Thursday, September 25, 2008

Roundup: September 25


John McCain hasn't even read the two-page Paulson Plan, but he has suspended campaigning to return to Washington and fix the economy.

The Big Picture has a useful roundup of some of the different bailout ideas proliferating on the web.

Interfluidity says that the AIG/GSE model might be suitablefor further bailouts. But buried in the piece is a useful insight that points deep to the heart of the mis-management of the crisis for the past year by Bernanke and Paulson. The lack of a stable framework in which to think about failed institutions has given the entire process an ad hoc character; and the medley of bailout options proposed and enacted has undermined confidence in the markets instead of supporting confidence. If no one knows what will happen when a given company fails, then no one can even trade on the certainty of a bailout. Bill Gross's big gains on the GSE bailout and big losses on the Lehman bankruptcy give us some clue why no one wants to lend between banks.

Soros blames Paulson for last week's chaos, saying the refusal to save Lehman destroyed the debt markets. Conditions remained bad in the money markets, with the TED spread up to 3.27% this morning; and the US Mint is suspending sales of one-ounce gold bullion coins after demand outstripped supply.

Willem Buiter calls for a complete review of the way the UK Treasury and Bank of England manage liquidity in the market. The SLS should be extended, should be taken out of the Bank of England's control and moved to Treasury, and the UK should have its own program to deal with downgraded assets on banks' asset sheets. Buiter also reviews the Paulson Plan and finds it inadequate over at VoxEU.

A former adviser to the Chinese central bank says that foreign holders of US government debt must reach an agreement to prevent panic selling.

Bloomberg publishes the first part of a two-part series on the role played by the ratings agencies in the meltdown.

The U.S. has authorized $25bn in loans to help Detroit modernize its car lineups. This is an automakers' bailout by another name.

GE has warned on profits and will suspend its stock buybacks. (The New York Times reports that Lehman asked GE for help before its bankruptcy.) Washington Mutual is reportedly looking at a possible private equity buyer.

Initial unemployment claims were up to 493k, spurred in part by Hurricanes Ike and Gustav -- the four-week moving average has crept above 450k. August new home sales were the lowest since 1982. Advance durable goods orders were down very sharply, by 4.5%. Meanwhile, the Eurozone recession is picking up pace: Ireland's economy shrank 0.5% in Q2.


Russia's Foreign Minister says that, far from finding itself isolated in the aftermath of the Ossetian war, Russia is seeing more entreaties for bilateral deals at the UN than in recent memory.

North Korea has expelled IAEA monitors and says it will resume plutonium reprocessing.

World Politics Review looks at the challenges that will face Tzipi Livni if she becomes Israel's prime minister, and speculates on the horse-trading between Ehud Barak and Benjamin Netanyahu that might stand in her way.

Kgame Molanthe gave this speech at his inauguration as South Africa's president.


The WHO publishes this year's World Malaria Report.

The Regional Greenhouse Gas Initiative (RGGI or "Reggie"), a carbon cap-and-trade program for utilities in the Northeastern U.S., goes on line today with its first auction for permits. Two flaws in the system bring the price down drastically. First, the number of permits was allocated on the basis of 2004 emissions, the highest in history, and second, substantial reductions will not be required for several years. As a result, prices seem to be hovering around $4/tonCO2, or one-fifth to one-tenth of normal prices in the EU.

The UN publishes its report on investment and trade.

Nature reviews the U.S. Presidential candidates' stated positions on climate change. Uncritical, but a useful reference.

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