Roundup: December 15

Markets

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.


World

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.


Science

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.