Wednesday, October 8, 2008

Roundup: October 8


This morning, the Federal Reserve, the ECB, the BoE, the Bank of Canada, the Rijksbank, the SNB, and the UAE's central bank all cut policy rates by 50bp. Willem Buiter says the move is welcome and timely but says it is overshadowed by the British move in the Swedish direction and the (he hopes) coming moves by North Atlantic authorities to recapitalize banks. Paul Krugman quite rightly points out that today's coordinated rate cut will likely not affect the interest rates that businesses actually pay to finance their operations. Rather, uncertainty in the markets will prevent real rates from falling, with the commercial paper-fed funds spread widening. This is, of course, exactly what happened in the last series of rate cuts. The markets are inured to rate cuts by now; Fed Funds futures were pricing in an additional 25bp this morning.

The UK government is providing an additional GBP200bn under the Special Liquidity Scheme and additionally will provide capital if necessary to any of eight institutions that have committed to increase their Tier 1 capital bases by an aggregate of GBP25bn. Government would take preference shares in exchange for capital and says it is "willing to assist in the raising of ordinary equity" -- one wonders if the releases will list HM Treasury as joint bookrunners with Goldman. Government will also backstop "new short and medium term debt issuance," ostensibly to restart interbank lending, for institutions that meet its capital criteria. HSBC says it has no intention of using the facility. Here is the text of the British bailout scheme.

We will pass over yesterday's debate in silence, noting only how peculiar it was that both candidates appear to be interested in naming "Warren Buffett" as Treasury Secretary. Brad DeLong points some of the insanities of McCain's alternative "plan" for mortgage assets.

Econbrowser goes through the Fed's balance sheet with a fine-toothed comb. Macroblog does the same thing to the Fed's new power to pay interest on excess reserves.

Many OPEC members are calling for the cartel to reduce its supply quotas to prop up falling prices, which are hovering between $80 and $90 per barrel, down from a peak of over $140.

The SEC's short-selling ban expires tonight at midnight.

Nigeria is beginning what may be the first of a series of bailouts of key domestic banks.

Volvo will cut 3000 jobs in another sign of the spreading contagion.


Russia, Indonesia, and the Ukraine all suspended trading on their exchanges yesterday. Russia may not resume trading until friday, despite President Medvedev's increase of the country's bailout. Meanwhile, Russia has extended a $5.4bn loan to Iceland to help it with its banking situation. This loan amounts to 1/3 of Iceland's GDP, and may come with military strings attached. Iceland denies that any military concessions exist. The energy sector is also asking for government aid, including such major companies as Lukoil and Gazprom.

Deputy Secretary of State John Negroponte says a security deal with Iraq is "close" The liability of US troops and contractors under Iraqi law has been a sticking point in talks.

UN Secretary General Ban Ki-Moon has described the security situation in Afghanistan as "worsening," and warns that without change the situation may be beyond retrieval.

The MDC walked out of key talks with Zanu-PF, perhaps signaling the end of the power-sharing agreement between the two parties. Time adds its voice to the growing chorus suggesting the power-sharing agreement in Zimbabwe may collapse.

The Maryland State Police added 53 nonviolent activists against the death penalty and the Iraq War to Federal anti-terrorism databases, it was revealed yesterday. Protest organizations were also classed as terrorist organizations. Undercover state police officers used aliases to infiltrate activist organizations in order to report on meetings. Those who believe government will not use the powers it is granted should take notice.


In a curious move, House Democrats unveiled a new climate change proposal with the election less than a month away. Although the proposed legislation is an improvement over the proposal that was blocked earlier this year, it is remarkably foolish to bring up a wedge issue that can threaten to turn the Democrats' big positive (the economy) against them. This bill will get them no new voters, and may threaten Senator Obama's widening lead.

A new study of studies casts doubt on the efficacy of circumcision for preventing the transmission of HIV between gay men. However, it does seem that circumcision cuts transmission by about 60% in heterosexual men nonetheless.

The parasitic power required by converting biomass to ethanol may limit the carbon efficiency of the fuels, even with second and third-generation feedstocks, according to a new study of the lifecycle emissions of ethanol-based fuels.

The IUCN suggested on monday that perhaps one-fourth of the world's mammal species could be at some risk of extinction.

Toyota is considering switching the entire Lexus line to hybrid powertrains in the medium-term.

The 2008 Nobel Prize for Chemistry went to three scientists who discovered a fluorescent jellyfish protein that is widely used as a tracker.

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