Wednesday, October 1, 2008

Roundup: October 1

We look at the efficacy of Norway's (nearly twenty-year old) carbon tax and review the unpleasant novelties in the revived bailout bill. (The Senate votes tonight, at 7:30pm.)


Joseph Stiglitz on the worst-case scenario.

Interfluidity favors the partial nationalization (by partial bankruptcy) of the banking system as a better way of recapitalizing it. This is a good scheme, and it would systematize the relationship between the government and the banking sector, providing stability and confidence instead of the illusions of the TARP's ad hoc authority. Mish Shedlock suggests the Irish model. Willem Buiter would support the new bill even if Congress threw in a toaster for every depositor, but recognizes that insufficiently "aggressive" pricing of assets purchased under TARP could be terrible for the taxpayer. Of course, as we comment today, there are zero assurances about the pricing mechanism in the current proposal before the Senate. The Oil Drum says finance needs to be hamstrung, not supported.

AFP is reporting Sarkozy will pitch a EUR300bn bailout package for European banks at the weekend.

The real economy is seeing damage from the frozen commercial-paper market. Overnight dollar Libor was set at 3.79%, down from yesterday's record (quarter-end) number. The FT reports an "unprecedented" move into physical gold by wealthy investors is underway. Miner Xstrata has abandoned its GBP5bn takeover offer for Lonmin, saying conditions in the credit markets made a bid impossible.

GE Capital CDS were trading at 680bps this morning, but Buffett has announced he will take a stake in the parent company. This is being pitched as bullish, but the terms of the deal are punitive: Buffett will take $3bn of 10% perpetual preferred stock, callable at 110% of par after three years, and $3bn of $22.25 warrants (more than $2 below the market). Goldman, hilariously, is running the book on GE's concurrent $15bn common stock offering. Only in these markets would a $21bn capital raise be received so enthusiastically.

Dexia has received a capital injection of EUR6.4bn from the French, Belgian, and Luxembourgeois governments. UniCredit said it was well-capitalized and the victim of market speculation after its shares were suspended from trading today in Milan -- but will raise more capital by selling some property assets. The Reserve Bank of India moved to reassure depositors after rumors sparked suspicion ICICI Bank might fail. And Iceland's Landsbanki has sold most of its businesses to Straumur.

Calculated Risk carries some wonderful quotes on the suspension of mark-to-market accounting. We'll be commenting on this over the next few days.

Moscow halted trading on its major exchange yesterday for two hours, injecting a measure of calm into the market's operations for the day, after the exchange was overwhelmed with frantic selling in the morning.

A key US index of manufacturing activity dropped far more than expected in September. Ford's September vehicle sales were down more than 34%, with truck sales down 39%.


Negotiations to reach a power-sharing agreement between the MDC and ZANU-PF have reached a deadlock, according to both sides. Meanwhile, Zimbabwe's hyper-inflation is fuelling bank runs, as people rush to withdraw money out in the face of prices doubling every few weeks. The introduction of higher-denomination bills has not stopped the problem. The international community is readying itself to provide food aid in the face of probable famine later in the year. South Africa, after brokering the stalled deal between Mugabe and Tsvangirai, has unhelpfully begun refusing asylum to refugees from famine and violence, citing the power-sharing agreement as a sign that Zimbabwe is stable.

World Politics Review looks at the private fiefdom of Massoud Barzani, the regional president of Kurdistan.

David Axe says the American war on "radical Islam" is responsible for the breakdown of law and order in Somalia.

The medium-term market for Venezuelan oil may become less US-focused, as major refineries capable of handling the heavy, sour Venezuelan crude oil are planned in South America.

UN Secretary General Ban Ki-Moon describes his view of the state of the world and the role of the UN on today's pressing issues.

A US drone killed six in Waziristan.


New Zealand has passed the world's most comprehensive cap-and-trade system. Because of political risks to the ruling Labour party in the next election, it may not last.

The LA Times correctly opposes free allocation of carbon permits in the proposed Western Climate Initiative (WCI), a West Coast cap-and-trade system.

Starting yesterday, most unprocessed supermarket food in the US must be labeled with its country of origin.

California becomes the first state, following in the footsteps of such cities as New York and Seattle, to require chain restaurants with five or more outlets to post key nutritional information, including calorie counts, on their menus.

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