Roundup: November 24

Markets

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.

World

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.

Science

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.