links for 2008-11-19

• It Isn’t a TARP Without Troubled Assets to Cover - Caroline Baum
• The Return of the $70 Per Hour Meme - Felix Salmon
• The check is in the mail - Econbrowser
• Clown on Wall Street (literally) - EconoSpeak
• Chinese Auto Industry Presses Beijing for Bailout - NYTimes.com
• All Hail the Apple Maggot! - Olivia Judson
• A Bottom-Up Bailout Rather Than Trickle-Down - Robert Reich
• What do we know about infrastructure spending? - macroblog
• Regulation should be international - Rogoff and Reinhart - FT
• The credit crunch illusion? - Rabee Tourky
• Thoughts on Financial Regulation - Arnold Kling
• The 11 Blunders of Hank Paulson - The Big Picture
• Where Is the Bottom? - Nouriel Roubini
• The Historical Record on the Bubble - Real Time Economics
• Understanding the Fed’s swap line - FT
• First Bankruptcy, and Then a Possible Bailout - Economix
• What is Paulson Waiting For? - Editorial - NYTimes.com

Comments

[hari]

Rogoff and Reinhart/FT - On G-20 Summit & Declaration

This is first time noted scholars like Rogoff/Reinhart are putting their professional imprint on removing IMF decision-making instruments from US Treasury, as I read their conclusion - negative impact of political interference in international financial decision-making at IMF.

The legacy of Bretton Woods - post-WWII - is manifestation of US hegemonic control of international finance and global currency alignment.

Our 21st century demands a new alignment, OK.

Once Bretton Woods II is formally negotiated and implemented we shall witness a more objective criteria est to run and manage global finance.

The FT commentary above is in line with current thinking inside EU-27 and emerging markets (BRICs).

[anne]

http://judson.blogs.nytimes.com/2008/11/18/all-hail-the-apple-maggot/

November 18, 2008

All Hail the Apple Maggot!
By Olivia Judson

Next Monday — Nov. 24 — is the 149th anniversary of the day that Charles Darwin’s masterpiece, “On the Origin of Species,” was first published. In honor of that, I thought I’d look at a remark that a friend recently made: “We spend so much time wailing about extinction, but we never celebrate new species.”

Good point. But there are several reasons for the asymmetry. The most obvious is that extinction is easier to see. In the 18th century, the passenger pigeon was one of the most numerous birds on Earth. Flocks of birds several miles long would fly over, blocking out the sun like an immense cloud. Some observers said the effect was like an eclipse. But by 1880, the numbers had plummeted; by 1915, the passenger pigeon had gone.

The appearance of a new species is not so dramatic. The first members of a new species will typically be indistinguishable — to us — from the species they have evolved from. And while extinction has a clear final moment — the last member of a species dies — the formation of a new species does not usually happen in a single recognizable instant. Which is why we haven’t yet raised our glasses to celebrate, say, Rhagoletis pomonella, the apple maggot fly.

This species is in the process of splitting into two. Until the mid-1800s, R. pomonella was a hawthorn fly: adults met at hawthorn fruits to mate and lay eggs. But then apples were introduced to North America. Some haw flies found these fruits attractive places to gather, and began to mate and lay their eggs on apples instead.

Today, flies that like apples have become genetically distinct from those that like haw. There are a couple of reasons why. First, flies meet each other at fruits. Since most flies have a preference for one fruit over the other, haw-preferring flies tend to meet other haw-preferring flies, and ditto for apple flies.

These mating preferences are reinforced by differences in how well the flies survive. Attributes that help maggots survive on haw are different from those that promote survival on apples. Apple trees produce fruits earlier than hawthorn, and apple-specialists must thus emerge from their pupae earlier, or they risk missing the fruit. Emergence is under genetic control, so you might expect that apple flies and haw flies would have genes that predispose them to emerge at different times — and they do. As a consequence, if, say, an apple fly should happen to go to a haw instead and mate with a haw fly, their offspring will have a mix of haw and apple genes. It will thus be poorly suited to both fruits and less likely to survive.

So why don’t we consider the apple specialists a new species? Because they aren’t quite all the way there.

The most common way to define a species is a group of individuals that breed with each other successfully. For example, dogs, despite their vastly different looks, can breed with each other, so they are are considered one species. Horses and donkeys are counted as different species because their offspring (mules and hinnies) are sterile. For individuals to be considered as belonging to separate species thus means that they are “reproductively isolated”: they can’t, won’t, or don’t breed with each other.

I say, “can’t, won’t, or don’t” because reproductive isolation can come about through any of these routes. Horses and donkeys are examples of “can’t.” Although they can (and do) have sex, their genes are incompatible: they can’t produce fertile offspring.

What about “won’t”? Cichlid fish living in Lake Victoria. If you fertilize the eggs of one species of cichlid with the sperm of another, the eggs will develop and produce fertile fish. But in nature, this doesn’t happen, because males and females from different species don’t find each other beautiful: they won’t mate with each other.

And “don’t”? Here, the animals can still breed with each other, and will if they meet, but in nature this doesn’t happen because they don’t meet.

Haw and apple flies are in the “don’t” category: flies from the different fruits don’t mate because they don’t meet. Usually. However, the preference that flies have for the different fruits is not quite perfect. From time to time, flies reared on apple will come to hawthorn to mate. And although the offspring of such a mating are less likely to survive, they aren’t inviable or sterile. This means that there is still a low level of “gene flow” —i.e., successful sex — between the two groups. But because offspring from such matings have a survival disadvantage, it seems likely that there will come a time when the separation will be complete, and we will be able to raise a cheer of welcome for the newly speciated apple maggot. Yippee!

I can sense your excitement. And perhaps that’s the real reason we don’t celebrate apple maggots, or any of the other new species (and there are many we know about) that are in the process of evolving. For when a new species does appear, it’s just not that different from the old species. To evolve the flamboyant differences that distinguish a swan from a duck, or a human from a chimpanzee — that takes thousands, even millions, of years.

That is what we lose with extinction....

[anne]

http://www.literature.org/authors/darwin-charles/the-origin-of-species/chapter-14.html

1859

The Origin of Species
By Charles Darwin

Recapitulation and Conclusion

It is interesting to contemplate an entangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent on each other in so complex a manner, have all been produced by laws acting around us. These laws, taken in the largest sense, being Growth with Reproduction; inheritance which is almost implied by reproduction; Variability from the indirect and direct action of the external conditions of life, and from use and disuse; a Ratio of Increase so high as to lead to a Struggle for Life, and as a consequence to Natural Selection, entailing Divergence of Character and the Extinction of less-improved forms. Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows. There is grandeur in this view of life, with its several powers, having been originally breathed into a few forms or into one; and that, whilst this planet has gone cycling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being, evolved.

[calmo]

I thought Caroline Baum 's piece was excellent.
But from the bottom of the piece, this book title
author of “Just What I Said,” sent me to the moon...maybe further.
Dear reader, gentle reader, dear friend of mine, My friends
Hey Yo!
Yo no needs to Know why
I says the things I do.
Yo only need to Know
Jess what I said
Yo stupidass yo.

Sadly, I have heard this 'Just What I said!' defense in tight...(face-to-face encounters...with the mirror, you know?) academic circles, non-comedy dissertations of philosophically puncture-proof positions. There's no arguing about it...just like they warned.

[Well]

Roubini..."What we do know is that the $1 trillion number at this point is not the ceiling, it’s just barely a floor, and the losses are going to be much more."

Loaning money to people who don't pay back doesn't work out too well. Even if the goal of such loans is to boost the economy. An economy based upon ever expanding credit just doesn't work. Better to let the CPI fall, so that the general consumer can buy more items. That keeps the economy going in a sustainable fashion.

[anne]

http://angryarab.blogspot.com/2008/11/one-of-draws-for-bedouins-is-that-sharm.html

November 19, 2008

"One of the draws for the Bedouins is that the Sharm al-Sheikh tourist industry churns out rubbish all year round." *

* http://www.irinnews.org/report.aspx?ReportId=81532

-- As'ad AbuKhalil

[anne]

http://www.nytimes.com/2008/11/19/business/economy/19ports.html?hp&pagewanted=print

November 19, 2008

A Sea of Unwanted Imports
By MATT RICHTEL

Unwelcome by dealers and buyers, thousands of cars are being warehoused on crowded port property, creating a vivid picture of a paralyzed auto business.

[anne]

http://www.nytimes.com/2008/11/20/business/worldbusiness/20basf.html?hp=&pagewanted=print

November 20, 2008

Chemical Maker Cuts Output Amid Downturn
By DAVID JOLLY

BASF said that it would temporarily halt or slow production at 180 plants around the world as it adjusted to a “massive decline in demand” brought on by the current economic turmoil.

[anne]

http://www.nytimes.com/2008/11/19/business/economy/19bankruptcy.html?hp=&pagewanted=print

November 19, 2008

Advantage of Corporate Bankruptcy Is Dwindling
By JONATHAN D. GLATER

More companies that file for bankruptcy protection are shutting down because they cannot obtain enough financing to operate while they reorganize.

[halbhh]

The macroblog entry on infrastructure spending was interesting.

[anne]

http://www.nytimes.com/2008/11/19/opinion/lweb19medicare.html?ref=opinion&pagewanted=print

A Senator's Health Plan

To the Editor:

"Senator Takes Initiative on Health Care":

The proposal by Senator Max Baucus, Democrat of Montana, is a partial step in the right direction, most notably with his common-sense suggestion to expand Medicaid and Medicare, two publicly financed, mostly privately delivered programs.

Medicare has just a fraction of the bloated administrative costs of private insurance, which slices 30 percent off the top for profits and paperwork, much of it spent on denying needed care.

Unfortunately, the Baucus plan has several poison pills: it would force everyone not presently covered to buy private insurance, and revives the discredited McCain plan of taxing health benefits for many employees, which would push some workers from employer-sponsored coverage into the shark-infested private market.

Both steps would buttress and further enrich the health insurance industry, which hardly needs the help, and fail to solve the health care crisis.

Millions of Americans have found out the hard way that access to coverage is not the same as access to care. A better, more cost-effective approach would be to simply expand Medicare to cover everyone, the only real way to assure guaranteed health care for all.

Rose Ann DeMoro
Executive Director, National Nurses Organizing Committee/California Nurses Association
Oakland, Calif., Nov. 14, 2008

[kthomas]

The Invisible Hand ain't so invisible anymore.

Who was it that said what comes up, must come down?

BTW, anyone catch what the #2 airbag from Al-Qeada said about President-elect Obama? Whoa! Something tells me those guys know thier number is up. Thier 8 years on Easy St are over!

[anne]

http://www.nytimes.com/2008/11/12/washington/12health.html?hp&pagewanted=print

November 12, 2008

Senator Takes Initiative on Health Care
By ROBERT PEAR

WASHINGTON — Without waiting for President-elect Barack Obama, Senator Max Baucus, the chairman of the Finance Committee, will unveil a detailed blueprint on Wednesday to guarantee health insurance for all Americans by facilitating sales of private insurance, expanding Medicaid and Medicare, and requiring most employers to provide or pay for health benefits.

Aides to Mr. Obama said they welcomed the Congressional efforts, had encouraged Congress to take the lead and still considered health care a top priority, despite the urgent need to address huge problems afflicting the economy.

The plan proposed by Mr. Baucus, Democrat of Montana, would eventually require everyone to have health insurance coverage, with federal subsidies for those who could not otherwise afford it....

[anne]

http://www.nytimes.com/aponline/world/AP-AS-Pakistan.html?ref=world&pagewanted=print

November 19, 2008

Suspected U.S. Missile Strike Kills 6 in Pakistan
By ASSOCIATED PRESS

A suspected U.S. missile strike hit a village deep inside Pakistan, officials said, killing six and indicating American willingness to pursue insurgents beyond lawless tribal regions.

[Oh.]

[anne]

While there is a hopeful sense for American consumers in generally falling prices, as there was in Japan during the 1990s, there is an important little understood difference in Japan's approach to the slowing of growth that came with asset price deflation and our approach. Japan was determined to protect employment, and did so through the general deflation buoying consumers and never allowing a significant recession. America is not protecting employment and likely will not do so, since we are philosophically opposed.

[Barkley Rosserr]

anne,

And the point of this post by your pal, As'ad is exactly what? That the tourist industry in Sharm-el Sheikh should be shut down because they are rich people who waste things and the Badu should not have to suffer getting their trash?

[anne]

American and British analysts continually criticized the Japanese for protecting employment from the beginning of the general deflation in 1994. But in protecting employment, even if a return to robust growth was slower in coming and whether this was so is unclear, Japan allowed for middle class well-being through the 1990s, growth was slow but continued and workers and families were fine since jobs were kept nominal wages and benefits were kept and wages modestly increased through union pressure, while real wages were increasing with the general deflation. The strength of the Japanese currency even allowed for as much international consumption as the Japanese cared for; this all through the years of slow growth.

[anne]

Egypt is a sadly governed country, and sadly encouraged in poor government from abroad; among the indicators of Egypt's poor fortunes, being the sifting through the rubbish of an expensive resort by drought displaced and neglected Bedouins which the United Nations has reported on. Some notice, some do not.

[anne]

http://www.irinnews.org/report.aspx?ReportId=81532

November 19, 2008

Bedouins Sift Through Rubbish to Survive
By IRIN

SHARM AL-SHEIKH - Sharm al-Sheikh, Egypt's glitzy coastal tourist resort, may seem an unlikely home for Bedouin squatters, but they too live off tourism, or rather the waste left in its wake.

A 20-minute drive from the main highway takes you to a Bedouin squatter area on the city's outskirts from where Nawal, a young woman, sets out early each day with her younger sister for the main refuse tip, to sift through rubbish.

"We used to have a good life. We had a lot of animals, we used to make milk and butter and cheese," said Nawal, reminiscing about her past. "It was a sweet life. Everything was available. Now it's awful."

The estimated 30,000 Bedouins in the Sinai peninsula have had to contend with severe drought over the past few years, and this has forced them to change their lifestyles: No longer are they able to derive an income from their animals.

"When the pastureland disappeared, we had to leave... We have had to come to Sharm al-Sheikh and settle down next to the rubbish dump," said Otayeq Sallam.

One of the draws for the Bedouins is that the Sharm al-Sheikh tourist industry churns out rubbish all year round.

Recycling project

In the tourist resort of Nuweibaa, some 150km north of Sharm al-Sheikh on the Gulf of Aqaba, an NGO called Himaya (protection) is helping needy Bedouins.

It collects and sorts rubbish, selling some of the solid waste to cover costs and making the organic waste available free of charge to Bedouins it deems need help, allowing them to sell it on.

"We separate the solids from the organic waste, which is distributed free to needy Bedouins. The solid waste is compressed and sold by the tonne to factories in Cairo," said Walid al-Sayyid, who works on the project.

Proceeds from the sale of the solid waste also help the NGO fund regional development projects. One such project is the renovation of classrooms in primary schools in South Sinai. Another is the creation of green spaces in urban areas, he added.

However, not all local Bedouins are satisfied: "The NGO has made deals with local hotels to get their garbage. Bedouins can no longer get it for free, which is unfair," said Ibrahim Sweillam, a Bedouin who does not receive waste collected by the NGO because he is not classified as being in need. For him, Bedouins are better off organising their own affairs.

[anne]

http://angryarab.blogspot.com/2008/11/noting-that-saudis-play-chess-without.html

November 19, 2008

"Noting that Saudis play chess without the bishop or the queen—for which they substitute an elephant and a vizier—he comments wryly: 'No Christians or women were going to be checkmating any king in Abdel Aziz's Saudi Arabia.' " *

* http://www.economist.com/books/displaystory.cfm?story_id=12551590

-- As'ad AbuKhalil

[calmo]

The last entry in the list, NYT editorial (a shy person writing in a closet...safe from the hurly burly financial world, maybe...maybe someone working in the Sec Treas office...so inexplicably shy, yes?), does a great job of casting the Blair-Paulson views about the distribution of the $700B...the start of a great discussion about what is so dear to rdf's heart (maybe mo): investing vs spending.

[anne]

We need a bear song, even if assuredly not stout....

http://www.machaon.ru/pooh/chap2.html

1926

Winnie-The-Pooh
By A. A. Milne

...In Which Pooh Goes Visiting and Gets Into a Tight Place

EDWARD BEAR, known to his friends as Winnie-the-Pooh, or Pooh for short, was walking through the forest one day, humming proudly to himself. He had made up a little hum that very morning, as he was doing his Stoutness Exercises in front of the glass: Tra-la-la, tra-la-la, as he stretched up as high as he could go, and then Tra-la-la, tra-la--oh, help!--la, as he tried to reach his toes. After breakfast he had said it over and over to himself until he had learnt it off by heart, and now he was humming it right through, properly. It went like this:

Tra-la-la, tra-la-la,
Tra-la-la, tra-la-la,
Rum-tum-tiddle-um-tum.
Tiddle-iddle, tiddle-iddle,
Tiddle-iddle, tiddle-iddle,
Rum-tum-tum-tiddle-um.

Well, he was humming this hum to himself, and walking along gaily, wondering what everybody else was doing, and what it felt like, being somebody else, when suddenly he came to a sandy bank, and in the bank was a large hole.

"Aha !" said Pooh. (Rum-tum-tiddle-um-tum.) "If I know anything about anything, that hole means Rabbit," he said, "and Rabbit means Company," he said, "and Company means Food and Listening-to-Me-Humming and such like. Rum-tum-tum-tiddle-um....

[anne]

http://www.nytimes.com/2008/11/20/world/africa/20pirate.html?ref=world&pagewanted=print

November 20, 2008

Indian Navy Says It Sank Pirate Ship
By HARI KUMAR and ALAN COWELL

The Indian Navy said it battled would-be hijackers in the Gulf of Aden, sinking one vessel and forcing the pirates to abandon another.

[Remember how before December 2006 when we encouraged and supported Ethiopia in invading and occupying Somalia there was no rampaging piracy, only there is now? Remember? This is the result of the American Doctrine * at a slight remove. Somalia is continually referred to as a failed state now, but the state was finally succeeding before the invasion and occupation.

* American, till renounced by another President.]

[anne]

http://krugman.blogs.nytimes.com/2008/11/19/amity-shlaes-strikes-again/

November 19, 2008

Amity Shlaes Strikes Again
By Paul Krugman

When you hear claims * that the New Deal made the depression worse, they often come directly or indirectly from the work of Amity Shlaes, whose misleading statistics have been widely disseminated on the right.

Now, Ms. Shlaes has found a new target: John Maynard Keynes. There’s a lot to critique in this piece, ** but this one takes the cake:

"But the most telling fact about the new rush to spend is that its advocates have insisted on invoking the New Deal. They tend to gloss over the period when the phrase, 'We are all Keynesians now,' was actually first uttered: the mid-1960s. (Uttered by Friedman, in fact, though he meant only that we all work in the terms of the Keynesian lexicon.)

"The Great Society of that period was the ultimate Keynesian experiment, and it didn’t work very well."

Grr. Keynesianism says that deficit spending can help create jobs when the economy is depressed. The Great Society wasn’t deficit spending, it wasn’t intended to create jobs, and the economy of the 1960s wasn’t depressed. It was social engineering; we can talk about how well or badly it worked, but it had nothing whatsoever to do with Keynesian economics.

Now, LBJ did engage in some Keynesian economics: namely, he imposed a contractionary fiscal policy in the form of a tax surcharge *** in an effort to cool an overheating economy.

Alas, pretty soon we’ll have all the usual suspects saying that the Great Society proves that Keynesian economics doesn’t work — after all, the “experts” told them so.

* http://edgeofthewest.wordpress.com/2008/11/06/stop-lying-about-roosevelts-record/

** http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_shlaes&sid=a1CNR7igi8KU

*** http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/6b24abb33fe1996c852570d200756a5d?OpenDocument

[anne]

http://krugman.blogs.nytimes.com/2008/11/19/corporate-cost-of-borrowing/

November 19, 2008

Corporate Cost of Borrowing
By Paul Krugman

It’s the real thing [Figure]

The figure above shows the real interest rates on corporate bonds, with the expected rate of inflation from the spread between 20-year TIPS and 20-year Treasury rates. All data monthly, from St. Louis Fed. *

The surge in real borrowing costs reflects the combination of rising risk spreads — even for AAA borrowers — and falling expectations of inflation. This is why deflation is a problem.

And the high cost of capital is going to be one more reason for enormous downward pressure on the economy.

This just keeps looking uglier.

* http://research.stlouisfed.org/fred2/

[anne]

http://calculatedrisk.blogspot.com/2008/11/record-spreads-between-30-year.html

November 13, 2008

Record Spreads between 30 Year Corporate and Treasury Yields
By Calculated Risk

Here is another measure of credit stress. The following graph * shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

[Graph]

"Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes."

There are periods when the spread increases because of concerns of higher default rates (like in the severe recession of the early '80s), but the recent spread is unprecedented.

* http://www.minneapolisfed.org/research/WP/WP666.pdf

[calmo]

Pooh making good use of that honey...before it goes off...centuries from now.
Right. (investing [minimizing the long term liabilities] AND spending [yummy-right-now-and-management-so-worth-it]?)

Twas not his to eat...even in these pre-property times, yes?
Pooh, proud not to B an ant, resigned hisself to being a "bear of little brain" (this story is in my bones...previous attempts to excommunicate it, falling way short)...counting instead on the cultivation of the reader's fondness for his somewhat grasshoppery side? [Succeeding so well with me that Warren Buffet holds my real place, I just know it.]
So who among you heathens real Christians are going to get on Pooh's case for self-indulgence building community?

[save_the_rustbelt]

The Return of the $70 Meme

I have seen so much inaccurate information on the auto situation it is maddening, much from journalists and some from economists.

Gee, junior in college cost accounting students wouldn't turn in such crap as homework.

[anne]

Understanding how well indeed the Great Society worked simply takes looking to the dramatic decline in poverty in America that came through the 1960s, and looking to the income and wealth gains among the aging as poverty reduction, Medicare, and later the indexing of Social Security benefits took effect. While Medicare and Social Security indexing remained, poverty programs were fought against and limited with a corresponding increase in poverty as the Great Society was belittled just as the New Deal has been belittled.

[anne]

http://www.portfolio.com/views/blogs/market-movers/2008/11/18/the-return-of-the-70-per-hour-meme?tid=true

November 18, 2008

The Return of the $70 Per Hour Meme
By Felix Salmon

You might expect it from right-leaning commentators like Will Wilkinson. You wouldn't expect it from someone like Mark Perry, who lives in Flint, Michigan. And you certainly wouldn't expect to see it in the New York Times, from the likes of Andrew Ross Sorkin. * But all of them are perpetuating the meme that the average GM worker costs more than $70 an hour, once you include health and pension costs.

It's not true.

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.

Now that GM's healthcare obligations are being moved to a UAW-run trust, even that fictitious number is going to fall sharply. But anybody who uses it as a rhetorical device suggesting that US car companies are run inefficiently is being disingenuous. As of 2007, the UAW represented 180,681 members at Chrysler, Ford and General Motors; it also represented 419,621 retired members and 120,723 surviving spouses. If you take the costs associated with 721,025 individuals and then divide those costs by the hours worked by 180,681 individuals, you're going to end up with a very large hourly rate. But it won't mean anything, unless you're trying to be deceptive.

* http://www.nytimes.com/2008/11/18/business/economy/18sorkin.html