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.

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