Author: Matthew G. Saroff

Economics Update

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Credit card defaults have hit a 20 year high, which implies to me that the unemployment numbers when they come out are going to show further contraction.

Housing Starts were up 22% from January in February, though the headline on the link, “U.S. Housing Starts Rebound,” is simply nonsensical, as Barry Ritholtz notes, single family building remained flat, it was people building multi-residential properties, and even with the gain, the number is down 50% year over year.

Calculated Risk’s Credit Crisis Indicators are showing modest improvement, though they all remain at troubling levels.

In energy, oil hit a new high for the year, approaching nearly $50/bbl, and in currency, they dollar was down only marginally.

Looks Like My “Amputate” Meme is Spreading

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One of the better Congressional freshmen is Alan Grayson (D-FL), and he is now using the term amputate with regard to AIG:

Grayson joined fellow Democrats as well as Republicans in blasting AIG for its refusal to give up hundreds of millions of dollars in bonus payments. He painted the government’s choice as a stark one, using the metaphor of treating a wound versus amputating a limb.

“It’s not clear to me at all that we’re taking the correct approach by allowing AIG to continue to operate, regardless of who owns it,” Grayson told me. “At this point, ownership is becoming an amorphous concern when comes to a company that borrows millions and millions without any prospect of paying it back. … Do we continue to allow the bleeding or not?”

Note that I am not suggesting that the distinguished gentleman from Florida reads my blog, merely that my suggestion of amputating diseased banks is something that other people are coming to independently.

The banking system has more than zombie banks. It has gangrenous limbs that will continue to poison the rest of the body until removed.

Red Cross Uses the ‘T’ Word

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By the “T” word, I mean that they used the word torture to describe the treatment of detainees by the CIA:

The International Committee of the Red Cross concluded in a secret report that the Bush administration’s treatment of al-Qaeda captives “constituted torture,” a finding that strongly implied that CIA interrogation methods violated international law, according to newly published excerpts from the long-concealed 2007 document.

The report, an account alleging physical and psychological brutality inside CIA “black site” prisons, also states that some U.S. practices amounted to “cruel, inhuman or degrading treatment.” Such maltreatment of detainees is expressly prohibited by the Geneva Conventions.

(emphasis mine)

When do we either start prosecutions, or turn them over the Hague?

Pakistan Chief Justice Reinstated

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Iftikhar Muhammad Chaudhry was removed by former president Musharraf because he was seen as non-corrupt and independent of the executive, and current Pakistani President Asif Ali Zardari reneged on his promise to reinstate him because he was afraid that he would investigate his own personal corruption, and that he would likely overturn the ban on rival opposition leader Nawaz Sharif.

Well, with a massive protest converging on the capital, Islamabad, and police unwilling to enforce his ban on the protest in many places, Zardari has backed down and will reinstate Chaudhry.

This is good news for Pakistan on a number of levels, it reinforces the rule of law, it is a step away from dictatorship, and it reinforces the concept of an independent judiciary.

Prosecutors Seek Forfeiture of Madoff Marital Assets

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It looks like they are seeking to seize the bulk of his and his wife’s assets through civil forfeiture:

The government said in a court filing yesterday that it intends to seize assets including the Madoffs’ $7 million Upper East Side apartment in Manhattan and homes in Montauk, New York, Palm Beach, Florida, and France. Prosecutors will also seek $17 million in cash and $45 million in bonds in accounts in Ruth Madoff’s name, Acting Manhattan U.S. Attorney Lev Dassin said.

Ruth Madoff was Bernie Madoff’s bookkeeper for 3 decades, and her assets were at one point or another his assets: he transferred them to her to protect them, so this action is appropriate.

Note that they are going after what appears to be everything, including the piano and silverware.

It’s all proceeds of a criminal activity, and it will serve to deter people like Mr. Madoff if they know that transfer of assets will not protect his family.

I Think That These Financial Machinations Qualify as Financial Terrorism

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It appears that there is a reason why Lawrence Summers seemed to capitulate to AIG’s bonus contracts for its financial products division, as I mentioned yesterday: They specifically wrote the contracts so that the counter-parties could consider it a default and demand an immediate payment if they did not get their bonuses.

So, basically, they wrote blackmail terms into their contract, which seems to me a awful lot like a sysop writing a back door into the computer network, and at least as illegal.

With the Serious Fraud Office in the UK investigating them, as well as New York Attorney General Andrew Cuomo investigating their bonus, I think that the best alternative at this time is for American authorities to seek their extradition under the terms of the recent treaty.

I think that though of facing the United States generally inhumane prison system will have them folding like overcooked broccoli for the privilege of spending a few years in a British prison.

Likud and Israel Beiteinu Sign Coalition Deal

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This is the first deal signed, and it takes Netanyahu to 42 of the 61 seats needed to govern.

About the only bright side on this is the possibility, however slight, that Israel Beiteinu rather militant secularism will to some degree inform the political discourse regarding the Heredim* Schnorers.†

But that still does not excuse IB’s rather militant racism.

*Ultra-orthodox.

†A beggar who would chide a donor for not giving enough.

On Receiving the Largess of the House of Saud

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I have followed the entire “rent-a-crowd” hysteria regarding Charles Freeman’s appointment as chair of the National Intelligence Council, but I really haven’t had anything to add, but in commenting on this Ken Silverstein of Harper’s Magazine asks the following:

So why is the Middle East Policy Council any more intellectually corrupt than AEI or WINEP? And why is employment at the former a bar to government employment, but a job at the last two is not?

The answer here is not is not that the MEPC is in any way more corrupt, either legally or intellectually than the AEI or WINEP.

Rather, it is that Saudi money is perceived as dirty, while the money going to the AEI and WINEP is largely domestic wingnut, which is perceived as “cleaner”.

As corrupt as domestic wingnuts are, and they are very corrupt, their history of selling opinions to big bucks backers has long been document, but the House of Saud is a poster child for bad governance, bad policy, and bad governmental structures, being one of the few remaining absolute monarchies in the world, and even by that standard it is remarkably venal and corrupt.

I think that the hit on Freeman was wrong and stupid, but the idea that Saudi money should be viewed as both corrupt and corrupting is very close to the truth of the matter.

If an organization wants to be taken seriously, it should steer clear of Saudi money.

Self-Important Wankers

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It appears that the members of the Washington, DC press corps are miffed because Barack Obama won’t be attending their annual Gridiron dinner:

But some Gridiron veterans make clear they don’t understand. Chicago Tribune columnist Clarence Page said, “People feel uncommonly saddened, miffed and burned.

“I don’t think he understands the implications of not coming to the club in the first year. It’s not your ordinary state dinner. I think it would be helpful for him and his relations with the Washington establishment to come to the club.”

Mr. Page, by “some people”, you mean “Chicago Tribune columnist Clarence Page,” and you need to get over yourself.

Beyond bruised feelings among the pundit class, Obama’s snub is a revealing cultural moment.

Gridiron has for decades been an inner sanctum of Washington’s political press corps. The club’s mostly aging members were considered highly prestigious because they said so — and because they had the ability to summon the capital’s political elite to a spring frolic of skits and songs.

But if a young and glamorous president decides he can afford to blow off an august and tradition-bound institution, one has to at least entertain the possibility that this institution may not be quite as august as its members assumed.

It never was anything but a mutual masturbation society.

Obama decided that spending spring break with his girls was more important, so good for him.

Economics Update

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Scary production graph courtesy of Calculated Risk

Industrial production has fallen for the 4th straight month, and the year over year decline is the largest since 1975, and the New York Fed’s Empire State Manufacturing Survey fell to a record low, so no one is manufacturing much of anything.

What’s more, the port of Los Angeles import traffic fell 27.3% year over year, so no one is buying imports either. (Note that this number does not include the port of Long Beach)

Also, the Builder Sentiment Index is unchanged, and so it remains near its record low, so real estate is still dead.

At least people are still willing to buy US government debt at reasonably low interest rates.

In energy, OPEC kept production targets unchanged yesterday, and so oil rose today.

In currency, the dollar fell on the poor manufacturing numbers.

Angela Merkel Simultaneously Stupid and Wise

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First, it appears that she continues to buy into Hoovernomics, refusing to implement a new stimulus package, and then, shockingly, she mentions the elephant in the room, noting that the EU expanded too quickly, and needs to get its sh%$ together before adding more countries.

I think that the first opinion comes from two places, her early days as a citizen of the DDR (East Germany) makes her dubious of anything that sounds remotely like socialism, and also the institutional German memory of hyperinflation 1919-23, which afflicts Germans on both sides of what was the Berlin wall.

As to her statement that the EU needs a “consolidation phase” before any new members join, which is both correct, and a significant departure from the conventional wisdom in Europe, this is something that is easy for an outsider to recognize, like Paul Krugman, but not for members of the European equivalent of the “Beltway villagers”.

So props to the Chancellor on getting this right.

Not Enough Bullets, AIG Yet Again

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This time it appears that AIG is paying either $165 million, or $450 million to senior employees of their financial products division, the one which bankrupted the firm through their credit default swap (CDS) business.

It appears that the treasury, who, you know, manages AIG on behalf or the taxpayers, who now own of 80% of the bankrupt in everything but name only firm, were told by AIG president Edward Liddy that these were contracts, and so they had to honor them:

[Obama economic guru Larry] Summers said the government would examine its options, but he acknowledged it might not be able to terminate prior bonus agreements.

“We are a country of law. There are contracts. The government cannot just abrogate contracts,” he said in an interview Sunday on ABC’s “This Week.”

AIG is already scheduled to pay $121.5 million in incentive payments for 2008 to senior executives and 6,400 of its employees. And AIG is laying out another $619 million for 2009 in retention payments to more than 4,000 employees.
Total expected payments amount to almost $1.2 billion.

Somehow, the contracts signed with auto workers must be renegotiated, but those signed with failed and incompetent financial executives must be supported.

Seriously, the US government claim of impotence in the face of a contract is a reflection of the fact that Mssrs. Summers and Geithner are creatures of the corrupt financial industry on Wall Street, and cannot see beyond this.

If I had to choose between Vladimir Lenin and Timothy Geithner at Treasury, I would be very hard pressed to choose.

Gripen NG AESA Radar in Flux

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Originally, SAAB had contracted with Thales for its AESA antenna to be integrated with the Gripen NG, and while this will happen, Thales is refusing to make this available for production variants, because they are heavily tied into the Dassault Rafale, so far winless in export competitions, and the Gripen is competing against it for the Indian MMRCA and the Brazilian fighter competition.

This is further complicated by the fact that while the Thales system is compatible with the existing signal processor from the Saab PS-05 MSA radar already flying on the JAS-39 C, some of the successors would likely require that that this be changed, increasing integration costs.

So SAAB is casting about for another radar, hopefully one that is US content free, so as to avoid US export restrictions.

Well We Know Where Were Goin, But We Dont Know Where Weve Been*

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So, it appears that we have yet another aspect of NASA’s Orion moon program, the heat shield, where the original material, Phenolic Impregnated Carbon Ablator (PICA) has been replaced with an updated version of Avcoat, which was used in the original Apollo capsule.

The PICA heat shield was delivered late, and looked to be overkill for what should be the primary mission of the spacecraft, low earth orbit, with a focus on servicing the space station.

This is a reversal from the decision made in 2006 by both NASA and Lockheed-Martin, the prime contractor, to go with PICA, and that should have been the end of the story, only the preliminary design review (PDR) also scheduled for that year has still not been held, and Avcoat showed lighter weight than the original, along with significant reductions in the toxic substances used in its manufacture.

Confused? So is NASA, so it seems.

*The first two lines of the Talking Heads song Road to Nowhere. It’s a metaphor for NASA.

Ceramic Composites Starting to Find Way Into Engines

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Production verification ceramic matrix composite vane

Well, we now have another reason to support a 2nd engine for the JSF, it appears that the GE/Rolls-Royce F-136 alternate engine will be the first production engine to use ceramic composites. (paid subscription required)

Right now, they are looking at using it on stationary parts of the engine, “vanes, shrouds, combustor liners,” though there is investigations of using it on rotating parts too.

There is both a significant weight savings (Nickel is heavy), and a reduction and/or elimination of the need for cooling air.