Mar 8 2009

Where Taxpayer Dollars Go To Die

Kal @ 19:23

A.I.G., Where Taxpayers’ Dollars Go to Die By GRETCHEN MORGENSON Published: March 7, 2009  - A nice discussion of  why A.I.G. has been so expensive and some thoughts on just how dangerous derivatives (CDS, Credit Default Swaps) are, both to the issuer and to us as the guarantors of last resort.

“DERIVATIVES are dangerous.”

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

A.I.G. nearly barreled off the cliff last September, when it couldn’t meet its obligations to customers who had bought a version of derivatives called credit default swaps. Such swaps are like insurance policies; bondholders buy them to protect themselves from default on various forms of debt.

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Category: Accounting | Conventional Economics | Economics | Politics

Mar 8 2009

The Great Disruption Is Here

Kal @ 14:27

THOMAS L. FRIEDMAN has an article today that makes a whole lot of sense to me. He calls it The Inflection Is Near? He is talking about what I have called the new - "new world order".

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

We can’t do this anymore.

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Category: Climate Change | Politics | Population | Resource Depletion | Steady-State Economics | Sustainability

Mar 6 2009

Follow The Money

Kal @ 22:28

"Follow the money" was the key to unraveling the Watergate conspiracy. And it seems to be to be good advice for the banking crisis also.

By many accounts there are outstanding over 60 trillion dollars in outstanding Credit Default Swaps and other derivatives. [Update: That number is seriously short. I did a correction post Derivatives Revisited] The US Treasury and Federal Reserve keep pouring money into failing banks and AIG. Where will it stop? Do they intend to pay the full 60 531 trillion dollars?

Yesterday the Federal Reserve Official assured us that the financial system will collapse if the names of the "Counter Parties" to these quasi insurance policies are exposed. I am not so interested in the names as in the classes of counter parties. And I would like to know the total exposure from all of the various insurance companies and banks and anyone else we are bailing out.

It does not seem to much to ask, how much total will we be expected to pay? Big round numbers would do just fine.

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Category: Conventional Economics | Economics | Politics | Recession | Sustainability

Mar 1 2009

Honored To Be Called Liberal

Kal @ 12:33

I did a Google blog search on SolSaves and came up with a hit on "S.O.L. Save Our Labor", on a blog called Ramona's Voices. Not exactly the ego stroke I was looking for. But the blog is pretty interesting. It is written by a woman, a life long liberal, who is even older than I am. She was eight years old when FDR died. So I browsed around her site a bit and found a post I really like. The subject is how Rush and his ilk have turned the word liberal into something insulting. Well, Ramon isn't buying it.

L-B-R-L: Not a Four-Letter Word

I've always been proud to be a Liberal. I've never gone the "Progressive" route, and I never will. I see the word "Progressive" not as the definition of an enlightened liberal, but as a cowardly cop-out.
I don't know where that word started, but I know why it did. The Right Wing has spent years trying to convince anyone who would listen that the Liberals hate America. The Liberals are all that stand in the way of true economic success (Oh, yeah. . .that's right. . .). The Liberals want to hug terrorists, and hug trees, and hug Welfare moms driving Cadillacs. The Liberals want Big Government, a Nanny State, and the abolishment of all signs of Christianity, including slogans on tee shirts saying things like, "Jesus Loves Me, How About You?" (No, I don't love you and I think you look silly, but I'm a Liberal, so. . . .whatever.)
All that hate! All that flak! It's enough to make a wannabee Liberal turn Progressive. Not us True Liberals. We consider the source(s), shake our heads, turn the other cheek, (take that any way you like) and get on with the busy business of being a Liberal in these times.
We have a country to save and there's not much time. We got wimpy for an unconscionable number of years--I admit it--but now we need to work hard to make up for it. I'm not good at numbers, but I know enough to be terrified when I read that over 600,000 people lost their jobs in one month, or that more than 80 million people have health insurance that ranges from inadequate to none, or that home foreclosures doubled last year from those in 2007: From 404,000 in 2007 to 861,000 in 2008.
Those are big, big numbers, signifying abject misery for every single American affected by them. If you've got any Liberal leanings at all, start thinking of those big numbers in terms of real people. Get on the damned bandwagon and do something, for God's sake! Nobody else is going to do it.

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Category: Politics

Mar 1 2009

World Population - How Many Is Too Many

Kal @ 11:13

An old slogan came to my attention recently: "whatever your cause, it's a lost cause without population control". The origins were not clear from the context so I looked it up using Google. There were a whole lot of hits, so perhaps I am the last to hear this.

One hit was in a preview of a book named Population Control that, from the little time I spent with the preview, appears to be a polemic against the idea that there can be too many people. This preview said that "whatever your cause, it's a lost cause without population control" appeared in a series of ads calling attention to the problem.

A more thoughtful piece titled Population: The elephant in the room  that was written by John Feeney appeared in BBC News on 2 February 2009. "Uncontrolled population growth threatens to undermine efforts to save the planet."

Fundamentally, we need to ask what is the greater threat to human welfare: the possibility that humane efforts to address population growth might be abused, or our ongoing failure to act to prevent hundreds of millions, even billions, dying as a result of global ecological collapse?

It's no far fetched possibility. Increasingly, environmental scientists insist we have overshot the Earth's carrying capacity.

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Category: Climate Change | Morals | Politics | Population | Resource Depletion | Sustainability

Feb 28 2009

Bank Bailouts Make Things Worse

Kal @ 10:42

There is an interesting and thoughtful article at The Oil Drum titled: Through the Looking Glass: Thoughts on the Financial System, Fertilizer Prices, and Our Food System. The author calls himself "Steve from Virginia." He lays out in great detail how he thinks pumping money into the banking system is both causing and accelerating deflation.

The main idea is that deflation has the effect of increasing the principle of a loan because the loan has to be repaid with more expensive dollars. The higher the rate of deflation and the longer the time period, the lower the chances that any given loan will be repaid. Under those circumstances no rational bank can lend, because the money they lend would be less and less likely to be repaid as deflation drives the borrowers deeper and deeper into debt.

Driving this entire process is a mysterious force called 'supply and demand'. When there is a large amount of currency (supply) relative to the smaller amount of goods or services (demand), prices for the goods and services increase. While this is happening, money never reaches the masses and workers who consequently cannot afford to buy the increasingly expensive goods. The businesses are unable to SELL the increasingly expensive goods; the businesses price themselves into Chapter 11.

Businesses either refuse the liquidity and risk insolvency or make use of the liquidity which drives up prices ... and risk insolvency! This 'Heads-I-Win-Tails-You-Lose' mechanism caused many bankruptcies during the Great Depression.

The Masters of the Bad Loan Universe call this liquefaction Re-inflating the Economy. They don't realize they can only inflate PARTS of the economy--the wrong parts. Here, liquidity simply spreads deflation farther and faster. 

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Category: Conventional Economics | Economics | Employment | Guaranteed Wage

Feb 27 2009

The Cow Theory of Economics and Accounting

Kal @ 14:00

John Carney at The Business Insider Clusterstock, gets a lot of mileage out of cows. On 5 February:

AIG Implodes: The Two Cows Version

"Still confused about how AIG lost its shirt by going into the securities lending business big time? We understand. It's terribly complex and full of words that make your eyes glaze over."

So we decided to break it down into the simplest terms Wall Street transactions can be explained: the two cows story.

You have two cows.

John Paulson borrows one cow so he can sell it for $100. He gives you $10 as collateral.

You buy your neighbors cow for $100, which you finance by taking out a $90 loan from the bank and use John's $10 to make up the rest.

You brag to everyone about your financial health. You have assets--two cows you own, plus one Paulson owes you--worth $300, and liabilities of just $100.

A third of the country goes vegetarian.

You thought your two cows were worth $200 and now they are worth $140.

You express confidence in your financial health. Your assets are now worth only $200--your two cows plus the one John owes you--but your liabilities are still only $100. If necessary, you could sell the assets at this distressed price and pay off all your loans.

You hold onto your cows because you are sure the market is "dislocated." Some day someone will want to eat beef again.

The rest of the country goes vegetarian. Your two cows are now worth $2 each to guys who want to make dog food.

John Paulson buys a cow in the market for $2 and he gives it to you as repayment of the loan. You now have three cows worth six bucks.

John wants his $10 back.

The bank calls. It wants its $90 back.

You call the Federal Reserve and ask for a bailout.

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Category: Accounting | Conventional Economics | Economics

Feb 26 2009

Unemployment Or Redeployment?

Kal @ 23:49

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 21, the advance figure for seasonally adjusted initial claims was 667,000, an increase of 36,000 from the previous week's revised figure of 631,000. The 4-week moving average was 639,000, an increase of 19,000 from the previous week's revised average of 620,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending Feb. 14 was 5,112,000, an increase of 114,000 from the preceding week's revised level of 4,998,000.

That is over 5,000,000 previously employed persons who have not yet given up on finding a job. Those who have given up are no longer counted.

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Category: Guaranteed Wage | Politics | Recession | Sustainability

Feb 26 2009

Power Shift 2009

Kal @ 10:14

This weekend in Washington, Feb 27th-Mar 2nd.

Power Shift '09

In the middle of our new administration's first 100 days, Power Shift 09 will bring 10,000 young people to Washington to hold our elected officials accountable for rebuilding our economy and reclaiming our future through bold climate and clean energy policy.

From February 27th to March 2nd, 2009 young people from across the country will converge on Washington D.C. to take a message of bold, comprehensive and immediate federal climate action to Capitol Hill. 

We will leverage the momentum we built locally through the Campus Climate Challenge, at our first national mobilization Power Shift 07, and our electoral engagement campaign Power Vote to pressure our political leaders to take the action our generation and our future demands.

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Category: Climate Change | Economics | Politics | Resource Depletion | Steady-State Economics | Sustainability

Feb 26 2009

A Zero-Emissions City in the Desert - With PRT No Less

Kal @ 09:22

Technology Review has an article about the massive solar project in Abu Dhabi. The renderings are pretty spectacular, I wonder if it will all work?  They have cut out cars entirely and replaced them with a Personal Rapid Transit (PRT) System.

The first hints of the project are visible. A white wall stretches through the desert, like a chalk line on a dusty playing field. A bus with darkened windows stirs a low cloud, ferrying workers past a cluster of steel cranes, two portable drilling rigs, and a stand of concrete columns sprouting rust-colored rebar. A tall wire fence guards rows of solar panels mounted on concrete pads.

The construction is the start of a vast experiment, an attempt to create the world's first car-free, zero-carbon-dioxide-emissions, zero-waste city. Due to be completed in 2016, the city is the centerpiece of the Masdar Initiative, a $15 billion investment by the government of Abu Dhabi, which is part of the United Arab Emirates. The new development, being built on the outskirts of Abu Dhabi city, will run almost entirely on energy from the sun and will use just 20 percent as much power as a conventional city of similar size. Garbage will be sorted and recycled or used for compost; sewage will be processed into fuel. Concrete columns will lift the city seven meters off the ground, creating space underneath for a network of automated electric transports that will replace cars. Planners predict that the development will attract 1,500 clean-tech businesses, ranging from large international corporations to startups, and--eventually--some 50,000 residents.

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Category: Climate Change | Economics | PRT | Recession | Solar | Sustainability