Thursday, October 30, 2008

Roundup: October 30


Global markets rose after the Federal Reserve yesterday afternoon announced new reciprocal currency swap lines (up to $30bn each) with the central banks of Brazil, Mexico, South Korea, and Singapore, greatly expanding the geographic reach of the dollar financing provided by the US government. Separately, the IMF announced it would make $100bn available in an upfront liquidity facility for countries without macroeconomic problems -- allowing them to borrow up to 5 times their quotas. Brad Setser says these moves are remaking the world's financial architecture: as the G7 expands to include emerging markets, so the mandate of the IMF expands from macroeconomic adjustment (and forced liberalization) to straightforward liquidity provision.

US real GDP fell 0.3% in Q3, the worst contraction in 7 years, inclduing a fall in consumer spending -- the first decline since 1991. But the number was better than expected (-0.5%) and helped drive markets up this morning. There are a lot of good visualizations around: Calculated Risk looks at investment in residential and non-residential structures as a percent of GDP since 1960. EconomPic has graphs of the consumption contribution to GDP and of non-durables consumption. San Francisco Fed President Janet Yellen spoke today on the economy, and her comments -- though by no means especially pessimistic -- drove markets down in the late afternoon. The Kansas City Fed manufacturing index fell to -23 from -9, with declines in shipments, orders, employees, and the workweek.

Japan and Germany have announced tens of billions of dollars of fiscal stimulus, including support for carmakers and construction firms. Hypo Real Estate has become the first company to ask to participate in Germany's bailout fund, saying it needs EUR15bn of liquidity. And the US government is reportedly working on a plan to provide insurance for existing mortgages in exchange for modifications.

FT Alphaville have a smart piece out arguing that falling Libor is bad news for banks being funded and backstopped by government -- since their lending business is mostly tied to Libor, lower rates mean lower margins on new business. And recent moves by some companies to tie their debt pricing to their CDS have outsourced what used to be banks' main role -- pricing risk -- to the wider market. Wherefore banks?

Daniel Gros and Stefano Micossi say that the Euro and the Eurozone financial system are suffering from the absence of a unified market for sovereign bonds denominated in Euros and backed jointly by Eurozone member states -- segmented markets for the sovereign debt of individual countries (ergo of different quality) stand in the way of monetary hegemony for the Euro and make borrowing more expensive for Eurozone countries than for the US. They argue further that financial stability in the euro-satellite countries (the Baltic, Eastern Europe, Turkey, Ukraine, Iceland) is key for Eurozone banks and that a Europe-wide Financial Stability Fund could solve these problems -- and allow for quicker exit post-crisis than national stability plans, which will face stronger domestic pressures to stay in effect and subsidize national champion companies.

NY attorney general Andrew Cuomo saw a bandwagon passing and has jumped on it. He has joined Henry Waxman in demanding compensation information from nine large banks that have received federal aid from the TARP, saying he is investigating whether payments might represent fraudulent conveyance.

The DTCC has issued a press release on the closure of the Lehman Brothers bankruptcy. It is an interesting document for those who would like to see how a bankruptcy of this size is managed.


There is "panic" in Goma, the Democratic Republic of Congo, as residents fear the approach of Laurent Nkunda's rebels. HRW's Anneke van Woudenberg writes on the Rwandan encouragement of Nkunda's army. Johann Hari says the war is being financed by Rwandan businessmen to their great financial advantage -- and points out the developed world is the end user of the industrial minerals being smuggled out of eastern Congo. Meanwhile, government troops are "on the rampage" in the area of Goma. Zambia has closed its borders to refugees from the DRC.

A series of bombs in Guwahati and other cities in Assam have focused world attention on the Indian Northeast and its splinter movements. The undeclared guerrilla war being fought in the Northeast by the Indian central government is one of the great no-go zones of Indian politics, and much of the region -- ethnically, linguistically, and religiously distinct and various -- is often closed to foreigners.

Syrians demonstrated in front of the US embassy today to protest a raid by US troops across the border with Iraq that, according to Syrian reports, killed 8 civilians. Syria Comment gathers press and local reactions.

IRIN writes on informal diamond mining in Zimbabwe and clashes between miners and police. Zimbabweans are relying on wild foods in order to make ends meet, aggravating the problems of child malnutrition and absenteeism from the collapsing school system. UN Secretary-General Ban Ki-moon is blaming Mugabe for the deadlock over power-sharing between Mugabe's ZANU-PF and Tsvangirai's MDC. Some journalists have been barred from covering multiparty talks, in order to help the talks progress outside public scrutiny.

The US Army is looking for 20,000 more troops in Afghanistan, even as options for talks with the Taliban are explored. This reflects the Petraeus counter-insurgency strategy: more boots on the ground and dialogue with local authorities and insurgents.

The Duma unanimously ratified its treaty with South Ossetia and Abkhazia, the Georgian breakaway regions, giving Russia the right to station some 7,600 soldiers at the request of the regions' governments to protect against Georgian attack.

Wang Lixiong says that the Chinese strategy for Tibet -- stall until the Dalai Lama dies -- is likely to lead to renewed violence if he dies without "significant progress" in Tibet or without returning to the country.

Sarkozy has in private called Obama's stance on Iran "utterly immature" and "formulations empty of all content," according to a report in Haaretz.


Atmospheric methane concentrations jumped by 10ppm worldwide 2007 in a worrying move for this dangerous GHG. What is most odd about the finding, however, is the geographic distribution of the change. Methane concentrations increased almost uniformly around the world, without particular change in important regions in the Northern hemisphere or elsewhere where methane concentrations might be variable because of clathrates.

The FT has leaked results from the IEA's long-awaited study on mature oil field depletion: the results are shocking. Without substantial new investment, the world's 400 largest oil fields will see their output reduced by over 9% annually. This WSJ story discusses the difficulties for the oil majors in working expensive, small, and difficult fields across the world, looking at Chevron's Frade field, and it points to an oil crunch in the near future as investment budgets drop with falling oil prices. Shell has postponed investment decisions regarding one of its major Athabasca River (in Alberta) tar sands project, an early move it what may be the shuttering of much of the Alberta tar sands extraction. These fields are cost-competitive at around $70/barrel, not $55.

The Royal Society has announced plans to analyse various ideas for "geo-engineering" to reduce the impacts of global warming. These plans include the release of gases into the atmosphere to increase its atmosphere's albedo, and the launch of a gigantic ring of mirrors in orbit around the earth to reflect more light. What utter nonsense for the Royal Society to be spending its time on. The risk of unintended consequence from geo-engineering far outweighs the supposed difficulty of simpler solutions involving austerity, pricing, and technological development.

Scott Barrett at the Kennedy School publishes an interesting paper arguing that a piecemeal approach to climate change may be more effective than comprehensive legislation and cap-and-trade. The discussion may not be substantial in the end, as any "comprehensive" bill will be accompanied with a broad array of other legislation and regulation, which may have the same effect. It remains valuable to consider an ideal scheme for legislation, even if the reality will not approach it, and this paper gives a different side from the standard doctrines.

FirstSolar and Solar City have announced a partnership to bring thin-film CdTe solar cells to rooftops. This is the first opportunity for residential users to purchase thin-film cells, which may be the future of photovoltaics.

Nature publishes a paper on the fourth circuit element, the memristor. This paper could mark the beginning of the development of an entirely new generation of electronic devices.

China Environmental Law looks at China's likely climate change negotiation stance.

Cleantech VC investments were up 55% in 3Q '08.

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