Obama, there has been far less notice given to the number of voters being dropped from those same rolls.

States have been trying to follow the Help America Vote Act of 2002 and remove the names of voters who should no longer be listed; but for every voter added to the rolls in the past two months in some states, election officials have removed two, a review of the records shows.

The six swing states seem to be in violation of federal law in two ways. Michigan and Colorado are removing voters from the rolls within 90 days of a federal election, which is not allowed except when voters die, notify the authorities that they have moved out of state, or have been declared unfit to vote.

Indiana, Nevada, North Carolina and Ohio seem to be improperly using Social Security data to verify registration applications for new voters.

In addition to the six swing states, three more states appear to be violating federal law. Alabama and Georgia seem to be improperly using Social Security information to screen registration applications from new voters. And Louisiana appears to have removed thousands of voters after the federal deadline for taking such action.

Under federal law, election officials are supposed to use the Social Security database to check a registration application only as a last resort, if no record of the applicant is found on state databases, like those for driver’s licenses or identification cards.

The requirement exists because using the federal database is less reliable than the state lists, and is more likely to incorrectly flag applications as invalid. Many state officials seem to be using the Social Security lists first.

In the year ending Sept. 30, election officials in Nevada, for example, used the Social Security database more than 740,000 times to check voter files or registration applications and found more than 715,000 nonmatches, federal records show. Election officials in Georgia ran more than 1.9 million checks on voter files or voter registration applications and found more than 260,000 nonmatches.

Officials of the Social Security Administration, presented with those numbers, said they were far too high to be cases where names were not in state databases. They said the data seem to represent a violation of federal law and the contract the states signed with the agency to use the database.

Last week, after the inquiry by The Times, Michael J. Astrue, the commissioner of the Social Security Administration, alerted the Justice Department to the problem and sent letters to election officials in Alabama, Georgia, Indiana, Nevada, North Carolina and Ohio. The letters ask the officials to ensure that they are complying with federal law.

“It is absolutely essential that people entitled to register to vote are allowed to do so,” Mr. Astrue said in a press release.

In three states — Colorado, Louisiana and Michigan — the number of people purged from the election rolls since Aug. 1 far exceeds the number who may have died or relocated during that period.

States may be improperly removing voters who have moved within the state, election experts said, or who are considered inactive because they have failed to vote in two consecutive federal elections. For example, major voter registration drives have been held this year in Colorado, which has also had a significant population increase since the last presidential election, but the state has recorded a net loss of nearly 100,000 voters from its rolls since 2004.

Asked about the appearance of voter law violations, Rosemary E. Rodriguez, the chairwoman of the federal Election Assistance Commission, which oversees elections, said they could present “extremely serious problems.”

“The law is pretty clear about how states can use Social Security information to screen registrations and when states can purge their rolls,” Ms. Rodriguez said.

Nevada officials said the large number of Social Security checks had resulted from county clerks entering Social Security numbers and driver’s license numbers in the wrong fields before records were sent to the state. They could not estimate how many records might have been affected by the problem, but they said it was corrected several weeks ago.

Other states described similar problems in entering data.

Under the Help America Vote Act, all states were required to build statewide electronic voter registration lists to standardize and centralize voter records that had been kept on the local level. To prevent ineligible voters from casting a ballot, states were also required to clear the electronic lists of duplicates, people who had died or moved out of state, or who had become ineligible for other reasons.

Voting rights groups and federal election officials have raised concerns that the methods used to add or remove names vary by state and are conducted with little oversight or transparency. Many states are purging their lists for the first time and appear to be unfamiliar with the 2002 federal law.

“Just as voting machines were the major issue that came out of the 2000 presidential election and provisional ballots were the big issue from 2004, voter registration and these statewide lists will be the top concern this year,” said Daniel P. Tokaji, a law professor at Ohio State University.

Voting rights groups have urged voters to check their registrations with local officials.

In Michigan, some 33,000 voters were removed from the rolls in August, a figure that is far higher than the number of deaths in the state during the same period — about 7,100 — or the number of people who moved out of the state — about 4,400, according to data from the Postal Service.

In Colorado, some 37,000 people were removed from the rolls in the three weeks after July 21. During that time, about 5,100 people moved out of the state and about 2,400 died, according to postal data and death records.

In Louisiana, at least 18,000 people were dropped from the rolls in the five weeks after July 23. Over the same period, at least 1,600 people moved out of state and at least 3,300 died.

The secretaries of state in Michigan and Colorado did not respond to requests for comment. A spokesman for the Louisiana secretary of state said that about half of the numbers of the voters removed from the rolls were people who moved within the state or who died. The remaining 11,000 or so people seem to have been removed by local officials for other reasons that were not clear, the spokesman said.

The purge estimates were calculated using data from state election officials, who produce a snapshot every month or so of the voter rolls with details about each registered voter on record, making it possible to determine how many have been removed.

The Times’s methodology for calculating the purge estimates was reviewed by two voting experts, Kimball Brace, the director of Election Data Services, a Washington consulting firm that tracks voting trends, and R. Michael Alvarez, a political science professor at the California Institute of Technology.

By using the Social Security database so extensively, states are flagging extra registrations and creating extra work for local officials who are already struggling to process all the registration applications by Election Day.

“I simply don’t have the staff to keep up,” said Ann McFall, the supervisor of elections in Volusia County, Fla.

It takes 10 minutes to process a normal registration and up to a week to deal with a flagged one, said Ms. McFall, a Republican, adding that she was receiving 100 or so flagged registrations a week.

Usually, when state election officials check a registration and find that it does not match a database entry, they alert local election officials to contact the voter and request further proof of identification. If that is not possible, most states flag the voter file and require identification from the voter at the polling place.

In Florida, Iowa, Louisiana and South Dakota, the problem is more serious because voters are not added to the rolls until the states remove the flags.

Ms. McFall said she was angry to learn from the state recently that it was her responsibility to contact each flagged voter to clear up the discrepancies before Election Day. “This situation with voter registrations is going to land us in court,” she said.

In fact, it already has.

In Michigan and Florida, rights groups are suing state officials, accusing them of being too aggressive in purging voter rolls and of preventing people from registering.

In Georgia, the Justice Department is considering legal action against the state because officials in Cobb and Cherokee Counties sent letters to hundreds of voters stating that their voter registrations had been flagged and telling them they cannot vote until they clear up the discrepancy.

On Monday, the Ohio Republican Party filed a motion in federal court against the secretary of state to get the list of all names that have been flagged by the Social Security database since Jan. 1. The motion seeks to require that any voter who does not clear up a discrepancy be required to vote using a provisional ballot.

Republicans said in the motion that it is central to American democracy that nonqualified voters be forbidden from voting.

The Ohio secretary of state, Jennifer Brunner, a Democrat, said in court papers that she believes the Republicans are seeking grounds to challenge voters and get them removed from the rolls.

Considering that in the past year the state received nearly 290,000 nonmatches, such a plan could have significant impact at the polls.

[rufus]

On Monday, the Ohio Republican Party filed a motion in federal court against the secretary of state to get the list of all names that have been flagged by the Social Security database since Jan. 1. The motion seeks to require that any voter who does not clear up a discrepancy be required to vote using a provisional ballot.

Republicans said in the motion that it is central to American democracy that nonqualified voters be forbidden from voting.

The Ohio secretary of state, Jennifer Brunner, a Democrat, said in court papers that she believes the Republicans are seeking grounds to challenge voters and get them removed from the rolls.

[rufus]

Under federal law, election officials are supposed to use the Social Security database to check a registration application only as a last resort, if no record of the applicant is found on state databases, like those for driver’s licenses or identification cards.

The requirement exists because using the federal database is less reliable than the state lists, and is more likely to incorrectly flag applications as invalid. Many state officials seem to be using the Social Security lists first.

[anne]

Please be careful, for bold print is difficult, at least for me, to read on the Internet and I tend not to do so preferring to read quickly.

[anne]

http://www.juancole.com/2008/10/suicide-bomber-kills-11-in-baquba.html

October 9, 2008

Straitened economic circumstances may place in doubt the US military budget of $694 billion a year or so, * which is at World War II levels.

* http://www.mcclatchydc.com/homepage/story/53674.html

-- Juan Cole

[Comic relief.]

[david]

I am wondering when MT will fully weigh in on McCain's idea to throw money at bad mortgages, buy them up and attempt to prop up the market (gag).

I'm perplexed by the industry's hardheadedness toward taking losses and modifying loans, and I am perplexed by the array of similarly unworkable ideas that have been thrown out. For instance, BoA's recent plan to allow everyone to pay only 34% of income on the monthly payments, to escape foreclosure, sounds great at first, but won't it lead to people lowballing their income instead of the highballing act of the previous ~5 years? If I had a higher income and now have a lower income, but am not in danger of foreclosure, why wouldn't I qualify? Just because I have money left in my bank account, others can be helped, but not me?

Slightly fairer, at least, is a moratorium on any adjustments to adjustable rates for say, 18 months, etc.

[Barkley Rosser]

hari,

You are really losing it. The first econ Nobel was granted in 1969 to Ragnar Frisch and Jan Tinbergen. Samuelson got the next one. Myrdal shared his with ("von") Hayek in 1974. Prior to 1974, seven other people received ones.

anne,

As for your ever so off-the-wall As'ad, of course most US prez candidates are neoliberals, except for the ones who are paloeoconservatives such as Sarah Palin. So, I suppose he wants her also?

[anne]

http://angryarab.blogspot.com/2008/10/this-is-also-why-real-albeit-very.html

October 9, 2008

"This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society." *

* http://www.newleftreview.org/?page=article&view=2731

-- As'ad AbuKhalil

[The comment is by Walter Michaels of the University of Illinois, and forms a thoroughly important argument for those who can like read.]

[anne]

Hari:

Myrdal was not only an Economic Laureate (after Samuelson) but also the *ideologue* of the Social Democratic Party of Sweden. So he had a lot of opportunity, with Alva ~ (his wife) to redefine the social democratic order of society. Women's liberation was the work of Alva Myrdal, including day-care-home for preschool children.

It's so funny you always invoke the Swedish model, as if it's easy to replicate. You've to consider the evolution of Swedish economic history - from depression - to postwar advancement, as an OECD industrial leader in transnational companies like Ericsson and Volvo.

Myrdal was my mentor. I joined him when *Asian Drama* was in its final edition. K Gailbraith was one of his great (professional) pals - gives you an idea of our intellectual climate at the time (*Challenge to Affluence*).

~ Who would also win a Nobel Prize.

[anne]

http://query.nytimes.com/gst/fullpage.html?res=9B0DE5D7133EF93BA25756C0A961948260

May 18, 1987

Gunnar Myrdal, Analyst of Race Crisis
By NEW YORK TIMES

Gunnar Myrdal, the Swedish economist and sociologist whose 1944 book, ''An American Dilemma,'' helped to destroy the ''separate but equal'' racial policy in the United States, died yesterday in a hospital in Sweden. He was 88 years old....

Mr. Myrdal, the 1974 Nobelist in economics, was the widower of Alva Myrdal, co-winner of the Nobel Peace Prize in 1982 for her efforts to promote world disarmament. She died in 1986.

A Footnote to History

Mr. Myrdal has been called the leading economist and social scientist of his epoch. Statesman, reformer, dissenter, pacifist and foe of inequality, an architect of the Swedish welfare state, he literally left his mark in a footnote to history - the famous footnote 11 to the United States Supreme Court's 1954 ruling that segregation in public schools was unconstitutional. Listing sources to prove that schools could not be ''separate but equal'' because separation implied and enforced inferiority, the Court said, ''See generally Myrdal, An American Dilemma 5/81944).''

The work appeared in two massive volumes in 1944, in an edition of only 2,500 copies; there have been about 30 editions since, but all have been small, with sales totaling 100,000. Nonetheless, the work has often been compared with Toqueville in its importance as a study of the United States.

''An American Dilemma: The Negro Problem and Modern Democracy'' was, Mr. Myrdal once said, ''not a study of the Negroes but of the American society from the viewpoint of the most disadvantaged group.'' The predicament, he wrote, was the conflict between the ideals that white Americans proclaimed and their betrayal in daily life. He held that this was particularly true in the South, where, he argued, discrimination was due less to bias than to a failure of the courts and the police to enforce the Constitution.

Though segregationists protested that the Court had fallen under the influence of a radical foreigner, the Myrdal study was highly optimistic about America's ability to solve its racial problem - over-optimistic, as Mr. Myrdal would acknowledge. The study was infused with admiration for this country, which he called his second home. He had no doubt that the conflict between American idealism and the reality of racism would be resolved in a reasonable time. ''No social utopia can compete with the promise of the American Constitution and with the American creed which it embodies,'' he wrote.

Above his desk in Stockholm hung two framed documents, the Declaration of Independence and a citation from Lincoln: ''To sin by silence when they should protest makes cowards of men.''

Explaining his views, an American friend, the economist Paul A. Samuelson, said, ''He's always lecturing us like a Dutch uncle because he loves us.'' Mr. Myrdal, talking with a reporter in 1972 about his long campaign against the Vietnam War, remarked, ''I don't say it's a pleasure, but for my conscience I could not say no.''

''I've always been optimistic about America,'' he continued. ''Why? Why do I sit here when I could spend my time with wine and girls? Because ideals mean something. They mean something special in America.''

Left Deep Mark on Homeland

He also left his mark on Sweden, where he helped draft many social and economic programs, and to a smaller extent on South Asia, where he vigorously preached land reform. Furthermore, as a United Nations official he promoted East-West detente before it became fashionable, and as an economist he criticized orthodox patterns of thinking and pioneered new ones.

Born on Dec. 6, 1898, in the rural parish of Gustafs, in central Sweden, the son of Karl Adolf Myrdal, a railroad employee, he was christened Karl Gunnar but eventually dropped the first name. He studied law and then economics at Stockholm University, so impressing his teachers that on graduation he was named to the faculty.

He was also a brash young man, as later he was called a brash old man. The story was told that Gustav Cassell, the great Swedish economist, warned him, ''Gunnar, you should be more respectful to your elders, because it is we who will determine your promotion.'' ''Yes,'' the young man is said to have replied, ''but it is we who will write your obituaries.''

In 1924 Mr. Myrdal married a fellow student, Alva Reimer, who became a leading feminist, pacifist and diplomat. They had three children: Jan, a writer and anthropologist; Sissela Ann Bok, an author and authority on ethics who is the wife of Derek C. Bok, president of Harvard University, and Kaj Folster, who is a sociologist, as her mother was.

Friends remark that the career of Mrs. Myrdal was wrongly overshadowed by that of her husband. Eleanor Roosevelt, meeting Sissela, said, ''You're the daughter of Gunnar Myrdal, aren't you?'' ''Yes,'' she replied, ''and of Alva, too.''

An Advocate of Feminism

Mr. Myrdal shared his wife's feminism. She accompanied him on a Rockefeller Foundation fellowship to the United States in 1929-30. Long afterward, he recounted, he told another grantee that he had persuaded the foundation to pay for wives, too, and the young man grumbled: ''So it was you. I'd been looking forward to that holiday for years.''

A classicist, Mr. Myrdal held that ideals, cultural attitudes and social structures were primordial in shaping economic ideas. But he was at first fascinated by the abstract mathematical models coming into fashion in the 1920's and helped found the Econometric Society, based in London.

Later, however, he accused the movement of ignoring the problem of distribution of wealth in its obsession with economic growth, of using faulty statistics and substituting Greek letters for missing data in its formulas and of flouting logic. ''Correlations are not explanations,'' he wrote, ''and besides, they can be as spurious as the high correlation in Finland between foxes killed and divorces.''

Similarly, Mr. Myrdal was early in supporting the theses of John Maynard Keynes, maintaining that the basic idea of adjusting national budgets to slow or speed an economy was first developed in Sweden. But when the doctrine became orthodox he was well ahead of such other liberal Keynesians as John Kenneth Galbraith in abandoning it, on the ground that it ignored social justice and was used primarily to support inflationary policy; the brakes were seldom applied, and then they hurt the weak.

''I am often considered almost not a part of the profession of Establishment economists,'' he observed in an essay. ''I am even referred to as a sociologist. And by that economists usually do not mean anything flattering. Another, in some respects like-minded, rebel, Galbraith, who in addition writes a beautiful and forcible English, is often handled even more rudely by being classified by his colleagues as a journalist.''

Defenders of Status Quo Derided

As early as 1929 Mr. Myrdal unsettled the dovecotes of the profession with a book, ''The Political Element in the Development of Economic Theory,'' that charged that orthodox economists distorted theory and logic to defend the status quo. Two years later his ''Monetary Economics'' called for government spending to combat the Depression.

He held later that such policies arrived in Sweden more by circumstance than intent. But with the accession of Swedish Socialism to power, he and his wife helped shape the welfare state. Their 1934 book, ''Crisis in the Population Question,'' diagnosed the declining birth rate in Sweden and prescribed family planning, sex education, public housing and child care.

As one result their name became a household word: a Myrdal house is designed for large families; a Myrdal bicycle has two or three seats; a Myrdal sofa is a very long one; a Myrdale is a community of unwed couples; ''to Myrdal'' even became ironic slang for the act of procreation.

Mr. Myrdal occupied posts involving housing, population and banking, and served in the Senate from 1936 to 1938 and again after World War II. The Swedish economy recovered more quickly from the Depression than most others, and aided by the country's neutrality during the war, it grew to be the most prosperous, per capita, in the world, witnessing the virtual elimination of poverty and slums.

Swedish Experience Defended

This was often cited by Mr. Myrdal as disproving the common argument of economists that social change that raised wages and reduced the profits needed for investment would slow industrial growth. In later years he was scornful of suggestions that affluence and security had made Swedes neurotic and even suicidal (it was widely but erroneously believed that Sweden had the highest suicide rate in the world). ''This is a fantastic lie,'' he said in a 1976 interview. ''Why in hell should the protection of your life from economic disasters and from bad health, the opening of education for your people, pensions for old people, nursery care for children - why should that make you frustrated?''

With the changes in Sweden well under way by 1938, Mr. Myrdal accepted an invitation from the Carnegie Corporation to direct a two-year, $250,000 study of Negroes in the United States. He liked to tell friends that he had been chosen because he ''could play the innocent, dumb Swede.''

This was never the view of the 48 writer-scholars he recruited, including such luminaries as Ralph J. Bunche and Kenneth B. Clark. ''He drove himself,'' Dr. Clark once recalled. ''He was enthusiastic, opinionated but stimulatingly so, constantly searching for answers and usually the first to find them. He was the optimist and I was the pessimist. Now we've shifted almost 100 percent.''

From Hope to Disillusionment

Mr. Myrdal predicted that American idealism and the Constitution would gradually assert themselves and discrimination would fade out in a generation. Gradually he became disillusioned.

In recent years he freely confessed to errors in ''American Dilemma'': It had underestimated the degree of bias in the North; it had predicted that unions would support Negro rights; it had failed to forecast the civil-rights upheaval in the South. He said he could not have foreseen the way technology would drive blacks from the farms and squeeze them out of factories, nor that the country would have permitted its cities to decay while whites fled to the suburbs.

''Any scholar expects to have errors,'' Professor Samuelson observed. ''The point is to have interesting errors. I think that in 'American Dilemma' he did.'' ...

[anne]

Sissela Bok is a philosopher-sociologist daughter of the Myrdals, having also happened to marry Harvard's President.

http://query.nytimes.com/gst/fullpage.html?res=950de3db113df93aa25750c0a96f948260

March 19, 1989

Goodness As a Tactic
By DANIEL SCHORR

A STRATEGY FOR PEACE
Human Values and the Threat of War.
By Sissela Bok.

To many, this may seem more like a plea than a plan. A famous ethicist offers moral constraint as a foundation for an effort to avert war. Sissela Bok's thoughtful essay, an expanded version of two Harvard lectures in 1985, shines like a good deed in a very naughty world.

''A Strategy for Peace'' represents a logical capstone on the pillars of her two previous books, ''Lying: Moral Choice in Public and Private Life'' and ''Secrets: On the Ethics of Concealment and Revelation.'' To achieve a peaceful world, she maintains, we must learn to exercise moral restraint against deceit, betrayal, excessive secrecy - and violence. In positive terms, we must propagate the principles of nonviolence, veracity, fidelity and publicity.

Toilers in the vineyards of diplomacy and arms control may find Mrs. Bok's ''moral framework'' rather abstract, but she considers it ''practical'' and ''nonutopian.'' She has no apology to make for trying to raise the level of thinking about peace at a time when ''the nuclear threat to humanity is intolerable,'' but continues to resist abatement because of ''mutual fear and distrust.''

The author's touchstones lie not only in recent exponents of nonviolence, like Mohandas K. Gandhi and the Rev. Martin Luther King Jr., but in philosophers dating back to ancient Greece. Surprisingly, she finds common ground between a thinker like Immanuel Kant, with his striving for ''perpetual peace,'' and the strategist Karl von Clausewitz, who emphasized the superiority of defense over offense.

Mrs. Bok's ''strategy'' is stated in simple terms. A good start, she says, would be ''cutting back on activities that clearly violate the most fundamental moral standards - rejecting all support for terrorism, torture, assassination, disinformation, cheating on arms agreements, and the mining of harbors and international waterways, for instance - and . . . encouraging policies that restore, rather than damage, confidence between nations.''

Her longer-range program (and she makes clear that she is thinking of a very long process) involves ''confidence-building measures'' - though she would go far beyond the narrow military definition of the term to embrace broad domestic policies aimed at restraining confidence-eroding censorship, economic exploitation and denial of religious and political freedom. Her thesis is that nations cannot hope to relax tensions internationally without relaxing tension internally, reducing ''debilitating distrust.'' If former President Ronald Reagan often said, ''Trust, but verify,'' Mrs. Bok would say, in effect, ''Verify, but trust.'' ...

[anne]

http://select.nytimes.com/search/restricted/article?res=F40A17F73C5F0C778DDDA90994DA484D81

October 14, 1982

Nobel Peace Prize is Awarded to Swede and Mexican
By JON NORDHEIMER

The Nobel Peace Prize was awarded today to Alva Myrdal of Sweden and Alfonso Garcia Robles of Mexico for their efforts to promote disarmament.

Their contribution toward peace was called the ''patient and meticulous'' work necessary to create a foundation for negotiations for mutual disarmament.

The Nobel committee, which is appointed by the Norwegian Parliament to award the prize under the will of Alfred Nobel, expressed the hope that the spirit expressed by Mrs. Myrdal and Mr. Garcia Robles might encourage others to work for disarmament and world peace.

Mrs. Myrdal, a sociologist and former diplomat and former Swedish Cabinet minister, headed the Swedish delegation to the United Nations disarmament talks in Geneva from 1962 to 1973 and has written and lectured on the subject since then. Mr. Garcia Robles, a former Foreign Minister, has headed the Mexican delegation in Geneva since 1977....

[hari]

Anne - It's amazing what you can find for our links! For Myrdal America was his second home - including Meet The Press appearence almost every weekend.

Now you can see the link to your campus and Myrdal....

Suing for peace is not cowardice. It's basic human right of all mankind.

Petreus said today, according to Reuters, US ready for negotiations with Taliban.

[hari]

Anne - It's amazing what you can find for our links! For Myrdal America was his second home - including Meet The Press appearence almost every weekend.

Now you can see the link to your campus and Myrdal....

Suing for peace is not cowardice. It's basic human right of all mankind.

Petreus said today, according to Reuters, US ready for negotiations with Taliban.

[hari]

First time I met Alva, she invited me to lunch in the old city restaurant Cattelin - famous for the time. Still open in Gamla Stan!

She was also Assistant Secretary General for Disarmament Affairs at the United Nations. First woman to be appointed at such a high level at the UN.

Gunnar Myrdal was first Secretary General of UN Economic Council in Geneva after WWII.

[anne]

What can be understood immediately is the sense they would have taken in working on social problems, a humanistic or an empathetic personal sense in describing and theoretically resolving problems. We need to think carefully in those terms, but are seemingly finding that increasingly difficult for reasons I do not understand. Not that we do not wallow in emotion, but we have I think learned to do so ever more self-servingly.

[anne]

Sissela Bok wrote on being increasingly self-serving emotionally, but I need to think about the work more.

[anne]

What is so disturbing about American assessment reports on conditions in Iraq and Afghanistan is a threatening tone in terms of potential or actual stability that does not suggest a need for finishing either occupation in Iraq or combat in Afghanistan, but suggests a need for an indefinite military presence in each country even if a muted presence in Iraq. But, a continued military presence in Iraq and Afghanistan is at the least diplomatically self-defeating and draining economically, and more realistically deadly destructive.

What developing economic conditions mean in terms of projections of military power is not clear to me, but will by many analysts be considered a constraint on meeting what I consider domestic needs.

[dude]

Ok so it looks like Mankiw may have had an original thought; the idea of government matching money to reward recapitalization (i.e., bringing back all the cash that's on the sidelines) actually doesn't sound bad.

[anne]

A spending constraint does not have to be real, only to be considered real, and our supposed military needs will be considered constraining beyond how inherently destabilizing such spending has proven these years.

[hari]

Iraq and Afghanistan - A road to recovery and development.

There is something called *empathy* which has suddenly or for whatever reason deserted US outlook on the outside world.
Without empathy there is no redemtion - for not only human sacrifices but also destruction and cruelty of war.

My own belief is that next Admin will turn this cycle of destruction and unwarranted cruelty man against mankind.
No matter one's belief or faith, there must be empathy for the sort of life they want in Hindu Kush and old Babylon.

[hari]

German FM/Steinmeir today declared that Berlin will not continue participation in US *Enduring Freedom* (strategy?) in Afghanistan. Election 2009 in Berlin. Steinmeir will be trying to replace Merkel as Chancellor representing Social Democrats (SPD) party. Almost all parties in parliament are against current German military involvement in Hindu Kush.
They want it terminated and start negotiations with Taliban -to find a negotiated settlement.

I don't know the differnce between Nato deployment strategy and *enduring freedom* stuff in Hindu Kush.

[Barkley Rosser]

Alva Myrdal is a worthy recipient.

John Kenneth Galbraith never received a Nobel Prize.

For As'ad, the off-the-wall, of course electing a woman or an African-American will not in and of itself solve problems of glass ceilings or other forms of discrimination necessarily. But, let us keep in mind that the race problem involves such things as people putting nooses in people's workplaces. Lynching of African Americans was being done not all that long ago. It has been centuries since we have had witch trials.

[anne]

Hari:

Iraq and Afghanistan - A road to recovery and development.

There is something called *empathy* which has suddenly or for whatever reason deserted US outlook on the outside world.
Without empathy there is no redemtion - for not only human sacrifices but also destruction and cruelty of war.

My own belief is that next Admin will turn this cycle of destruction and unwarranted cruelty man against mankind around.

No matter one's belief or faith, there must be empathy for the sort of life they want in Hindu Kush and old Babylon.

[Nice.]

[anne]

http://krugman.blogs.nytimes.com/2008/10/09/dow-9000/

October 9, 2008

Dow 9,000!
By Paul Krugman

Stock prices are, however, the least of our worries. The money markets are frozen; the TED spread is 4.14%.

G7 meeting tomorrow, IMF-World Bank over the weekend. Now is the time for major action — an announcement of coordinated capital injections, liquidity measures, and more. If we've had nothing except vague assurances by Monday …

[Mark Thoma refers us to an historical look at the TED spread, * which is not much compared to what it routinely would be decades ago, but who know what the heck this historical look means? Not me.

* http://businomics.typepad.com/businomics_blog/2008/10/ted-spread-how-high-is-financial-risk-today.html]

[anne]

"The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt (T-bills)."

So, from an historical perspective the current TED spread is not much and that should be some comfort except that coming from years of little spread this can be unnerving. But, I wonder if comparisons even from the 1970s are all that meaningful. Was the bond market so threatened in the 1970s? Possibly, given long term bond holdings and increasing inflation and unwilling bond buyers.

[anne]

Hmmm.... I remember a lecture by a bond expert, * who explained that it was not until the late 1970s that the concept of duration began to be described to bond investors, and in being gradually understood revived a dangerously avoided market in an inflationary time. Understanding duration may have changed the volatility in the market in a dramatic fashion. I wonder, how much of financial market moderating from about 1980 this may have counted for.

* Who was that?

[hari]

*Cold War with China* - US State Dept (ISAB) Report.

[Chairman - Wolforwitz/ex-IBRD]

This report to Rice advises US Gov to increase its nuclear stockpile to counter mainland China nuclear capacity.

PS. Not only curious and disingenuous but outright neocon nonsense dealing with China's intentions.

[anne]

The bond expert I am thinking of essentially built the foundation for middle class bond holding, but who, who, who?

[kthomas]

hari, thank$. I'm $ure Madame Rice i$ getting a nice $omething from $ome company for making thi$ recommendation. $he's $o $mart.

[kthomas]

Don't hurt yourself, anne. It's not a big deal.

[anne]

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/3166201/US-told-to-increase-nuclear-arsenal-as-China-threat-looms.html

October 9, 2008

US told to increase nuclear arsenal as China threat looms: The US must increase its nuclear arsenal in response to China's growing military might, according to a State Department report.
By Malcolm Moore

Shanghai

[Assume this is a bizarre rumor, since it just has to be so, but this still shows how much of a need there is for permanent disarmament diplomacy.]

[anne]

http://www.thecrimson.com/article.aspx?ref=524433

October 5, 2008

Peace in the Pacific: Plans for a new missile defense system miss the point
By CRIMSON STAFF

Since the establishment of official diplomatic relations in 1979, the United States and the People’s Republic of China have maintained a relatively stable relationship consisting of mutual engagement and careful dialogue. The benefits for both nations have been numerous, but some fear that this relationship constitutes complacency and weakness. For example, a committee chaired by former Deputy Secretary of Defense Paul Wolfowitz has argued that the American military should prepare for an all-out confrontation by constructing a new national missile defense system specifically targeted at China....

[Where the heck could the Harvard Crimson editors have come on such an argument?]

[anne]

What is certain is that the Administration has just decided to sell about $6.5 billion in advanced weapons to Taiwan after waiting almost 8 years to decide on the sale for sake of diplomacy and deciding just before there is to be a new President, though both McCain and Obama have supported the sale so who can we blame for what, where, when?

[anne]

http://krugman.blogs.nytimes.com/2008/10/09/what-happened-today/

October 9, 2008

What Happened Today?
By Paul Krugman

Tough to write a column — I mean, nothing much going on in the financial world …

Seriously, I’m sure we’ll be hearing all kinds of explanations of today’s drop — it’s Paulson saying that he’ll inject equity, or Obama’s rise in the polls (yes, seriously, that’s the right-wing line), or some obscure ruling by some government agency.

But you want to remember Robert Shiller’s classic real-time study * of the 1987 crash. Basically, the crash had nothing to do with any news item. Investors sold because — drum roll! — prices were falling.

On a separate note, one good thing is that there haven’t been any reports of people on Wall Street jumping out of windows. That’s because the windows in modern office buildings don’t open.

* http://ideas.repec.org/p/nbr/nberwo/2446.html

[anne]

http://krugman.blogs.nytimes.com/2008/10/09/must-reading-now/

October 9, 2008

Must Reading Now
By Paul Krugman

I would be remiss if I didn't link to the insta-booklet from Vox EU, Rescuing our jobs and savings. * I agree completely with Baldwin and Eichengreen's summary of what must be done — this weekend, if at all possible:

"Policy makers must move boldly to stabilise the financial system. The basic elements are:

A quick bank recapitalisation with global coordination
A guarantee of deposits and/or loans with global coordination
Further, coordinated macroeconomic stimulus."

* http://voxeu.org/index.php?q=node/2340

[anne]

http://krugman.blogs.nytimes.com/2008/10/09/please-go-away/

October 9, 2008

Please Go Away
By Paul Krugman

The last thing we need: *

"President George W. Bush will address the nation tomorrow to tell Americans they should remain 'confident' amid falling stock markets and a worldwide credit crisis, administration spokeswoman Dana Perino said.

"The president wants to 'assure' the country that Treasury Secretary Henry Paulson and other administration officials are taking 'every effort to stabilize our financial system,' Perino said.

" 'Economic officials are aggressively taking every action,' she said. 'The Treasury is moving quickly to use new tools to improve liquidity, which is the root cause of this problem.' "

And by the way: liquidity is not the root cause of this problem. It's terrifying that the Bush administration still thinks it is.

* http://bloomberg.com/apps/news?pid=20601087&sid=ag7uT.WwE9I0&refer=home

[anne]

Clarifying, in remembering Japan I wrote of the need for liquidity being a problem and meant just that. Standing on a corner in a Tokyo business or shopping district in the 1990s, there would be many men (only men) in suits riding along on bicycles with pouches attached with bundles of Yen for the transactions of the day.

Should I have used a different term than "liquidity" however, even for Japan?

[anne]

I think I used the term liquidity in reference to Japan correctly, since Japan never needed to recapitalize the banks, once bank leaders, along with Japanese industrial executives actually since there is considerable cross stock ownership, informally agreed to support each other. Here the issue is recapitalizing.

[anne]

http://dealbook.blogs.nytimes.com/2008/10/09/citi-withdraws-from-wells-fargo-talks/index.html?ref=business

October 9, 2008

Citi Concedes Wachovia to Wells Fargo
By Andrew Ross Sorkin

Citigroup said late Thursday that it will not try to block a merger between Wachovia and Wells Fargo, but that it would continue to seek $60 billion in legal damages after the Charlotte-based bank spurned a $2.2 billion deal proffered by Citigroup at the government’s behest....

[I do love irony, this is the finest.]

[dd]

It is where TED spreads ought be when government facilitates are so much cheaper. TED, LIBOR and OIS are irrelevant.

[dd]

But via Alea, Repos failed. Ouch.
http://www.aleablog.com/repos-fails/

[dd]

Well, futures are plummeting so one must assume the anticipated Leh CDS auction is already a failure.

[dd]

Futures are really breaking down now on no reported news. Only thing in the offing is Leh CDS. Anyone?