Month: December 2008

Rumbles Against Kennedy Koronation

Well, it appears that as time goes on, we are beginning to see real push-back against Caroline Kennedy’s appointment to the US Senate to replace Hillary Clinton.

Among the concerns:

  • That she is too close to Michael Bloomberg, who was a Republican until recently, and might support him running for a 3rd term as mayor.
  • Governor Patterson feels that his openness to her presenting his case to him has been turned into a steamroller by her people.
  • Moves by Kennedy’s people and Bloomberg’s people to announce a replacement immediately, even though Patterson has clearly stated that he will not announce an appointment until Clinton resigns to become Secretary of State.

Something to realize here is that whoever Patterson appoints, they are likely to face a spirited challenge in the general, and based on what I’ve seen so far, Kennedy is a weak campaigner.

Truth be told, a lot of this comes down to Bloomberg, whose strident support for her is not helping with New York Democrats, and the fact that she’s really not making herself particularly available which has drawn Palin analogies from her opponents.

Fair or not, in a post Palin world, she needs to do an interview to show that she has a real clue.

We Will See More of This

We are now starting to see the breakdown of customs in the financial community that would have been unthinkable only a year ago.

Case in point, Deutsche Bank refusing to execute a call option on €1 of subordinated debt, which has the Bank of China ready to cut off all contact with them.

Here is the short version of what just happened:

  • The bank has been offering a bond of relatively low quality which has a maturity date at some point in the future.
  • Typically, at some portion of that maturity date, the bank can call in the bond, i.e. pay off the loan and roll over the loan by selling new loans.
  • Deutsche Bank has decided that money is too expensive right now, and is refusing to call in the bonds.
  • This means people who, for example, bought a 5 year bond with a 1 year call option, now cannot get their money back at the 1 year mark, and have to wait to the 5 year mark.
  • Thus, the investors are very are pissed off.

The thing is that while Deutsche is under no legal obligation to call in the bonds, this sort of rollover has been a routine way of doing business for a very long time.

In some ways these conventions are at least as important in international finance as the actual laws and regulations under which these institutions operate, and we are seeing them break down in significant ways.

One of the Consequences of the Financial Meltdown

Is that it has shown to the world that the Neoliberal economic policies of the IMF and world bank are not applied to Europe and the US.

As such, the parties in power in many parts of the world are becoming far less receptive to “soak the poor” policies that have been foisted upon them by international institutions like the IMF and World Bank.

We are the fruits of that revalation going on in South Africa right now, where South African labor unions have extracted changes in policies from the ruling ANC.

The Congress of South African Trade Unions (COSATU) is getting commitments to poverty reduction in exchange for their support of Jacob Zuma in his confrontation with Thabo Mbeki, and now they want a change in focus for the next government.

Of course, moneyed interests are not amused:

Investors fear the left has gained influence over the African National Congress in the past year and believe it might pressure the government to ditch policies that helped spur nearly a decade of growth in Africa’s biggest economy.

Of course those policies haven’t benefited a majority of the population. The argument is that by keeping social programs sparse, and any minimum wage low, that growth would eventually trickle down.

It hasn’t in South Africa, or anywhere else.

In fact, what is arguably the best example of a formerly poor society becoming well off, Singapore.

Its leader in its formative years, Lee Kwan Yoo, made it clear to its capital class, that it would be unacceptable to take it all, that some of the profits had to find its way to everyone.

Fundamentally, if South Africa wants to follow this path, we aren’t talking going Sweden. Simply by raising the minimum wage, improving the access to health care, and making sure that public school is free, available, and universal, you can improve the lot of everyone.

Economics Update

Ouch. Initial jobless claims for last week hit 586,000, the highest number since Nov. 27, 1982. The 4 week rolling average, which is a better metric, rose as well, to 558,000, though continuing claims declined to 4.370 million.

Even if you do have a job, it’s likely that you are seeing wages and or hour cut….And that 401(k) match, fuggedaboudit.

It’s no wonder that consumer spending fell in November, though it was less than expected, and when adjusted for inflation….OK, adjusted for deflation….It was actually up.

As Calculated Risk notes even as record low mortgage rates are boosting demand, a lot of that ReFi, the spread between “conforming” and “jumbo” 30 year fixed mortgages remain at an all time high of about 2%, which means that in expensive areas, the cheap mortgages are simply not available.

CRE is tumbling too, as we can see from the fact that Manhattan office vacancies hit a two-year high.

In currency, the dollar was down again today, and the Russian central bank devalued the Rubleagain.

I still think that a run on the dollar is a possibility when traders start to realize that the Treasury and Fed are printing money and dropping it from the proverbial helicopter.

In energy, increases in inventory, drove oil to $35.35/bbl.

Election Update

Two rulings from the Minnesota Supreme Court.

In the first they granted an extension on the consideration of absentee ballots, some of whom had been improperly rejected, along with approving the plan for review, which is that both sides still have to agree on a ballot before it is counted.

It’s not a great plan, you could be sure that Coleman and His Evil Minions would object to anything with a pulse, but their second ruling, denying Coleman’s request to reset votes in about a dozen precincts to election night totals, pretty much means that Franken is very likely to hold onto his 50 some odd vote lead.

It appears that, based on an interview Coleman gave last night, Norm Coleman thinks so too.

The Genius of John Maynard Keynes

As noted by FT columnist Martin Wolfe

I see three broad lessons.

The first, which was taken forward by Minsky, is that we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”.

The second lesson is that the economy cannot be analyzed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.

Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

(emphasis mine)

In fact, this may be the best message to economics professors out there: that reality matters more than your philosophy.


You have to love this:

If you go back about 20 years, you come across a bank regulator known as Darrel W. Dochow who overrode the recommendation of bank examiners in the matter of Lincoln Savings and Loan, of Keating 5 fame, that the institution be seized because it was insolvent.

Of course, a little while after that, it collapsed, at far greater cost to the taxpayers than had they acted earlier.

So, where is Mr. Dochow now? He’s the western regional director for the Office of Thrift Supervision (OTS), and he figures prominently in the failure of IndyMax.

It seems that he signed off on a back-dated transfer of money to the now failed thrift:

The Office of Thrift Supervision’s western regional director, Darrel W. Dochow, allowed IndyMac Bank to receive $18 million from its parent company on May 9 but to book the money as having arrived on March 31, according to the Treasury Department’s inspector general, Eric M. Thorson. The backdated capital infusion allowed IndyMac to plug a hole that its auditors had belatedly found in the bank’s financial results for the first quarter. If IndyMac had not been able to plug that hole retroactively, its reserves would have slipped below the minimum level that regulators require for classifying banks as well capitalized.

Though the $18 million transaction was minuscule in comparison to IndyMac’s $32 billion in assets, it had tremendous significance. If IndyMac had lost its well-capitalized status it would not have been allowed to accept “brokered deposits” from other financial institutions. Brokered deposits are typically high-yielding certificates of deposit arranged by brokers and sold to savings and loans. IndyMac relied heavily on brokered deposits, which amounted to $6.8 billion or 37 percent of its total deposits last spring.

“This is very significant in terms of whether IndyMac was over or under the O.T.S.’s thresholds for capital,” said Bert Ely, a veteran banking analysts in Alexandria, Va. “But what’s really troubling is that it seems to have been going on elsewhere.”

What is even more troubling is that this guy still had a job in bank regulations, and what’s more, he had a senior position.

Why this man was allowed to do anything that did not involve asking, “Do you want fries with that?” Is the real question here.

I don’t know if Darrel Dochow ever took a dime, or a dinner, or even something as inconsequential as a calendar or a pen, from anyone related to the industries that he regulated, but it’s clear that even if he broke no laws, he is corrupt, and he should be kept away from balance sheets and regulation for the rest of his natural life.

Cheney Admits to Engineering Outing of CIA Operative to FBI


Legally, it may be a gray zone, because there is no evidence that he actually explicitly gave the order to out Valerie Plame, but Murray Waas, one of the better investigative journalist of my generation has gotten his hands on the notes from FBI interview with dick Cheney, and it’s very clear that he rewrote the talking points on the push-back on Joe Wilson’s OP/ED debunking the Niger-Iraq-Uranium claim in such a way as to make it nearly inevitable that Plame would be outed:

Vice President Dick Cheney, according to a still-highly confidential FBI report, admitted to federal investigators that he rewrote talking points for the press in July 2003 that made it much more likely that the role of then-covert CIA-officer Valerie Plame in sending her husband on a CIA-sponsored mission to Africa would come to light.

Cheney conceded during his interview with federal investigators that in drawing attention to Plame’s role in arranging her husband’s Africa trip reporters might also unmask her role as CIA officer.

(emphasis mine)

Of course, I expect Cheney to be among those pardoned between January 15 and January 20, so it will amount to nothing.

Sooner or Later, He Just Might Have to Stand for Something.

On the reliably wankeriffic Washington Post editorial page, Richard Cohen is generally one of the more reliably wankeriffic. He’s not up to the truly delusional level of Krauthammer, but he consistently shows a lack of ability to think and even to understand what he just said. I have noted this in the past.

That being said, Richard Cohen gets one right today, because, unlike most of the time, he actually knows the people who are effected by a political event.

In this case, it is his sister, who is a lesbian and in a 19 year committed relationship, and a supporter of Barack Obama who traveled to volunteered for the campaign, has canceled her inauguration party because of his invitation to for bigot preacher Rick Warren to give the invocation.

It’s amazing how much more sane and thoughtful the pundits are when it’s them and theirs that are effected by an action…Kind of funny huh?

Cohen rightly castigates Obama on this, though, with typical aplomb, he buries his lede:

The conventional thing to say is that Obama has a preacher problem — first the volcanic Jeremiah Wright and now the transparently anti-gay Warren. But the real problem has nothing to do with ministers and everything to do with Obama’s inability or unwillingness to be a moral leader. Sooner or later, he just might have to stand for something.

Of course his point on Wright was that Barack Obama needed to leave his church because a publication edited by Wright’s daughter gave an award to Farrakhan, because black politicians are in lock step with everything done by their church….Something he would never suggest of a white politician.

That being said, this is a case of a stopped clock being right twice a day: Sooner or later Barack Obama has to stand for something.

Election Update

The unofficial tally in Franken-Coleman has Franken leading by 48 votes.

The Coleman folks are freaking out, and have alleged double counting of ballots and have petitioned the court to revert to election night totals….Surprise…in all of the slightly more than a dozen precincts they are targeting, this takes votes from Franken…In fact, it takes enough votes to put Coleman in the lead.

Franken’s lawyers are claiming that this would in effect undermine the whole recount, and not just these precincts.

In any case, the Minnesota Supreme Court heard arguments Tuesday, but no ruling has yet come down.

In further court news, it appears that there are reports of an agreement on the counting of absentee ballots, though it misses the deadline set by the Minnesota Supreme court, with counting being completed January 6, as opposed to December 30.

Economics Update

Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.
Considering my record, this may actually be a sign to go the other way….Or not.
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OK, The Caroline Kennedy Senate Bid Has Jumped the Shark

Fundamentally, there is a difference between a celebrity running for office, and a celebrity being appointed to office.

It’s even more extreme when said celebrity has little in the way of personal accomplishments, and is being considered simply because of who her father was, and the fact that she is a FOB (friend of Barack).

But now, Caroline Kennedy is refusing to make financial disclosures unless she is offered the appointment:

If she were applying to be, say, an undersecretary of education in Barack Obama’s new administration, Caroline Kennedy would have to fill out a 63-item confidential questionnaire disclosing potentially embarrassing text messages and diary entries, the immigration status of her household staff, even copies of every résumé she used in the last 10 years.

If she were running for election to the Senate, Ms. Kennedy would have to file a 10-part, publicly available report disclosing her financial assets, credit card debts, mortgages, book deals and the sources of any payments greater than $5,000 in the last three years.

But Ms. Kennedy, who has asked Gov. David A. Paterson to appoint her to succeed Senator Hillary Rodham Clinton — and who helped oversee the vetting process for Mr. Obama’s possible running mates — is declining to provide a variety of basic data, including companies she has a stake in and whether she has ever been charged with a crime.

Ms. Kennedy declined on Monday to reply to those and other questions posed by The New York Times about any potential ethical, legal and financial entanglements. Through a spokesman, she said she would not disclose that kind of information unless and until she becomes a senator.

“If Governor Paterson were to choose Caroline, she would, of course, comply with all disclosure requirements,” said the spokesman, Stefan Friedman.

Caroline Kennedy has led an intensely private life by the standard of a Kennedy, and has generally eschewed the limelight, and I’m beginning to wonder if she’s trying to throw the appointment derby, and that she is in only because the family is pressuring her to do so.

If that’s the case, it would better to be honest with her family. If that is not the case, this is insanely reckless and stupid.

If she is not willing to make these disclosures prior to a selection, particularly given Governor Patterson’s concerns that have popped up among his own staff regarding proper vetting, then she is not ready for any public office.

But what she is doing now is just nuts.

Latvia Required to Steal from Poor and Give to Rich for Emergency Loan

They are getting emergency loans from the EU and IMF to the tune of about €7.5 billion, and they come with an austerity package.

The bullet points on the austerity package:

  • Public sector wages are to be slashed by 15%
    • BTW, this will increase corruption in the public sector, because bureaucrats gotta eat too….Decent wages is the best line of defense against a culture of corruption in the public sector.
  • The VAT (sales tax) is to be increased.
    • Which hits poor people harder.
  • The income tax is to be cut.
    • Free money for the rich.

Mostly, this is to keep their currency, the Lat, fixed relative to the Euro in preparation for joining the monetary union.

It also has the effect of benefiting rich creditors over poor debtors…See
William Jennings Bryan’s “Cross of Gold” speech.

The country is in trouble: Save the rich, burn the poor for fuel.

So, an Obama Administration Will Employ a Liar as DHS Spokesman

Specifically, Joe Lieberman’s campaign manager for his 2006 primary, Sean Smith, will be hired as the new spokesman at the Department of Homeland Security.

You may not recall, but the Lieberman site went down on primary day of 2006 because they exceeded the limitations on their sight, but that did not stop Sean Smith from repeatedly insisting that Lamont and his supporters were hackers.

If there is a government agency with a black eye on credibility worse than DHS, I can’t think of one, and I am including the Office of the Vice President in this equation.

Obviously people like spokesman and campaign managers tend to lie….It’s their business, but not this guy at this post.

Big Surprise

When a reporter asked the banks about what they were doing with their bailout funds, they refused to answer, except one bank with a vague, “reducing foreclosures,” which is, you know, like a lie, since foreclosures cost lots of money up front, and hit the balance sheet immediately.

One bank said, “No comment,” and then asked the reporter not to quote them on that.

Seriously, some people need to go to jail for a very long time.