Author: Matthew G. Saroff

The Genius of John Maynard Keynes

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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.

Un-Dirtyword-Believable

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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

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Ummmm…wow????

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.

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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

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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

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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.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

OK, The Caroline Kennedy Senate Bid Has Jumped the Shark

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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

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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

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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

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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.

And in a Race to the Right

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Both Tzipi Livni and Benjamin Netanyahu are promising to take down the Hamas government in Gaza.

It’s an attempt by Livni to position herself to the right of Natanyahu for the election it is stupid, since it serves to reinforce support for Hamas.

In terms of government entities in the disputed territories, Israel faces Morton’s Fork, with Hamas actually able and willing to perform the role of governance while being unwilling to acknowledge Israel as a country, and the PA (and Fatah in particular) being unable to do any of that, because their focus continues to be corruption and self dealing while paying lip service (when not speaking in Arabic) to Israel’s existence.

I don’t know of a solution here.

How the Heck Do They Screw This Up So Badly

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Let’s be clear about this: while it is clear that Ted Stevens is guilty of accepting bribes, he was only convicted of the easier-to-prove failure to report gifts.

In the process of prosecuting this case, the prosecution mad basic, and what appear to me (IANAL) to be very elementary errors in things like discovery and errors in the indictment, and now we have a whistle blower claiming irregularities in terms of witness contacts:

  • A member of the prosecution accepted “multiple things of value” from a “cooperating source” (most likely former Veco CEO Bill Allen, his name shows up in the redacted complaint)
  • An “inappropriate scheme” was created to relocate a witness.

I’m wondering if someone on the prosecution team was trying to throw the case. Bush, and Bush before him, and Reagan before him, have done their level best to politicize the DoJ, and this could be the fruit.

I find simple incompetence to be an inadequate discussion explanation.

Why Barack Obama Needs to Fire a General or Two

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So, the status of forces agreement is signed, and General Ray Ordierno immediately starts making public statements about how it a binding timeline in the agreement does not really mean a binding timeline.

Now we have unnamed sources deep in the Pentagon saying that the pullout of troops from Iraqi cities will be a pullout in name only:

Even though the agreement with the Iraqi government calls for all American combat troops to be out of the cities by the end of June, military planners are now quietly acknowledging that many will stay behind as renamed “trainers” and “advisers” in what are effectively combat roles. In other words, they will still be engaged in combat, just called something else.

Let’s be clear, this is a case of the Pentagon leaking from near the top: the leaks have been approved by Gates, Petraeus, or Ordierno.

On January 21, they need to be told that they will stop all comments, and that the entire chain of command needs to know that the status of forces agreement is now the position of the government of the United States of America, and that anyone who suggests otherwise is engaging in insubordination, and will be subject to severe disciplinary actions.

And then, the next relatively senior officer (Lt. Col. and above) who shoots off his yap gets fired.

Because this really is insubordination, and while it may serve the desires of Bush and His Evil Minions™ to subvert the timetables in the SOF, it does not suit the desires or needs of the nation.

If anything else is done, Barack Obama will be rolled for the rest of his time as President by the Pentagon.

More on the Latest Diabolical Plan From the RIAA

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It appears that there has now been some response from the lower tier ISPs about the RIAA’s proposal attempting to dragoon them into doing their copyright enforcement work for them.

At least one relatively small ISP is saying pay to play:

Jerry Scroggin, owner-operator of Bayou Internet and Communications, wants the music and film industries to know that he’s not a cop and he doesn’t work for free.

Scroggin, who sells Internet access to between 10,000 and 12,000 customers in Louisiana, heard the news on Friday that the Recording Industry Association of America (RIAA) has opted out of suing individuals for pirating music. Instead, the group representing the four largest music labels is forging partnerships with Internet service providers and asking them to crack down on suspected file sharers.

According to Scroggin, if RIAA representatives ask the help of his ISP, they had better bring their checkbook–and leave the legal threats at home. (CNET News obtained a copy of the RIAA’s new notice to ISPs here). Scroggin said that he receives several notices each month with requests that he remove suspected file sharers from his network. Each time, he gets such a notice from an entertainment company, he sends the same reply.

“I ask for their billing address,” Scroggin said. “Usually, I never hear back.”

This makes sense.

Not only is it an expensive process, it is one that is fraught with liability issues from disgruntled customers.

If I were operating an ISP, I’d tell them to pound sand, but I’m not a businessman who has to deal with these compromises. For me, it’s a moral decision: Without a court order, I do not spy on customers.

Were I willing to make a compromise, at a minimum, my price for cooperation would be as follows:

  • The orginization would have to pay the techs at the retail billing rate.
  • The organization would agree to cover any and all legal fees incurred as a result of cooperation.
  • The organization would agree to totally indemnify my company against all claims as a result of this.

The last two are the most important, because when the RIAA goes after a grandmother for downloading the rap song I Want to F*^% You In the A@#, and they already have done so, I would not want to be left holding the bag.

And Then There are the Involuntary Part Timers

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One of the ways that unemployment is understated is that in bad times, you see an explosion in the number of people who work part time.

This is one of the numbers that you rarely, if ever, see reported in the press, and it is not a pretty picture.

Graph pr0n courtesy of Calculated Risk, who to his credit notes that this is not population adjusted, it goes back to 1960, which was a recession year itself, but does note that the near vertical rise in the involuntary part-time is as bad as has been seen over those 48 years.

It’s about a 75% increase over the past 12 months.

Economics Update

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Well, most of the credit crunch indicators seem to be better today, or at least not as bad as expected.

First, we have the TED spread, the difference between the rates on interbank overnight loans and short term T-bills falling below 150 basis points (1½%) to 148 basis points, for the first time since Lehman collapsed.

Of course historically, the TED spread has been about 38 basis points.

Additionally, U.S. 2-Year T-Notes were auctioned off at a higher interest rate than predicted, 0.922%, which was better than the predictions of 0.912%, though the former is still near a record low, and still reflects a flight to safety at the expense of anything resembling returns.

You get the same picture from Calculated Risk’s Credit Crisis Indicators where things appear to be really bad, but better than they have been.

In terms of the real economy, things are still tough though with temp agency Manpower, Inc. withdrawing its forecast on weak demand, and temp employment is a bellwether, and we also are seeing the first decline in online holiday sales ever, according to a report from ComScore.

Considering the fact that online sales are still growing as a proportion of overall sales, the rest of retail is doing worse.

In energy, oil is down again, largely on reports of diminished Chinese demands.

In currency, the Dollar is up on the expectation that central banks will act to support it.