Monday, November 3, 2008

Roundup: November 3


The Reserve Bank of India cut interest rates 50bp at the weekend, to 7.5%. The Bank of England meets Wednesday and Thursday and the European Central Bank meets Thursday. Libor continues to fall, to its lowest level since the failure of Lehman Brothers. Counterparty risk, in other words, is no longer the problem; the problem is slowing real demand and debt deflation. The ISM manufacturing survey read sharply lower for October, with US factory activity at its lowest since 1982. The IEA says that U.S. oil demand has fallen by 2 million bpd. And the Fed's survey of senior loan officers shows both supply of and demand for new lending falling, with banks tightening standards on credit cards and other consumer loans, on mortgages, commercial real estate, and on commercial & industrial lending. Citigroup lost $1.4bn in Q3 on credit card securitization and said losses on credit cards may rise "well into 2009." Circuit City confirmed its plans to shut 155 stores and aggressively renegotiate existing leases; Mervyns confirmed its plans to shutter its remaining stores.

China's manufacturing index was at a record low in October (the survey began in July 2005). Calculated Risk looks at the possible consequences of Chinese fiscal stimulus for US interest rates. The LA Times runs a piece on owners deserting their factories in China. IEEE Spectrum is saying we may be at the beginning of a long-term shift of R&D spending towards lower cost countries.

The WTO will meet with major banks on November 12 to consider solutions to the failing market in letters of credit and trade finance.

Treasury has rejected GM's request for $10bn in financing to help its merger with Chrysler go through, reports the NYT, and the Bush Administration will instead try to speed up the $25bn in loans ostensibly intended to help the automakers develop fuel-efficient vehicles. In broader bailout news, thousands of smaller banks and financial firms have applied for aid from the Treasury.

Portugal is to nationalize Banco Português de Negócios and make EUR4bn available to recapitalize Portuguese banks in the form of preference shares. Commerzbank will get a EUR8.2bn credit line from the German government; Erste Bank will take EUR2.7bn from Austria. The South Korean government is proposing a $11bn fiscal stimulus plan. Gordon Brown is expecting Saudi Arabia to help shore up the IMF's reserves as it bails out nations in financial trouble.

Willem Buiter warns against liquidity provision at any cost -- now is the time to agonize over moral hazard and create the right incentives for the next credit cycle. FT Alphaville highlights a presentation from Nomura on "balance sheet recessions" with a very useful flowchart of how a "stag-deflation" like the Japanese lost decade unfolds.

Some credit card issuers are proposing forgiveness for 40% of credit card debt, in what may be a bid to evade tighter regulation after the new president takes office. We say regulate them till the cows come home: if a portfolio that can withstand 40% writeoffs doesn't define predatory lending, what does?

The always-trenchant Steven Davidoff looks at the canceled KKR "IPO" and the structure of the Treasury's recapitalization of US banks.

The Washington Post reviews the growing financial crisis in Argentina as President Kirchner tries to nationalize $25bn of pensions.

Russia claims its banks have enough liquidity to carry on settlement and the Bank of Russia is taking steps to ensure that aid to the banks is not converted into forex and moved out of the country's lending system. Net capital outflows for Russia were $26bn in September, and they have totaled $140bn since August, according to BNP Paribas. More Russian mining companies are cutting output and scaling back investment plans. Venezuela Analysis looks at alarmism over Venezuelan arms purchases from Russia and points out that they do not affect the balance of military power in South America substantially. Rather, they are evidence Russia is trying to extend its power base and Venezuela is rattling its sabers, as the pace of purchases is unsustainable, particularly with falling oil prices.

Mark Thoma looks at the recent rise in military spending contribution to US GDP and speaks the forbidden words: military Keynesianism. Econbrowser looks at the likely fiscal implications of the two candidates' budgets.

John Lanchester says the world of finance went "postmodern" before it went bust. And the New Yorker takes a wistful look at tombstones. (Not what you think.)


Zimbabwe is again considering redenominating the Zimbabwe dollar as it is forced to introduce more higher denomination banknotes. This Is Zimbabwe write on the fate of recently disappeared Zimbabweans as Zanu-PF "fan the fires of discontent." The Standard says Zimbabwe's government is obscuring the scale of an ongoing outbreak of cholera in suburbs of Harare where sewage flows in the streets. Meanwhile, illegal mining is poisoning the country's rivers. The only people unaffected by widespread famine are Zanu-PF leadership, who are planning to feast for days at the annual party Congress.

Paul Collier in the Guardian discusses why intervention in the Congo has failed to date. The UN has "placed a naive faith in the power of elections" to solve problems that require more intervention on the ground -- a mission to which a UN force is uniquely unsuited, because of the difficulty of integrating forces from different polities. It all sounds very familiar to anyone thinking about the CPA and the failure of the Maliki government.

John Virgoe argues in Saturday's Guardian that "megaphone moralizing is not a policy" and won't help the people of Burma, whose recovery from the effects of Cyclone Nargis can't wait on the distant prospect of political change.

Israeli security forces have warned that Jewish settlers could attempt to assassinate Israeli leaders who offer concessions on the West Bank or East Jerusalem.

The Lithuanian President has said that Russia is "humiliating" the EU with its failure to abide by the terms of the Georgian ceasefire agreement. Moves by the EU to defrost relations with Russia will only encourage Russia to make land grabs at will in the future. Edward Lucas says much the same in the Guardian.

Phillip Gourevitch looks at Sarah Palin's reaction to the Ted Stevens conviction. Harry Reid has declared that, even if Ted Stevens is elected tomorrow and fails to face jail time, he will be expelled from the Senate.

After this weekend's convention of dissenters from the African National Congress, ANC leader Jacob Zuma called the breakaway group "snakes." The breakaway faction has named itself the South African Democratic Congress.

The fourth part of Alex de Waal's "How Genocides End" series tries to sidestep the "endless and fruitless debate" over whether killings in Darfur are genocide proper and instead asks whether an actual ending to the pattern of killings is at hand.

Difficulties in negotiating an agreement with the Iraqi government for the ongoing presence of U.S. forces in Iraq has led the U.S. to explore getting an extended mandate from the UN.

Zambia's opposition is challenging last week's vote for president.

Russia Profile looks at the role of pipeline politics in the ongoing talks over Nagorno-Karabakh.


Real Climate runs a FAQ on common climate models, addressing issues of vocabulary, methodology, and robustness. It's a wonderful resource for those interested in how models are actually run and how to talk about them.

Nature Geoscience publishes an article taking a stab at ranking different geo-engineering schemes, right after the Royal Society announced new research into the technical feasibility and likely efficacy of a variety of the most popular schemes. We remain strongly opposed to geo-engineering: untested boondoggles shouldn't be anyone's preferred strategy for tackling climate change.

Another paper in Nature Geoscience examines the climate forcing of actual greenhouses in Spain, arriving at a net radiative forcing of around -19 W/m^2, a shockingly high number. This is further evidence for the potential positive effect on radiative forcing of mandating white roofs with building codes.

The MIT Tech Review looks at early problems with electronic voting machines, and it gives a brief overview of the massive technical issues that face the machines. It is not that voting machines are impossible to design well; but the security implemented in them fails to meet even the most basic possible security standards.

Expected allowance shortfalls in the ETS may be reduced by as much as half because of the recession, suppressing European EUA prices.

The USDA surveys food prices and concludes that the primary barriers for low-income Americans to eat healthily are cultural, not financial. Importantly, the USDA is not arguing in favor of subsidies on corn, soy, and other crops used in processed foods: just pointing out that cost does not seem to be the dominant issue.

Chile's water authority warned this weekend that a glacier near Santiago that provides the capital with most of its water could disappear within 50 years.

A U.S. District Court judge has blocked the NYC taxi-specific fuel efficiency requirements, which would have required taxi fuel efficiencies to go from between 10-12 MPG to 25 and then 30 MPG. The judge ruled that only the federal government has the power to set fuel-efficiency standards under CAFE. Mayor Bloomberg has declared that he will explore incentive programs and other alternate means to increase the number of hybrid taxis on the streets.

An example of sustainable forestry at work, as coho salmon, whose stocks are collapsing, have returned to a watershed previously destroyed by logging and now sustainably managed.

Melamine-tainted eggs were an isolated case, China's Agriculture Minister Sun Zhengcai tells Xinhua.

Chandrayaan-1, India's first lunar orbiter, has sent back its first pictures (of the Earth).

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