Wednesday, November 26, 2008

Roundup: November 26

Gasner Bros. is on vacation for Thanksgiving. We'll be back in December.


Barack Obama has announced a new economic recovery advisory board to be chaired by Paul Volcker. CDS on US government bonds were trading as high as 56bp this morning, putting them in line with weaker industrial sovereigns like Italy and the strongest corporates.

The Bank of China sharply cut reserve requirements for banks and benchmark interest rates after the OECD cut its 2009 GDP growth forecast from 9.5% to 8%

Nearly 30 million Americans are currently using food stamps, approaching the all-time high set after Hurricane Katrina. The four-week moving average of weekly unemployment claims is at a 25 year high.

The NYT has another must-read infograph breaking down the bailout so far: where it's gone, how it's gone, and what's been spent. Alphaville says explicitly guaranteed bank paper, such as that issued by Goldman with a Federal backstop yesterday, may act as a drug on the market for agency debt. Porsche, VW, and Audi have announced production cuts.

The Council for Foreign Relations has a brief biography of Timothy Geithner, Obama's likely nominee for Treasury secretary, along with selected readings from his major work and speeches.


It is not yet clear whether coordinated bombings and gunman attacks at Mumbai hotels and the city's Victoria Station which killed at least 80 tonight are the work of terrorists or of criminal gangs.

Morgan Tsvangirai has publicly rejected the mediation of former South Africa President Thabo Mbeki, after months of partiality and support for the Zanu-PF and a recent letter that infuriated the MDC. The cholera outbreak is the "worst crisis" ever to hit Zimbabwe, according to Mr. Tsvangirai, and it underscores the need for a functioning government to return. The US Treasury has frozen the assets of four major supporters of Mr. Mugabe. Botswana is openly calling for Mugabe's ouster, as President Ian Khama takes a bigger role as a regional leader in the crisis. Separately, a Harvard study proposes that as many as 365,000 deaths were caused by Thabo Mbeki's refusal to acknowledge HIV/AIDS while president of South Africa.

Extra police have been put on duty guarding New York City's transit systems after an unsubstantiated source indicated that Al Qaeda associates had discussed an attack in the holiday season as recently as September. Several officials said that the plans never reached beyond the "aspirational" stage, but that the extra vigilance was necessary regardless.

The Thai army is calling for new elections, disappointing anti-government, royalist protestors hoping for a coup.

The SOFA is widely expected to pass after the Sunni parties in Iraq extracted a major concession; a national referendum on the continued presence of US forces will be held next year, potentially forcing the US out a year earlier than the 2011 deadline in the SOFA.

Martine Aubry's victory in elections for the leadership of the French Socialist Party was confirmed after a recount in which she won by just over 100 votes. Segolene Royal's supporters are crying foul, but the Party leadership has voted to accept Mme. Aubry's victory.

The Palestinian wire service is reporting Libya has sent a ship carrying humanitarian aid to Gaza, in an attempt to break the Israeli blockade of the Gaza Strip.


President Bush is asking mayors and other state officials from around the country to send written formal letters to the EPA detailing how much they do not want carbon emissions to be regulated. The letter warned that any regulation would "effectively stop" all major infrastructure and energy projects. Hopefully, this is one last last hurrah from our famed "world's biggest polluter." Texas Governor Rick Perry joined the chorus vociferously.

BBC News has a much easier to read synopsis of a paper in Monday's edition of PNAS, which discusses ocean acidification and the possibility that acidification as a result of increasing atmospheric CO2 concentrations may be increasing far faster than previously expected.

Slate profiles the car horn, and it reveals that, contrary to expectations, car horns increase the rate of dangerous collisions, as drivers become more complacent and less alert when a horn is available.

Andrew Revkin at DotEarth discusses yesterday's shameful recommendations on the quota for the bluefin tuna catch in the Atlantic.

Readings: Bagehot

"Political economists say that capital sets towards the most profitable trades, and that it rapidly leaves the less profitable and non-paying trades. But in ordinary countries this is a slow process, and some persons who want to have ocular demonstration of abstract truths have been inclined to doubt it because they could not see it. In England, however, the process would be visible enough if you could only see the books of the bill brokers and the bankers. Their bill cases as a rule are full of the bills drawn in the most profitable trades, and caeteris paribus and in comparison empty of those drawn in the less profitable. If the iron trade ceases to be as profitable as usual, less iron is sold; the fewer the sales the fewer the bills; and in consequence the number of iron bills in Lombard Street is diminished. On the other hand, if in consequence of a bad harvest the corn trade becomes on a sudden profitable, immediately 'corn bills' are created in great numbers, and if good are discounted in Lombard Street. Thus English capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level.

"This efficient and instantly-ready organisation gives us an enormous advantage in competition with less advanced countries--less advanced, that is, in this particular respect of credit. In a new trade English capital is instantly at the disposal of persons capable of understanding the new opportunities and of making good use of them. In countries where there is little money to lend, and where that little is lent tardily and reluctantly, enterprising traders are long kept back, because they cannot at once borrow the capital, without which skill and knowledge are useless...

"But in exact proportion to the power of this system is its delicacy I should hardly say too much if I said its danger. Only our familiarity blinds us to the marvellous nature of the system. There never was so much borrowed money collected in the world as is now collected in London. Of the many millions in Lombard Street, infinitely the greater proportion is held by bankers or others on short notice or on demand; that is to say, the owners could ask for it all any day they please: in a panic some of them do ask for some of it. If any large fraction of that money really was demanded, our banking system and our industrial system too would be in great danger."
Walter Bagehot, Lombard Street (1873)

Charts: Income Inequality (3)

Households with income over $250,000 (2006), as a percentage of all households
Total income of households with income over $250,000 (2006), as a percentage of all household income

Tuesday, November 25, 2008

Roundup: November 25


With the total value of the federal government's bailout commitments now well over 50% of GDP, this morning the Federal Reserve and Treasury announced the Term Asset-Backed Securities Loan Facility (TALF), which will lend up to $200bn against asset-backed securities backed by recently originated student, auto, and credit card loans, and loans guaranteed by the SBA. The Treasury will backstop the Fed's lending under the program up to $20bn -- as financial institutions delever, the government levers up (though only 10x) to maintain the flow of cheap credit. The Fed will also directly purchase GSE debt (up to $100bn) and will buy up to $500bn of GSE-backed MBS... through "a series of competitive auctions... by asset managers selected via a competitive process." (Isn't this exactly what Paulson told us last week was too impracticable to be a good use of TARP funds?) At this point, moral outrage is utterly exhausted: it's time to pause in sheer awe at the immense, irreversible, jury-rigged apparatus that our unelected guardians have constructed to keep a "finger in the dike." If this is the finger, what does the flood look like? Markets were initially euphoric on the announcement, but this $800bn injection didn't even last us the day. Obama's press conference didn't provide much reassurance -- although we did get to see the incredible spectacle of an American president badmouthing subsidies for millionaire farmers.

The largest pending buyout deal in the world, the merger of BHP Billiton and Rio Tinto, has been scuttled. Cisco is cutting capacity by shutting operations down in North America for four days.

Moscow widened the trading band on the ruble by 30 kopeks on each end, allowing the ruble to depreciate further and reducing stress on her foreign reserves. Russia's deposit insurance agency has been given $7.2bn by the state to help rescue banks.

American equity investors believe they have it bad, but the liquidity crunch is much worse in emerging stock markets.

US Q3 GDP fell 0.5% (revised), below expectations, with consumption down 3.7% and inventories rising (0.9%). The Federal Reserve has released maps of credit card and mortgage delinquencies for Q2 -- mortgage delinquency rates increased in 74% of US counties in Q2, as delinquencies appear no longer to be heavily localized in a few hard-hit regions. The Case-Shiller home price indices were off sharply in September. Price-to-income and price-to-rent are declining but not yet in line with historical trends.

The FDIC's "troubled banks" list expanded by 46% in Q3.


Salim Hamdan will be released from the prison at Guantanamo Bay and returned to his home country of Yemen seven years after he was captured. His capture brought about the landmark supreme court case carrying his name; though initially accused of having helped to plan operations with Osama Bin Laden, everyone seems now to agree that he was, in fact, just Bin Laden's driver.

Clear pictures of the "mass incident" in Longnan, Gansu, show police beating rioters. Shanghai Scrap says that the limited armament used by the police reveals a policy of restraint -- and the primitive equipment available to the Chinese security forces.

Amnesty International has an excellent briefing on the situation in North Kivu in the DRC, well worth reading for anyone looking for a primer on the major players and recent history of the situation there.

Some prisons in Zimbabwe have begun releasing inmates rather than forcing them to starve. With dealing in foreign exchange illegal -- and even minimum wage earners demanding they be paid in forex, as the economy completely switches to rand and USD -- prices are now being quoted in "fuel coupons," with 1L of fuel standing in for 1 USD.

The defense in the Anna Politkovskaya murder trial is claiming that the murder was ordered by a Russian politician.

Time's China Blog rounds up last week's meetings of Tibetan exiles in Dharamsala.

North Korea is cutting its remaining commercial ties with South Korea ahead of six-party talks on its nuclear weapons programme in China on December 8.


The World Meteorological Organization has announced that concentrations of carbon dioxide, nitrous oxide, and methane reached all-time highs in 2007 in its Greenhouse Gas Bulletin.

The Oil Drum continues its analysis of the 2008 IEA WEO -- it takes a brief look at the picture of coal supply and demand for the next thirty years.

The NYT has a superb interactive graphic comparing the fare price for NYC transit to historical norms and other transit systems across the country.

The corrupt process for determining the annual bluefin tuna catch quota has resulted in a quota vastly higher than scientists recommend, heightening risk that the species will become endangered and leading to calls for a boycott.

London Mayor Boris Johnson wants to implement a municipal bike-share scheme like Paris's Velib.

Readings: Hobson

"To support Imperialism by direct taxation of incomes or property would be impossible. Where any real forms of popular control existed, militarism and wars would be impossible if every citizen was made to realise their cost by payments of hard cash. Imperialism, therefore, makes everywhere for indirect taxation; not chiefly on grounds of convenience, but for purposes of concealment. Or perhaps it would be more just to say that Imperialism takes advantage of the cowardly and foolish preference which the average man everywhere exhibits for being tricked out of his contribution to the public funds, using this common folly for its own purposes. It is seldom possible for any Government, even in the stress of some grave emergency, to impose an income-tax; even a property-tax is commonly evaded in all cases of personal property, and is always unpopular. The case of England is an exception which really proves the rule."
John A. Hobson, Imperialism (1902)

Charts: Income Inequality (2)

Household income limit (upper) by percentile, as a multiple of the upper income limit of the 20th percentile, 1967-2007 (2007 dollars).

Monday, November 24, 2008

Roundup: November 24


The New Yorker profiles Ben Bernanke -- today's must-read. Useful for its background and its personal touch, it holds far too many punches (particularly in the context of the Citigroup bailout announced today; see below), but would be a masterwork just for this little fact it has brought to light: As recently as Labor Day, Bernanke thought his "finger-in-the-dike" policy was working. The lack of planning in evidence in the various bailout plans throughout the past three months seems to have been the direct result of inadequate contingency planning; no one even considered what potential options would be for the Fed and Treasury in a crisis situation, even after the fall of Bear Stearns.

Here are the terms of the Citigroup bailout, and the FDIC's press release. The U.S. Government will inject $20bn over and beyond the $25bn in TARP capital by purchasing preferred shares with an 8% dividend worth 7.8% of the company and will guarantee most losses on $306bn (the Fed's total potential exposure to the debt is $249bn) of its portfolio. The common stock dividend will be limited to $0.01 for three years, and the U.S. government will retain veto rights for any compensation plans to executives. Citigroup CDS fell by half in today's trading. Last week Hank Paulson called the situation in the financial markets "stabilized."

DealBook explains why this "government by deal" only benefits failed banks. Even if moral hazard remains a slogan with no effect, the government's actions today were more of the same: ad hoc, excessively favorable to the guilty party, and carried out with reckless abandon and craven if not zero oversight. Economist's View has the roundup of other criticism from around the world. Some highlights: Paul Krugman calls it "an outrage," Robert Reich asks "What, and ruin a perfect record?" of people who expected anything else from the Citi bailout, James Kwak calls it "Weak, Arbitrary, Incomprehensible." Reich's post from friday on why Citi will be bailed out and not GM is worth a look, as well. A fitting counterpoint to the weak mea culpa from Bernanke in the New Yorker article: Neither he nor Paulson have learnt their lesson.

President-elect Obama reportedly wants a new stimulus plan of as much as $500bn, around three times the amount he proposed while campaigning. Bloomberg estimates the potential cost of pledges already made by the U.S. at a staggering $7.76trn, or one half of U.S. GDP. CDS on U.S. Treasuries, perhaps a silly construction given the idea of an orderly payout in a situation in which the U.S. defaulted on sovereign debt, widened to between 45 and 50 basis points, an unprecedented number for the country.

President-elect Barack Obama announced the key members of his economic team today. Timothy Geithner wil take over at the Treasury, Larry Summers will be the head of the National Economic Council, and Christina Romer as Chair of the Council of Economic Advisers.

Prices of Existing Home Sales fell by the most on record in October, as the median fell 11.3% YoY. Barry Ritholtz explains why this is a good sign.

New York State Comptroller Eric DiNapoli estimates that the state will lose 225,000 financial jobs and over $6bn in annual revenue because of the financial crisis. Real estate prices in Greenwich, Conn. are falling fast.

The Bank of America-Merrill Lynch merger is facing widening deal spreads as some investors argue that BofA is paying too high a price for Merrill under the circumstances.

The NYT has an interactive graphic showing where the bailout money from TARP has gone and where the next batch may go.


Kofi Annan and Jimmy Carter were refused visas to visit Zimbabwe; they are using this as an opportunity to call for intervention and reform in the country. The "Elders" will meet Botswana President Ian Khama, an outspoken critic of Mugabe and the SADC, to discuss the crisis. The MDC is refusing to agree to Mugabe's unilateralism of last week, and the party is insisting that all issues relevant to a unity government, including the allocation of the Ministry of Home Affairs, be on the table when they meet with Zanu-PF this week. Police have barred two MDC rallies from occuring, ostensibly because of the cholera epidemic.

The much-anticipated Venezuelan provincial elections had mixed results; Chavez protected and retained most of his power base, but the opposition won three of the most populous regions. The elections went smoothly and there were no signs of irregularities; Chavez hailed it as a sign of the health of democracy in Venezuela.

Gazprom may file suit over Ukrainian unpaid gas debts; it has threatened also to shut off Ukrainian gas exports, unless a new contract is negotiated and signed posthaste. Gazprom offered to more than double the price of gas paid by Ukraine in its last offer. Russia has denied that it organized the attack on the motorcade of the Presidents of Georgia and Poland; Saakashvilli has claimed that no one can doubt who started the war in South Ossetia after this event.

Donald Rumsfeld's Op-Ed
from Saturday's NYT is priceless; rarely are duplicity and mendacity so well documented. Far from being responsible for the historic mismanagement and underestimation of the first years of the Iraq war, we see that it was Rumsfeld's genius that created the preconditions for a successful surge. We think he is absolutely right.

Segolene Royal, the last Socialist candidate for President, was ousted from party leadership by Martine Aubry, mayor of Lille and the driving force behind the 35 hour workweek. The disorder in the Socialist Party recalls the Democrats of 2004, as the party

SWJ Blog reposts a recent interview with retired Colonel Peter R. Mansoor, former executive officer to General Petraeus and a founding director of COIN, a fascinating read for those interested in counterinsurgency. In the same Saturday Op-Ed as Rumsfeld (above) Mansoor wrote on how the U.S. might withdraw from Iraq without leaving a disaster. Ahmad Chalabi says "Thanks, but you can go now." The Marines may send as many as 15,000 more troops to Afghanistan.

A new obstacle has presented itself to the passage of the SOFA in Iraq, necessary for U.S. troops to remain past the New Year: Iraqi lawmakers want her oil wealth shielded from lawsuits and claims against Saddam Hussein's regime.


The latest edition of Greenpeace's Guide to Greener Electronics has been published with no real surprises.

Climatic Change publishes a paper estimating the potential carbon-offsets achievable by increasing the albedo of urban surfaces like roofs and pavement; it estimates potential savings of 44GT CO2/yr with a net albedo increase of 0.1 across the world's entire eligible urban area. A strong argument for white roofs in building codes.

New Zealand foresters are crying foul after the Emissions Trading Scheme was scuttled, eliminating a major source of potential revenue from the sale of carbon offsets.

Readings: Anonymous (1)

"We all had the feeling it could come apart in quite a serious way. As I saw it, it was a choice between Britain remaining in the liberal financial system of the West as opposed to a radical change of course because we were concerned about Tony Benn precipitating a policy decision by Britain to turn its back on the IMF. I think if that had happened the whole system would have begun to come apart. God knows what Italy might have done; then France might have taken a radical change in the same direction. It would not only have had consequences for economic recovery, it would have had great political consequences. So we tended to see it in cosmic terms."

US State Department official recalling UK negotiations with the IMF in 1976, quoted in Sunday Times, May, 21, 1978.

Friday, November 21, 2008

Readings: Viner

"But the 'postulates' of the classical political economy, while restricted and scanty enough, were not as hypothetical or 'assumed' as was supposed by the economists who formulated them. The psychology of the 'economic man,' faulty and unsatisfactory as it was, in the one characteristic essential to the economist above all others was not nearly as remote from reality as his creators supposed. In fact it may almost be said that the 'economic man' was an actual Englishman of the commercial world, the description of whose behavior was correctly obtained by inductive inference from observation, but marred and distorted by faulty deductions from an inaccurate introspective, speculative psychology, in an attempt to obtain a rational explanation of the motivation of his behavior. In his commercial activity, with which the economist is primarily concerned, man is thoroughly economic. As economists we are concerned with his ends and not with his motives. His motives may be numerous enough and complex enough to merit the abstractions of the old economists, but in his ends he is simple enough for inductive investigation. The bottle of medicine for a dying child, or of wine for himself; the tools for his trade; the supplies for a home for the aged, bought as a contribution to the home from a future inmate -- all are bought with the same end of getting the most for the least, whatever the motive for the purchase may be. Nor in asserting that the ordinary individual, in his economic activity, of his possible alternatives follows the one he most desires to follow—which is all the economist need assert -- do we preclude ourselves from the admission that a laborer will not necessarily seek the higher wage if it involves the harder work or the longer day."
Jacob Viner, "Some Problems of Logical Method in Political Economy" (1917)

Charts: Income Inequality (1)

Household income limits (upper) by percentile, 1967-2007, in 2007 dollars.

Thursday, November 20, 2008

Roundup: November 20


Hank Paulson gave a "legacy" style speech today at the Reagan Library -- his longest and most complete defense of the administration's actions to date and his advice for his successors. Treasury today said it would backstop $5.6bn of money-market securities held by The Reserve's busted funds. GMAC has filed an application to become a bank holding company in order to benefit from the TARP. EconomPic highlights a particularly egregious use of TARP funds to pay for a golden parachute. Economix has an infographic tracking all the TARP spending so far.

The Swiss National Bank has cut its target rates 100bp in an unscheduled move, to "provide the Swiss franc money market with a generous and flexible supply of liquidity in order to bring the Libor down to the middle of the target range." The SNB is anticipating inflation below 2% as early as the end of the year. Google Trends seems to show that worries about deflation are growing.

Rumors of a bipartisan agreement on an auto bailout have been floating around all afternoon. The latest word is that nothing is likely to happen during the lame duck.

Credit indicators imply we are set for the worst period of defaults on investment-grade corporate bonds "since at least 1980."

Deutsche Bank is to cut 900 jobs. Chemicals producer BASF will cut output by 25% and cut hours for 20k employees. Catherine Rampell has a nice survey of the forces that will determine how many jobs are lost by a Big Three failure.

Russian foreign reserves dropped by $21.9bn to $435.5bn in the week of November 14, indicating more capital flight followed last week's devaluation of the currency. About 45% of reserves are held in USD, about 44% in EUR, about 10% in GBP, and the rest in JPY. The Russian stock markets were shut down today for the 35th time since the beginning of August, with Sberbank trading down 13%.

The IMF has approved its bailout package for Iceland. Britain is likely to break the Maastricht fiscal limits.

Sarkozy is punting a EUR6bn French sovereign wealth fund to be funded by the state and the Caisse des Depots to protect "national champions." Kavaljit Singh says it's a bad idea, founded on a baseless European paranoia about Middle Eastern and Asian sovereign wealth funds. (Sarkozy has also said he will hold his own economic summit.)

The largest UK mortgage securitization trust has had its first trigger event and will no longer pay its owner, raising the possibility that the trust as a whole might liquidate or restructure.

Markus Brunnermeier has an awesome chart showing the progress of the financial crisis so far through key interest rate spreads.

A new paper proposes another channel by which low short-term interest rates were transmitted to housing asset prices: pushing short-term rates down relative to 30-year mortgages made ARMs more attractive. Another asks if big bonuses lead to worse performance.

Grand Canyon, a Christian university, was the first US IPO in more than three months ($126mn offering) -- the last two IPOs to price, on August 11, were SPACs.

The Philly Fed manufacturing index showed its lowest level since October 1990. Initial jobless claims hit their highest levels today since July 1992. Japanese export volume declined 6.1% YoY in October, the largest decline since December 2001.

Auctions are failing -- for truffles.


Yin Weimin, China's minister for human resources and social security, described the unemployment problem as "critical" today.
The China Media Project looks at coverage of the mass incident in Gansu and concludes that China's new media control tactic -- of covering breaking news as it occurs, and publicly, rather than trying to suppress or downplay it -- is working, with Xinhua and other official accounts dominating worldwide coverage of the events, and international media captive to CCP spin.
Reports of violence by "urban management" (chengguan) officials are spreading.

The IAEA says that Iran is building its stockpile of enriched uranium and Syria may be building a nuclear reactor.

Fisticuffs erupted on the floor of the Iraqi parliament yesterday after Moqtada al-Sadr's supporters called for the parliament to reject the draft agreement on the state of US forces in Iraq. Sadrists attempted to drown out the second reading of the agreement today.

It appears that an American drone aircraft fired missiles for the first time outside of the northwestern tribal areas of Pakistan. The US ambassador has been summoned, and Pakistani generals are making impassioned pleas for cooperation instead of unilateralism.

Yet another round of talks has been scheduled between Zanu-PF and the MDC, to take place next week in South Africa. However, Zanu-PF has unilaterally drafted a constitutional amendment to put in place the mendacious SADC recommendations and sent it to Thabo Mbeki for approval. The MDC takes it as yet another sign of the insincerity of the Zanu-PF in these negotiations. South Africa is cutting $25mn in aid to help the process along.

Arizona governor Janet Napolitano is likely to be Obama's Secretary of Homeland Security; Penny Pritzker is being punted for Commerce Secretary.

US health insurers announced they would accept all applicants for insurance provided that the US mandate its citizens purchase health insurance. Where this scheme would be superior to proper socialized health care is another question.

Federal Judge Richard Leon has ordered five Algerian detainees at Guantanamo to be released immediately after habeas hearings found that their detention was justified for intelligence but was not enough to try them.

Red Sea nations are meeting to address Somali piracy after pirates reportedly demanded $25mn in ransom for the supertanker captured Saturday.

Iranian blogger Hossein Derakhshan -- a supporter of Ahmedinejad's regime -- has been arrested in Iran because he attended a blog conference in Israel.

South Korean activists are launching balloons filled with propaganda leaflets into the North.

World Politics Review says the Israeli elections will come down to a clash of personalities between Netanyahu and Tzipi Livni.

What do challenged ballots actually look like? Minnesota Public Radio publishes some examples showing the amazing diversity of things voters do other than fill in ovals.


The Oil Drum continues its superlative series of posts reviewing the International Energy Agency's 2008 World Energy Outlook by looking at the estimates for the world's total oil production potential. They say the IEA relies too heavily on inflated estimates of reserves, predicted new discoveries, and technical change -- "but at least now we have some numbers we can discuss and analyze instead of a decade of blind faith in oil market economics."

The Conservative government in Canada has called for it and the U.S. to cooperate on a North American cap-and-trade plan. The difficulties of negotiating such a pact are manifold, not least of which is the baselining issue. Canada will exceed its Kyoto goals by the largest margin of any signatory, largely because of tar sands development that the government has promoted despite all objections over the past fifteen years.

Brazil will implement restrictions on the deforestation of the Amazon rainforest so that rainforest will not be cut down for sugarcane crops destined to become biofuels. These new zoning restrictions will also allow for the growth of acreage in sugarcane cultivation without putting pressure on land currently being used to grow food crops.

The USGBC has released a survey of the cost efficiency of green buildings in the LEED program; the median cost increase was 1.6%, and the mean fell at 2.5% for energy savings that averaged 33% annually, among other benefits (erosion control, alternative transportation, use of recycled materials, etc.). Across the board, the payback on this premium took between five and eight years to meet the upfront cost increase. With numbers like these, it is shameful that building codes across the country and world are not being rapidly updated.

A report in Nature Climate Change estimates US methane emissions at four times their official level, using ethane as a tracker of methane concentrations. Another report in the same issue points out the difficulty of measuring the lifetime of GHGs in the atmosphere; through reemission, knock-on effects, and the various uptake methods, human emissions of CO2 can remain effective for thousands of years, not the 5-200 reported the IPCC AR4.

EU farming ministers have agreed to changes in the Common Agricultural Policy, including liberalizing the European dairy market and transferring subsidies from production to conservation.

San Francisco has unveiled a variable pricing scheme for public parking to reduce car traffic during peak hours and increase the number of available spots.

The USDA will allow farmed fish to be labeled "organic" as long as 75% or more of their feed is organic; weak, industry-led regulations like these can undermine consumer confidence in labeling regulations. See "natural."

Charts: Jobless Claims

Seasonally adjusted initial and continuing jobless claims for the weeks ending November 19, 1988 - November 15, 2008

Readings: Keynes (4)

"What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice."
John Maynard Keynes, The Economic Consequences of the Peace (1919)

Wednesday, November 19, 2008

Roundup: November 19


The automakers are now pitching their bailout as a "bridge loan." Joshua Rauh and Luigi Zingales suggest Chapter 11 with debtor-in-possession financing is the way forwards. Senator Shelby from Alabama added his voice to the calls for the ouster of senior management at the Big Three if they receive federal aid.

The Japanese have suggested that the US issue yen-denominated debt. Steen Jakobsen of Saxobank suggest that the renminbi could ultimately be a hard currency in its own right. Taiwan is to distribute $100 per capita in shopping coupons as an attempt at fiscal stimulus.

Cars and corrugated cardboard are piling up in Long Beach as inventories rise and demand falls. Eco89 maps French factory closings. Major condo projects in North America may be halted as credit conditions worsen; two major commercial mortgages were reported close to default yesterday.

Kommersant reports Russian prosecutors are looking into media coverage of banks in order to combat "information attacks." The World Bank says the ruble will likely be devalued further. The regular stops in trading on MICEX, another one today, are scaring investors to London and threaten the structure of the Russian financial markest.

The SEC and the Federal Reserve Bank of New York are considering requiring banks and insurers to disclose information on bespoke CDS.

Pessimistic Bank of England minutes show that November's 150bp rate cut was unanimous and that the Monetary Policy Committee considered an even deeper cut.

US housing starts were at their all-time lows in October. Calculated Risk points out the AIA Architecture Billings Index is at its all time low. CPI was down by 1% in October, the largest decline in 61 years, since publication of seasonally-adjusted changes in CPI began, led by energy prices. Delinquency rates are rising, with American Express reporting defaults up over 6%.

Accrued Interest points out that levered hedge funds were often the marginal buyer in fixed income markets -- dislocations in those markets are likely to take longer to equilibrate without hedge money.

Sumitomo Mitsui may raise JPY400bn by selling preferreds, Bloomberg reports. Mitsubishi UFJ has confirmed plans to sell shares. Hong Kong markets interpreted Bank of America's exercise of its call option on over 8% of China Construction Bank as a preliminary step for it to sell some of its existing 10.75% stake.

Does anyone know who controls AIG?


Reports of a mass incident in Gansu are spreading -- some thousands of residents are said to have rioted outside a Communist Party office. Taxi drivers in Shenzhen and Chongqing have been on strike this week. China Beat looks at changes in official coverage of mass incidents.

Ted Stevens lost his Alaska Senate seat on his 85th birthday. Elsewhere in hubris: NY Attorney General Andrew Cuomo has reportedly invited Wall Street executives whose bonuses he is attacking to his multi-thousand-dollar-a-plate birthday dinner-cum-fundraiser.

The FT reports that Obama is in negotiations with Robert Gates to keep him on as Secretary of Defense into his first presidential term. Rumor has it that Eric Holder is the likely Obama administration Attorney General appointee and Peter Orszag is the likely Office of Management and Budget director. (Orszag writes a blog in his current position as director of the Congressional Budget Office.) Tom Daschle is to be Secretary of Health and Human Services.

President Medvedev has publicly acknowledged the scale of the economic crisis facing his country, and he has pledged a minimum of $186bn in various efforts to support the economy. In an overlooked statement, he also reiterated his commitment not to resort to protectionist measures, as promised at hte G-20 summit, contradicting Putin's remarks earlier this week that the auto industry could still be supported by tariffs. Micex again suspended trading for an hour today. The World Bank issued grim predictions for Russia in 2009. Separately, the Anna Politkovskaya murder trial will, in fact, be closed to the public, on the pretense that jury members were made uneasy by the presence of the press.

Zimbabwe's cholera epidemic has begun to spread over the border into South Africa, with four confirmed dead and 72 infected. Elsewhere, five senior members of Zanu-PF have left the party to reform the dormant Zapu party, which merged with Zanu-PF in the 1990s. Doctors and nurses were violently beaten by police in a march in Harare protesting the collapse of the medical system.

Somali pirates seized a Hong Kong-flag container ship carrying thousands of tons of wheat in the Gulf of Aden.

Small Wars Journal has an unclassified version of the ISAF (International Security Assistance Force, the military force in Afghanistan) campaign plan for future operations. A very interesting read.


U.S. Fuel demand fell by over 5% in the first ten months of the year, the largest drop since 1981.

China Daily announced yesterday that a Chinese fuel tax of as much as 25% is in the works and can be expected shortly.

The Governors of California, Illinois, and Wisconsin signed a pact with the Indonesian province of Aceh to regularize the purchase of carbon credits by these states to prevent deforestation in the Indonesian rainforest. Transactions of the VERs (Verified Emissions Reductions) currently take place on a bilateral basis across the world, but a new scheme to integrate the enforcement of these reductions and their eligibility for carbon-reductions across the world must come soon, according to a lobby of 40 rainforested nations.

The new USGBC LEED-NC rules for 2009 have been largely determined, and they bring a necessary and much-welcomed new focus on energy use. Previously energy-related credits accounted for 17% of the total available; now they will account for 25%.

The EPA has issued a rules proposal for large construction sites, who would be required to implement a construction runoff management system to reduce the impact of construction waste on water quality across the nation.

The USDA has issued draft rules that would require cows that give milk labeled as organic spend 120 days on pasture.

WalMart has given $250,000 to an oversight body in Texas to work on the restoration of the Colorado River watershed as part of its plan to offset its impact on the world.

Daewoo Logistics has signed a deal to farm in Madagascar -- an area about half the size of Belgium -- for 99 years to grow corn and palm oil for South Korea. Daewoo says it expects not to pay for the deal but says Madagascar may see spillover benefits from the project.

What happens to big box buildings after the stores inside shut down and leave town?

Readings: Weber

"It is not the rentier, the shareholder, and the banker who suffer the ill will of the worker, but almost exclusively the manufacturer and the business executives who are the direct opponents of workers in wage conflicts. This is so in spite of the fact that it is precisely the cash boxes of the rentier, the shareholder, and the banker into which the more or less unearned gains flow, rather than into the pockets of the manufacturers or of the business executives."
Max Weber, Economy and Society (1922)

Charts: Oct Housing Starts

Seasonally adjusted annualized housing starts (in thousands), monthly, Jan 1959-Oct 2008. Housing starts were at their all time lows in October.

Tuesday, November 18, 2008

Roundup: November 18


"There is no playbook for responding to turmoil we have never faced," Hank Paulson writes in an editorial in the NYT defending his actions so far. He and Bernanke testified today before Congress. Steven Davidoff takes a skeptical look at the first draft of an auto bailout bill.

China Eastern Airlines and China Southern Airlines, two of the country's three largest state-run carriers, have applied for emergency government subsidies. Bank of America will exercise its option to buy another 8.35% of China Construction Bank. GM is to sell its 3% stake in Suzuki in order to raise cash for operations; Ford is to sell its stake in Mazda. Russian steelmaker Severstal has suspended an $8bn capex program. Home Depot says it may see sales down 8% for the year. Lowe’s, the second largest US home improvement retailer, reported Q3 earnings down 24%. Target reported Q3 earnings down 24 and said the profitability of its credit card business fell 83% on bad debt charges.

Trading was halted again today on the RTS. The Telegraph comments that ordinary Russians are still almost completely unaware of the economic troubles the country faces.

Goldman is forecasting that US GDP could drop as much as 7.8% in Q4 in a worst case. UK rents fell in Q3.

UBS is following in Goldman's steps, and will not pay bonuses to 12 top executives this year. The Swiss bank is also considering both clawing back bonuses already paid in past years to executives and making future bonus payments conditional on the long-term performance of the bank.

Economix punts a new Gallup survey measuring perceptions that companies are hiring and firing. And separately, asks how many jobs would actually be lost if the Big Three were allowed to fail.

Dylan Ratigan says put limits on the maximum size of corporations and encourage short-selling in order to prevent another crisis like this one.

Chuck Grassley is asking the inspector-general of the Treasury to look into the possibility that former Goldman employees at Treasury have enacted policies that preferentially benefit their friends.

Home sales in Southern California were at their highs of the year in October, buoyed by sales in foreclosure. The homebuilders' confidence index is at a record low.


The NYT looks at the decisions over domestic spying which Obama must make in the first months of his presidency, a key test of positions he held as a Senator.

A WSJ Europe editorial foots the idea of international trusteeship for Abkhazia as a way out of the Georgia morass that doesn't reward Russian military action. Amnesty International says both sides to the Georgia conflict are obstructing the investigation of war crimes allegations and international monitors need to be allowed into the border region.

As the incredible record of corruption under US occupation comes to light, the Iraqi government of Nouri al-Maliki is quietly firing oversight officers. Ali Larijani, the speaker of the Iranian Majlis, has urged Iraqi politicians to oppose the agreement on the state of US forces in Iraq.

Martin Fletcher writes in the Times on how misguided US policy paradoxically strengthened and radicalized Islamists in Somalia and has helped lead to today's lawlessness.

Colombia has declared a state of emergency after riots broke out over large-scale Ponzi schemes.

The criminal trial in the murder of Anna Politkovskaya will be open to the public -- for whatever that's worth.


President-elect Barack Obama gave a surprise video presentation at the Global Climate Summit; his remarks anticipate the passage of a U.S. cap-and-trade scheme and a large U.S. role at the Posnan talks for a successor to the Kyoto Protocol. These are hopeful signs for the future of U.S. and world climate policy.

California Governor Schwarzenegger issued an executive order raising the goal for California's Renewable Portfolio Standard (RPS) to 33% by 2020. The RPS refers to the percentage of the energy mix for electricity generation that comes from renewables. Green Car Congress has the details.

The Oil Drum continues its fascinating in-depth study of the 2008 International Energy Agency World Energy Outlook by looking at the analysis of Saudi Arabia's hydrocarbon resources. Assumptions within the report are questionable, and some of the supporting research has been shown to be false. The take-home lesson is this: Be skeptical of reported results in the energy and climate fields unless you have done or read a detailed analysis of the methodology, data, and assumptions.

GE shipped its 10,000th 1.5MW wind turbine yesterday, a milestone for a company that only entered the wind turbine market six years ago. EcoGeek has an interesting and worthwhile interview with the VP of Renewables at GE that goes through some of their experience and plans in the wind turbine market in the last six years.

Robert Amsterdam says Europe may be less dependent on Russian gas than the conventional wisdom has it.

As much as 1/3 of Mars's surface area may have once been underwater.

Secretary Paulson's enabling act (9)

The Bush administration says it won't ask for the rest of the $700bn TARP moneys; says Hank Paulson, "I want to preserve the firepower, the flexibility we have now and those that come after us will have."

The Republican strategy on the TARP so far has been clever: first, make sure as few Republicans as possible voted for the bill (while still guaranteeing its passage), so that Congressmen in contested districts could make a show of opposing it -- a strategy which worked so well that it forced a second vote on the bill and put Nancy Pelosi and Harry Reid in the very public and unfortunate position of shilling for an ill-conceived plan out of Bush's treasury.

Now that blame for the largest expansion of government in American history can be shared with the party traditionally considered to be in favor of big government -- and facing an incredible temptation to use funds that have "already" been appropriated in order to bail out its core constituencies (like auto workers). An Obama Treasury will be put in the position of demanding the next $350bn, and will be showered with blame when it is misspent -- key Republicans, like Richard Shelby, are already setting themselves up to be stringent critics (and rightfully so) of the TARP, in a move that elides the origins of the program.

Meanwhile Paulson as much as admits there was never any possibility the TARP -- $700bn of leeway for Treasury to selectively capitalize American corporations, with no oversight -- would be used in the way he told Congress it would be. The emergency operation needed to inject liquidity into illiquid markets -- remember that Congressmen were threatened with the spectre of martial law to get them behind the bill -- is just the biggest slush fund in history:
A troubled-asset purchase program, to be effective, would require a huge commitment of money. In mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. But half of that sum, in a worse economy, simply isn’t enough firepower.

If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract. We decided it was prudent to reserve our TARP money, maintaining not only our flexibility, but also that of the next administration.
Paulson's future is secure: every banker in the country owes him one. Is what he leaves behind enough money to address a critical economic situation, the right tools for the right job in the right hands? Or is it "simply not enough firepower"? Is it a huge cock-up for which no one will ever be held accountable? Or a poison pill for Obama's economic policy?

Readings: Altgeld

"We have had thirty years of colorless politics in which both of the political parties were simply conveniences for organized greed. There was nothing to arouse the deep, slumbering patriotism of the masses and a race of politicians came to the front, most of whom had no convictions and many of whom straddled every proposition and then waited to be seduced. They were men who made every promise to the laborer, and then betrayed him. These men became the instruments through which the corporations worked."
John Peter Altgeld, "On Municipal and Government Ownership" (September 5, 1897)

Charts: US Producer Price Index (Oct 2008)

US Producer Price Index for October 2008. Reports of deflation may be exaggerated as yet -- it's clear from this chart that energy goods led the price decline (prices paid for crude oil were down 26% after falling 9% in September). Gasoline prices dropped 24.9%; intermediate energy goods fell too, with diesel down 16.4%, following a 6.4% decrease in September, and primary basic organic chemicals prices were down 20.8% after moving down 7.4% in September.

Monday, November 17, 2008

Roundup: November 17


The G20 statement is out. It is hardly a "new Bretton Woods" (and the markets don't seem to care). David Zaring at Conglomerate says international regulation tends to evolve in stages, and this is a step along the way. A Paribas analyst calls it a "poor effort."

Japan is officially in recession, after GDP fell in Q3 for the second quarter in a row. FT Alphaville asks if the Chinese fiscal stimulus will be good for Japanese exports. Meanwhile, the elderly in Japan turn to petty crime to make ends meet.

Willem Buiter says that sterling weakness is close to crossing the line between correction and dislocation, and that fiscal stimulus in the UK risks provoking a run on the pound. Not shrinking from extremism in the service of virtue, he says the UK should press for EMU membership at the earliest possible date and put its nationalized banks into special receivership before their default forces a sovereign default. Steps towards EMU would give the Monetary Policy Committee the credibility it needs to defend a currency peg: as it stands, does anyone believe an independent monetary authority will put rates up where they would need to be to stave off a speculative attack? Meanwhile, France is likely to break its fiscal constraints this year.

Insurers Hartford Financial, Genworth Financial, Lincoln National, and Aegon have bought banks in order to be eligible for the TARP. San Jose -- the city of -- has asked for $14bn from the TARP. Too bad they weren't clever enough to buy an S&L before Friday's deadline so they, too, could be federally regulated. South Carolina's governor argues against bailouts in the opinion pages of the WSJ.

Citigroup is cutting 50k jobs (Vikram Pandit encourages his employees to be optimistic). The Telegraph says JPMorgan may cut about 10% of its workforce. The top seven executives at Goldman have waived their 2008 bonuses (FT Lombard says it's an important signal to the rest of the workforce) -- NY attorney general Andrew Cuomo has asked Citigroup to follow suit, presumably because making his political career is more important than keeping his constituents in funds. Mass layoffs are on the rise.

Organizations and Markets asks if any economically literate person would support the bailout of the auto companies. Becker says it would be a bad idea to bail out the Big Three. Posner offers his usual mealy-mouthed comment. Jonathan Cohn is the devil's (UAW's) advocate in The New Republic. Michelle Harner at Conglomerate says the most reasonable objections to a chapter 11 filing for GM -- even one "prepackaged," or largely negotiated in advance" -- are based on the effects a bankrupt company would have on its consumers and suppliers. Jeff Sachs argues now is the chance for a new era of US leadership in autos (seriously?) -- and a bailout is the opportunity to seize it. He calls it a "public-private partnership." Wesley Clark says a bailout is fundamentally a question of national security -- without a military-industrial complex, where would America be? The Times warns that GM and Ford may be too big -- in Britain and Europe -- to fail, with large operations and many of their suppliers in the EU. Larry Ribstein says we would be better off burning the money (or building mass transit). Did we mention the ransom note?

Iceland says it has reached a preliminary deal with Britain and other European countries over compensation for foreign savers whose accounts were frozen by the collapse of Landesbank, recognizing that it is obliged to guarantee the first EUR20k of accountholders' deposits -- but the country doesn't have forex with which to pay those guarantees. Icelanders are protesting the delay in an agreement, which has stalled the IMF-led bailout of the country. Meanwhile, Pakistan's $7.6bn deal has gone through. Trading was halted again on Russia's stock exchanges today after precipitous falls and ruble devaluation.

The Reserve Bank of India has more than doubled the funds it makes available to banks for refinancing export credit and has expanded its forex swap facilities. A summary of the RBI's liquidity operations -- useful as a reminder of the impact of the crisis on the rest of the world -- is here. The World Bank's Crisis Talk blog looks at early indicators of crisis that are better predictors than stock market prices.

Mankiw is adjusting his textbook to be more "topical." We've heard anecdotes of professors at Columbia throwing aside their entire curriculum in (rather more intellectually honest) despair at the contradiction of decades of theory by everyday developments.

Goldman is being accused by clients of shorting LBO debt naked against them.

US October industrial production rose 1.3% - more than expected -- after a 3.7% drop in September, when hurricanes forced closures. The Empire State manufacturing survey had its record low reading in November, with new orders and shipments at their lowest historical levels and employment and inventories at their worst levels since the end of 2001. Respondents are reporting tightening credit availability and unusually low cash balances. Boat owners are abandoning their vessels.

China may legalize some forms of private lending, as the stressed banking sector cuts back on loans.

Micex suspended trading again for an hour as prices dropped precipitously amid bad oil news and a depreciating ruble. Medvedev also signed a pledge at the G20 not to increase tariffs for the next year, despite an earlier call for restrictive tariffs on Russian imports to support domestic industry.

The NYT's piece on Phil Gramm, who played a major role in the deregulation of the banking sector as a member of the Senate, is worthwhile.

James Surowiecki warns that a more efficient international food market may also be more vulnerable to shocks.

Dilbert explains the mystery of equity valuation.


Hillary Clinton is being seriously vetted as a candidate for Seceretary of State. Kissinger said it would be an "outstanding appointment." Stanley Fish casts doubts on Larry Summers's people skills and gives the clearest account of his failure at Harvard we've seen. Martha Nussbaum weighs in on the fiasco growing around Obama's employment of Sonal Shah, whose parents are linked to hardline Hindu nationalist organizations in India.

The Washington Post reports the US and Pakistan reached tacit agreement in September on US drone attacks on Pakistani soil -- saying the countries agreed the US would refuse publicly to acknowledge the strikes while the Pakistani government loudly denounced them.

The Iraqi cabinet has approved a draft agreement between the US and Iraq on the status of US forces in Iraq. The agreement will have US troops withdrawing at the end of 2011, and will require US forces to seek warrants from Iraqi courts for arrests.

China National Petroleum Corporation has stated that petroleum demand is dropping "sharply" and stockpiles of crude are increasing steadily. It does not bode well for the short-term price of oil, and so we may see further damage in Iran, Russia, and other countries whose budgets rely on a minimum price point for oil.

Somali pirates have hijacked a Saudi Aramco oil tanker in the Gulf of Aden. Shipping is beginning to be rerouted around the Cape of Good Hope to avoid the risk of piracy off the Somali coast -- potentially increasing the cost of worldwide shipping at a time of great stress for global trade. IRIN reports the Transitional Federal Government in Somalia may be on the brink of collapse.

Morgan Tsvangirai skipped the MDC's post-mortem on the disastrous SADC talks and now appears to be in France negotiating with European leaders. We hope this is a sign that the broader international community may at last take a role in the Zimbabwean conflict, but fear what the meddling and foolish Sarkozy may come up with. The MDC says it will not join a government in Zimbabwe formed unilaterally and illegitimately by Robert Mugabe's Zanu-PF. The Zimbabwe Independent polemicizes against the SADC, and it is exactly right. Meanwhile, deaths from the national cholera epidemic are being grossly understated in official figures.

The WSJ editorializes against the EU's decision to resume negotiations with Russia even though Russia has failed to meet preconditions concerning the withdrawal of forces from South Ossetia. Poland and Lithuania are rightfully furious, but Sarkozy and Barroso (the president of the EC) are scolding these member states in a fit of pique. It all recalls the failed EU Constitution bid, in which the contempt of the governing body for its member states shone through all too clear.

Medvedev is backing off on his missile deployment threats, instead calling for the U.S. to join a summit on European security, after Sarkozy exerted pressure on the Russian President. Much of the rest of Europe is furious at Sarkozy's unilateralism, as several foreign ministers argue that he has no authority to make such public appeals.

The FT reports Beijing may build an aircraft carrier but senior officials say it would be used only for offshore defense.

How has the internet changed the media management of crisis in China?

Edward Lucas writes his impressions of Estonia.

A six-day meeting of exile Tibetan leaders begins today in Dharamsala.


Kyoto Protocol nations are on track, barely, to meet their goals of a net 5% reduction in CO2e emissions below 1990 levels annually averaged over 2008-2012. However, this is largely because of the economic turmoil that crushed industrial output and GDP in Eastern Europe after the fall of the USSR, and should not be taken as too hopeful a sign. Developed economies in the Protocol have increased their emissions from 1990, and developing Eastern European nations have increased their emissions at a high rate since 2000.

Nature's climate change blog presents an overview of carbon dioxide turmoil at the EPA facing the incoming Obama administration: crucial pending issues include Thursday's ruling that Utah's Bonanza Coal power plant must be put on hold because of inadequate CO2 controls, which contradicts previous Steven Johnson EPA rulings on the Clean Air Act, and new lawsuits invoking the Clean Water Act to defend the oceans from destructive acidification at the hands of atmospheric CO2.

Senator Binghaman has urged Congress and the nation to reconsider overly complex cap-and-trade legislation, arguing that carbon regulation need not be comprehensively covered in one massive omnibus. He also makes sensible proposals about the form carbon regulation should take in the U.S. to ensure its efficacy.

EU airlines have urged the EC to pass so-called "Single Sky" reforms before airlines join the ETS in 2012. These reforms would unify air traffic regulation across the member states, and it would be a useful step both to reduce compliance costs and to ensure a fair and uniform appliction of the ETS across all parties.

Seventh Generation, the U.S. market leader in sustainable home products like detergent, dishwasher soap, and paper towels, has entered into a pilot partnership with Wal-Mart, whose entreaties Seventh Generation had shunned for years. The CEO of Seventh Generation cited WalMart's environmental progress as justification, and it is a mark of how far some sectors of the environmental movement have matured that one of its brightest stars can move beyond a short-sighted and counterproductive manichaeism to partner with the retail giant. This is no endorsement of WalMart's labor policies, but a strong move toward the recognition that moralizing is not sufficient to change the world.

More news on the BPA front; although this study is not rigorous, the issue it points to is real. Claims like "microwave-safe" are almost entirely unregulated, yet it is well known that the rate of seepage of additives and degenerate byproducts of plastics increases drastically with temperature. This risk to the public health has been ignored for too long.

Governor Schwarzenegger has issued an executive order initiating preparations to evaluate the risks to California from sea-level rise and climate change. Green Car Congress has excellent commentary.

European Commissions responsible for the health of the threatened Mediterranean bluefin tuna fishery have been witholding important data about the damage done to the fishery in advance of meetings to decide next year's quotas.

The EPA may revisit its ruling that perchlorate, an additive in rocket fuel, need not be regulated according to the Clean Water Act.

The Japanese whaling fleet has set sail for its Antarctic fishing grounds.

Action plans (1)

This weekend's G20 meeting has produced a surprisingly long statement which departs somewhat from the usual anodyne assurances. Whether its bullet points and action plan will actually lead to any real coordinated efforts is anyone's guess, but it's hard to see much progress on any of these fronts being made before Obama is sworn in and the EU Presidency rotates.

Root causes?

Quasi-illiterate and question-begging, the statement's language on the root causes of the present crisis leaves much to be desired.
During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.
From thirty thousand feet, the crisis is an "excess" created by a few market participants out of conditions of "prolonged stability" -- an anomaly, an outlier. Regulators failed to "keep pace" (it wasn't that they were incapable of doing so). Market participants sought higher yields (it wasn't that they were compelled to do so). The Pyrrhonism that has come to be associated with Nicholas Taleb -- the idea that the crisis was a "black swan" which no one could have anticipated, a reminder perhaps of eternal human frailty and the limits of cognition, but one without any more determinate consequences -- and the pensée unique reveal a hidden filiation: absent from either is any sense of structure.

In this world of mere phenomena, nothing concrete can be named. So "unsustainable global macroeconomic outcomes" -- but not the great actually existing polarities structuring the international economic system, the US as debtor of last resort and currency hegemon, the Chinese willingness to lend -- and inability to do otherwise. Nor the national policies in the advanced industrial countries which, whether nominally driven by the state (Britain, France) or the private sector (US), or transparently a result of rent-extraction (Norway), prop the standard of living of white people far above the global average in a futile attempt to postpone the equilibration of the most important economic disparity of our century, the vast concentration of capital in a few countries and labor in the rest.

Throw more money at it

On the way up, financialization is a necessary, virtuous symptom of industrial growth -- indeed, our great thinkers held not so very long ago, finance and other tertiary or even "quaternary" sector activities can replace manufacturing and agriculture as the roots of national wealth (thus the disastrous specialization of cities like London and New York in catering to the whims of transnational elites). On the way down, monetary disintermediation and debt deflation are perverse, unintended, unnecessary, and to be halted at all costs. Money and finance as essential social functions when they yield rents for politicians; as inessential mere appearances when they inconveniently refuse to extend more credit to the bankrupt.

Which is when government steps in.
* Recognize the importance of monetary policy support, as deemed appropriate to domestic conditions.
* Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability.
* Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund's (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility.
The ongoing coordinated bailout is likely the largest single government intervention in economic affairs in history. No surprise that it's likely to continue until either markets yield before it (certainly possible) or a genuine catastrophe ensues (sterling crisis, a sustained run on the dollar, sovereign debt crisis of an EMU member, revolution in China).

In the mean time, the temptations of beggar-thy-neighbor policies will only grow. Here that will mean fiscal stimulus that supports national champions -- like automakers -- in a deadly race to the bottom to subsidize global overcapacity, legacy costs, and inefficient production methods. So too the risk of unintended consequences from uncoordinated policy interventions -- as market participants learn the structure of bank recapitalization programs and new lending facilities and their quirks, and start to arbitrage one monetary authority against another. The spectre of the IMF as a global monetary authority is a hopeful one -- but relies on commitments to fund its operations which may well be withdrawn in the face of bigger problems at home.

Globalization tested
We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.
Leave aside the unhappy word "modalities" (it's a technical term of WTO negotiation). This is the strongest statement yet from a global or quasi-global body on governments' commitments to free trade and a globally interconnected economy -- even recognizing that those commitments will entail near-term costs for at least some of their domestic economies. And it is the strongest and most important single pledge in the G20 document. Unfortunately it is strong just because it is testable -- and whether new trade barriers are erected in the next year will be the biggest test of whether governments understand the importance of their interconnections. A Detroit bailout would be an inauspicious start to meeting this commitment.
Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability. However, our financial markets are global in scope, therefore, intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace.
All true -- and nothing is weaker than truisms. Informed observers agree that this language is thanks to the US's unwillingness to tie its regulatory hands in any way -- a repetition in another key of our Queen of the May behavior towards other international institutions (the International Criminal Court, the Kyoto Protocol, and, oh, just fill in your favorite example). Whether the SEC, which has trouble implementing the XML standards it writes itself, is even capable of doing much in the way of "international cooperation," is another question.

The reality is that the current state of international financial regulation is the result of an ugly race to the bottom, the pigheadedness of individual regulatory bodies, and the galvanic reflex-arc of politicians stuck with scandals they don't understand. So Sarbanes-Oxley in the United States (because of "Enron"), even as the key provisions of Glass-Steagall are repealed; landgrabs for new regulatory territory (the NY State insurance regulators announcing unilaterally that they would regulate CDS) when old rules aren't being enforced. Or individual nations with strong traditions of securities regulation that refused to bow to trends -- and find themselves back in fashion (Canada). The blatant example of Britain, whose Labour governments rode on the back of a booming financial services business attracted by deliberately low taxes and lax regulation, designed to suck financial business away from other countries: the Gulf States hoping to follow the example of London. Within the EU, no one is clear on jurisdiction or on the Byzantine (and seemingly unwarranted) complexities of individual countries' securities law: witness the Volkswagen debacle, which caught investors from all over the world who didn't realize that in Germany it was possible to take vast stakes in a company through cash-settled swaps without ever announcing it.

Is there any regulator willing to take the lead? Which means not only to set out a clear, efficient, professional system of market regulation -- and then to enforce it, with all the costs (including the recruitment of talent) that entails -- but also to show the markets a path forward where financial "competition, dynamism and innovation" means something aside from tax evasion (sorry, "optimization"), regulatory and legal arbitrage, and structured obfuscation?

The innovation required is on the scale of the original invention of 1933 and 1934 -- the creation of the SEC. We may be excused for failing to see where the personal authority and the political will of a Franklin Roosevelt or a Joseph Kennedy (or even, in a much more muted key, a Carter Glass or a Henry Steagall) is to be found.