Friday, October 31, 2008

Roundup: October 31


Barney Frank has warned that banks using funds from TARP for purposes other than lending is illegal. Of course, enforcing this is difficult, as funds can be reallocated in response to excess government inflows, masking abusive behavior.

Bloomberg reviews Volvo's abysmal net European heavy truck orders amidst extraordinarily bad news from the shipping sector, a bellwether for economic health. Meanwhile, Barack Obama says he supports the "overhaul" of the U.S. auto industry, as pressure mounts for the Treasury to find a solution to the GM-Chrysler talks before the election. The NYT editorializes in favor as well, but can't seem to decide how it wants to argue for a bailout.

Almost half of Nevada homeowners hold negative equity in their houses.

The Chicago Purchasing Managers' Index for October came in far below expectations.

A U.S. judge has frozen various Argentine pension assets to satisfy unpaid debt from the funds. As the Argentine government under Ms. Kirchner is trying to seize control of the pension funds, in a move widely seen as a bid to increase government assets to meet debt obligations, this could be a harbinger of yet another Argentine sovereign default.

The Bank of Japan cut its benchmark interest rate from 0.5% to 0.3%, following Wednesday and Thursday's announcement of a $50bn stimulus plan.

Moscow's foreign reserves have fallen under $500bn, dropping by 6% in the past week to $484bn. Only about a third of the fall came in the form of outlays to support the ruble and Russian companies; the remainder was caused by the fall in the pound and euro against the dollar. Russia may be criminalizing nonrepayment of loans.

The Big Picture runs a series of vintage Bush videos in which he talks about homeownership and the American Dream.

FT Alphaville warns that in a low-rate environment the risk of money market funds breaking the buck rises.


General Petraeus today takes over at US CentCom, in charge of all operations in the Middle East and Afghanistan, including the Iraq and Afghanistan wars. We have already seen his influence in the proposals for negotiations with the Taliban under certain conditions and in encouraging cooperation and development in the Pakistani-Afghan border regions.

Russia has insisted that its nuclear arsenal is entirely secure, in response to a speech by Secretary of Defense Robert Gates at the Carnegie Center a few days ago. He described Russia's tactical and strategic weapons as probably safe, but questioned whether uranium and other radioactive materials had gone missing in the 1990s.

It looks as if armed American agents will be sent to Mexico as part of a mission in the war on drugs called "Plan Mexico," judging by statements from Condoleeza Rice.

Thabo Mbeki has declared in a public letter that he has retired entirely from public life, and that he will not seek any office or public influence now that he is no longer president.

Six thousand refugees have crossed the Congo-Uganda border in the wake of the violence in Eastern Congo between government troops and those commanded by renegade general Laurent Nkunda, according to the UN. The Ugandan army has been deployed to protect the border from foreign forces. The Guardian in an editorial attacks the UN force for its failures in Congo despite having the strongest mandate of any peacekeeping force.

Iran's foreign reserves have fallen to at least $25bn, and possible as low as $9bn, because of falling oil prices. Iraq will bust its budget by $13bn in the face of falling oil prices.


Britain will start a feed-in tariff for small (3MW or less) renewable energy generators in 2010. Feed-in tariffs have been effective in Germany and Japan in supporting the development and growth of renewable generation.

BSI British Standards has debuted a standard methodology for carbon footprinting, one of the first in the world, and an important step in developing standard, easily comparable footprint numbers.

RFID chips in U.S. passports could be tampered with or tracked, according to reports.

Aquafornia has collected press reactions to California's water shortage, amid calls for more conservation in a drought that may end in rationing in 2009.

Readings: Mansoor (2)

"I had new reason to grit my teeth the next day when Major General Dempsey announced to his assemble commanders and command sergeants major that in the wake of the current crisis in Iraq, the Secretary of Defense had extended the deployment of the 1st Armored Division for another ninety days. Irritated at a question from a reporter about why twenty thousand American troops had to stay ninety days longer than expected in Iraq, Secretary Rumsfeld had replied: "Oh, come on. People are fungible. You can have them here or there." Watching the news conference in the brigade tactical operations center, a young soldier turned to Major Mike Shrout and asked, "Sir, what does fungible mean?" For the record, it means replaceable or exchangeable. Try telling that to our families."
Bob Mansoor, Baghdad at Sunrise (2008)

Thursday, October 30, 2008

Roundup: October 30


Global markets rose after the Federal Reserve yesterday afternoon announced new reciprocal currency swap lines (up to $30bn each) with the central banks of Brazil, Mexico, South Korea, and Singapore, greatly expanding the geographic reach of the dollar financing provided by the US government. Separately, the IMF announced it would make $100bn available in an upfront liquidity facility for countries without macroeconomic problems -- allowing them to borrow up to 5 times their quotas. Brad Setser says these moves are remaking the world's financial architecture: as the G7 expands to include emerging markets, so the mandate of the IMF expands from macroeconomic adjustment (and forced liberalization) to straightforward liquidity provision.

US real GDP fell 0.3% in Q3, the worst contraction in 7 years, inclduing a fall in consumer spending -- the first decline since 1991. But the number was better than expected (-0.5%) and helped drive markets up this morning. There are a lot of good visualizations around: Calculated Risk looks at investment in residential and non-residential structures as a percent of GDP since 1960. EconomPic has graphs of the consumption contribution to GDP and of non-durables consumption. San Francisco Fed President Janet Yellen spoke today on the economy, and her comments -- though by no means especially pessimistic -- drove markets down in the late afternoon. The Kansas City Fed manufacturing index fell to -23 from -9, with declines in shipments, orders, employees, and the workweek.

Japan and Germany have announced tens of billions of dollars of fiscal stimulus, including support for carmakers and construction firms. Hypo Real Estate has become the first company to ask to participate in Germany's bailout fund, saying it needs EUR15bn of liquidity. And the US government is reportedly working on a plan to provide insurance for existing mortgages in exchange for modifications.

FT Alphaville have a smart piece out arguing that falling Libor is bad news for banks being funded and backstopped by government -- since their lending business is mostly tied to Libor, lower rates mean lower margins on new business. And recent moves by some companies to tie their debt pricing to their CDS have outsourced what used to be banks' main role -- pricing risk -- to the wider market. Wherefore banks?

Daniel Gros and Stefano Micossi say that the Euro and the Eurozone financial system are suffering from the absence of a unified market for sovereign bonds denominated in Euros and backed jointly by Eurozone member states -- segmented markets for the sovereign debt of individual countries (ergo of different quality) stand in the way of monetary hegemony for the Euro and make borrowing more expensive for Eurozone countries than for the US. They argue further that financial stability in the euro-satellite countries (the Baltic, Eastern Europe, Turkey, Ukraine, Iceland) is key for Eurozone banks and that a Europe-wide Financial Stability Fund could solve these problems -- and allow for quicker exit post-crisis than national stability plans, which will face stronger domestic pressures to stay in effect and subsidize national champion companies.

NY attorney general Andrew Cuomo saw a bandwagon passing and has jumped on it. He has joined Henry Waxman in demanding compensation information from nine large banks that have received federal aid from the TARP, saying he is investigating whether payments might represent fraudulent conveyance.

The DTCC has issued a press release on the closure of the Lehman Brothers bankruptcy. It is an interesting document for those who would like to see how a bankruptcy of this size is managed.


There is "panic" in Goma, the Democratic Republic of Congo, as residents fear the approach of Laurent Nkunda's rebels. HRW's Anneke van Woudenberg writes on the Rwandan encouragement of Nkunda's army. Johann Hari says the war is being financed by Rwandan businessmen to their great financial advantage -- and points out the developed world is the end user of the industrial minerals being smuggled out of eastern Congo. Meanwhile, government troops are "on the rampage" in the area of Goma. Zambia has closed its borders to refugees from the DRC.

A series of bombs in Guwahati and other cities in Assam have focused world attention on the Indian Northeast and its splinter movements. The undeclared guerrilla war being fought in the Northeast by the Indian central government is one of the great no-go zones of Indian politics, and much of the region -- ethnically, linguistically, and religiously distinct and various -- is often closed to foreigners.

Syrians demonstrated in front of the US embassy today to protest a raid by US troops across the border with Iraq that, according to Syrian reports, killed 8 civilians. Syria Comment gathers press and local reactions.

IRIN writes on informal diamond mining in Zimbabwe and clashes between miners and police. Zimbabweans are relying on wild foods in order to make ends meet, aggravating the problems of child malnutrition and absenteeism from the collapsing school system. UN Secretary-General Ban Ki-moon is blaming Mugabe for the deadlock over power-sharing between Mugabe's ZANU-PF and Tsvangirai's MDC. Some journalists have been barred from covering multiparty talks, in order to help the talks progress outside public scrutiny.

The US Army is looking for 20,000 more troops in Afghanistan, even as options for talks with the Taliban are explored. This reflects the Petraeus counter-insurgency strategy: more boots on the ground and dialogue with local authorities and insurgents.

The Duma unanimously ratified its treaty with South Ossetia and Abkhazia, the Georgian breakaway regions, giving Russia the right to station some 7,600 soldiers at the request of the regions' governments to protect against Georgian attack.

Wang Lixiong says that the Chinese strategy for Tibet -- stall until the Dalai Lama dies -- is likely to lead to renewed violence if he dies without "significant progress" in Tibet or without returning to the country.

Sarkozy has in private called Obama's stance on Iran "utterly immature" and "formulations empty of all content," according to a report in Haaretz.


Atmospheric methane concentrations jumped by 10ppm worldwide 2007 in a worrying move for this dangerous GHG. What is most odd about the finding, however, is the geographic distribution of the change. Methane concentrations increased almost uniformly around the world, without particular change in important regions in the Northern hemisphere or elsewhere where methane concentrations might be variable because of clathrates.

The FT has leaked results from the IEA's long-awaited study on mature oil field depletion: the results are shocking. Without substantial new investment, the world's 400 largest oil fields will see their output reduced by over 9% annually. This WSJ story discusses the difficulties for the oil majors in working expensive, small, and difficult fields across the world, looking at Chevron's Frade field, and it points to an oil crunch in the near future as investment budgets drop with falling oil prices. Shell has postponed investment decisions regarding one of its major Athabasca River (in Alberta) tar sands project, an early move it what may be the shuttering of much of the Alberta tar sands extraction. These fields are cost-competitive at around $70/barrel, not $55.

The Royal Society has announced plans to analyse various ideas for "geo-engineering" to reduce the impacts of global warming. These plans include the release of gases into the atmosphere to increase its atmosphere's albedo, and the launch of a gigantic ring of mirrors in orbit around the earth to reflect more light. What utter nonsense for the Royal Society to be spending its time on. The risk of unintended consequence from geo-engineering far outweighs the supposed difficulty of simpler solutions involving austerity, pricing, and technological development.

Scott Barrett at the Kennedy School publishes an interesting paper arguing that a piecemeal approach to climate change may be more effective than comprehensive legislation and cap-and-trade. The discussion may not be substantial in the end, as any "comprehensive" bill will be accompanied with a broad array of other legislation and regulation, which may have the same effect. It remains valuable to consider an ideal scheme for legislation, even if the reality will not approach it, and this paper gives a different side from the standard doctrines.

FirstSolar and Solar City have announced a partnership to bring thin-film CdTe solar cells to rooftops. This is the first opportunity for residential users to purchase thin-film cells, which may be the future of photovoltaics.

Nature publishes a paper on the fourth circuit element, the memristor. This paper could mark the beginning of the development of an entirely new generation of electronic devices.

China Environmental Law looks at China's likely climate change negotiation stance.

Cleantech VC investments were up 55% in 3Q '08.

Readings: Lewis

"Babbitt's virtues as a real-estate broker—as the servant of society in the department of finding homes for families and shops for distributors of food—were steadiness and diligence. He was conventionally honest, he kept his records of buyers and sellers complete, he had experience with leases and titles and an excellent memory for prices. His shoulders were broad enough, his voice deep enough, his relish of hearty humor strong enough, to establish him as one of the ruling caste of Good Fellows. Yet his eventual importance to mankind was perhaps lessened by his large and complacent ignorance of all architecture save the types of houses turned out by speculative builders; all landscape gardening save the use of curving roads, grass, and six ordinary shrubs; and all the commonest axioms of economics. He serenely believed that the one purpose of the real-estate business was to make money for George F. Babbitt. True, it was a good advertisement at Boosters' Club lunches, and all the varieties of Annual Banquets to which Good Fellows were invited, to speak sonorously of Unselfish Public Service, the Broker's Obligation to Keep Inviolate the Trust of His Clients, and a thing called Ethics, whose nature was confusing but if you had it you were a High-class Realtor and if you hadn't you were a shyster, a piker, and a fly-by-night. These virtues awakened Confidence, and enabled you to handle Bigger Propositions. But they didn't imply that you were to be impractical and refuse to take twice the value of a house if a buyer was such an idiot that he didn't jew you down on the asking-price."
Sinclair Lewis, Babbitt (1922)

Wednesday, October 29, 2008

Roundup: October 29


The Fed Open Market Committee has cut rates by 50bp to 1%. The People's Bank of China cut rates by 27bp, to 6.66%. Libor has continued to ease, with 3-month dollars posting down 5bp yesterday at 3.42%. Bob McTeer, a former president of the Dallas Fed, tells the NYT's Economix what it's like to attend an FOMC meeting.

The Treasury is reportedly meeting with bankers to discuss extending the TARP to privately held banks. And Reuters reports that the FDIC and Treasury are working on a foreclosure prevention plan to the tune of $600bn.

Hungary has received a $15.7bn loan program from the IMF, while Brussels has prepared another $8.1bn and the World Bank another $1.3bn to support the nation's economy. The policy prescriptions from the IMF for Hungary and Iceland look orthodox: straight Washington consensus measures involving tight fiscal and monetary policy. As Hungary and Iceland both have large liabilities denominated in forex, stabilizing their currencies will be key to an orderly resolution of their crises, but austerity won't be kind to their citizens. Belarus says it is also prepared to liberalize its economy in exchange for a $2bn loan package from the IMF. Willem Buiter and Anne Sibert publish a paper, originally commissioned by Landsbanki, on the policy failures that led to the Icelandic collapse.

The Atlanta Fed's excellent Macroblog posts an introduction to the new Commercial Paper Funding Facility. And Calculated Risk looks at signs that credit card issuers are beginning to tighten credit.

GMAC is reportedly seeking to become a bank holding company in order to receive government support. And the White House is impatient with banks that have received Federal funds and have not expanded lending, as the bailout starts to look like a handout (and cheap funding for the National City deal). Meanwhile, Henry Waxman has written to nine banks to demand information about employee compensation.


The MDC says Morgan Tsvangirai will not attend multiparty talks over Zimbabwe's deadlocked power-sharing agreement if they are held outside Zimbabwe and he is not issued a passport. The Telegraph reports Thabo Mbeki has been unwilling to stand up to Robert Mugabe to drive a deal, but the MDC says the situation is more complex than reported -- disputes aren't restricted to the Ministry of Home Affairs, which controls Zimbabwe's police, as the Telegraph reports.

Poland's government yesterday approved a roadmap for EMU by 2012, but the Kaczynski brothers favor a referendum on the replacement of the zloty by the Euro. Poland is obliged under the terms of its accession to the EU to join EMU, but will have to amend its constitution and peg its currency to the Euro first (under ERM II).

Rebels led by Laurent Nkunda have seized the town of Rutshuru in the Democratic Republic of Congo, near the border with Uganda. Rwanda is denying it is involved. The UN's special envoy to the DRC, Alan Goss, says UN troops are determined to repulse any attack on the provincial capital, Goma. UN troops were unable to extract about 50 aid workers from Rutshuru yesterday. Time reports on protests against the UN mission in Goma on Monday.

A Hong Kong group has written a Firefox add-in which simulates the internet experience behind the Great Firewall.

Did Administration insiders trade on their knowledge of pending CIA-led coups during the Cold War?

An earthquake in Baluchistan killed at least 150 this morning, even as Pakistan is on the brink of running out of foreign exchange.

A Mexican drug cartel may have infiltrated the US embassy in Mexico City.

Alex de Waal continues his series on "How Genocides End," looking at the historical record.


The China Beat runs a great roundup of readings on the melamine scandal in China and the switch from breast-feeding to infant formula that made it possible. China Media Project brings us up to date on domestic media coverage of mainland eggs tainted with melamine originally detected by Hong Kong authorities.

Readings: Mansoor

"In the early afternoon I conducted a session under Article 15 of the Uniform Code of Military Justice to determine whether to punish a soldier who had used improper interrogation techniques against an Iraqi prisoner. The soldier, an intelligence specialist with the 1-36 Infantry, had overstepped his authority by interrogating a suspected insurgent, a task that, by Army regulation, only the trained interrogators of A Company, 501st Military Intelligence Battalion working at brigade level could undertake. The manner of the questioning made it clear why this particular restriction exists in the first place. The soldier forced the bound prisoner to kneel on the floor facing a wall and had him clench a 5.56mm round in his teeth. The soldier then ordered his buddy to cock his M16A2 rifle as if he were chambering a round in a mock execution. As I listened to the story, I found it difficult to believe that these were American soldiers upholding the values of the United States Army. When I asked the soldier where he had gotten the idea of a mock execution, he stated he had seen it in a movie. I was flabbergasted."
Col. Peter Mansoor, "Baghdad at Sunrise: A Brigade Commander's War in Iraq" (2008)

Tuesday, October 28, 2008

Roundup: October 28


The Fed Open Market Committee meets today and tomorrow. The Bank of England has released its Financial Stability Report.

In a sad interview with CNBC this morning, John McCain and Sarah Palin pitched a Home Owners' Loan Corporation and offshore drilling (plus, of course, nucular energy) as solutions to the financial crisis.

The IMF may exhaust its capacity to lend to distressed countries in the near future, says Gordon Brown, raising the possibility it will issue bonds (which it has never done) or Special Drawing Rights, an exotic international currency (1 SDR = $1.48) not issued since the fall of the Soviet Union, in order to fund its operations. The existence of SDRs has always held the possibility out that the IMF might one day replace the Federal Reserve as the globally hegemonic central bank -- but substantial policy-making independence from Washington has never been on the table for the bank, whose operations have always been funded by its members' quotas.

Some Russian businesses have begun refusing credit card payments, and Sberbank ATMs are reportedly refusing debit cards from other banks. Accepting credit card or debit card payments means incurring risk -- payment risk (depending on the solvency of the card-issuing institution, or, in extremis, on the continued functioning of the settlement system) and time risk (exposing the payee to the risk that, in this case, the ruble might be devalued in the period between transaction and settlement). The monetary system is delaminating, so to speak, as ordinarily interchangeable forms of payment -- cash, demand deposits, time deposits, repos -- start to trade separately and sometimes (as in this case) with very different risk premia.

Several Russian metals firms are suspending production at high-cost plants and restricting investment, while Moscow has offered $1bn to bailout Russian airlines. Russia also announced it would spend up to RUB100bn ($3.67bn) buying new apartments, to shore up the construction industry. Oligarch Mikhail Fridman's stake in Vimpelcom has been frozen by a Russian court, as the company finds itself in talks with Deutsche Bank over repayment of $2bn in bonds collateralized by Vimpelcom shares.

German Finance Minister Peer Steinbrueck said that the world has less than a week to prevent crisis in Pakistan, which says it expects a preliminary agreement with the IMF within days. WSJ Asia editorializes that the rumored prescriptions for Pakistan -- cuts in government spending, higher taxes, and currency devaluation -- are the "begger-thy-neighbor" policies that ruined Thailand, South Korea, and Indonesia in 1997. Cuts to key subsidies would hurt the poorest and provoke unrest in a country already facing 25% inflation.

Thailand will barter rice for oil with Iran, as a shortage of forex (and Iran's political interest in doing as little dollar-denominated business as possible) incentivizes direct trade between countries -- the UN FAO says this kind of international trade may again become common as emerging countries' reserves shrink.

Iceland has raised its benchmark interest rate by 6%, to 18%, likely at the behest of the IMF; PM Geir Haarde says he will address calls for the country to join the EU after the country's economic crisis has been dealt with. The Dutch government has invested EUR3bn in insurer Aegon, which canceled its dividend and said it would lose EUR350mn in Q3. Belgium has put EUR3.5bn into KBC -- meaning most Benelux financial institutions are now wholly or partially state-owned. Deutsche Bank may have lost $400mn on derivatives trading. Deutsche Postbank says it will need at least another EUR1bn in capital and will undertake a rights issue rather than going to the government for aid. Ireland has weakened its bank insurance scheme, by dropping a requirement that shortfalls be covered over time by levies on the participating institutions. Swedbank announced a SEK12.4bn ($1.56bn) rights issue -- the Nordic banks face pressure over their Baltic exposure. Wal-Mart said it would cut its capex by about $3bn and has reduced its planned US store openings to 191, from 218 in 2008.

The US October consumer confidence survey was an all-time low in the history of the indicator, with consumers reporting they expect fewer jobs and a worsening economic climate. The Baltic Dry Index is at a six-year low, with nasty rumors surfacing of existing contracts for shipping being broken. Bloomberg reports that rates are approaching the costs of running ships, with capesize day rates running about $7300, and operating expenses about $6000/day -- meaning many ships may soon find themselves idle. The Case-Shiller housing price index for August showed prices off 16.6% YoY over the composite of 20 cities -- but the interurban differences are significant, with houses in Phoenix off more than 35% from their peak and those in Dallas off less than 5%. Calculated Risk discusses the most recent home-ownership data, concluding that prices will remain suppressed for some time. And the Richmond Fed manufacturing index declined in October.

Petrobras may halt construction on 20% of its planned deepwater oil rigs because of the credit crunch and falling oil prices. These rigs are in some of the most difficult and costly fields in the world to exploit, and their slowdown is a sign of how the credit crisis will curtail investment in oil and gas infrastructure. The IEA is concerned about this trend, which could lead to shortages if the economy recovers. In Nigeria, President Yar-Adua is running scared by the spectre of falling oil prices. As oil sales represent some 85% of Nigeria's revenues, the collapse in oil prices threatens the stability of the country. For comparison, Venezuela is about 50% dependent for national revenue on oil.

FT Alphaville reports on an unexpected $970mn balance sheet hit at Barclays, which failed to return collateral on an off-balance-sheet CDO and has had risky assets -- which it cannot afford to retain on balance sheet, thanks to Basel II risk-weighting -- put to it. Meanwhile, Morgan Stanley had to buy about $23bn of assets from its money market funds in order to maintain their value as investors withdrew funds. Barclays has held preliminary discussions with Sberbank and OAO about a capital injection, reports the WSJ, though the FT says talks have not proceeded further -- Barclays declined the offer of state funds from the UK, perhaps finding the terms too onerous.

Econbrowser gives us a breath of fresh air, looking at empirical evidence for the impact of various forms of fiscal stimulus -- that is, at their respective Keynesian multipliers. Lo and behold, food stamps are more than six times as effective at promoting spending than accounting breaks for corporations. Robert Reich discusses some options for stimulus plans after the election, concluding that extending unemployment benefits is the only thing to do.


China and Russia are to sign a long-term oil supply deal today and China is in talks to lend between $20bn and $25bn to Russian companies, Reuters reports. It is hard not to see this as a vehicle for a Chinese financial lifeline to Russia, and a brilliant way to use China's reserves to gather political capital.

Foreign Policy's blog optimistically hails a court decision in Niger which has levied a fine on the government for failing to enforce its 1960 anti-slavery law.
There are likely more slaves today than at any point in human history.

UN peacekeepers have completely failed in the Congo, the site of the world's longest and bloodiest ongoing war. The general-in-charge resigned yesterday after only three weeks in the country with little warning, and the rebels continue to advance.

The WSJ reports that senior Administration and military officials are considering talks with Taliban leaders, said to be an outgrowth of a classified assessment of the situation in Afghanistan. General Petraeus is reported to support the plan; clearly, any action will be delayed until after the election.

Syria Blog aggregates press commentary about yesterday's U.S. strike into Syria.

North Korea threatened to reduce South Korea to rubble, unless South Korea controls groups who are dropping anti-North Korean leaflets across the border.

A putative peace deal in Somalia is unlikely to lead to any real progress, says David Axe, so long as Mogadishu remains a disaster.

Harare is at risk of cholera, reports IRIN, with Zimbabwe's government paralyzed.

Five Chinese oil workers taken hostage in Sudan have been killed by their captors.


Americans drove 5.6% less in August YoY, for 15 billion fewer Vehicle Miles Traveled (VMT), as high gasoline prices (which have now dropped to around $2.50 per gallon, the lowest since '07) and the recession curtailed driving.

GE and Rolls Royce are competing to build the most energy-efficient jet engine, with each boasting of performance improvements of around 25%.

The EPA is rushing to get one of Dick Cheney's favorite rules for allowing power plants to emit more pollution passed before Saturday, the key 60-day threshold after which it will be easier for the incoming administration to revoke the rule. However, it faces intra-agency opposition.

China will invest over $200bn in improving its rail network as part of an infrastructure-focused stimulus plan.

Readings: Bacon

"I cannot call riches better than the baggage of virtue. The Roman word is better, impedimenta. For as the baggage is to an army, so is riches to virtue. It cannot be spared, nor left behind, but it hindereth the march; yea, and the care of it, sometimes loseth or disturbeth the victory. Of great riches there is no real use, except it be in the distribution; the rest is but conceit. So saith Solomon, Where much is, there are many to consume it; and what hath the owner, but the sight of it with his eyes? The personal fruition in any man, cannot reach to feel great riches: there is a custody of them; or a power of dole, and donative of them; or a fame of them; but no solid use to the owner. Do you not see what feigned prices, are set upon little stones and rarities? and what works of ostentation are undertaken, because there might seem to be some use of great riches? But then you will say, they may be of use, to buy men out of dangers or troubles. As Solomon saith, Riches are as a strong hold, in the imagination of the rich man. But this is excellently expressed, that it is in imagination, and not always in fact. For certainly great riches, have sold more men, than they have bought out."
Francis Bacon, "Of Riches" (1612)

Monday, October 27, 2008

Roundup: October 27


South Korea's central bank cut base rates by 75bp at an emergency meeting today and said it would buy up to KRW10tr ($7bn) of bank bonds. Kuwait has guaranteed all local bank deposits and suspended trading in shares of Gulf Bank, rumored to have lost up to $750mn in derivatives trading. Kuwaiti brokers walked out of the exchange in protest yesterday (Sunday is a business day in the Gulf, with the weekend falling on Thursday and Friday). Nordic ministers are meeting in Helsinki to discuss a loan package totalling around $4bn for Iceland. Alea has a handy chart showing the amounts involved in the pending Icelandic CDS settlements. Saudi Arabia will give $2.7bn of interest-free credit to lower-income citizens. US September new home sales were at their lowest since 1981.

The IMF has found that Dominique Strauss-Kahn didn't abuse his power by having an affair with a colleague. The decision comes just as a wider role for the IMF looks likely: the fund today agreed on a $16.5bn loan package for Ukraine and is in talks with Hungary about aid. Dani Rodrik says that the mother of all emerging market currency crises may be in the offing, and the IMF must act as a global lender of last resort in reserve currencies. Brad Setser adds his voice to the chorus calling for a larger role for the IMF.

The Nikkei fell to a twenty-six year low today. Japan's finance minister said the country is ready to take action on currencies if needed, Bloomberg reports, after the Group of Seven said it was concerned about the recent excessive movements of the Japanese currency. Econbrowser breaks down the recent expansion of the Fed's balance sheet, in a must-read. Deutsche Bank is pitching the possibility of quantitative monetary easing by the Fed (that is, easing without lowering the Fed funds rate). The Fed's new commercial paper funding facility (CPFF) became operational today, and it went off without a hitch.

Keiichiro Kobayashi writes cogently at VoxEU about the lessons of the Japanese crisis for this crisis and warns that if zombie firms are not allowed to fail -- and if mark-to-market accounting is suspended -- the long-term consequences may be grave, preventing any orderly "reversion to trend." Today's partial recapitalization of non-performing, predatory lending institutions like Capital One is a worrying sign. These banks are not too big to fail, and the Treasury should be sponsoring consolidation if it must intervene, not recapitalization.

GM has asked the Treasury for federal aid in order to make a merger with Chrysler possible. Without a merger, the WSJ says the carmakers could be bankrupt in a year. Econompic has a very graphic look at the economic slowdown: visualizing the change in Volvo's European net orders for heavy trucks.

Press reports say Goldman Sachs approached Citigroup about a merger last month at the suggestion of the regulatory authorities -- and was quickly rebuffed. Goldman is to name the smallest number of new partners this year since its IPO, The Telegraph reports.

Mitsubishi UFG is to raise $10.6bn by selling stock, as local reports in Japan said Mizuho and Sumitomo Mitsui were also considering raising capital. Mitsubishi recently renegotiated its investment in Morgan Stanley.

Viral Acharya and Raghu Sundaram argue at VoxEU that the UK bank recapitalization scheme is significantly less costly to taxpayers than the US scheme -- and more market-driven. Marginal Revolution looks at the exposure of Euro banks to emerging markets.

A St. Louis Fed working paper reviews the record of foreclosure moratoria during the Great Depression and the creation of the Home Owners' Loan Corporation.

Willem Buiter calls Gordon Brown's behavior as Chancellor of the Exchequer -- hastening the UK's race to the regulatory bottom -- "ruinous." The Church of England has rolled out a special prayer for the credit crisis.

Credit Slips writes on the obfuscation of interest charges by credit card issuers -- the case for consumer protection laws is strong.

Interfluidity publishes a powerful piece arguing the difference between paying dividends and buying stock back lies in the information available to investors.

Two economists at the Hong Kong Monetary Authority argue that China's export-dependency has been overstated and is mostly limited to the coastal provinces.


Saturday's Guardian asks whether the Russian oligarchs will be able to survive the downturn as Oleg Deripaska is forced to delay an IPO. The Globe and Mail looks at the role Vnesheconombank is playing as an agent of the Kremlin in forcing oligarchs to the table. Nicholas Eberstadt opines in the NYT that Russia's demographic disaster will doom its rising importance on the world stage -- there are fewer people in Russia than in the Indian state of Uttar Pradesh. Russia may be planning a massive internet firewall like China's.

Supermarkets in Zimbabwe are refusing to accept checks and debit cards -- the currency depreciates too quickly during the time it takes the payments to clear -- and some are refusing Zimbabwe dollars entirely.
Meanwhile, the press reports that Thabo Mbeki's proposed cabinet for Zimbabwe barely differs from the stacked cabinet that Mugabe allocated unilaterally early this month. Bring in the UN, and send Thabo Mbeki to the bin, if not the ICC.

Tzipi Livni has called for new elections after she failed to form a government yesterday -- but the setback may not be one. New polls show Benjamin Netanyahu's Likud has lost its lead over Livni's Kadima, indicating new elections may place her in an even stronger position for negotiations. Here is analysis from FP Watch, which would also serve as a primer on the Israeli election if you have not been following the drama.

The U.S. Army has begun limiting commando intrusions into the Pakistani border regions with Afghanistan, preferring to use unmanned drone helicopters to deliver missile strikes. Syrian officials say US helicopters have struck a farm inside their borders, killing eight civilians. A US military official has confirmed the strike to the AP. The Army is likely to extend its use of stop-losses to keep soldiers in Iraq through 2009, USA Today reports.

Oil companies face a bonanza in Iraq, which has the easiest and cheapest oil fields remaining in the world. As the price of oil plummets, the political risks of working in Iraq may be outweighed by the economic risks of exploiting expensive projects like tar sands and oil shale, and may encourage more exploration and investment in the country.

Sarkozy says he would be happy to remain de facto president of the EU during the Czech and Swedish (non-EMU) presidencies, until the end of 2009. Vaclav Klaus, the Czech President, is predictably upset over Sarkozy's grandstanding.

Ted Stevens was found guilty on all seven counts of corruption. This verdict makes it more likely that Senator Stevens seat will be taken by the Democrats in a week's time, which could impact the balance of power in the Senate. Meanwhile, we say goodbye to the man who brought us all "The Bridge to Nowhere."

Alex de Waal begins a three-part series on "how genocides end" with a look at the 1992 jihad in the Nuba Mountains of Sudan.

Yu Jianrong interprets the Chinese Communist Party Congress's recent decisions on rural land reform in the Southern Metropolis Weekly.

IRIN writes on the kidney trade in Pakistan.

Internet sensation The Time Cube has endorsed John McCain.


Methane hydrates and clathrates, the doomsday demons of climate change, may be exploited commercially for their methane, which also lends them their destructive capabilities.

EUAs (the tradable credits on the ETS) crashed to an 18 month low on fears over the economy. A slowing economy means less industrial production, less carbon emissions, and a lower price for allowances.

The EU moved friday to regulate and price the greenhouse gas emissions of airlines, who are furious about the matter.

Between a weakening market and new factories, the wind turbine market is beginning to see its supply and demand come into line. FPL cut 400 MW from its plans to install new wind capacity because of financial issues. However, according to the NRDC, the damage to the "dirty fuel" power companies from the economic turmoil should be much worse than to renewables..

The public gravely underestimates the threat of climate change and the measures which must be taken to halt its progress -- and the burden is on scientists to explain the issue better, opines Time's Bryan Walsh.

The OECD reviews the basic energy and GHG balances for various biofuels, providing the basic information that is so often lacking in these discussions.

Florida published the second phase of its report on climate change mitigation, and it shows the positive influence of the Northeastern RGGI program, as regional cap-and-trade is on the table.

Arctic ice is melting during the winter as well, British scientists report. Each year, the winter ice seems to be growing back thinner and smaller, leaving it more susceptible to the summer heat flows. Worryingly, the air temperatures measured over the winter seem to indicate that it is underwater heat currents driving the melt.

UN-HABITAT's State of the World's Cities report warns that many of the world's largest cities are at risk from flooding due to climate change.

Orcas on the West Coast may be starving as a side effect of the damage to the northwest Chinook salmon fisheries over the past two years.

Readings: Marilynne Robinson (1)

American culture has entered a period in which atavism looks to us for all the world like progress. The stripping away of humane constraints to liberate "natural" forces, such as capital flow or the (soi-disant) free market, has acquired such heady momentum that no one even pauses to wonder whether such forces are indeed particularly "natural." The use of the word implies a tendentious distinction. Billions of dollars can vanish into the ether under the fingers of a bad young man with a dark stare, yet economics is to be regarded as if it were lawful and ineluctable as gravity. If the arcane, rootless, disruptive phenomenon we call global economics is natural, then surely anything else is, too.
Marilynne Robinson, "Darwinism", in The Death of Adam (1998)

Friday, October 24, 2008

Roundup: October 24


OPEC will cut oil production by 1.5mn bbl/day, with most of the cuts coming from Saudi Arabia -- or so they agreed today in Vienna. Whether the cut in production will actually happen is anyone's guess - and whether it will be enough to stem the falling price of crude in the face of fears about a global depression is another.

US equity markets opened orderly today, though equity futures were limit down before the open after Sony warned on the high yen (leading the Nikkei down 9.6% and the Kospi down 10.6%), John Lewis (a major UK retailer) sales came in down 7.6% YoY for last week, Volvo missed targets, and Daimler, Renault, and Peugeot warned. GM and Chrysler have announced further cuts in capacity; Credit Suisse posted a SFR1.26bn loss for the quarter, and Swedbank is raising capital -- the Nordic banks are heavily exposed to the stressed Baltic states. In a beautiful anomaly, interest rate swaps were trading negative yesterday, as banks scrambled to buy hedges in a market dislocated by the failure of Lehman. The recession is here, if there had been any doubt -- the one bright spot was US September existing homes sales, up 5.5%, but tracking a period before the Lehman collapse and subsequent dislocation in credit markets.

CDS on sovereign debt for Ukraine (26%), Kazakhstan, Russia, Latvia, Indonesia, Argentina (38%), and Pakistan (32%) all traded above 1000bp, raising the spectre of a sovereign default. CDS on a number of European sovereigns were trading above 100bp (Italy, Greece, Portugal, and Ireland), with most of the largest industrial economies' debt trading in the range of healthy or slightly stressed corporates. Russia has halted trading on the Micex until Tuesday after a more than 14% decline in shares, and the ruble has fallen to a 2-year low against other currencies. This week's Economist reviews the Eastern European economies.

PNC will buy National City, among the largest US regional banks, for about $5.2bn. The taxpayer will be funding the deal to the tune of $7.7bn of asset purchases under the TARP. PNC is valuing the target's loan portfolio at 82.5 cents on the dollar.

Information Processing laments the lack of intellectual honesty among academic economists.

The Economist claims that sales of Halloween masks predict the Presidential election (Obama is in the lead).


Kgalema Motlanthe is urging Morgan Tsvangirai not to boycott multiparty talks in Harare on Monday. Tsvangirai's MDC says it will attend the talks. IRIN reports that the military has taken control of the distribution of agricultural inputs, including seed, in Zimbabwe, giving it a powerful new weapon to enforce consent.

Amnesty International is urging China to release Hu Jia, just awarded the Sakharov Prize by the EU.

A new World Bank report highlights the role of restricted access to land in the economic collapse of the West Bank, where GDP has declined by 40% in eight years. Tzipi Livni has announced she will form a government by Sunday or call for new elections, giving ultra-orthodox Shas -- likely a necessary part of any coalition government in Israel -- an ultimatum to strike a deal.

Readings: Hegel

"Reading the newspaper in the early morning is a kind of realistic morning prayer. One orients one's attitude against the world and toward God [in one case], or toward that which the world is [in the other]. The former gives the same security as the latter, in that one knows where one stands."
Georg Wilhelm Friedrich Hegel, notation from the Jena years

Thursday, October 23, 2008

Roundup: October 23


The Washington Mutual CDS auction appears to have gone off without any problems, after Lehman settlement also completed successfully. The blogosphere loves Derivative Dribble's CDS primer.

Libor is flat. New numbers from the BIS show a clear contraction in international banking. FT Alphaville warns banks will need more money to remain solvent -- even as AIG says it will. Emerging currencies are plummeting against the dollar and yen. The Financial Ninja carries a series of charts that would be more frightening if they did not simply indicate the (ever less) surreptitious nationalization of the financial system. Initial jobless claims came in at 478k, up 15k and worse than expected.

The IMF is preparing loan packages in consultation with a number of countries but hasn't yet revealed the size of the loans or the conditions likely to be placed on them. The US will hold a G20 summit November 15. New Zealand has cut base rates by 1%. OPEC meets in Vienna tomorrow. CDS on Russian sovereign debt were trading over 1000bp today as S&P put the country's debt on negative outlook, and CDS on Ukraine were trading over 2800bp. Germany is reportedly drawing up plans for a fiscal stimulus package. Sarkozy has announced the creation of a French sovereign wealth fund capitalized to the tune of $200bn and has suspended France's taxe professionnelle on investment effective immediately.

New disclosure by the bond insurers points to a worsening of losses not in subprime, but in prime loans. Foreclosures were up dramatically in Q3, though slightly stalled by changes in local legislation that make it harder to foreclose on borrowers. Calculated Risk comments on the limited success of government mortgage-modification schemes so far - and comments that credit card charge-offs may yet increase.

Credit Slips comments on the possibility of a new wave of layaway plans as a model for consumer credit as Kmart announces layaway in advance of what is widely expected to be a disastrous holiday retail season.

ArcelorMittal is reviewing its $35bn capital program. Gazprom warned conditions in the credit market may make it harder to refinance its existing debt. Daimler has written its stake in Chrysler down to zero. Goldman Sachs is laying off 10% of its employees. Nokia is linking the price of borrowing under its revolving credit facilities to its CDS prices.

Alan Greenspan's ludicrous testimony to Congress has made him the new favored whipping boy in the media outlets that sang his praises -- and the omnipotence of the Federal Reserve -- through the rise and fall of the dot-coms, and hailed him as the savior of the American economy after September 11.

Interactive Brokers' Thomas Peterffy says that centralized trading of CDS by the CME could put other classes of futures and options trading at risk of a market failure in the CDS market.

Roubini is warning of asset-dumping as "hundreds" of hedge funds fail.

Zheng Bingwen talks to the Oxford International Review about perceptions of the China Investment Corporation.


The mechanics of the natural gas business make a gas producers' OPEC unlikely, Steve Mufson writes -- Russia, Iran, and Qatar held talks in Tehran yesterday over such an organization. Kommersant says declarations about a gas cartel come from "politicians, not natural gas professionals" and that the idea, an old one, is unlikely ever to come to fruition. Meanwhile, Russia is meeting with OPEC countries and says it is considering creating an oil production reserve.

The French have captured 9 Somali pirates in the Gulf of Aden and handed them over to Puntland authorities. NATO says that when the antipiracy force arrives in a few days rules of engagement for the task force will be ready.

An editorial in Johannesburg's Business Day argues that ZANU-PF never had any real intention of negotiating in good faith to solve Zimbabwe's problems. Zimbabwe's economic collapse has hit children harder than adults, IRIN reports, with many out of school and working on the streets. The Telegraph reports Mugabe's regime is widely suspected to embezzle money intended for aid which passes through the Reserve Bank of Zimbabwe.

Gordon Brown's government is trying to calm recently reignited discussion around the issue of disestablishing the Church of England.

Agreement has been reached on a new African free trade zone, although such agreements have been reached before.

Mxolisi Ncube writes on the split in the ANC and its consequences for the stability of the South African economy and the protection of human rights.

Human rights reform under Turkey's AKP has seen advances and setbacks -- but the nature of that country's politics make a straightforward assessment difficult.

Azerbaijan is stuck in an uncomfortable dance between Russia and the US, writes the NYT, with Russia taking the lead in pushing for negotiations between Azeri and Armenian leaders to resolve the status of Nagorno-Karabakh.


Lord Stern calls in the Guardian for a low-carbon route to growth and says now -- recession -- is the time to build towards that future. Hear, hear. Meanwhile, Jose Maria Aznar is questioning the reality of anthropogenic climate change and calling global warming a "new religion."

Wednesday, October 22, 2008

Roundup: October 22


The Fed has raised the rates it will pay on excess reserves. Libor continues to ease, though by normal standards money markets are still highly stressed.

Wachovia has posted a net loss of $23.7bn, $11.18 a share (more than its capitalization). The NYT says analysts are anticipating a wave of regional bank consolidation. Cerberus may sell Chrysler to GM but keep Chrysler Finance, Bloomberg reports.. from another dimension. Wal-Mart is observing changes in consumer behavior as belts tighten.

BayernLB is seeking EUR5bn of aid from the German government, the first bank to tap that country's bailout fund. The UK is reportedly planning a GBP3bn loan for Iceland (30% of Iceland's GDP), to unfreeze UK savers' money frozen in Landesbanki's online bank, Icesave. Mervyn King warns the UK is entering a recession. Argentina has nationalized $30bn in private pensions, in an especially bad deal for pensionholders -- the newswires seem to agree it's a cash grab by the government.

BHP Billiton has warned it sees Chinese growth slowing. Singapore's container shipping line Neptune Orient said it would cut capacity; Airbus is to double the financing it offers to buyers of aircraft.

SocGen's James Montier says investment analysts don't know anything -- and are misled further by their faith in managements, who also don't know anything.

Three Minneapolis Fed economists have written a paper attempting to debunk, mainly, claims that interbank lending is frozen.


An enigmatic report that Kim Jong Il has banned long hair for men is the first news of the North Korean leader since his rumored illness.

ZANU-PF hardliners are calling for Robert Mugabe to form a government without Morgan Tsvangirai and the MDC, as the Mugabe-controlled press in Zimbabwe accuse Tsvangirai of boycotting multiparty talks in Swaziland -- Mugabe's government had refused to issue him a passport.

Sunday's NYT Magazine takes a look at the course taken by the McCain campaign over the past weeks.

Bosnia is at serious risk of collapse, warn Paddy Ashdown and Richard Holbrooke.


Organic farming practices could deliver improvements in yield necessary to provide Africans with food security, a new UN report claims.

Chinese emissions could more than double in the next two decades, warns the Chinese Academy of Sciences.

Individual tradeable quotas for fisheries could help make fishing sustainable, a study in Nature says.

The Bush Administration has proposed relaxing rules that forbid "mountaintop removal" mining techniques in Applachia.

A new plastics recycling technique could drastically cut down on the amount of water used in recycling.

Readings: Knight (1)

"It ought to be the highest objective in the study of economics to hasten the day when the study and the practice of economy will recede into the background of men's thoughts, when food and shelter, and all provision for physical needs, can be taken for granted without serious thought, when 'production' and 'consumption' and 'distribution' shall cease from troubling and pass below the threshold of consciousness and the effort and planning of the mass of mankind may be mainly devoted to problems of beauty, truth, right human relations and cultural growth."
Frank H. Knight, The Economic Organization (1933)

Tuesday, October 21, 2008

Roundup: October 21


Today is the fateful day of Lehman Brothers CDS settlement - likely to go off without a hitch. Money markets continue to ease.

Two Harvard professors argue in the NYT that banks receiving government support should suspend dividend payments -- and may have a fiduciary obligation to do so. Robert Reich says a bank that's too big to fail is too big, period. Dean Baker warns against using the bailout as an excuse to cut social security and Medicare benefits. Paul Volcker is said to have become a close economic advisor to Barack Obama. With Britain's public finance shortfall at a record since 1946, is there any grounds for thinking the bank bailout will restart the wider economy? (Max's former employers say no.) Iceland is to announce a $6bn IMF-led rescue package, with the participation of Nordic and Japanese central banks but without Russia, the FT reports.

France is injecting EUR10.5bn of subordinated capital into its six largest banks -- rumors yesterday that SocGen was facing liquidity troubles drove shares of that company down. Nicolas Sarkozy is calling for Europe to establish its own sovereign wealth funds to buy stakes in European companies. Part xenophobia, part protectionism, and part a gamble that European capitalism can follow the French model -- the French government owns large stakes in many of the country's largest and most successful companies, a system of which Sarkozy, though hailed by ill-informed and ideologically-driven English-language press outlets (the WSJ and Economist) as an avatar of neoliberalization, has always been an advocate. The state capitalist arms race is already underway -- the US's bank recapitalization plan is widely acknowledged to be less efficient and more costly to taxpayers than plans enacted in Europe, but the $25bn in subsidies offered to American car companies that should be allowed to fail is provoking an outcry from European carmakers, who want similar largesse from their governments -- France and Germany have already said that auto finance companies will be eligible to participate in their banking rescue plans.

FT Lex says Oleg Deripaska's scramble to refinance almost $2bn of a loan from western banks collateralized by 25% of Norilsk Nickel is "doomed." Kommersant says Deripaska has lost as much as $28.4bn -- meanwhile, in Britain, scandal is brewing over allegations Tory leaders solicited Deripaska for political contributions. The NYT runs a piece on the effects lower oil prices will have on the geopolitical ambitions of Venezuela, Iran, and Russia. Rumors that Russian banks are not honoring requests for foreign currency are said to be causing queues to withdraw money.

Kirk Kerkorian may sell his entire 6.5% stake in Ford. National City, Fifth Third, and KeyCorp reported losses; National City will cut 4k jobs. Q3 profits were down 47% at US Bancorp and 80% at Regions Financial.

Yu-Wei Hu talks with the Oxford International Review about China's sovereign wealth funds.

Unauthorized forex bets at China's Citic Pacific have lead to $2bn in losses -- in case you thought the breathtaking, sublime series of rogue trading incidents was over.

The FDIC is trying to claw back $4.4bn in cash from WaMu's holding company.

The ILO is projecting 20mn job losses worldwide by the end of 2009 as a result of the credit crisis.

The Washington Post looks at the regulatory turf war in the offing for oversight of the CDS market.

House sales were up in Southern California last month -- but 50% of houses closing escrow had been foreclosed on at some point in the previous year. Fitch is projecting an additional 10% decline in house prices over the next 18 months. The New York Fed publishes a beautiful interactive map of US credit card and mortgage delinquencies by county. Henry Blodget warns that without the ability to smooth consumption with consumer debt, this recession may be much rockier than the ones preceding it.


Businesses in Zimbabwe are now paying salaries in commodities, as government officials descend on enterprises to confiscate hard currency. The MDC has issued a statement on Mugabe's refusal to issue a passport to Morgan Tsvangirai, preventing him from traveling to Swaziland for multiparty talks. The MDC is calling for new elections, as is the government of Botswana. Meanwhile, the suspension of the interbank payments system has left aid agencies unable to buy and distribute food or pay wages.

President Bush never considered proposals to close the prison camp at Guantanamo Bay, the NYT reports, despite public statements to the contrary, and his administration is proceeding on the assumption the prison will be open "well beyond" the end of his presidency. A short piece in Foreign Policy argues that most of those detained at Guantanamo never posed any threat to the United States at all. The US has dropped war-crimes charges against a British resident and four others being held at Guantanamo, but won't send them home and is expected to file new charges after the election. Meanwhile, the DC Circuit Court has barred the release of 17 Uighurs detained at Guanatanamo until at least late November.

A road crossing between Indian- and Pakistani-controlled Kashmir has been reopened after sixty years.

The NYRB looks at the murder of Anna Politkovskaya.

Former Prime Minister Thaksin Shinawatra has been found guilty of corruption in absentia by a Thai court

Spain is trying to pay immigrants to leave the country.


India will launch its first lunar mission, Chandrayaan-1, today - you can watch the launch live on the internet at 00:20 UTC.

Italy is continuing to push for revision of the EU's carbon targets, raising fears that the economic downturn will put paid to any serious emissions reduction. It seems, however, that Italy is using inflated and possibly fraudulent numbers to support its case for industry exemptions. The EC will take a closer look at Italy's data, which it has questioned in the strongest terms.

Japan is kicking off planning for a voluntary ETS scheme for major Japanese companies. This may be a precursor to a larger domestic mandatory cap, in which the kinks of regulation, auction design, and participation are worked out.

eBay has banned ivory sales from its auctions, closing off a major corridor to illicit ivory trading, as monitoring the auctions for legitimacy proved too inaccurate and burdensome to meet the auctioneer's burden of regulation.

The GAO has revealed that mendacious reporting by the EPA has overrepresented the scale of polluter penalties exacted by the agency. Declining enforcement of existing regulations has been one of the many scandals of the Stephen Johnson EPA, whose days are thankfully numbered.

The National Marine Fisheries Service overweights the numbers of hatchery-born fish when assessing a species' endangered status. Although hatcheries play a role in preserving species that would otherwise go extinct, the intent of the 'endangered' and 'threatened' designators was never to measure the ability of humans to support a species; it was to measure the wild and independent viabilities of the species.

Readings: Sebald (1)

"No matter whether one is flying over Newfoundland or the sea of lights that stretches from Boston to Philadelphia after nightfall, over the Arabian deserts which gleam like mother-of-pearl, over the Ruhr or the city of Frankfurt, it is as though there were no people, only the things they have made and in which they are hiding. One sees the places where they live and the roads that link them, one sees the smoke rising from their houses and factories, one sees the vehicles in which they sit, but one sees not the people themselves. And yet they are present everywhere upon the face of the earth, extending their dominion by the hour, moving around the honeycombs of towering buildings and tied into networks of a complexity that goes far beyond the power of any one individual to imagine, from the thousands of hoists and winches that once worked the South African diamond mines to the floors of today's stock and commodity exchanges, through which the global tides of information flow without cease. If we view ourselves from a great height, it is frightening to realize how little we know about our species, our purpose and our end, I thought, as we crossed the coastline and flew out over the jelly-green sea."
W. G. Sebald, The Rings of Saturn (1997)

Monday, October 20, 2008

Simple Sustainability


Strip Mining: The term "strip mining" usually refers to a type of mining in which the ground is surface-mined strip by strip. It is only desirable when there is relatively little, soft material on top of the deposits (usually ore, tar sands, or coal).

The earth-moving machines remove the overburden (the material on top of the deposits), moving in a line from one end of the field to another. The excess material is then dumped into the previous strip, such that each new strip is dumped into the prior. This has the advantage of requiring minimal earth-moving for a mine, but the earth, even though it is replaced, usually does not recover for a long time, reaching hundreds of years or more.

Further Reading:
Wikipedia-Surface Mining

Roundup: October 20


Overnight dollar Libor fixed at 1.5125, down 15.725bp, with three-month Libor down 36bp to 4.05875%: signs taken for wonders by the equity markets. Bernanke encouraged Congress to consider another fiscal stimulus this morning.

The Netherlands has agreed to inject EUR10bn of capital from its EUR20bn bailout fund into ING (nonvoting perpetual preferreds paying up to 8.5%, callable at 150% of par and convertible in three years), and will take two seats on the board. Terms of Germany's EUR500bn bailout package have been finalized, with BayernLB likely to be the first bank to take advantage of state aid. South Korea will back $100bn in new bank debt and offer $30bn of aid to banks as part of a bid to protect the won against speculative attack. Sweden has announced a financial stability package of $205bn to protect its banks, which are heavily exposed to the declining Baltic economies. Hungary's government is trying to demonstrate fiscal probity as its currency falls -- most Hungarians, who earn wages in forint, borrow abroad in Euros or Swiss Francs. The French body set up to guarantee new bank debt issues is 66% capitalized by banks and 34% by the state -- meaning the guarantees can be secured significantly cheaper than in countries where the state is directly backing debt. Alistair Darling is calling for the UK government to bring forward billions of pounds of capital expenditure from planned 2010-11 budgets, in advance of what is likely to be a negative Q3 GDP growth number. The Reserve Bank of India lowered its target rates by 1% - much further and much faster than expected. Iceland is said to be about to announce a $6bn IMF-led rescue package; Pakistan is lobbying the IMF for assistance. The European Bank for Reconstruction and Development is calling on western countries to support Eastern Europe. The press is full of idle speculation on a coming "Second Bretton Woods" to be held by Bush after the election -- they forget to mention, this time without Keynes, and with Sarko slavering to score points. The NYT runs a nice visualization of the US bailout so far.

Amidst an almost total media blackout on the crisis in Russia, there are rumors of major economic measures to be taken this week by the Russian financial authorities. CDS on Gazprom were trading wider than 10% on Friday, and Bank Globex was quasi-nationalized (bought by Vneshekonombank) as the state announced it would be buying domestic securities. Russian politicians are calling for aid to the airlines. Bloomberg speculates Putin may be delaying state action to alleviate the crisis in order to "destroy" the power of Russia's oligarchs, including Oleg Deripaska - said to be in frantic negotiations over $2bn in debt.

Venezuela's dependence on oil prices is no different today than at any point in the nation's recent history. In Brazil, Petrobras is delaying its investment and business plan while it waits for clarity in the oil markets.

Art sales at Christie's, Sotheby's, and Phillips de Pury brought in only about half their estimates at the weekend in London, signalling the art market has finally been hit by the financial downturn. Russian oligarchs were, one presumes, conspicuous in their absence. Meanwhile, museums are planning to deal with funding pressures ahead.

Food stamp benefits lag consumer prices by as much as 15 months -- a lag which asymmetrically exposes the poorest Americans to food price inflation and means that the benefit is not currently large enough to buy the USDA Thrifty Food Plan.

The US District Attorney for the SDNY, Michael Garcia, and Andrew Cuomo are cooperating to investigate whether CDS market participants reported fictitious trades to data providers to drive CDS spreads up and cast doubt on the shares of financial institutions.

US states face budget shortfalls of at least $11bn, but
state politics being what they are, some states are considering cutting taxes.

GM can't find financing for a bid for Chrysler, the WSJ reports; the companies are said to be lobbying Washington for help to do a deal before the election. There have been no US IPOs since August. Exelon's $6.2bn bid for NRG is a ray of light in the darkness of US dealmaking.

Circuit City is considering closing 150 stores and cutting thousands of jobs, says the WSJ. Yahoo is also drafting cost-cutting plans to be announced as soon as tomorrow. Mervyns, which went bankrupt in July, is to close its remaining 149 locations. And Merrill is anticipating thousands of layoffs after the merger with BofA is complete.

Chinese GDP growth slowed to 9.0% YoY (lower than consensus of 9.7%), driven by a decline in domestic demand.


Morgan Tsvangirai has been unable to attend the SADC regional talks being held today in Mbabane, Swaziland, because Zimbabwe has not issued him a passport and he was unable to get a visa for South Africa in time. Arthur Mutambara, who leads a faction of the MDC, says his party will not be part of talks from which Tsvangirai is barred. ZANU-PF spokesmen are stonewalling over cabinet posts with members of Tsvangirai's camp saying Mbeki is likely to favor Mugabe. Meanwhile, the education system is collapsing.

Seven years after the American invasion of Afghanistan, Rolling Stone's Nir Rosen tours Ghazni in the company of the Taliban.

The rumored land-reform decisions made at the Third Plenum of the Chinese People's Congress have been announced. Farmers will be "allowed to lease their contracted farmland or transfer their land use right" and barriers to internal migration will gradually be lowered, under the slogan "gradually transform the farmers who live and work in cities to urban residents."

Beijing is targeting universal health care by 2020.

Israel and Lebanon are considering a "long-term non-belligerence pact," reportedly backed by Tzipi Livni. The plan would settle outstanding border disputes and provide for coordination between the IDF, the Lebanese army, and UNIFIL. Livni has been granted an extension of 14 days from today to finalize the formation of a government.

The IHT's Serge Schmemann writes on the unjust imprisonment of Yukos's Mikhail Khodorkovsky. Meanwhile Gorbachev is appealing to Medvedev to pardon Yukos lawyer Svetlana Bakhmina. And the Globe and Mail weighs in in support of Karinna Moskalenko, Anna Politkovskaya's lawyer, poisoned by mercury in her car last week on the eve of the inquest into Politkovskaya's murder.

Pakistan has secured a nuclear cooperation deal with China, which will help it build two nuclear reactors.

The New Yorker has the story of Sarah Palin's route to the Vice Presidential nomination -- a maverick, outsider route, of course.

Uganda's Yoweri Museveni is blaming starvation in that country on climate change.

Shiite politicians appear to be standing in the way of an agreement between the US and Iraq over the deployment of American troops in the country. But the WSJ reports that a draft of the agreement is going to the Iraqi cabinet anyway.

This Day (Lagos) reports Nigeria will have to import all of its fuel as all four domestic refineries are now shut.

Sachin Tendulkar has broken Brian Lara's record for the most runs scored in test cricket, and is the first batsman to score more than 12,000 runs -- and likely the most idolized sportsman in the world.


The IEA has recognized that current investment in carbon capture and storage (CCS) is grossly insufficient for the technologies to have a substantial impact on carbon emissions before 2030. This is worrisome, as it is likely that without CCS it will be impossible to keep atmospheric CO2e concentrations below 550ppm, a potentially critical threshold.

The EEA in Europe says Europe is likely to meet its GHG reduction targets for 2012-2013, but the extended targets for 2020 and beyond will not be met without more investment and new regulation, like the proposed extension and strengthening of the rules for the European ETS that passed committee last week. Europe has relied on building emissions reduction projects outside of her boundaries (whose emissions reductions can be credited to the sponsoring country) at the expense of failing to reduce her own emissions.

DARPA is planning a massive new video surveillance system.