Friday, October 3, 2008

Roundup: October 3


The markets are unimpressed by the bailout bill. Gibson, Dunn, and Crutcher have produced a useful section-by-section analysis of the bill's provisions.

Even Paul Krugman supports the bailout only for the presumed psychological effect it will have on the money markets. None of the government actions justified since last year on the basis of instilling "confidence" in the market has yet had that effect; it is hard to see where that confidence can come from if not from a shakeout of the weak links and a clear bottom. 3mo dollar Libor was up 12bp yesterday, to 4.33%; overnight Libor fell 68bp, to 1.996%, the first time it has been under the Fed Funds target rate since September 14 of last year.

Nouriel Roubini publishes further dire warnings about the risk of catastrophic collapse of U.S. industry and banking in the next months. Buiter proposes permanent government shareholding in all systemically important financial institutions.

Wells Fargo has agreed to buy Wachovia in a stock deal which Citigroup says violates the terms of its exclusivity agreement with Wachovia. Steven Davidoff has his usual trenchant analysis.

The silent bailout of carmakers continues, as the EU automotive industry has asked for EUR40bn of loans to develop more fuel-efficient and environmentally friendly cars. This follows the U.S. extension of $25bn in loans to Detroit with a similar mission. This sort of piecemeal, patchwork subsidization will never substantially help the environment; they amount to a mismanagement giveaway with more straightforward implications for moral hazard than even the TARP. If there is to be a bailout of the auto industry, it should be comprehensive; it should punish the existing management and equity holders for their incompetence and give taxpayers a stake in future upside. If environmental goals are intended, then they should be laid out more directly, with more oversight, and integrated into the existing regulatory framework.

Arnold Schwarzenegger has written to Hank Paulson saying California may seek an emergency loan from the Federal government of as much as $7bn within weeks if conditions do not recover in the bond markets.

The Independent reports new private house-building in Britain is at a 50-year low, making Labour's targets for new housing unlikely. Sarkozy announced a EUR20bn package of aid for French small businesses yesterday and said the government will buy up to 30k unfinished homes. Greece has followed Ireland's lead in unilaterally committing to guarantee domestic deposits. Meanwhile, noises out of Gordon Brown's office indicate he will not back a pan-European rescue fund or the creation of an EU bailout fund. Britain will expand its deposit insurance limits to GBP50k. US employment declined by 159k in September; Krugman looks at the wide employment measure (U6).


Mexico's President Felipe Calderon has proposed legislation that would decriminalize the possession of small quantities of drugs for addicts who agree to undergo treatment.

Clashes on Afghanistan's border with Pakistan have escalated to full-fledged war, says the NYT, as the UN pulls the families of its staff out of Karachi.

The ANC may split into two parties, as the ouster of Thabo Mbeki continues to roil the South African political climate.

Pakistan wants a nuclear cooperation deal like the US-India deal ratified by the Senate yesterday to develop its domestic nuclear power industry.


An article in Science highlights the role of wind, not just warming, in eroding the Arctic ice sheet. However, it emphasizes that wind and warming have related effects on the ice sheet, and reestablishes that warming is the primary issue.

Understanding the homing behaviors of bluefin tuna from the two major spawning areas in the Gulf of Mexico and the Mediterranean is crucial to understanding the state of the fishery and the risk of collapse posed by the geographic division of the population.

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