Monday, December 29, 2008

Readings: The Treasury

"For FY 2008, GAO has issued a 'disclaimer' of opinion on the accrual-based consolidated financial statements, as it has for the past eleven years, for the fiscal years (FY) ended September 30, 2008 and 2007. This means that sufficient information was not available for the auditors to determine whether the financial results were reliable."
2008 Financial Report of the United States Government

Tuesday, December 23, 2008

Roundup: December 23


The Treasury sold $20.9bn of 4-week notes today at 0%, with a bid-to-cover of more than 4.5 -- which should give pause to those heralding swift recovery in credit markets.

CIT has won approval to convert into a bank holding company and says it will seek up to $2.5bn from the TARP.

Thierry Magon de La Villehuchet, CEO of Access International Advisers, committed suicide today after his firm lost $1.5bn with Bernie Madoff.

One of the ways in which unemployment and layoffs are disguised is through wage freezes. Another is the suspension of non-wage benefits.

Vladimir Putin is trying to talk up the price of natural gas.

EconomPic carries a great graph of wealth concentration in the US.


Israel is evaluating military options after rocket attacks from Gaza; a worrisome start to the post-ceasefire era.

India is rattling her sabers, talking about precision airstrikes into Pakistani territory to attack the organizations behind the Mumbai attacks.

It's the holiday season, so there must be another gas crisis between Russia and Ukraine.

The LA Times interviews Hamid Karzai.

Small Wars Journal gives an overview and short portfolios of the colonels in the Iraq war who were one of the driving forces behind the strategic overhaul of the U.S. Army.

An article called the "Great Crash, 2008" in the Jan/Fed Foreign Affairs epitomizes what might be called the Zakaria thesis.

The NYT runs a story on famine in Zimbabwe, saying the WFP is short of half the food it needs to feed Zimbabweans in January and many are turning to scavenging for food.

There has been a coup d'etat in Guinea.


The EPA has released the list of tribal lands and counties within states that fail to meet National Ambient Air Quality Standards for PM2.5 pollution. PM2.5 is a blanket designation for all particles suspended in air with an average diameter of less than 2.5 microns--the threshold at which human lungs can detect the particles and trigger coughing to eject them.

A paper in Nature Geoscience touts biochar as a new means of carbon sequestration; low-tech and inexpensive.

Contracted prices for bulk silicon for solar cells are set to drop by around 30% in 2009, with a corresponding reduction in the cost of silicon-based solar panels of around 10%.

Beijing used five billion plastic trash bags for domestic refuse in 2007.

Charts: Military Keynesianism (1)

Quarter-over-quarter change in US GDP, in billions of chained 2000 dollars; and change in GDP ex Federal defense spending

Monday, December 22, 2008

Roundup: December 22


Japanese exports were down 27% YoY in November. Japan announced $54bn of fiscal stimulus; Canada has given $3.3bn of emergency loans to the Big Three automakers to keep Canadian plants open. Toyota has warned it may see its first yearly operating loss ever this year after the yen strengthened and Japanese vehicle exports to the US fell by 44% YoY in November.

The Irish government has put EUR5.5bn into its three largest banks and will tak a 75% stake in Anglo Irish Bank.
The WSJ reports today that commercial property developers are seeking a little piece of TARP for themselves. Data from the OCC shows that 55% of modified mortgages redefault within 6 months. The NYT runs a story pointing out that the "ownership society" was financed by subprime lenders.

EconomPic has a dramatic illustration of the collapse in bank values over the past year -- and the insanity of the LBO boom at its height.

An HSBC banker has hung himself.

Bank of America points out that US quantitative easing is outpacing Japanese so far.


Riots in Russian cities including Krasnoyarsk and Vladivostok over a proposed import duty on foreign cars have been put down violently by police. Gideon Rachman says the Russian government may find itself tempted to raid its remaining foreign reserves to support ordinary spending. The Russian parliament has approved a bill to extend the presidential term to 6 years. Bloomberg writes on the financial woes of the oligarchs as they pledge their shareholdings for loans from the state.

Ukraine PM Yulia Tymoshenko is accusing President Viktor Yushchenko of betting against the hryvnia last week, the latest move in their ongoing battle for control of the country.

A US envoy made remarks on Sunday which are being interpreted to indicate the US will not support a unity government in Zimbabwe that includes Robert Mugabe.

The US is planning to send an additional 20k to 30k troops to Afghanistan over the next year and a half.

The Belgian governing coalition has collapsed on disputes over the rescue of Benelux bank Fortis.

Thomas Schweich warns in the Washington Post of military "mission creep" into formerly civilian functions of government.

Friday, December 19, 2008

Roundup: December 19


President Bush has announced an outrageous bailout of the auto industry, using the remaining funds from the first tranche of the TARP.
Here are the term sheets for Chrysler and GM. Does anyone remember what happened to that $700bn program to buy illiquid bank assets through reverse auctions? Cerberus will put $2bn into Chrysler and says it will put up its equity stake in Chrysler "as currency to facilitate the accommodations necessary to affect the restructuring."

The BOJ has cut interest rates to 0.1%. Japan will also buy up to $223bn (!!) of stock held by banks to boost their capital.

S&P has downgraded 11 major banks in the US and Europe. The FT says Deutsche Bank is facing a "buyers' strike" on its debt after it failed to call bonds which became callable this week.

Calculated Risk carries numbers indicating that mortgage equity withdrawals have stopped -- removing one prop of consumer spending. The Atlanta Fed's excellent Macroblog looks at changes in the labor force participation rate over the course of US recessions and concludes this recession is in line with historical precedent. A quarter of New Yorkers would not be able to buy groceries if fired; half could not go three months without a job. The 3rd Quarter of 2008 saw the most hedge fund closures of any quarter on record. YTD fund closures are up 70% on 2007.

Hu Jintao spoke yesterday and said preserving stability was the CCP's overriding task. China Media Project analyzes key words and says the speech was a nod to the left wing of the party. Danwei rounds up the Chinese headlines. B of A has reportedly canceled plans to sell a large stake in China Construction Bank after objections from Beijing.

A Palm Beach pawn shop is among the winners from Madoff's $50bn fraud. The WSJ has an online interactive graph of Madoff's closest and largest financial associates.


Morgan Tsvangirai has made an important statement on the situation in Zimbabwe, saying if Zanu-PF's abductions of opposition leaders do not cease and if the disappeared people are not released by January 1, he will ask the MDC to suspend all negotiations with Mugabe's regime. Mugabe and Zanu-PF leaders will eat their way through 124 head of cattle at their annual conference.

The World Bank has issued a warning on Russia -- if oil prices remain below $50 over the next two years, we may be facing a 'doomsday' scenario.

Numerous sources are reporting that the arrests of some 35 officials in the Iraqi government accused of supporting the Baath party and planning a coup may have been politically motivated; the question is, how far will Maliki go to stay in office? Missing links contextualizes these arrests in recent Iraqi history.

Ethiopia and the UN disagree on the pullout date for its troops from Somalia; not only has Ethiopia missed the widely reported deadline (yesterday), but it has built up a larger troop presence around the border area in recent weeks. Ethiopia claims that it will have its troops out by the end of the December, the "original" pullout deadline.

The NYT website is being blocked throughout China.

Mark Felt, a.k.a. Deep Throat, died yesterday at 95.


Stephen Johnson, head of the EPA, ruled that the EPA need not consider the GHG output of new coal-fired power plants when deciding whether to approve them. This measure may ease the way for midnight approval of new coal plants, unlikely to be approved for the next four or eight years.

The UK shipping industry is proposing a form of cap-and-trade for large cargo ships, which account for around 3% of CO2e emissions worldwide, but this measure is likely designed to forestall international regulation under any new UN climate scheme.

Thursday, December 18, 2008

Roundup: December 18


President Bush this morning said that an orderly bankruptcy is being considered for GM and Chrysler, perhaps involving government DIP funding to keep the companies out of Chapter 7. Chrysler has halted production until January 19, 2009. One wonders if they will ever restart it. GM has denied reports it is in renewed merger talks with Chrysler. S&P says GE runs a 1/3 risk of losing its AAA credit rating in the next two years. (Why hasn't it happened yet?)

Credit Suisse, in a genius move both from an accounting standpoint (helping to clear its balance sheet of bad assets) and for "correctly aligning incentives," will pay bonuses this year in its most illiquid and hard-to-value securities.

Initial jobless claims improved slightly over last week. 50% of home sales in the Bay Area are foreclosure resales.

Japan Economy Watch reviews the shrinking room for authorities to maneuver to try to start that country's economy. Neojaponisme looks at Prime Minister Aso Taro's plummeting popularity.

FT Alphaville point out that massive quantities of cheap dollars to borrow are the precondition to a run on the currency. Michael Shedlock points out the importance of recent interest rate actions by the Fed on the yield curve, and, by extension, the importance of the changes for lowering the costs of ARM-based mortgages.

Russian media are still keeping the economic situation in that country under wraps. Edward Lucas writes on the Latvian bailout.

China cut fuel prices by 14-18% today in a bid to reduce costs for manufacturers as inflation worries subside.


Robert Amsterdam looks at the negotiations between Gazprom and the Ukraine, as more than $1bn of debts between the two are disputed, and concludes that Gazprom may be fomenting a crisis between the two to flex its muscle (Like the 2006 New Year's Day supply cut). The stakes are particularly high as the IMF loan has not stopped the rapid depreciation of the Hyrvnia. In separate news, Russia will give Lebanon 10 MiG-29 jets as a gift, a direct threat to Israel and by extension the United States. MiG-29's are among the most advanced Russian fighters (they are a fourth-gen air superiority model), though Lebanon is unlikely to be able to challenge the Israel Air Force's equipment and training.

35 Iraqi officials, some with links to the counterterrorism bureau and most from Ministry of the Interior, have been accused of planning to refound the Baath Party and may have been in the early stages of planning a coup. Separately, the Iraqi government will likely not relicense Blackwater to deploy its mercenaries in Iraq in 2009. Increased requirements for warrants for U.S. forces in the new SOFA may restrict them from implementing cordon-and-search operations, a cornerstone of the tactical arsenal under Petraeus.

Bernard Kouchner has warned that European NATO members will face a difficult choice next year if Barack Obama asks for more troops for Afghanistan.

Obama is reportedly planning to nominate Republican congressman Ray LaHood (R-IL) as transportation secretary. Mary Schapiro, currently the CEO of the securities' industry's self-regulatory organization FINRA (ex NASD), will be his nominee for SEC chairman.

Obama told Time magazine he intends to close Guantanamo Bay within two years of his inauguration -- but, infuriatingly, defends waterboarding.


The Oil Drum has a fantastic in-depth post examining whether the UK will face a natural gas shortage this winter-yes is the answer, but what is most worhtwhile for an interested outsider is seeing how short-term demand forecasting is done. The format and depth of analysis here is very similar to what underlies decision-making at a regulatory level.

Green Car Congress discusses the particulars of the new EIA oil demand forecast.

The National Academy of Sciences has published a new report urging Cumulative Risk Assessments to be made for the long-term exposure of children and adults to phthalates, a class of chemicals used as additives in certain plastics and linked with endocrinal disorders, particularly in children exposed to low long-term doses through leakage.

Wednesday, December 17, 2008

Roundup: December 17


OPEC has agreed to cut production by another 2.2mbd, for a total production cut throughout the year of over 4mbs, or about 12% of peak production this year. Igor Sechin, Deputy Prime Minister in Russia, stated that Russia wants "Permanent Observer status" in OPEC, but no one knows what that would actually entail. Color Robert Amsterdam dubious.

Deutsche Bank declined to call a debt issue which became callable today. This is a bearish indicator for anyone who believes Fed funds at zero will restart lending: if banks decline to fund in the current environment, it is unlikely they will be expanding their balance sheets any time soon. The dollar dropped sharply against the Euro and gold yesterday after the Fed announced its plans for quantitative easing. The yen is at its 13-year highs against the dollar. Norges Bank cut rates by 175bp today to 3%.


This translation from RBK Daily by Robert Amsterdam is a must-read; Russia will forgo cuts in the number of troops deployed for internal security because of fears of economically motivated civic unrest. After the Greek demonstrations and ongoing fears for the stability of Russia, China, Italy, Greece, Ukraine, and others, one cannot help but think that domestic unrest and political instability, threatening the foundations of politics in numerous countries, will be a dominant theme in the next several years.

Barack Obama announced the appointment of Tom Vilsack, former governor of Iowa, as Agriculture Secretary. A disappointing choice given hopes that this administration would be the first to tackle farm reform (after Nancy Pelosi sacrificed hopes of farm reform in 2007 for a glimmer of partisan gain). Ken Salazar, a Senator for Colorado, will be Interior Secretary.

The official number of dead from cholera in Zimbabwe has jumped by a third in three days to around 1000, and UN experts fear that the actual number of dead may be 3000 or higher. The head of the Zimbabwean air force has been shot in the arm: the "Butcher of Matabeleland," Perence Shiri, oversaw the killing of some 20,000 people for Mr. Mugabe in a pogrom whose end came when the recently revived opposition party PF ZAPU agreed to merge with Zanu PF in 1987.

Today's edition of China Heritage Quarterly looks at the history of the Beijing water system.

The US Census Bureau publishes its 2009 US Statistical Abstract. The Treasury publishes its 2008 Financial Report of the United States.


The EU Parliament passed its major climate change bill, promising GHG reductions of 20% from 1990 levels, a renewable standard for electricity production of 20% by 2020, and the debut of auctions for CO2 permits for certain sectors of industry, a major and necessary step for making the cap-and-trade system effective at reducing emissions.

California's Green Chemistry Initiative, the first of its kind in the world, released its recommendations, which include complete disclosure of ingredients in most household and food products, available through an online database.

NRDC is filing suit to stop one of President Bush's last midnight acts of environmental destruction, the auction of hundreds of thousands of acres of federally owned Utah wilderness to companies looking to use it for oil and gas exploration.

Readings: Jim Grant

"Revolutions, once begun, rarely proceed as the revolutionaries intended, and the chief beneficiaries of new inventions are not always the people who dreamt them up, invested in them or promoted them (they are sometimes the children or even the grandchildren of those individuals). Thus, for example, when Willis Haviland Carrier was awarded patent No. 808897 for an 'Apparatus for Treating Air,' on Jan. 2, 1906, the father of air conditioning almost certainly did not anticipate a future hole in the ozone layer or the political consequences of a 12-month congressional season. 'The introduction of air conditioning in the 1930s did more, I believe, than cool the Capitol,' reminisced Rep. Joseph W. Martin, a Massachusetts Republican, in 1960, 'it prolonged the sessions.' Would American statism have come full flower in a non-air conditioned capital city? Always, in technology, there are debits and credits."
Jim Grant, "The Economic Consequences of Air Conditioning" (1999)

Monday, December 15, 2008

Roundup: December 15


The Federal Reserve Open Market Committee meets today and tomorrow.

China is putting forth some worrying economic statistics, as industrial production grew at the smallest rate in a decade, electricity production fell by almost 10% last month, and production in many heavy industries fell by similar numbers. Japan's Tankan survey of economic conditions was broadly negative. The Empire State Manufacting Survey showed economic conditions in New York continuing to deteriorate in December. Industrial production numbers also reveal a broad slowdown. And market participants are turning very negative. Fitch has cut its estimates for the performance of US Alt-A mortgages further.

FT Alphaville is trying to keep track of the damage from Bernie Madoff's fraud; among today's disclosures, RBS has revealed $600mn of exposure, Santander clients may lose up to EUR2.33bn, while HSBC have $1bn at risk. They count a total of $24.1bn so far in losses. EconomPic has a visualization. It appears that Madoff may also have been running an unregistered money management business on the side. Peter Henning writes over at Steven Davidoff's Deal Professor blog on the brilliance of the "Madoff scheme:" "Who has ever heard of a scam artist turning away money?"

Saudi Arabia has unilaterally cut its output of crude oil by 7%, and OPEC may cut as many as 2 mbd of production at its upcoming meeting. OPEC wants Russia, the world's second largest producer of crude, to cut production by 300,000 bbl/day, and, surprisingly, it looks as if she will follow suit.

The World Trade Organization will likely hear massive suits and complaints from countries like Germany and Japan if an American auto bailout comes to pass. David Zaring at Conglomerate asks whether the auto companies might qualify under the wording of the TARP legislation and concludes they might. Credit Slips says absent a viable business plan talk of a bailout is secondary. Donkeylicious has a great map of auto sector employment by state. Posner now favors an auto bailout, to delay bankruptcy for a year or two (!). Becker says now is the time for bankruptcy.

TARP gives the government effectively zero control over limiting executive pay at failed institutions supported under the bill.

Ireland may use up to EUR10bn of its pension reserve fund to take stakes in banks. Jean-Claude Trichet gives a candid interview to the FT with some pointed remarks on the fiscal stability pact.

Alan Krueger looks at the law requiring large employers to provide 60 days of notice prior to layoffs -- violated by the Republic Windows & Doors owners -- and comments on the disproportion between the political hullabaloo surrounding the law and its minimal practical impact on the course of business.

Collin Peterson (D-MN) has introduced legislation in the House of Representatives to make central clearing of CDS mandatory.

The Atlanta Fed's Macroblog has some good discussion and analysis of unemployment measures from past recessions -- a model for how government should communicate statistics to the public.


The NYT publishes the full 508 pages of an unpublished government report on the reconstruction of Iraq. The details are shocking, but not unexpected. Massive lies were published throughout 2003 and 2004 about the progress of Iraqi security forces, huge quantities of money were wasted, and, above all, Donald Rumsfeld, if possible, comes off as even more of a destructive, venal fool. "My friend, if you think we're going to spend even a billion dollars there, you're mistaken." In editorial, the NYT calls for President-elect Obama to continue to expand the active-duty armed forces to relieve the overstretched Reserves and National Guard..

Manmohan Singh calls for "normalized" relations with Pakistan, but Indian airfighters seem to have violated Pakistani airspace. This interview at Watandost, well worth reading in its entirety, points out the difficulty that the democratic Zardari is having in controlling the generals in charge of the Army. The story of Faisal Alavi, a Major General and brother-in-law of V.S. Naipaul, supports this. Gen. Alavi was abducted and killed last month, apparently after threatening to reveal publicly deals between two unnamed senior generals and the Taliban. The whole situation in Pakistan may turn on the balance of power between Zardari and the generals; if the generals win, who knows what sort of disaster we may face in South Asia.

Ecuador may default on debt it issued after its 1999 bankruptcy, even though it has enough money to pay it off. Arguing that the social debts the government owes its people take precedence over the debt owed to its creditor banks, it is likely that this is a strong maneuver to get the banks in question, which include Citigroup, to restructure this debt again at less punitive terms. President Correa has had a partial default on this debt in mind since at least 2006.

Zimbabwe has accused Botswana, one of the African nations most hostile to the current regime, of plotting to overthrow the government. More abductions of anti-government activists happen with each passing day, and they point out exactly why it is so crucial that Tsvangirai have control of the Ministry of Home Affairs (which controls the police) in any power-sharing agreement.

Garry Kasparov has started a new opposition party in Russia, named Solidarity after the Polish anti-communist party formed by Lech Walesa and others in the 1980s. Russia devalued the rouble for the fifth time in the last month, by as much as the previous four devaluations combined, after spending almost $18bn of her forex reserves last week. These reserves are down from their peak by more than a fifth, to $437bn in the last three months. We think that the tide is against Russia, and unless oil prices rise quickly we will see a much larger devaluation from the Kremlin soon.

Some U.S. states are running out of money with which to pay unemployment benefits.

This interview with Elizabeth Economy about the state of the Chinese economy and domestic policy in general is worth reading.

Over three thousand Latvians have signed a semi-serious online petition to request annexation by Sweden rather than risk occupation by Russia.

Australia will test a web-censoring system designed to "block illegal content," following in the steps of Britain and China in restricting the freedom of information.

Iraqis are rallying behind the journalist who threw his shoes at George W. Bush yesterday.

The NYT looks at Rod Blagojevich's troubling hairbrush obsession.


Electric utilities may band together and commit to massive purchases of EVs and PHEVs; they benefit in two ways. First, they increase electricity sales while reducing their net carbon footprint, but, more importantly, they can use the electric loads represented by the vehicles to stabilize the grid, by reducing the difference between peak and base loads on the plants. This enables them to run their power plants at higher efficiencies, avoiding wasted generation.

SocGen has warned that there is little reason to believe that the price of carbon EUAs will rally over the next year, as the global recession curbs carbon demand organically. They forecast an average price of around 17 Euros per ton, down from around 30-35 Euros in the past year.

The EPA has passed two major midnight regulations from President Bush's wish list, loosening restrictions on the incineration of hundreds of thousands of tons of hazardous waste and exempting factory farms from reporting certain air pollution data.

Readings: Krauthammer (1)

"Who defines reality: there lies the difference between this Administration and the last. Clinton let Russian opposition define reality. Bush, like Reagan, understands that the U.S. can reshape, indeed remake, reality on its own.

In the liberal internationalist view of the world, the U.S. is merely one among many--a stronger country, yes, but one that has to adapt itself to the will and the needs of "the international community." That is why the Clinton Administration was almost manic in pursuit of multilateral treaties--on chemical weapons, biological weapons, nuclear testing, proliferation. No matter that they could not be enforced. Our very signing would show us to be a good international citizen.

This is folly. America is no mere international citizen. It is the dominant power in the world, more dominant than any since Rome. Accordingly, America is in a position to reshape norms, alter expectations and create new realities. How? By unapologetic and implacable demonstrations of will."

Charles Krauthammer, "The Bush Doctrine," in Time, 3/5/01

Friday, December 12, 2008

Readings: Levin-McCain

"On February 7, 2002, President George W. Bush made a written determination that Common Article 3 of the Geneva Conventions, which would have afforded minimum standards for humane treatment, did not apply to al Qaeda or Taliban detainees. Following the President’s determination, techniques such as waterboarding, nudity, and stress positions, used in SERE training to simulate tactics used by enemies that refuse to follow the Geneva Conventions, were authorized for use in interrogations of detainees in U.S. custody...

"Secretary of Defense Donald Rumsfeld’s authorization of aggressive interrogation techniques for use at Guantanamo Bay was a direct cause of detainee abuse there. Secretary Rumsfeld’s December 2, 2002 approval of Mr. Haynes’s recommendation that most of the techniques contained in GTMO’s October 11, 2002 request be authorized, influenced and contributed to the use of abusive techniques, including military working dogs, forced nudity, and stress positions, in Afghanistan and Iraq...

"The abuse of detainees at Abu Ghraib in late 2003 was not simply the result of a few soldiers acting on their own. Interrogation techniques such as stripping detainees of their clothes, placing them in stress positions, and using military working dogs to intimidate them appeared in Iraq only after they had been approved for use in Afghanistan and at GTMO. Secretary of Defense Donald Rumsfeld’s December 2, 2002 authorization of aggressive interrogation techniques and subsequent interrogation policies and plans approved by senior military and civilian officials conveyed the message that physical pressures and degradation were appropriate treatment for detainees in U.S. military custody. What followed was an erosion in standards dictating that detainees be treated humanely."
Senate Armed Services Committee Report of its Inquiry into the Treatment of Detainees in US Custody (Levin-McCain Report), December 11, 2008

Thursday, December 11, 2008

Roundup: December 11


The House has passed the automakers bailout bill, which now faces Republican opposition in the Senate. The Race to the Bottom looks at the bill's "relatively mild" corporate governance provisions. Unlike the bank bailout, the bill bans the auto companies from paying bonuses, and prohibits "any compensation plan that would encourage manipulation of such automobile manufacturer’s reported earnings to enhance the compensation of any of its employees." Truth on the Market is highly critical and points out the vast extent of government equity holdings in the companies post bailout. DealBreaker asks if the appointment of the car czar will trigger CDS contracts. Meanwhile, parts suppliers are demanding advance payment from GM.

US initial jobless claims hit a 26-year high, up 59k to 573k. Homeowner equity is collapsing. Angry Bear asks if it makes any sense at all to talk about the TARP succeeding or failing. S&P says that Level 3 (mark-to-whatever) assets at US financial institutes increased 15.5% in Q3 QoQ, to $610bn. EconomPic looks at the ballooning Treasury deficit. Peer Steinbrueck, the German Finance Minister, has some nasty things to say about "crass Keynesianism" in Britain.

Russia has posted its first monthly deficit this year for November, thanks to the falling oil price. Meanwhile, the ruble is being allowed to depreciate further as speculation grows the authorities will use the Christmas holidays -- when banks close -- to take actions on the currency. A bank run is therefore widely expected.

Andreas Freytag and Gernot Pehnelt write at VoxEU on the likely coming wave of sovereign debt relief and criticize the history of such relief as "marked by political failure and short-term thinking."

Economix looks at the worst-performing sectors of privately-held companies.


Patrick Cockburn writes on the Iraq Status of Forces Agreement in the new LRB. "America's bid to act as the world’s only super-power and to establish quasi-colonial control of Iraq, an attempt that began with the invasion of 2003, has ended in failure."

Ambrose Evans-Pritchard says that the Greek riots may be the first cracks in the Eurozone.

Robert Mugabe says that the cholera epidemic in Zimbabwe is over even as the disease spreads to South Africa and more than 15k cases have been reported. Chris McGreal writes in the Guardian on the human costs of Mugabe's crackdown on illegal diamond mining. The MDC has released a new statement saying that Zanu-PF are responsible for the standstill in talks.

Ireland is to hold a second referendum on the Lisbon treaty by October 2009.

Kim Jong-Il did indeed suffer a stroke, his doctor says.

Michael Elliott at Time writes on Deng Xiaoping's legacy.


Nobel laureate and Director of the Lawrence Berkeley National Laboratory Steven Chu will be appointed as President-elect Obama's Energy Secretary, according to Democratic Party sources. Among other key environmental appointments, the current head of the New Jersey Department of Environmental Protection, Lisa Jackson, will be appointed head of the EPA. Dr. Chu has a record of scientfic integrity, and he has lead major research initiatives into solar power and renewable fuels while director of LBNL. Ms. Jackson is reported to be a moderate who balances the demands of industry with proper enforcement of environmental regulation.

The U.S. coal industry has suffered its second severe setback in a month. After the recent ruling that the EPA must consider carbon emissions when approving new coal plants, industry had hoped to rush a midnight regulation removing certain restrictions on the placement of coal plants near national parks. The EPA will not pass this rule before the end of the Bush administration.

Ban Ki-Moon has joined calls for a global "Green New Deal."

Readings: von Mises

"If it should be thought that index numbers offer us an instrument for providing currency policy with a solid foundation and making it independent of the changing economic programmes of governments and political parties, perhaps I may be permitted to refer to what I have said in the present work on the impossibility of singling out any particular method of calculating index numbers as the sole scientifically correct one and calling all the others scientifically wrong. There are many ways of calculating purchasing power by means of index numbers, and every single one of them is right, from certain tenable points of view; but every single one of them is also wrong, from just as many equally tenable points of view. Since each method of calculation will yield results that are different from those of every other method, and since each result, if it is made the basis of practical measures, will further certain interests and injure others, it is obvious that each group of persons will declare for the methods that will best serve its own interests. At the very moment when the manipulation of purchasing power is declared to be a legitimate concern of currency policy, the question of the level at which this purchasing power is to be fixed will attain the highest political significance."
Ludwig von Mises, preface to the English edition of The Theory of Money and Credit (1934)

Wednesday, December 10, 2008

Roundup: December 9


CDS on US sovereign debt are trading at 65bp, higher than Campbell's Soup, as the Fed considers issuing its own debt to help fund its balance sheet. Neil Kashkari testified on oversight over the TARP before the House Financial Services Committee today. Goldman Sachs is recommending that investors hedge exposure to the municipal debt of New Jersey, California, Florida, and Wisconsin, saying that their forward budgets are unrealistic and the states are all at risk of default.

Chinese reported exports shrank 2.2% YoY in November, with imports falling by 18%, and has announced tax cuts and increases in spending to try to boost its economy. Chinese oil imports have fallen by 1.8% YoY in November and 18% from October, as crude stockpiles approach the storage capacity.

Reuters is reporting Saudi Arabia has informed customers of a "significant cut" in oil output for January. OPEC meets next week. Russia has changed its tone about output cuts, now saying that she will work with OPEC to cut output to prop up prices. Petrobras will continue to develop its pre-salt fields despite the fall in oil prices.

GMAC cannot meet the capital requirements to become a bank holding company and take advantage of the TARP. But Volkswagen is still seeking access to the German bank bailout. Barry Ritholz points out the mendacity of Cerberus and Chrysler in the current bailout negotiations. Of course, such conflicts of interest have been manifest across the board with these pseudo-nationalizations, from AIG to Citigroup.

The Guardian has reported that the BOE is considering quantitative easing of the money supply.

Rio Tinto will cut 14k jobs, decrease capital expenditures, and accelerate asset sales.

EconomPic has a fantastic chart of the disparities in umemployment inside California.


There is a 24-hour general strike in Greece; protesters threw fire bombs at police outside the country's parliament today. Foreign Policy is honest about the amazement with which the European conventional wisdom has received this news.

Pakistan has arrested "about 40" people in raids on militants, including leaders of Lashkar-e-Taiba, while the Indian police have a number of suspected plotters in custody already. President Bush must enjoy looking foolish; he responds to Pakistani President Zardari's balanced, thoughtful, and correct Op-Ed in the Times by threatening and justifying U.S. invasion in the tribal areas, exactly the action needed now to bring the best hope for Pakistani Democracy in twenty years down.

Human Rights in China says two signers of the "08 Charter," which calls for democratic reforms in China, were detained by police on December 8; Liu Xiabo remains in custody. The next NYRB carries a translation of the Charter.

The African Union has said "only dialogue between the Zimbabwean parties" can solve the crisis in that country and has rejected proposals that it send peacekeeping troops or attempt to remove Mugabe by force. Tsvangirai says that no progress can be achieved until a "legitimate" government is in place. The BBC carries maps of the Zimbabwe cholera epidemic, which may have infected some 60,000 people according to various NGOs, and which is spreading into Mozambique as well as South Africa.

Barack Obama has called for Governor Blagojevich, who stands accused of attempting to auction Mr. Obama's Senate seat to the highest bidder, to step down as Governor of Illinois.


The Poznan climate talks took an interesting turn today; a consortium of 133 primarily developing countries, including China, objected to $100bn in money destined for investment against climate change in these countries being placed in the hands of the World Bank. The World Bank's climate investment funds were called "irreparably flawed" and the statement also contained a proposal to shut them down.

The EU delegates at Poznan will meet and likely approve a pact to reduce CO2 emissions by 20% from 1990 levels by 2020. The exact terms will be crucial to the efficacy of this pact (as always), and certain countries, particularly Poland, are threatening to veto the pact unless concesssions are made. The current furor over a Japanese proposal about benchmarking emissions demonstrates how sensitive these pacts are to variations in the details of the implementation.

The largest certifier of the CDM, wherein developed countries in the Kyoto protocol can fund clean development and carbon reductions in developing countries in exchange for Kyoto credits, has had its accreditation suspended amid accusations of inadequate oversight and possibly corruption.

The New Scientist lists the top 10 environmental articles from the past year. It is not a comprehensive list, but it should give non-specialists an idea of many of the major issues currently facing the world.

The DoE recommended that the nuclear waste capacity of Yucca Mountain be increased by a factor of three to accomodate future needs. As Sen. Majority Leader Harry Reid vehemently opposes the expansion of Yucca Mountain, it seems more likely that this plan, which Bush has touted for years, will be mooted and something more similar to President-elect Obama's will be enacted. He envisions many smaller, shorter-term on-site repositories as the future of nuclear waste storage.

The EPA has launched a list of environmental fugitives; accused criminals whose whereabouts are unknown but have committed major environmental crimes.

UNEP publishes a fantastic graph of the world's available freshwater resources.

Readings: Bachus

"I wonder whether Secretary Paulson and Mr. Kashkari, back when they were still working for Goldman Sachs, would ever agree to a deal where billions of dollars changed hands based on a two-page application, without asking what the money was going to be used for or whether it was going to be paid back."
Rep. Spencer Bachus (R-AL), December 9, 2008

Charts: Underemployment (1)

Three measures of unemployment, seasonally adjusted, monthly. U-1 is a measure of persons unemployed 15 weeks or longer, as a percent of the civilian labor force. U-3 is the official unemployment rate. U-6 includes total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. "Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule."

Tuesday, December 9, 2008

Roundup: December 9


The Bank of Canada has cut rates by 75bp. Friday saw disastrous employment data; the Canadian parliament is suspended until January as PM Stephen Harper tries to assemble a new budget that will allow him to avoid a vote of no confidence. Hungary has also cut rates, by 50bp.

The Senate has confirmed Neil Barofsky as the special inspector general of the TARP program; the Washington Post looks at the Administration's delay in nominating an inspector general, the anonymous opposition of a single Republican senator to his confirmation, and the uncertainty over the reach of his powers as the TARP funds are used for purposes other than those specified in the initial legislation. Neil Kashkari, Czar of All the Markets, gave a mealymouthed speech on oversight and measuring the results of the TARP program. As the global financial system has not collapsed, he judges the program a success. Robert Reich warns of a "populist backlash."

The US auctioned 4-week T-bills at 0.000% with 4.2 times as many bids as bills were sold today, revealing a market in which yields are nothing and there is a massive flight to safety and liquidity. In other words, the velocity of money is zero. CDS on five-year US sovereign debt are bid at 60bps, well over the advanced industrial nations and the strongest corporates. The IMF's Public Financial Management Blog takes a look at the extent of governments' obligations to recapitalize their central banks.

The press reports that the Bush administration and congressional Democrats have come to an agreement in principle on $15bn for US carmakers, to include a "czar" for automakers and warrants to be issued to the government for at least 20% of the loan value. The WSJ has the draft terms. Steven Davidoff looks at the draft bill and asks: is it even possible for someone to be good enough to be auto czar? The coverage at Angry Bear is, well, angry, but worth reading. Among the questions not being asked much elsewhere: Is it really plausible that the failures of every American car company are because their execs are fools -- or is there a larger, structural explanation for their inability to compete?

The Bank of International Settlements says worldwide cross-border loans fell by $1.1tr in H1 of 2008, with foreign lending by UK banks down $884bn.

Credit Suisse are forecasting 8.1mn US houses in foreclosure by the end of 2012, or 16% of all households with mortgages. 53% of modified US mortgages go back into delinquency within six months. Krugman is warning of a "lost decade" for the world. (His Nobel lecture is up.)

UK manufacturing production was down 1.4% MoM and 4.9% YoY, much worse than expected and raising fears Q4 GDP will contract even more sharply. Housing sales in the UK were at a 30-year low, said the Royal Institute of Chartered Surveyors. Japan revised its Q3 GDP numbers down to -0.5% QoQ (from the preliminary reading of -0.1%).
Sony is to cut 16k jobs, including 8k full-time workers, cut capex, and close factories; Dow Chemical is to lay off 5k. Fan Gang of the People's Bank of China said export growth in November will be negative and industrial growth will read only about 5%.

S&P has downgraded Russia's credit rating from BBB+ to BBB, with negative outlook, after "rapid depletion" of the country's forex reserves and in expectation that a low oil price will force the nation to run a current account deficit and deplete its reserves further to shore up the banking system.

Edward Glaeser says unemployment is overwhelmingly concentrated among the low-educated and suggests education vouchers be part of an Obama bailout.

The Chicago Tribune has filed for bankruptcy, it reports.

Merrill Lynch and Morgan Stanley will not be paying bonuses to their top executives this year.


Eid Mubarak.

Today's must read: Asif Ali Zardari writes in the NYT, saying terrorist strikes are directed not only at India, but at Pakistan's government and the possibility of peace on the subcontinent. Pakistani officials have said they will not hand the eight militants they have arrested over to India. Still, Congress had a good showing in state elections in Delhi, Rajasthan, and Mizoram, giving some pause to those who thought the Bombay attacks would herald a sharp swing to the right, and towards the Hindu nationalist BJP, in Indian politics. Judah Grunstein points out more people were probably killed by car accidents in India on the day of the attacks than by the attacks themselves, and suggests that restraint is going to need to become a key part of a rational strategy of response to terrorist attacks: this kind of thing can't be allowed to start nuclear wars. The Dawn points out US complicity -- above all, unquestioning support for Pervez Musharraf -- in building the conditions under which Jaish-e-Mohammad and Lashkar-e-Taiba were able to build up to the capacity to launch attacks like these.

Presidents Bush and Sarkozy have called for the ouster of Zimbabwe President Robert Mugabe. Zimbabwe's Information Minister responded with the following: "After squeezing and strangling the country with sanctions and contaminating it with cholera and anthrax, the West is seeking to use the window of opportunity provided by the disaster to justify military intervention." A ranting fool at the Washington Post is doing his best to build rational grounds for Zanu-PF paranoia and lies. Inkatha Freedom's Mangosuthu Buthelezi says it is high time pontificating about "African solutions to African problems" come to an end and for African political parties to call a spade a spade. Meanwhile, the coming rains may lead to more sewage running into open wells and exacerbate the cholera epidemic.

A spat over an image of an old Scorpions album cover on Wikipedia -- alleged by some to be child pornography -- has exposed what one might call "Hadrian's Firewall," the British government's filtering of most internet traffic through a transparent proxy.

Illinois Gov. Rod Blagojevich threw his weight behind the Chicago workers currently occupying the Republic Windows and Doors factory in protest over $1.5mn in wages they are owed by the bankrupt company, denied short-term financing by its bank -- Bank of America. Blagojevich told state agencies to stop doing business with Bank of America until it offers credit to Republic. Unfortunately for the Governor, he was arrested today on federal corruption charges of shocking, novelistic proportions: the District Attorney alleges, inter alia, that Blagojevich attempted to sell or trade Obama's vacant Senate seat for favors (perhaps an ambassadorship, or cushy sinecures). (And there is speculation Tribune was offered state funds in exchange for firing editorial writers critical of Blagojevich.) Obama has denied knowledge of the horsetrading.

Global Guerillas asks apropos of the rioting in Greece how fast a government's legitimacy can evaporate.

Falling metals and minerals prices are eliminating hundreds of thousands of jobs in the DRC. The relations between mining companies, the countless tragedies of the Congo, and the developed world have always been murky and often evil, and the links between the three can destabilize this major sector of the economy extremely quickly.

James Fallows writes for the Atlantic on Gao Xiqing, president of the China Investment Coporation, who says: "Be nice to the countries that lend you money."

General Eric Shinseki is likely to lead the Department of Veterans' Affairs under Obama: "karmic justice" for the way he was mistreated by Donald Rumsfeld.

Five of the 9/11 plotters have withdrawn their offer to plead guilty after a military judge suggested the plea might make it difficult for them to be sentenced to death, as they desire.

Five Blackwater contractors have been charged with 14 counts of manslaughter for the 2007 shooting of unarmed Iraqi civilians.

The LA Times continues its superlative coverage of the Mexican drug war.

Likud has nominated a hard-line slate for the Israeli parliamentary elections in February, perhaps overplaying its hand and setting Netanyahu back in his campaign against Kadima's Tzipi Livni.

Delays in negotiations between Washington and Pyongyang are putting the World Food Program's operations in North Korea at risk. More than a third of the population of that country may need food aid next year.

New American troops deployed in Afghanistan next year will mostly be stationed near Kabul, pointing to the increasingly difficult position of the NATO beachhead in that country.

Alexy II, Patriarch of the Russian Orthodox Church, died yesterday of heart failure.


A major infrastructure project that would increase the amount of water brought to Beijing from the Northern Plain originally scheduled to be completed by 2008 has had its completion date put off indefinitely. The causes, a combination of cost, pollution, and shortage, are common throughout China and support a growing thesis that Chinese industrial growth is unsustainable without improved ecological practices regardless of the world economic environment.

Chevron's economic liability for environmental damage in Ecuador amounts to about $27bn, after using an area of the Amazon River basin the size of Rhode Island as a toxic waste dump.

Dioxin has been found in Irish cattle as well as pork, threatening a second round of massive recalls and the destabilization of the entire agricultural sector in Ireland.

U.S. sales of hybrid cars fell by 50% in November, as the recession reduced the accesibility of the premium-priced cars and plummeting gas prices reduced the economic incentive to to save fuel.

Environmental Defense published a report claiming to show that 11 million liters of toxic water leaks out every day from tailings ponds in the Canadian tar sands. For more background, please see our Building Blocks: Tar Sands post.

A new EU report calls for the phasing out of incandescent bulbs within the Union by 2012, saving about 12 million tons of CO2 annually by the end of the transition period and around $12bn in consumer energy costs.

Andrew Revkin at DotEarth has a post about green jobs worth reading only for some fantastic graphs showing the distribution of federal R&D spending over time.

A federal court has temporarily blocked a plan to auction a portion of the landing slots at NYC-area airports; the auctions would reduce air pollution, delays, and congestion while increasing ticket prices marginally.

Readings: Bastiat

"We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.

"We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."
Frédéric Bastiat, "A Petition from the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting" (Sophismes économiques, 1845)

Monday, December 1, 2008

Roundup: December 1


The National Bureau for Economic Research has finally certified that a recession began sometime in December 2007 in the United States. Merriam-Webster, separately, certified "bailout" as the 2008 word of the year.

Both China and India are beginning to cut price controls originally put in place to limit inflation in their high-growth economies, as deflation looms large on the near-term global horizon. China's manufacturing index fell steeply last month. The U.S. ISM Manufacturing index fell yet again, as well.

OPEC's Secretary General, Abdall el-Badri, has announced that the cartel will cut output when it meets next month and that he expects Russia, the biggest non-OPEC producer, to follow suit. Medvedev reiterated over the weekend that the short-term focus for Russia's energy sector is still to increase output as quickly as possible. We see the real power of Saudi Arabia in OPEC at times like these; whatever the management flaws, the Saudis have the cheapest and msot abundant fields in the world, and the excess capacity and wide margins enable them to dominate quota discussions in any sort of difficulty, unlike members who find it difficult to fund their countries at prices two to three times higher than Saudi Arabia's break-even point.

Willem Buiter destroys the argument put forth at the Fed and elsewhere that disclosure of participating banks in various bailouts, auctions, and swap agreements would undermine confidence in the banks. A must-read.

Barry Ritholtz looks at Black Friday numbers and explains why we should not pay attention to any of the ones published yet this week.

Rumors abound that Great Britain may join the Euro.

Robert Amsterdam has excellent commentary on the brouhaha surrounding any proposed Repsol-Lukoil merger.

Hedge funds, as feared, are facing massive redemption requests; some commentators think that total assets under management may shrink by a third across the sector.


Hugo Chavez is trying again to remove term limits from the Venezuela Constitution. A similar measure failed to pass a national referendum as part of a package of reforms last year, and this proposal would also have to pass a referendum. His current term expires in 2013.

Army soldiers in Zimbabwe are looting and rioting through the streets of Harare, after a band of soldiers became enraged at difficulties withdrawing cash. Police are engaging in battle with the soldiers, who are mostly low-level privates, to control the rioting. Separately, most sections of Zimbabwe did not receive any water supply yesterday, as shortage of a key purification compound led the utilities to shut down, as cholera threatens to spread out of control. $225mn American dollars were seized form Pakistani smugglers at the Mozambique border; no one yet knows where in Zimbabwe this money was going. Thabo Mbeki has written a public letter polemicizing against Biti, Tsvangirai, and the MDC.

The frightening attacks in India, now quelled after leaving over 300 dead, may have succeeded in undermining the warming trend in India-Pakistan relations. Singh has not been clear to indicate that the government in Pakistan had nothing to do with these (at least not according to any evidence yet to come to light), and the group who seems to have been behind the attack is a Kashmiri group whose central goal has been driving a wedge between the countries for years. Pakistan has denounced the attackers, and state support for these attacks is very unlikely (although some people suspect that a splinter group of the ISI may have been involved) given the policy actions of Zardari and his followers from the past six months. India's intelligence minister has resigned in the aftermath. Pakistan is warning that it may pull troops currently deployed in the tribal regions near the Afghan border and put them in range of the Indian border, if India makes any military move.

The Council for Foreign Relations has an excellent and detailed overview of policies the nominee for Secretary of State, Hilary Clinton, has supported over the years.

The Pentagon will train and place 20,000 troops at the ready in the United States to deal with emergencies such as natural disasters and terrorist attacks. One more little step toward the erosion of Posse Comitatus, but at least this one has a purpose.

The NYT profile of General McAffrey, a retired general turned major military consultant and lobbyist, is worth reading in its entirety. Impressive work by the Times.

The Taliban has become a one-party worldwide opium cartel.


The amount of rainforest deforestation in Brazil ticked up slightly in 2007 from 2008 but remained at less than half the level of 2004, the worst year on record. The long-term trend remains positive for controlling deforestation through aggressive enforcement and clever incentives.

Saturday's Nature has a paper which asserts that convective flow in the North Atlantic has resumed after nearly ten years of stagnation. Many climate scientists fear that a warming climate will lead to more and more permanent stagnation of this vital flow, which is in part responsible (through a chain effect linked to the MOC) for keeping Europe warm, among other things.

A paper in Nature Geoscience examines the vulnerability of certain carbon compounds stored in soils to decay under higher temperatures, going to Canadian forests to measure the susceptibility of these stores of carbon to decay and release. Lignin-based debris was quite vulnerable, but cutin-based matter was surprisingly resistant to decay.

An important decision about regulating power plant water intakes under the Clean Water Act goes before the Supreme Court soon. Here is an overview.

Beijing is showing substantial progress toward improving air quality in the city this year, cutting particulate matter concentrations by almost 20% and sulfer dioxide concentrations by over 20%.

The overproduction and inefficiency of grain farms under the Soviet Union depleted carbon stocks in the soil to such a degree that these lands currently represent a major carbon sink.

Charts: Socialism? (1)

Government current expenditures as a percentage of GDP, 1929-2007. Red bands indicate Republican administrations, blue bands indicate Democratic administrations.