Perspectives on the global economic meltdown

Arya Sumantra · Post by **Arya Sumantra** » 09 Mar 2009 22:37

vsudhir wrote:IMO, its time Des built its own rating agencies for global securities and sovereign debt ability. Make a start, so what if it sounds absurd now. Won't look as ridiculous 10 yrs down, I wager.

Link

Don't you think allowing foreign takeover of CRISIL was a big mistake ?

ramana · Post by **ramana** » 09 Mar 2009 22:40

Vsudhir, We need to organise an online seminar say in June for papers on ideas for Indian resurgence from this crisis. June because we need a couple of months to get them going and by then the elections are over.

vsudhir · Post by **vsudhir** » 09 Mar 2009 22:55

ramana wrote:Vsudhir, We need to organise an online seminar say in June for papers on ideas for Indian resurgence from this crisis. June because we need a couple of months to get them going and by then the elections are over.

Sounds like a great idea.

I'm guessing venue would be west coast, Bay Area side somewhere if its a BRF style meet. But you mention online seminar....

Soall the docs (presentations, audio clips, worksheets etc) can be made google docs and have available over the web; will be available for posterity and for further updation and contribution down the line. Heck, a podcast of the presentations would be very kewl indeed....

. Online seminar fits the bill great, actually.

In any case, June is rushed for me. June is when I earn my daktar title and R2I to home base. Things are already building to a head now. BUt would love to be associated with this venture, and to assist in any way I can.

ramana · Post by **ramana** » 09 Mar 2009 23:03

Congrats on your doctorate.

Maybe vina can guide it.

vsudhir · Post by **vsudhir** » 09 Mar 2009 23:51

Arya,

Don't you think allowing foreign takeover of CRISIL was a big mistake ?

No doubt about it. In any case, I envision a return to common sense and the pre-1975 practice of buyers of securities paying to know credit rating rather the obvious moral hazard+adverse selection problem in sellers of securities doing so.

For India, I look to having many rating agencoes started - one each from the large biz families perhaps - and in addition, a quasi-state institution also playing the ratings game simply so that it is protected against creepy acquisitions and phoren influence.

Meanwhile, in the Khanate...

Summers calls for boost to demand

“The old global imbalances agenda was more demand in China, less demand in America. Nobody thinks that is the right agenda now,” said Mr Summers.

“There’s no place that should be reducing its contribution to global demand right now. It is really the universal demand agenda.”

While the US and other western nations should return to living within their means in the medium term, everyone should raise spending sharply now.

“The right macro-economic focus for the G20 is on global demand and the world needs more global demand,” said Mr Summers.
...
“This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times . . . there’s a need for extraordinary public action at those times.”

Would have been hilarious if it wasn't so darned serious.... This 'universal demand agenda' has D&G written all over it. I suspect piper is attempting to set the tune for the G20 summit meet in April. What he is saying is " we'll push for all the (significant) countries in ze world to inflate simultaneously. That way, no single currency will be at risk of inflation or (shudder) hyperinflation." IMHO, of course. Reading between the lines here. Would be glad to be corrected if i misread the whole thing.

Has stupidity written all over it. What happens to commodity prices is quietly overlooked or what? The unintended consequences of mindless 'stimulation of demand' are huge, IMHO.

Just like the banks scrambled into CDSes w/o understanding what they were doing - they believed that by buying into one another's risk, they were diversifying any individual entity's risk - they failed to consider a systemwide black swan. "What is all of them went down together?" types. The same holds for the grandiose summers plan, IMHO.

vsudhir · Post by **vsudhir** » 10 Mar 2009 01:17

Global Bailout temperatures

Ensoi.

vsudhir · Post by **vsudhir** » 10 Mar 2009 01:54

AIG adopts Papistani tactics.

AIG Told U.S. Failure May Cripple Banks, Money Funds

American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

The bolded portion is taken straight off Dardari's ISPR scripted ex-communiques with "world leaders".....

Here's the document:Link

Arya Sumantra · Post by **Arya Sumantra** » 10 Mar 2009 02:00

^^^ "Whatever doesn't kill you, makes you stronger" does not seem to apply to bailed-out companies.

vsudhir · Post by **vsudhir** » 10 Mar 2009 06:02

A bit nerdy but an excellent find. 3 papers that lay bare the intricacies of the money market flows leading to the crisis and current situation wherein credit mkts everywhere are squeezed.

And yup, guess who's at the center of it all....

from Brad Setser's excellent blog:

The shadow financial system – as illustrated in three new papers that cut through the London fog

Gordon Brown wants to shine a bit more light on the shadow financial system (hat tip IPEZone). One plank of his G-20 action plan is:

“reform of international regulation to close regulatory gaps so shadow banking systems have nowhere to hide”

It isn’t exactly clear though why Brown needs the cooperation of the other members of the G-20 to do increase transparency here: an awful lot of the shadow financial system is based in the UK.

Setser misses out on UKstani hawala networks - that straddle TSP and the gulf as well. Major source of terror financing and laundering of unholy narco-monies.

Three recent papers – one from the Bank of Spain and two in the latest BIS quarterly – have shed a bit of light on the true nature of the all the flows through the UK over the past few years. Had there been an international “early warning” system that was on the ball – and had the UK been willing to collect the data on flows through the UK in the face of inevitable complaints that such efforts would drive business abroad – it might well have picked up on some of these flows as a sign of brewing trouble in global financial markets.

Ukstan essentially Lawh0red itself to shadow banking the Lawhore GUBOs to the LeT. And can you blame them for determinedly looking the other way with a jolly good fellow smile? 1 in 5 London jobs depended on the fin sector. Most of their wealthy with their monies were there precisely coz Londonistan would not ask questions.

Sovereign wealth funds (and central banks that started to act like sovereign funds at the tail end of the boom) aren’t the only – or even the most important – “dark” financial flow. The shadow financial system that grew up in London and elsewhere was primarily populated by leveraged private investors.

Two papers (one on US money market funds’ role funding European banks and one on European banks dollar funding needs) in the BIS quarterly shed some light on the role European financial institutions played in the rise – and the subsequent fall – of US credit markets.

SWFs were all over the place, sure, but the role eurostani FIs played is truly remarkable. Too long to excerpt and summarize here. Nerdy but worthwhile read for those so inclined, IMO.

Added later:

Baba, McCauley and Ramaswamy highlight the huge growth in the dollar assets of European banks over the last eight years. Those assets increased from $2 trillion to around $8 trillion (with Swiss banks accounting for about ½ the total). That growth “outran their retail dollar deposits,” making Europe’s banks reliant on wholesale dollar funding in much the same way that the growth in the assets of the US broker dealers made them reliant on wholesale funding. US money market funds that weren’t limited to Treasury and Agency paper happily met this need: “competition to offer investors higher yields, however, led them to buy the paper of non-US headquartered firms to harvest the Yankee premium.”

Raghav K · Post by **Raghav K** » 10 Mar 2009 06:17

vsudhir wrote: In any case, June is rushed for me. June is when I earn my daktar title and R2I to home base. Things are already building to a head now. BUt would love to be associated with this venture, and to assist in any way I can.

what is your doctorate in? I may also get one but cannot R2I as MEMS is not very famous.I am stuck here.

Raja Bose · Post by **Raja Bose** » 10 Mar 2009 08:05

vsudhir, Many congratulations on your degree-e-hakim

KarthikSan · Post by **KarthikSan** » 10 Mar 2009 08:13

Raghav K wrote:
vsudhir wrote: In any case, June is rushed for me. June is when I earn my daktar title and R2I to home base. Things are already building to a head now. BUt would love to be associated with this venture, and to assist in any way I can.
what is your doctorate in? I may also get one but cannot R2I as MEMS is not very famous.I am stuck here.

GE Research in BLR had some openings a while back for someone with a MEMS background. Not sure how they are doing now.
I was scouting for some opportunites early last year when I became a daktar in a related field. Which Amirkhan madrassa are you at?

ramana · Post by **ramana** » 10 Mar 2009 08:48

Wasnt Saraswat looking for such qualifications? Any way look at IITM or chennai as they call it now and see if you can go back. A young throughbred shouldnt get hitched to a cart.

Raghav K · Post by **Raghav K** » 10 Mar 2009 09:56

karthiksan, a Madrasa in Michigan. thanks ramanagaru.. my area is very specific to implants and applied medicine and thus the reason

Singha · Post by **Singha** » 10 Mar 2009 10:44

if ur into implants, depuy (div of J&J) in raynham MA might be a lead to try. my wife worked there for a year. they do have desi Phds on the payroll.

vsudhir · Post by **vsudhir** » 10 Mar 2009 14:39

Moi boor labor economist (rather, a related field) onlee.

Just as the hard sciences suffer from physics envy (the hardest science), conomics suffers from engineering envy. Just that we never get to be as useful as engineers typically are.

vsudhir · Post by **vsudhir** » 10 Mar 2009 16:10

More on the tent city debate..... apparently, Sri Ahnold far from terminator-ing such eyesores wants to consider making them permanent fixtures onlee...

The credit crunch tent city has returned to haunt America

In a state more known for its fantastic wealth and the glitz and glamour of Hollywood, the images have shocked many Americans. Conditions are primitive, with no water supply or proper sanitation. Many residents have to walk up to three miles to buy bottled water from petrol stations or convenience stores.{No sanitation but will still drink bottled water onlee?}

Authorities in Sacramento, where Governor Arnold Schwarzenegger has his office, admit the sight of families living in such poverty is not pretty.{but celebration-worthy it seems to be, no? Witness the elevation of slumdawg to 8 oscars, like, last month?} But faced with their own budget crisis and a £30billion deficit, they have had little choice but to consider making the tent city a permanent fixture. {Permanent fixture? Stop the presses.}The city's mayor Kevin Johnson said: 'I can't say tent cities are the answer to the homeless population in Sacramento, but I think it's one of the many things that should be considered and looked at.'

Poverty in a society that has lost memory of what poverty is like? Well, there has always been poverty in America but moistly among illegals and colored minorities - IOW, out of sight and hence, out of mind. The phenom now appears to be going mainstream. Not a pretty sight. And mighty scary too.

I wish the khans a speedy recovery and hope we in yindia are able to lift our poor out of our poverty and shanty towns as well. The khans are innovative if nothing and studying their response to the tent cities could yield some ideas.

But with no new home builds and as many as 80,000 people losing their job every month, there is little chance of employment. Governor Schwarzenegger last month approved a budget to address the state's deficit, ending a three-month stalemate among lawmakers. As well as increasing taxes, he has imposed drastic cuts in education, healthcare and services that will affect everyone living in the state.

If our IBNs and NDTVs carry a report on US poverty rather than always projecting glitzy images, the khans will earn more sympathy in the country and our own netas will at least own upto our problems rather than ignore them, hopefully?

vsudhir · Post by **vsudhir** » 10 Mar 2009 16:20

Depression memes are all over the place in massaland, nowadays seems like.

91 year old cook and great grandmother, Clara, recounts her childhood during the Great Depression as she prepares meals from the era. Learn how to make simple yet delicious dishes while listening to stories from the Depression.

"Welcome to my kitchen. I'm Clara. I'm 91 years old."

http://www.youtube.com/watch?v=DuMkW35BwK8

Jay · Post by **Jay** » 10 Mar 2009 21:00

Raghav K wrote:karthiksan, a Madrasa in Michigan. thanks ramanagaru.. my area is very specific to implants and applied medicine and thus the reason

Is that Madrassa anywhere near Kazoo.....

Raghav K · Post by **Raghav K** » 11 Mar 2009 02:00

Singha wrote:if ur into implants, depuy (div of J&J) in raynham MA might be a lead to try. my wife worked there for a year. they do have desi Phds on the payroll.

Jay wrote: Is that Madrassa anywhere near Kazoo.....

thx a lot Singha..I should hopefully finish by year end..

No Jay..

Raja Bose · Post by **Raja Bose** » 11 Mar 2009 03:07

GE Research was in bad shape last year after GE's financial services started downhill skiing. Don't know if situation is better or if BLR is unscathed (their groups in NY HQ were hit esp. the ones I used to collaborate with).

vsudhir · Post by **vsudhir** » 11 Mar 2009 06:34

Raja Bose wrote:GE Research was in bad shape last year after GE's financial services started downhill skiing. Don't know if situation is better or if BLR is unscathed (their groups in NY HQ were hit esp. the ones I used to collaborate with).

I agree. A friend in the 'house of magic', Albany confirms budget pressures all over this time.

Arya Sumantra · Post by **Arya Sumantra** » 11 Mar 2009 06:51

Raghav K wrote:karthiksan, a Madrasa in Michigan. thanks ramanagaru.. my area is very specific to implants and applied medicine and thus the reason

Ah bio-mems. Just curious, are you into gold chip based controlled drug release type of thing? Glad to see some MEMS guys on this forum.

vsudhir · Post by **vsudhir** » 11 Mar 2009 07:22

Its party time, folks!

Dow surged some 5.8% today, secular rise across all its component equities. FDM aka fin dork media spin has it that citi's vikram pandit's conveniently leaked letter to employees claiming citi has been making a profit so far in 2009 has led the rally sentiment.

One hilarious comment I stumbled across...

Pandit memos = Penthouse letters

1. We know they're not for real
2. Cause temporary surge
3. Both are bust industries

shyamd · Post by **shyamd** » 11 Mar 2009 16:46

Arya Sumantra wrote: Here’s my take:

The khan, UKstan and Euronion (Your-opinion union), all three, will try to print their way out of the problem.

Inflation
Inflation from printing would hurt uro backers more since being more protectionist they would not be able to export their inflation to the countries exporting to them.

Khan’s economy being open, the moment inflation takes the prices higher someone will export to khan and bring down the prices. Only property price inflation, if and when it happens, cannot be prevented.

UKstan will be either intermediate or worse off then Euronion.

http://en.wikipedia.org/wiki/Quantitative_easing

Since the output gap is now strongly negative there is no immediate risk of inflation from this source, that imply there is actually a chance of deflation in 2010/11. With all of this in mind the direct inflationary effects of quantitative easing are some way off or of little significance and as soon as signs of increasing inflation appear the Bank of England is obliged to go quickly into reverse.

There is a further indirect effect if the UK increases its money supply more than others especially the US and the rest of the EU. You imply this. The lower relative interest rates will cause the £ to fall further and this will increase the rate of inflation. My feeling is that this reduces the risk of deflation and explains the slow fall in CPI inflation at the moment. It could lead to inflation becoming a problem again perhaps reinforced by higher food prices. If the ECB and the FED follow the Bank of England with large scale 'quantitative easing' long run interestrates will fall across the world so the impact on exchange rates and hence inflation will be zero or nearly so. The risk of higher inflation from this source will reduce a lot.

ramana · Post by **ramana** » 11 Mar 2009 20:40

sarulan wrote:I am wondering when Citi BofA themselves are in deep trouble, what will happen to the trillion of black money our politicians have in Swiss banks. Is it gone in to the black hole? It will be a sweet revenge when they find out the lockers are empty.

That Bank of Spain study posted by vsudhir in the prespectives thread says ~ $4T was the rise in funds in Western Europe of which $2T was in Swiss banks alone. So hopefully the decline was uniform in which case the Swiss got hammered. But hear rumors that France and Germany escaped the toxic asets mayajaal. And Swiss are close to these two in thinking. So someone needs to look into it.

Singha · Post by **Singha** » 11 Mar 2009 20:55

actually germany is equally p*ssed with Swiss for letting tax cheats shelter their cash. using a paid agent they extracted thousands of names and are going after them. france and germany do not benefit by having their money locked up in swiss vaults when it could be taxed and used. infact nobody except corrupt elites and the swiss economy benefits. take away the banks and swiss will still be ok via tourism, pharma, machine tools, chocolates and clocks. so its no as if they are solely depending on banks.

shyamd · Post by **shyamd** » 11 Mar 2009 21:06

I thought they got the tax info from an agent in Lechtenstein and not the Swiss.

Singha · Post by **Singha** » 11 Mar 2009 21:16

California hemorrhages jobs, but all states hurting
Wed Mar 11, 2009 11:15am EDT

WASHINGTON (Reuters) - California lost the most jobs of all the states, 79,300, in January, while Michigan registered the highest unemployment rate at 11.6 percent, the Labor Department said on Wednesday.

South Carolina followed Michigan with an unemployment rate of 10.4 percent. Rhode Island, which had its highest unemployment rate on record, was third at 10.3 percent.

Besides losing more jobs than any other state, California had an unemployment rate of 10.1 percent, compared to the national rate of 7.6 percent that month.

Since January 2008, the Pacific coast state shed nearly a half million jobs -- the largest decrease in the country -- as a devastated real estate market and government standstill pushed more and more people out of work.

With 49 states reporting monthly unemployment rate increases and 42 states saying they had lost jobs in January, there were few bright spots in the report.

The largest over-the-month increase came in Maryland, which gained 6,000 jobs, followed by its neighbor, Washington, D.C., which acquired 5,800 jobs. President Barack Obama was inaugurated that month, bringing staff and governmental workers to his new administration.

Singha · Post by **Singha** » 11 Mar 2009 21:19

yes you are right shyamd. but germany could make use of swiss wealth too incl nazi era stolen money - times are tight and those swank infra needs lot of money for upkeep.

45 percent of world's wealth destroyed: Blackstone CEO
Tue Mar 10, 2009 3:42pm EDT

By Megan Davies and Walden Siew

NEW YORK (Reuters) - Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis.

"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.

U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion.

"In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage ... so that we can get more money back into the banking system," Schwarzman said.

He expects the private sector to end up making "some good money doing that," but added there were complex issues on how to price toxic assets.

He put part of the blame for the financial crisis to credit rating agencies.

"What's pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," he said.

Rating companies have been the focus of intense criticism for their role in granting top "AAA" ratings for complex bonds that later plummeted in value, resulting in subsequent rating cuts, in many cases to junk status.

"Once you bought into ... the Triple A paper and it turned out to be paper that was in many situations going to end up defaulting, then you really had the makings of a global problem," he said.

Schwarzman said problems were then exacerbated by mark-to- market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.

Blackstone reported a quarterly loss in February after writing down the value of its portfolio and eliminated its fourth-quarter dividend.

Asked where was a good place to invest, Schwarzman said it made sense to buy cyclical names, which are less exposed to the economic cycles.

He said investors also may find value in debt products, including "senior layers of certain securitizations," where investors can see 15 percent to 20 percent returns, he said.

Geographically, he said there were "pockets of strength" in China, which is committed to getting to an 8 percent growth level, and in India, where the economy is slowing but banks are in good shape.

(Editing by Andre Grenon)

Singha · Post by **Singha** » 11 Mar 2009 21:53

http://www.nytimes.com/2009/03/11/us/11 ... ml?_r=1&hp

as expected the people who were just getting by in good times are absolutely hurting now.

while its still caviar on toast in the hamptons and palisades...on stolen money.

vsudhir · Post by **vsudhir** » 11 Mar 2009 22:10

Atlantic stimulus rift grows

Disagreements between the European Union and the US over how to combat the global recession widened on Tuesday as EU governments made clear they had little appetite for piling up more debt to fight the collapse in output and jobs.

And they should know. The jobs and contraction scene in Spain, Portugal, Greece and Ireland is dire indeed but cushioned by EU's relatively robust social net, for now. Should the crisis deepen and spread, all bets are off. What then? And I'm not bringing in the borderline conomies like UKstan in at this point.

Finance ministers from the 27-nation bloc insisted in Brussels that it was doing enough to support world demand and did not need at present to adopt another fiscal stimulus plan, as Washington is urging.

Exactly what Larry Summers was pushing for with his 'universal demand agenda' BS. Backstage, the pressure dials have been turned to heavy, seems like.

Meanwhile Ukstan excels at its usual

The US-European differences are casting a shadow over next month’s summit in London of leaders from the G20 group of advanced and emerging economies, an event to be attended by Barack Obama on his first visit to Europe as US president.

It also emerged that Gordon Brown, UK prime minister, was struggling to organise the summit. Britain’s most senior civil servant claimed it was hard to find anyone to speak to at the US Treasury. Sir Gus O’Donnell, cabinet secretary, blamed the “absolute madness” of the US system where a new administration had to hire new officials from scratch, leaving a decision-making vacuum.

“There is nobody there. You cannot believe how difficult it is,” he told a conference of civil servants.

Read it all.

Singha · Post by **Singha** » 11 Mar 2009 22:25

sometimes the best course of action may be to do nothing?

its the whole MBa/managerial thing to be seen taking strong steps, driving change, 'engaging' all stakeholders, partnering with synergy groups, setting up tiger teams and so on. Obama's can-do/change-we-can books and rep will take
a real beating if he just submerges and rides out the storm.

he is falling into a deep trap methinks.

vsudhir · Post by **vsudhir** » 12 Mar 2009 00:57

UK Begins Quantitative Easing

The Bank of England will start pumping newly created money into the economy today by buying £2 billion in gilts as it embarks on "quantitative easing" in an effort to boost the economy.
...
Mervyn King, the Governor of the Bank, indicated last week that the Bank would continue this course of action until the lending markets became unglued.

... the Bank's announcement has already had some effects.

Benchmark ten-year bond yields fell to a record low of 2.95 per cent at the beginning of the week and sterling swap rates, used by banks and building societies to calculate fixed-term mortgage rates, have also dropped, indicating that lenders should be able to offer more competitive home loan rates.

Corporate borrowing costs have also fallen by between 0.44 and 0.72 percentage points, according to the sterling iBoxx index.

One angry poster goes all out:

The UK starts down the path to ruin. The UK begins a theft operation via the printing press.

How will they ever put the genie back in the bottle? Why work when the printing press steals your labor?

The Pound will become the ounce.

BTW, this gives the humble Money Order a whole new meaning, eh?
Becomes Money-on-order when gobar-mint so desires.

John Snow · Post by **John Snow** » 12 Mar 2009 01:11

Firstly v sudhir garu congrats on becoming a Ph D.

Secondly folks watch John Stewart show, there is a jihad going on between Comedy Central and CNBC. Very educative for Khans but we at BRF are ahead of the curve in dismantling these talking heads about investment, stocks economy etc.

CNBC has a Caption
"In Cramer We Trust"

And John Stewart has a cption " Cramer Vs Cramer" and is playing Cramers own commandments to contradict his commandments.

In Cramer we Lust

Anujan · Post by **Anujan** » 12 Mar 2009 01:30

John Snow wrote:CNBC has a Caption
"In Cramer We Trust"

And John Stewart has a cption " Cramer Vs Cramer" and is playing Cramers own commandments to contradict his commandments.

In Cramer we Lust

Cramer is a peddles BS with both his hands. Jon Stewart is a slightly shady demagogue.

1. His left hand: Amri-khans elites are good at pointing out the reasons for saving and nurturing a system that marginally benefits the masses and massively benefits the elites; cramer is no exception.

Case in point:
Should US support universal healthcare ? NO. (massively benefits masses, marginally benefits elites)

Should US support massive investment in education ? NO. (massively benefits masses, marginally benefits elites)

Should US inject massive capital into the market to temporarily send DJIA skyrocketing ? YESS. (massively benefits elites, marginally benefits masses)

The talking heads & cramer are hammer and tongs against BO because the market plunged since BO took office*. Common complaint is "BO has not done enough to prop the stock market up". If someone says "Okay, why prop the stock market at the expense of say, investing in education, healthcare and infrastructure" Cramer & co play the emotional card that "hard working americans and seniors invest their savings and retirement money in the stock market and hence it should be protected at all costs". Complete BS. Who suffers more if public schools get dilapidated ? Elites or aam admi ? Who suffers more if there is no guvrmand subsidy on healthcare ? Elites or aam admi ? Who benefits more if the stock market rises to stratospheric levels ? Elites or aam admi ? More importantly, what is so great about DJIA in the 13,000s if the fundamentals are rotten ? This is exactly like rating a MBS "AAA" when it is backed by shady derivatives based on mortgages made out to jobless people in Alabama who bought million dollar houses. Pakistan is going to hit the fan someday.

2. His right hand: Making a statement that anyone in the stock show business are bound to make mistakes. He invokes Warren Buffett here. The major complaint is not that cramer picked some losing stocks. It is that he either didnt see a high speed locomotive hurtling at the finance industry or he nefariously ignored it. I am prepared to believe the former. He comes across as a showman and an idiot, rather than a careful investor.

Jon Stewart is a shady demagogue because he is left of center. Propounds universal healthcare, without any consideration of who is going to pay for it. Unfortunately, healthcare, just like a car or a house is an expense that should be factored into any abdul's pay. Ofcourse it is a special case in the sense that health issues are non-negotiable and ultimately hurt the abdul's and the society's productivity. But the same could be said of utilities, accomodation, transportation, nutrition (all of which we pay) etc. US healthcare system is broken. Massive cost of healthcare facilities, professionals, drugs are raising the cost of healthcare itself. Guvrmand intervening and spreading the pain around, without any consideration of supply side dynamics (subsidy for medical education, more doctors, tiered healthcare, cap on doctor pay) is just a disaster waiting to happen.

*The "conservative viewpoint" is that market is an indicator of everything, and is a impartial living breathing entity, which delivers fair verdict on people, ideas and institutions. If DJIA plunges, it must be the case that BO is a bad president and his policies are bad. Never mind the next obvious question. If the Market is fair and impartial and declares that the current financial system must die, why artificially prevent the death by injecting capital ?

Sagar · Post by **Sagar** » 12 Mar 2009 01:31

John Snow wrote:Firstly v sudhir garu congrats on becoming a Ph D.

Secondly folks watch John Stewart show, there is a jihad going on between Comedy Central and CNBC.

Very perceptive of you, Snowgaaru.
Both huffington post and Daily Kos have articles that follow up and they do name names.
I think that this is the beginnings of a palace coup and in the following weeks and months, more and more of the hidden ones will be outed.

svinayak · Post by **svinayak** » 12 Mar 2009 01:49

Economic Scene
The Looting of America’s Coffers
By DAVID LEONHARDT
Published: March 10, 2009
http://www.nytimes.com/2009/03/11/busin ... ss&emc=rss

Sixteen years ago, two economists published a research paper with a delightfully simple title: “Looting.”
The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

On Tuesday morning in Washington, Ben Bernanke, the Federal Reserve chairman, gave a speech that read like a sad coda to the “Looting” paper. Because the government is unwilling to let big, interconnected financial firms fail — and because people at those firms knew it — they engaged in what Mr. Bernanke called “excessive risk-taking.” To prevent such problems in the future, he called for tougher regulation.

Now, it would have been nice if the Fed had shown some of this regulatory zeal before the worst financial crisis since the Great Depression. But that day has passed. So people are rightly starting to think about building a new, less vulnerable financial system.

And “Looting” provides a really useful framework. The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.

Promised bailouts mean that anyone lending money to Wall Street — ranging from small-time savers like you and me to the Chinese government — doesn’t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today’s crisis look tame.

But the knowledge among lenders that their money will ultimately be returned, no matter what, clearly brings a terrible downside. It keeps the lenders from asking tough questions about how their money is being used. Looters — savings and loans and Texas developers in the 1980s; the American International Group, Citigroup, Fannie Mae and the rest in this decade — can then act as if their future losses are indeed somebody else’s problem.

Do you remember the mea culpa that Alan Greenspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last fall? He said that he was “in a state of shocked disbelief” that “the self-interest” of Wall Street bankers hadn’t prevented this mess.

He shouldn’t have been. The looting theory explains why his laissez-faire theory didn’t hold up. The bankers were acting in their self-interest, after all.

•

The term that’s used to describe this general problem, of course, is moral hazard. When people are protected from the consequences of risky behavior, they behave in a pretty risky fashion. Bankers can make long-shot investments, knowing that they will keep the profits if they succeed, while the taxpayers will cover the losses.

This form of moral hazard — when profits are privatized and losses are socialized — certainly played a role in creating the current mess. But when I spoke with Mr. Romer on Tuesday, he was careful to make a distinction between classic moral hazard and looting. It’s an important distinction.

With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government’s involvement is crucial to the whole enterprise.

Think about the so-called liars’ loans from recent years: like those Texas real estate loans from the 1980s, they never had a chance of paying off. Sure, they would deliver big profits for a while, so long as the bubble kept inflating. But when they inevitably imploded, the losses would overwhelm the gains. As Gretchen Morgenson has reported, Merrill Lynch’s losses from the last two years wiped out its profits from the previous decade.

What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it “management fees” or “performance bonuses.” Once the investments were exposed as hopeless, the lenders — ordinary savers, foreign countries, other banks, you name it — were repaid with government bailouts.

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it.

I understand this chain of events sounds a bit like a conspiracy. And in some cases, it surely was. Some A.I.G. employees, to take one example, had to have understood what their credit derivative division in London was doing. But more innocent optimism probably played a role, too. The human mind has a tremendous ability to rationalize, and the possibility of making millions of dollars invites some hard-core rationalization.

Either way, the bottom line is the same: given an incentive to loot, Wall Street did so. “If you think of the financial system as a whole,” Mr. Romer said, “it actually has an incentive to trigger the rare occasions in which tens or hundreds of billions of dollars come flowing out of the Treasury.”

Unfortunately, we can’t very well stop the flow of that money now. The bankers have already walked away with their profits (though many more of them deserve a subpoena to a Congressional hearing room). Allowing A.I.G. to collapse, out of spite, could cause a financial shock bigger than the one that followed the collapse of Lehman Brothers. Modern economies can’t function without credit, which means the financial system needs to be bailed out.

But the future also requires the kind of overhaul that Mr. Bernanke has begun to sketch out. Firms will have to be monitored much more seriously than they were during the Greenspan era. They can’t be allowed to shop around for the regulatory agency that least understands what they’re doing. The biggest Wall Street paydays should be held in escrow until it’s clear they weren’t based on fictional profits.

Above all, as Mr. Romer says, the federal government needs the power and the will to take over a firm as soon as its potential losses exceed its assets. Anything short of that is an invitation to loot.

Mr. Bernanke actually took a step in this direction on Tuesday. He said the government “needs improved tools to allow the orderly resolution of a systemically important nonbank financial firm.” In layman’s terms, he was asking for a clearer legal path to nationalization.

At a time like this, when trust in financial markets is so scant, it may be hard to imagine that looting will ever be a problem again. But it will be. If we don’t get rid of the incentive to loot, the only question is what form the next round of looting will take.

Mr. Akerlof and Mr. Romer finished writing their paper in the early 1990s, when the economy was still suffering a hangover from the excesses of the 1980s. But Mr. Akerlof told Mr. Romer — a skeptical Mr. Romer, as he acknowledged with a laugh on Tuesday — that the next candidate for looting already seemed to be taking shape.

It was an obscure little market called credit derivatives.

E-mail: Leonhardt@nytimes.com

Raghav K · Post by **Raghav K** » 12 Mar 2009 03:17

Arya Sumantra wrote:
Raghav K wrote:karthiksan, a Madrasa in Michigan. thanks ramanagaru.. my area is very specific to implants and applied medicine and thus the reason
Ah bio-mems. Just curious, are you into gold chip based controlled drug release type of thing? Glad to see some MEMS guys on this forum.

Arya, nerve stimulation to be precise.

shyamd · Post by **shyamd** » 12 Mar 2009 03:53

VSudhir, congrats on the PhD (Permanent Head Damage)

quote="shyamd"]

Arya Sumantra wrote: Here’s my take:

The khan, UKstan and Euronion (Your-opinion union), all three, will try to print their way out of the problem.

Inflation
Inflation from printing would hurt uro backers more since being more protectionist they would not be able to export their inflation to the countries exporting to them.

Khan’s economy being open, the moment inflation takes the prices higher someone will export to khan and bring down the prices. Only property price inflation, if and when it happens, cannot be prevented.

UKstan will be either intermediate or worse off then Euronion.

http://en.wikipedia.org/wiki/Quantitative_easing

Since the output gap is now strongly negative there is no immediate risk of inflation from this source, that imply there is actually a chance of deflation in 2010/11. With all of this in mind the direct inflationary effects of quantitative easing are some way off or of little significance and as soon as signs of increasing inflation appear the Bank of England is obliged to go quickly into reverse.

There is a further indirect effect if the UK increases its money supply more than others especially the US and the rest of the EU. You imply this. The lower relative interest rates will cause the £ to fall further and this will increase the rate of inflation. My feeling is that this reduces the risk of deflation and explains the slow fall in CPI inflation at the moment. It could lead to inflation becoming a problem again perhaps reinforced by higher food prices. If the ECB and the FED follow the Bank of England with large scale 'quantitative easing' long run interestrates will fall across the world so the impact on exchange rates and hence inflation will be zero or nearly so. The risk of higher inflation from this source will reduce a lot.[/quote]

Will QE work?
* Robert Peston
* 11 Mar 09, 09:13 AM

The Great British Experiment begins today, when the Bank of England's wades into the market to buy £2bn of British government bonds for ready money.

Bank of EnglandNote it down in big red letters: it's Quantitative Easing Day, QE Day, when the Bank of England attempts to stimulate economic activity by its new initiative to reduce the interest rates we actually pay and to increase the amount of money in circulation.

Actually, the Bank of England's announcement that it was proposing to spend up to £150bn - and £75bn initially - on public-sector and corporate debt has already had a substantial market impact.

The price of medium and long term gilts (British government bonds) has risen between 17% and 20% over the week since the size of the operation was disclosed.

The corollary of that is a fall in the yield on gilts to levels we've not seen since the 1950s.

If you'd bought gilts yesterday, the yield was around 2% for a five year loan to our government, 3% for ten years and 4% for 20 years.

For the Treasury, this looks like a triumph.

The Treasury has to pump out over £100bn a year of new government bonds over the next two or three years, to finance the ballooning gap between what the public-sector spends and what it receives in tax revenues.

And the device of authorising the Bank of England to buy up a huge proportion of these IOUs has apparently reduced the cost of all that borrowing to an astonishing degree.

Which seems a bit bananas, since surely all we're talking about here is one arm of the state buying debt issued by another arm of the state.

Surely if markets were rational and efficient, there would be no impact on gilt prices, or yields or interest rates at all.

Isn't there a kind of Ricardian equivalence going on here, where nothing of economic substance has actually changed?

It seems to me that this policy only works on the basis that markets are irrational and short-termist.

All investors apparently see is the volume of Bank of England money going into the market that's increasing demand for gilts and driving up their price.

In a way, investors are not wrong. These are real purchases.

But what I find slightly odd is that investors don't think through what the Bank of England and Treasury are trying to achieve by doing this - what a successful outcome might look like.

The point of the Bank of England's exercise is to increase money in circulation, to ward off the threat of deflation and to stimulate economic activity.

In slightly simplified terms, if the Bank of England today buys a load of gilts from pension funds, those pension funds will put the money on deposit with our banks (the reason I mention pension funds is that the Bank of England tells me it wants the bulk of its purchases to come from non-bank financial institutions, such as pension funds and insurers).

Two things should then follow. The liquidity of our banks should improve - and with any luck they would then lend some of that cash to businesses or households, who would then do a bit of useful spending or investing.

And the pension funds should use some or all of that cash to buy other assets, anything from more gilts, to shares or property - which should have a beneficial downward effect on yields and interest rates and also a helpful upward effect on asset prices.

Now it's very uncertain how much of that good stuff will actually happen.

In an extreme case, where banks and pension funds are terrified of taking risks, the money could simply sit in the banks, doing nothing.

And one important reason why it may be naïve to anticipate any significant impact on real lending to the real economy is that banks are still engaged in the vicious process of reducing their excessive exposure to other banks and financial institutions - and the new money injected by the Bank of England may be totally absorbed by that so-called "deleveraging".

But let's look on the bright side and assume that at some point the new money starts to do its job: lending increases, spending increases, prices rise, investors' appetite for risk returns.

Now guess what one inescapable consequence of that kind of economic recovery would be?

Well, interest rates would rise and the price of gilts would fall.

Here's the funny thing, therefore.

If quantitative easing is a success, the Bank of England will inevitably make a loss on the gilts it buys.

How big could that loss be?

Well the Bank of England may buy £100bn of government bonds in the coming weeks and months, or possibly even more. And if there were then a bit of a rise in inflation, coupled with investors becoming keener on purchasing riskier assets (such as equities, property and lower-grade corporate debt), well a 30% fall in the price of government bonds would not be out of the question.

And that would generate an eye-watering loss for the Bank of £30bn.

Not nice.

There's also a worse case scenario - which is that inflation could take off with a vengeance. And in those circumstances, the Bank would probably have to dump a load of bonds on the market to drain surplus money from the system as quickly as possible.

In those circumstances, goodness knows how substantial the losses could turn out to be.

That said, many would see that as a price worth paying, however chunky, if it helped to deliver an economic recovery.

But there is a paradox here - which I have already alluded to.

If investors have confidence in what the Bank of England is trying to achieve, the price of gilts would not have been rising over the past few days - because if Quantitative Easing were to work, demand for gilts and the price of gilts would both fall very substantially.

So in a curious way, markets seem to be voting that QE won't work (unless you believe that markets are wholly irrational, which may well be the correct explanation).