Pension Funds to the Rescue

Posted on October 6, 2008 by ape man

In a nutshell, the government first guarantees all the banks’ deposits. Then the buy side — the Icelandic pension funds, which have billions of dollars in foreign securities — sell everything they own abroad, and bring it back home. At an exchange rate of 126 kronur to the dollar, that will buy them a lot of kronur. (The currency has lost fully half its value over the past year.) The banks, too, will liquidate their foreign holdings, and bring them all back home.

Mr. Salmon thinks that this is a shrewd move. But how would you like to be a pensioner in Iceland right about now? This is a trick that only works once and then what?

For more info on the current sate of Iceland see this piece in Spiegel.

China’s Low Capital Dairy Farmers

Posted on October 5, 2008 by ape man

I got into a discussion the other night about China’s milk scandal. I was arguing that China’s dairy farmers were unlikely to be responsible for the contamination of the milk. As best as I understand it, China’s Dairy farm’s are all small low budget affairs. In my view, the types of people who run those farms are unlikely to have the accesses to melamine or have the kind of knowledge that it takes to understand how to use melamine to fool milk testing equipment.

This article from the New York Times strengthens my view. Especially this part….

Sanlu, which is 43 percent owned by the New Zealand-based Fonterra Group, one of the world’s largest dairy companies, controls the only milk station in Nantongyi village, giving it monopoly pricing power in the area. Every day farmers guide their cows to the village milking station, pump milk directly into the station tanks and then return home, waiting to hear how much they will earn, if their milk passes quality inspections.

In the first place this shows how poor China’s dairy farmers are. They don’t even own their own milking equipment. In the second place, it makes hard to understand how the farmers could have contaminated their own milk when they sold the milk straight from the cow to the company.

If the article is to be believed, third parity milking stations are quite common in China.

So it passed….

Posted on October 3, 2008 by ape man

From Politico….

Thirty-three Democrats who opposed the measure on Monday changed their vote on Friday – Washington state Rep. Jim McDermott went the other way, switching from “yes” to “no.” They were joined by 25 Republicans – and retiring Illinois Rep. Jerry Weller, who wasn’t in town for the earlier vote.

And there was also this….

The biggest single constituency to reverse course on Friday was the Congressional Black Caucus. Thirteen CBC members changed from a “no” to a “yes,” and many of them had heard from Obama over the past few days.

Who would have thought that the black caucus would vote to give Bush sweeping powers on the advice of Obama? Who would have thought that supposedly free market Republicans would join with Democrats to enable the government to enter the market in a big way?

I am not surprised the measure passed. But the measure has sure made for strange bedfellows.

Bailout Failed For Now

Posted on September 29, 2008 by ape man

You probably already know that the bail out failed to pass and why it failed. But if you have been living under a rock, read this post by Naked Capitalism. Read the comments. They will make you sick. Take this one for example…

There is simply a segment of the population that does not know better or does not care about the economic well-being of their families or other families. Whether for reasons for morality (what is caused by “debt” cannot be saved by “debt”) or schedenfreude or ignorance or indifference,…The house republicans are the voice for this segment…somehow they have to be bribed or cajoled or coerced into going along…otherwise, in the words of one of America’s greatest leaders, “this suckers going down…”.

The real divide over this issue is not between Republicans or Democrats. Rather it it is between the coastal elites who have had it good for many years and the poor blue collar suckers who have been watching their living standards stagnate for those same years. I have seen blue collar folk who never cared much for politics getting in touch with their representatives over this bail out. They simply can’t understand why none of the industries that they depended on were worth a bail out, but people who earned a hundred times what they make are being bailed out right and left.

But the white collar people with big money tied up in the markets are frothing at the mouth. They would shoot their own grandma to get this thing passed. The only reason they can see for people to oppose this bill is stupidity and ignorance. And that is a shooting offense when their money is at stake.

As usual, those with money are going to win in the end, but it is going leave a bad taste for a long time.

Its all America's fault

Posted on September 29, 2008 by ape man

From Spiegel comes this interview with Germany’s finance minister…

SPIEGEL: And is the United States completely to blame?

SteinbrÃƒÂ¼ck: The source and focus of the problems are clearly in the United States. There are many causes. After 9/11, a great deal of cheap money was tossed into the market. Apparently some of that money went to people with poor creditworthiness. This led to the growth of the real estate bubble. The banks embarked on a race over profit margins. Then speculation spun completely out of control…

SPIEGEL: …which also benefited German banks for a while.

SteinbrÃƒÂ¼ck: But they didn’t invent these transactions. The stokers on the financial markets were responsible for that.

SPIEGEL: And how is the US patient doing now?

SteinbrÃƒÂ¼ck: It’s in the ICU with pneumonia. This means that here in Europe, we can at least expect to get a bad cold. The US patient lacked legislation, a regulatory framework that could have helped avoid this development. That’s the key issue for me. The financial products became more and more complex, but the rules and safeguards didn’t change. I don’t know anyone in New York or London who would have asked for a stronger regulatory framework 18 months ago. They were always saying: The market regulates everything. What a historic mistake!

SPIEGEL: Your US counterpart, Treasury Secretary Henry Paulson, began by essentially nationalizing the two US mortgage giants, Fannie Mae and Freddie Mac. But then he allowed investment bank Lehman Brothers to plunge in bankruptcy before saving the insurance giant AIG with an $85 billion (Ã¢â€šÂ¬58 billion) bailout. This doesn’t exactly look like a clear course of action.

SteinbrÃƒÂ¼ck: In the case of Lehman, the US government wanted to send a signal to the market that they are not prepared to offer a bailout under any circumstances. In the case of AIG, we had direct talks at the G7 level and implored them to stabilize the situation. An AIG bankruptcy would have triggered shock waves around the world. We were all staring into the abyss at that point.

I have to laugh when I read stuff like this. It is like the people in the US blaming Saudi Arabia for all the evils in the world. Granted, Saudi Arabian money funds a lot of Islamic extremists, but it is the western (and in particular the US’s) addiction to oil that makes them rich.

If it was so obvious that stronger regulation was needed why didn’t German regulators stop German banks from buying the crap? Most of the biggest buyers of US crap were banks owned by the German government. Furthermore, any government that allows a mere 6 billion euros of equity to support a 400 billion euro balance sheet does not have alot of room to talk trash.

I doubt I will find this as funny when a billion plus Chinese decide that their economic problems are all America’s fault.

Fear Makes Men Do Strange Things

Posted on September 26, 2008 by ape man

From the New York Times….

According to The A.P.Thursday, in the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.

“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”

Mr. Paulson sighed. “I know. I know.”

Why all the fear? I think the London Banker’s idea is plausible. He says…

The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed – only emphasise the urgency.

The Fed can always print money on a grand scale. But if it does this, the international funding that the US needs will stop. Thus, the Fed is limited in a very real way. And it is burning through its current balance sheet at a terribly fast pace. As Brad Setser says…

In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:

Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b);

Increased its “other assets” by about $80b (from $98.67b to $183.89b);

Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b);

That works out to the provision of something like $370b of credit to the financial system in a two week period. That may be a bit too high: the outstanding stock of repos felll by $40b (from $126b to $ 86b), leaving a $330b net change in these line items. But that is still enormous.

He sums this all up by saying…

This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lend out these kinds of sums over such a short-period.

But the question remains, is taping the world’s already quite generous central banks for another 700 billion dollars in funding really an option? The assumption behind the Paulson plan is that will not raise the interest rates the Federal government has to pay. But this is a dubious hope.

Was Bush's speech really that good?

Posted on September 25, 2008 by ape man

Felix Salmon is no fan of Bush. But this is what he said…

I was right about what Bush was going to say, but I was wrong about how he said it. This was one of the best speeches of his presidency, if not the best. I was watching in a noisy bar, and got the gist — but more importantly I got the body language. He wasn’t panicked, and he wasn’t angry, and he wasn’t telling us that we really had to Act Now Or Else. He was calm, and surprisingly coherent, and he took first-person responsibility for the bailout, and he explained the urgency without sounding like he was reacting in a knee-jerk manner.

Put it this way: if Chris Dodd has been a surprise to me over the past week, Bush tonight was a revelation. It was like he was a completely different politician from the one I’ve gotten used to for the past eight years.

Was not planing on watching it, but now I may have to check it out.

This is what you should be worried about

Posted on September 23, 2008 by ape man

To many people are worried about the health of the financial sector and not enough people are worried about the economic health of the nation of a whole.

Look at this chart. It is a graph of debt as a percentage of GDP. Now tell me; how is a 700 billion dollar bail out going to help America’s fundamental problem?

(h/t Rod Dreher)

Fact can be inconvenient

Posted on September 22, 2008 by ape man

From the Washington Post….

It is the first time social scientists have produced evidence that large numbers of men might be victims of gender-related income disparities. The study raises the provocative possibility that a substantial part of the widely discussed gap in income between men and women who do the same work is really a gap between men with a traditional outlook and everyone else.

The differences found in the study were substantial. Men with traditional attitudes about gender roles earned $11,930 more a year than men with egalitarian views and $14,404 more than women with traditional attitudes. The comparisons were based on men and women working in the same kinds of jobs with the same levels of education and putting in the same number of hours per week.

My first thought when I saw the headline was that they did not account for age. But they did. In fact they followed the same group of people from the time when they where children.

All the guys I know who have traditional ideas of gender roles are more ethical (taken as group there are exceptions) then the men who do not have traditional ideas of gender roles (again, granting there are exceptions). But working in a union environment where everyone with the same job is paid the same amount, it never occurred to me that this could lead to higher pay.

That may be wrong explanation based on my limited circle of acquaintances. It may also be possible that men with traditional attitudes towards gender roles may have higher testosterone levels on average. Testosterone generally helps/drives you to become top dog in any situation.

And last but not least, family background does not seem to have been taken into account. It is likely that the people who had more traditional attitudes towards gender came from more stable families then people who did not have have traditional attitudes towards family. Coming from a more stable back ground may have enabled them to be more successful even when they had the same job as other people.

I am not sure which if any of my explanations are correct. But they are both better then the explanations that the authors of the study came up with. They seemed designed to maintain a PC orthodoxy in the face of inconvenient facts.

Also, it seems that the authors of this study consider people with in similar jobs, working similar hours, and with similar education as being equal. I suspect that the did not account for how long people spent in the same job as opposed to moving around.

If this is true it would explain why traditionally minded woman make so much less the other categories even when doing the same work. On paper they might have the same qualifications, but I doubt they stay in the same field for as long.

Are you scared yet?