Links from last week…enough for a book!!!
- Image by Getty Images via Daylife
- Image by Getty Images via Daylife
GLOBAL GLASS ONION
BY rjs
Healthcare Reform has More Corporate Sponsors than NASCAR – If politicians were required to display their sponsorships like NASCAR drivers, we’d have a much easier time understanding exactly who they represent…(see pic)
Tax Ideas Submitted by the Public (384 proposals submitted to the Whitehouse)
If Wall Street Ran the Airlines … New York Times headline: “U.S. Limits Tarmac Waits for Passengers to 3 Hours.” Just imagine …Representatives of industry associations reacted negatively to the government action, warning that over-regulation would stifle innovation and harm the competitiveness of U.S. firms. “Requiring each plane to stock up on 0.5-ounce bags of pretzels and peanuts will only hurt passengers,” said Sam Tapscott of the Airline Roundtable. “Airlines will have no choice but to pass the higher costs on to consumers, who will see the price of excessive government intervention in every ticket they buy.” More worryingly, some industry analysts warned of dire consequences for the U.S. economy. “Forcing airplanes to return to the terminal after three hours will reduce the efficiency of the entire air travel system,” “Clearly, if consumers placed a value on a maximum runway wait time, they would have negotiated it with their airlines already,” Muffy McDonnell, Senate minority leader, promised a bitter fight in Congress. “This is just the latest step by the jackbooted thugs in the Obama Administration in their plan to bring socialism to the United States, and we’re going not going to take it lying down,” she said at a press conference. However, not everyone is upset with the new regulation. One Goldman Sachs derivatives trader, who asked to remain anonymous because he is not authorized to speak about company strategy, said that the firm is planning to create a market for derivatives that airlines can use to hedge against the risk of having to return planes to the terminal or having to pay fines to the FAA. Goldman is thinking of creating “collateralized delay obligations,” or CDOs, which will diversify wait-time risk by including flights from across the entire country.
Bernanke ARM OK, Head “Explodes”? – Bernanke misspoke in the recent TIME magazine interview: Bernanke: Yes. We had to do it because we had an adjustable rate mortgage and it exploded, so we had to. Bernanke did have an adjustable rate mortgage, but it did not “explode”. “explode” has a very clear meaning when discussing mortgages; it means that the borrower’s mortgage payment has increased sharply. An ARM can “explode” for two reasons. Neither applied to Bernanke. (From the WSJ: Looking a Little Deeper at Bernanke’s Floating Rate Mortgage ) So Bernanke refinanced into a loan with a higher interest rate and with a larger mortgage payment for the security of a fixed rate. This suggests he thinks fixed mortgage rates have bottomed (otherwise he could have paid less on his mortgage, at a 3.75% interest rate, and then refinanced next year). He did not “have to do it”.
Some Things Went Bump in The Night Last Week (Bank Regulatory Shenanigans Edition) – Secondly, banks will soon have a VERY big equity hole! Haven’t seen any analysis of how the new Basel bank capital calculations would affect US bank regulatory capital but if Credit Suisse’s back of an envelope calculation is right for Eurobanks (they will need EUR 1.1 Trillion of extra capital of one sort or another), then a crude read-across is that American banks need another $400Bn of capital, of one sort or another. I am ignoring ridiculous basket cases like Citi. This is based on Eurobanks representing about 50% of the world banking asset base, with US banks acounting for another 15%, and on the assumption that US and Eurobanks have been gaming their capital requirements so the same overall extent. (Yves comment: the assumption in the US is that US banks are further along on their writedowns than the Eurobanks are, but given that the US banks just got an expected break from the FASB re not having to implement a rule change that would have required them to consolidate their off balance sheet entities, that cheery assumption may not include those lovely “qualified special purpose entities”).
How Should the Government Debt be Financed? – Treasury is now financing more of its debt long-term. If you’re worried (as I am) about the persistence of a weak and potentially deflationary economic environment, then you should be critical of the Treasury’s policy. By increasing its maturities the Treasury is essentially following a tight-money policy exactly when a loose-money policy is needed. The Treasury, of course, has its reasons. Officials expect interest rates to rise over the next several years and would like to lock in today’s low rates, to limit how much it will cost to service the national debt over a longer horizon. I’m skeptical, however, of the assumptions underlying these reasons.
Wow, look at the spike the big healthcare stocks made the morning after the big late night “reform” vote.The gains have moderated a bit, but it kinda tells you all you need to know, doesn’t it?
TARP Deadbeat List Grows to 55- From the WaPo: Number of delinquent bailed-out banks rises A growing number of the recipients face financial problems and have been unable to pay the government. Fifteen banks failed to make the required payments in May, federal data show. The number climbed to 33 banks in August, and 55 banks that failed to make the dividend payments due Nov. 17. Here is the report from the Treasury. And in excel format under Dividend and Interest Reports. Remember when the TARP capital was supposed to only go to “healthy“ financial institutions?
The Parable of the Unmerciful Bankers - I learned this week that the bonuses and extra compensation paid to the executives at the big banks are on track to exceed the 2007 level of $162 billion (even after some banks, like Goldman Sachs, have switched compensation packages away from cash and into stock bonuses). At the same time, the Center for Responsible Lending estimates that the bonus pool of just one of these big banks would have been enough money to prevent or significantly delay foreclosure for all 2.3 million people who lost their homes last year. And what about loan modifications to help homeowners stay in their homes? To date, Bank of America has agreed to fewer than 100 permanent home loan modifications. Amazing.
My lazy American students – By the time students are in college, habits can be tough to change. If you’re used to playing video games like “Modern Warfare’’ or “Halo’’ all night, how do you fit in four hours of homework? Or rest up for class? Teaching in college, especially one with a large international student population, has given me a stark – and unwelcome – illustration of how Americans’ work ethic often pales in comparison with their peers from overseas. My “C,’’ “D,’’ and “F’’ students this semester are almost exclusively American, while my students from India, China, and Latin America have – despite language barriers – generally written solid papers, excelled on exams, and become valuable class participants. Chinese undergraduates have consistently impressed me with their work ethic, though I have seen similar habits in students from India, Thailand, Brazil, and Venezuela. Often, they’ve done little English-language writing in their home countries, and they frequently struggle to understand my lectures. But their respect for professors – and for knowledge itself – is palpable. The students listen intently to everything I say, whether in class or during office hours, and try to engage in the conversation.Too many 18-year-old Americans, meanwhile, text one another under their desks (certain they are sly enough to go unnoticed), check e-mail, decline to take notes, and appear tired and disengaged.
Banks That Bundled Bad Debt Also Bet Against It – NYTimes – Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
Seven Years at the Fed: Bernanke in his own words — “Some rather interesting quotes from our esteemed Fed Chief from the past few years regarding why the Fed’s approach to dealing with banks is the right one (back in 2006!), about when he’ll take away the ‘punchbowl’ (answered like a true politician), why the Fed is just as clueless about prices as you and me and in the same breath in the same clip about how the Fed’s gonna crack down on those evil subprime lenders (back in 2007), why financial supermarkets are great (also 2007), and finally how the Fed solved the inflation problem forever (back in 2003).” (series of videos)
Topic one – Income distribution and the crisis – We invited readers to send questions this week to Martin Wolf, the FT’s chief economics commentator. Here is the first question, from Dirk Brouwer of the Netherlands. Martin’s response is below.Dirk Brouwer, Amstelveen, The Netherlands: How could a more equitable distribution of income be instrumental in solving the impact of this crisis? Especially in the UK and the USA the top 20% has close to 50% of the net incomes which is one of the reasons for the bubbles on Wall Street and on the housing market.
- Martin Wolf answers your questions: Topic eight – Forecasting sterling’s prospects
- Martin Wolf answers your questions: Topic seven – Growth in emerging markets
- Martin Wolf answers your questions: Topic six – Deflation in western Europe and the US
- Martin Wolf answers your questions: Topic five – Multi-year deflation in asset prices
- Martin Wolf answers your questions: Topic four – The Fed and QE
- Martin Wolf answers your questions: Topic three – Banks refusing to lend
- Martin Wolf answers your questions: Topic two – Reforming credit rating agencies
Conducting Monetary Policy when Interest Rates Are Near Zero: Will it Work? - Thoma – I have been more skeptical than most about the ability of quantitative easing to stimulate output and employment, so I thought I’d counter that with this explanation of how QE works, what might go wrong, and some of the evidence in its favor. My doubts come on two fronts. The first is the ability of QE to affect long-term real rates, and the evidence is somewhat favorable on this point, though not 100 percent compelling. It does seem that the Fed can lower long-term real rates, mortgage rates in particular, though why we want to stimulate investment in new housing in the aftermath of an housing bubble is a question we might want to ask. My second objection is related to this – even if we do lower long-run real mortgage rates, will that stimulate new investment in housing given the inventory problem that already exists, and given the condition of the economy? I’m doubtful, and that doubt extends generally. That’s why I’ve emphasized fiscal policy, and that is what my objection is mostly about. The focus on the Fed has made it appear that monetary rather than fiscal policy is our best bet at this point. Monetary policy might be able to help for the reasons explained below, so I have no objection to trying, but fiscal policy needs to take the lead.
Accept Defeat: The Neuroscience of Screwing Up - Kevin Dunbar is a researcher who studies how scientists study things — how they fail and succeed. In the early 1990s, he began an unprecedented research project: observing four biochemistry labs at Stanford University. Philosophers have long theorized about how science happens, but Dunbar wanted to get beyond theory. He wasn’t satisfied with abstract models of the scientific method — that seven-step process we teach schoolkids before the science fair — or the dogmatic faith scientists place in logic and objectivity. Dunbar knew that scientists often don’t think the way the textbooks say they are supposed to. So Dunbar decided to launch an “in vivo” investigation, attempting to learn from the messiness of real experiments. He ended up spending the next year staring at postdocs and test tubes: The researchers were his flock, and he was the ornithologist. Dunbar brought tape recorders into meeting rooms and loitered in the hallway; he read grant proposals and the rough drafts of papers; he peeked at notebooks, attended lab meetings, and videotaped interview after interview. He spent four years analyzing the data. Dunbar came away from his in vivo studies with an unsettling insight: Science is a deeply frustrating pursuit. Although the researchers were mostly using established techniques, more than 50 percent of their data was unexpected. (In some labs, the figure exceeded 75 percent.) “The scientists had these elaborate theories about what was supposed to happen,” Dunbar says. “But the results kept contradicting their theories. It wasn’t uncommon for someone to spend a month on a project and then just discard all their data because the data didn’t make sense.”
Top Ten Reasons Why the Yield Curve Will Flatten (Hint: This Is a Different Sort of Recession) – As I told Larry Kudlow on , the employment recovery will be poorer than the market appears to expect, for reasons I’ve posted on this site during the past two weeks. The yield curve is at record steepness. I think that’s an overreaction. In fact, the steep yield curve in the present environment is NOT a harbinger of recovery — it’s a brake on recovery because it encourages banks to own Treasuries rather than risky assets (see below). Here are my top ten reasons to expect the yield curve to flatten. (with charts)
Seeing Public Subsidy (Not Public Option) Investors Flock to Health Insurers – HuffPost – Investors are seeing the Senate’s version of health care reform as a massive public subsidy for insurance companies — and as a result, are sending the sector’s stock prices shooting up, up, up. Stripped of a government-run insurance plan, the bill would give tens of millions of Americans no option but to start paying hefty premiums to private companies.
Mortgages Delinquencies Jump; More Than 1 Million Foreclosures in Process – Americans’ mortgage woes continued to get worse in the third quarter. Just 87.2% of U.S. mortgages were current in the third quarter, a decrease of 1.5% from the previous quarter, according to the OCC and OTS Mortgage Metrics Report released Monday. The Office of the Comptroller of the Currency and the Office of Thrift Supervision report covers 34 million loans totaling $6 trillion in principal balances, about 65% of the U.S. mortgage market. Serious delinquencies jumped to 6.2% of mortgage-servicing portfolios, an increase of 16.7% from the previous quarter. The number of prime borrowers in trouble continues to mount as 3.6% of prime mortgages were more than two months behind on payments, more than double the number in default a year ago.
We’re Screwed! – Do you believe everything the government tells you? Economist and statistician John Williams sure doesn’t. Williams, who has consulted for individuals and Fortune 500 companies, now uncovers the truth behind the U.S. government’s economic numbers on his Web site at ShadowStats.com. Williams says, over the last several decades, the feds have been infusing their data with optimistic biases to make the economy seem far rosier than it really is. His site reruns the numbers using the original methodology. What he found was not good. (interview)
Why don’t we observe (macroeconomic) black holes? – At the very least, we should certainly see any economy being sucked into one. So where are they? Why don’t we ever see any? If the economy gets too close to a black hole, it can’t escape, and is sucked into a deflationary death-spiral. If nominal interest rates are at or near zero, and so at their lower bound, any deficiency of aggregate demand causes increased deflation, which in turn causes increased expected deflation, which in turn causes higher real interest rates, which in turn reduce aggregate demand, which in turn causes increased deflation…and so on. The price level and real output should both fall to vanishing point. Money in a black hole should have infinite value, yet nobody will buy anything with it. Theory does not predict that black holes will happen. But it does predict that they can happen. And commonsense says that, sooner or later, anything that can happen will happen. So where are they? Why can’t we see them? We sure have sailed our macroeconomic spaceships close enough to the boundaries of predicted black holes plenty of times. Why didn’t any economy ever get sucked into one, and collapse into an infinitely valuable pinpoint?
Senate sets Christmas eve vote on debt limit – The U.S. Senate on Tuesday set a Christmas Eve vote on final congressional approval of a bill to provide a two-month hike in the federal debt limit.The measure, passed last week by the House of Representatives, would provide a $290 billion increase in the debt limit, which is now at $12.1 trillion. After anticipated Senate passage, the measure will go to President Barack Obama to sign into law. The Treasury Department has warned that it would likely reach the current debt limit by December 31, potentially putting the United States at risk of default.
“Body Count From Goldman Actions Crosses Into Criminal Territory” - Readers may have noticed Janet Tavakoli’s recent article at Huffington Post on Goldman Sachs and AIG. While much of it covers territory that Yves and I already wrote about previously, Ms. Tavakoli stops short of telling the whole story. While she is very knowledgeable of this market, perhaps she is unaware of the full extent of the wrongdoings Goldman committed by getting themselves paid on the AIG bailout. The Federal Reserve and the Treasury aided and abetted Goldman Sachs in committing financial and ethical crimes at an astounding level.
U.S. Immigration and Customs Enforcement: Secret Detention - “If you don’t have enough evidence to charge someone criminally but you think he’s illegal, we can make him disappear.” Those chilling words were spoken by James Pendergraph, then executive director of Immigration and Customs Enforcement’s (ICE) Office of State and Local Coordination, at a conference of police and sheriffs in August 2008. Also present was Amnesty International’s Sarnata Reynolds, who wrote about the incident in the 2009 report “Jailed Without Justice” and said in an interview, “It was almost surreal being there, particularly being someone from an organization that has worked on disappearances for decades in other countries. I couldn’t believe he would say it so boldly, as though it weren’t anything wrong.”
FBI Probes Hack At Citigroup – The Federal Bureau of Investigation is probing a computer-security breach targeting Citigroup Inc. that resulted in a theft of tens of millions of dollars by computer hackers who appear linked to a Russian cyber gang, according to government officials. The attack took aim at Citigroup’s Citibank subsidiary, which includes its North American retail bank and other businesses. It couldn’t be learned whether the thieves gained access to Citibank’s systems directly or through third parties. The attack underscores the blurring of lines between criminal and national-security threats in cyber space.
More budget hits on the way for Hawaii - Gov. Linda Lingle, trying to close a $1.2 billion budget deficit through June 2011, said yesterday that she would delay tax refunds from April until July and ask state lawmakers to scoop hotel-room tax revenues that now go to counties. Lingle would also raise taxes on insurance commissions, stop paying life insurance premiums for state workers and retirees, and end the state’s reimbursement of some Medicare costs for the spouses of retired state workers. The governor preserves the state’s rainy day fund and the hurricane relief fund as options in the event the economy does not improve and the deficit grows larger.
Leadership, Obama Style, and the Looming Losses in 2010: Pretty Speeches, Compromised Values, and the Quest for the Lowest Common Denominator - The conventional wisdom from the White House is those “pesky leftists” — those bloggers and Vermont Governors and Senators who keep wanting real health reform, real financial reform, immigration reform not preceded by a year or two of raids that leave children without parents, and all the other changes we were supposed to believe in. Somehow the president has managed to turn a base of new and progressive voters he himself energized like no one else could in 2008 into the likely stay-at-home voters of 2010, souring an entire generation of young people to the political process. It isn’t hard for them to see that the winners seem to be the same no matter who the voters select.
Even Toddlers Know The Internet Is For Porn - We like to think of children as sweet, modest and innocent. Unfortunately, they have access to the Internet, and apparently they know why it exists: Norton found that “porn” was the fourth most popular search for kids 7 and under. This is, of course, of profound concern to America and our youth. Easy access to porn is spoiling our youth and depriving them of that most important childhood ritual: stealing Dad’s porn.
| Bankruptcy and Fiscal Collapse: The Global Economic Crisis will experience a Tipping Point in Spring 2010 - LEAP/E2020 believes that the global systemic crisis will experience a new tipping point from Spring 2010. Indeed, at that time, the public finances of the major Western countries are going to become unmanageable, as it will simultaneously become clear that new support measures for the economy are needed because of the failure of the various stimuli in 2009 (1), and that the size of budget deficits preclude any significant new expenditures. If this public deficit « slip knot » which governments gladly placed around their necks in 2009, refusing to make the financial system pay for mistakes (2) is going to weigh heavily on all public expenditure, it is going to particularly affect the social security systems of the rich countries in always impoverishing the middle classes and the retired, and setting the poorest adrift (3). |
John Taylor says that the Fed could sell its MBS without having a material impact on interest rates – His blog post is here. I will download the paper when I get into the office tomorrow. But one thing from the blog post strikes me as strange: he uses spreads on agency debt as his measure of credit risk. But the very fact that the Fed has purchased MBS could produce a perception that the government is standing behind the debt–as the Fed exits, so too might this perception. I would also imagine that the low current interest rates mean expectations about prepayment are unusual at the moment, and that the most common methods for pricing the mortgage call option might not be appropriate either.
US Treasury – Deep Thinking? – I was down in Washington on a business trip. That ended at four and I headed for a bar. I found a spot between Pennsylvania and Kentucky Avenues. Nice place. Two barkeeps, me and another guy who looked like he had been drinking gin for the past few hours. Quiet, just the way I like it. Sure enough, at five the place fills up. It’s a young crowd. Good looking. Well dressed. This looked like an Ivy League group. I was thinking that they could be DOJ, possibly IRS (they looked too happy, but who knows). They could have been Treasury folks; the headquarters is not far off. Anyway, they had two drinks gossiped for and hour and left. I stayed. At one point I happened to look under the now empty stool next to me. Some folded up papers. Being the nosey S.O.B. that I am, I picked them up and took a look. Bingo!
China to become world’s second largest power producer – China’s electricity generation capacity will increase to 860 million kilowatts at the end of this year, the second largest after the US, an official said on Friday. The nation’s power grids coverage has become the world’s largest with fast expansion of ultra-high voltage network, Xinhua reported. New energy, such as nuclear and wind power, played an increasingly important role, Zhang Guobao, head of the National Administration of Energy, said at a national-level meeting organised by the China Electricity Council. The government has pledged to increase the capacity of new energy like nuclear and wind power to 15 per cent of the total energy production in the country by 2020.
Uncharted Waters – It does not matter how you measure it, the US Treasury yield curve is at its steepest level ever. Away from that, the value for expected five-year inflation, five years from now is at its highest level ever, excluding the noise that we had as our markets crashed in the fourth quarter of 2008. This concerns me. Anytime we hit new extremes on critical financial variables, it makes me think, “What next?” Treasury yield curve slope and inflation expectations are fundamental. Reaching unprecedented levels is a big thing. Could the US Government ever face the possibility that it could not meet its obligations? I think so, and a record wide yield curve is one of the things that I would see prior to such troubles.
Googling “Inflation targeting” and “fiscal stimulus” - I’m encouraged by a recent uptick in discussion about inflation targeting among some influential economists. Brad Delong asks whether it’s “time for some hand-forcing at the Fed.” This in response to a very nice post by David Beckworth, which was partly in response to Bernanke’s unconvincing answer to Brad Delong’s question to Bernanke about why the Fed isn’t targeting a 3% inflation rate. Paul Krugman then compares Ben Bernanke to Montague Norman. Mark Thoma still thinks the focus should be on fiscal stimulus rather than inflation targeting or quantitative easing. I can understand why economists would be worried about announcing a new inflation target and vigorously enforcing it with bond purchases. Unhinging inflation expectations from a very stable 2.5 percent could have unanticipated consequences. But I see no reason in which a modest increase in the inflation target could be bad thing. So I wonder, what is Ben Bernanke’s loss function? What is the scenario in which changing the inflation target would be a bad thing? How bad would it be? And what odds does he place on inflation targeting being a bad thing as opposed to it being a good thing, as most models indicate it would be?
Dismal outcome at Copenhagen fiasco – FT Editorial – An empty deal would be worse than no deal at all, said the White House before Mr Obama travelled to the Copenhagen summit. As the meeting ended, Barack Obama was calling the Copenhagen accord – the emptiest deal one could imagine, short of a fist fight – an “important breakthrough”. Mr Obama’s credibility at home and abroad is one casualty of this farcical outcome. The agreement cobbled together by the US, China, India, Brazil and South Africa is merely an expression of aims. It recognises the scientific case for keeping the rise in global temperatures to 2°C. It calls on developed countries to provide $100bn a year in support of poor nations’ efforts by 2020, but without saying who pays what to whom. It appears to commit none of the signatories to anything. Many developing countries were bitter about this result. Europe may wonder why it has been airbrushed out of the picture. The meeting as a whole could not bring itself to endorse this vacuous proclamation. It took note of it. One wonders how a conference to conclude two years of detailed negotiations, building on more than a decade of previous talks, could have collapsed into such a shambles. It is as though no preparatory work had been done. Consensus on the most basic issues was lacking. Were countries there to negotiate binding limits on emissions or not? Nobody seemed to know. From the start, the disarray was total.
Our Coming Medicare Debacle – Now what? We still have a gigantic budget deficit pressing on us from Medicare. Yes, you say you made serious Medicare cuts. Then you turned around and spent that money on expanding coverage. So the Medicare deficit, which will be $100 billion and growing in 2019, will still exist. There will also be growth in the portion of Medicare that is currently paid for out of general revenue, putting further upward pressure on our deficits. It’s impossible to say exactly how much that $100 billion will be growing every year, but $15-20 billion seems like a reasonable estimate, as least during the senescence of the Baby Boomers. This is why the argument that “If we can’t make these cost cuts, we can’t cut Medicare costs, so we’re doomed anyway” is such a silly, facile argument. “Medicare cuts” are not some undifferentiated substance, which one consumes or doesn’t as if they were cigarettes or baby carrots. Medicare cuts range from easy to hard, and we just used up the easiest ones–cuts which, if you’ll notice, weren’t all that easy. Doing this bill means it will be even harder in the future to cut Medicare, because the cuts we will have to make will almost definitionally mean deeper service cuts, and greater political controversy.
Studying Young Minds, and How to Teach Them – NYTimes - For much of the last century, educators and many scientists believed that children could not learn math at all before the age of five, that their brains simply were not ready. But recent research has turned that assumption on its head — that, and a host of other conventional wisdom about geometry, reading, language and self-control in class. The findings, mostly from a branch of research called cognitive neuroscience, are helping to clarify when young brains are best able to grasp fundamental concepts. In one recent study, for instance, researchers found that most entering preschoolers could perform rudimentary division, by distributing candies among two or three play animals. In another, scientists found that the brain’s ability to link letter combinations with sounds may not be fully developed until age 11 — much later than many have assumed.
Mobile Phone Cancellation Fees Help the Poor, Verizon Tells Feds – Verizon defended its early termination charges for cellphone contracts Friday, telling federal regulators that the high fees help the poor by making it more affordable for them to access the mobile internet.The Federal Communications Commission asked the nation’s largest wireless carrier earlier this month to explain why it had raised the fees for breaking a mobile phone service contract to $350 for its smartphones. In a response that gave no ground to an increasingly active FCC, Verizon said the fees were a necessary and good way to subsidize expensive smartphones so that users don’t have to pay for the hardware up front, so long as they sign a two-year contract.That arrangement “enables many more consumers, including those of more limited means, access to a range of exciting, state of the art broadband services and capabilities (.pdf),” Verizon VP Kathleen Grillo wrote.
Pentagon pollution ignored at climate change conference – In evaluating the U.N. Climate Change Conference in Copenhagen — with more than 15,000 participants from 192 countries, including more than 100 heads of state, as well as 100,000 demonstrators in the streets — it is important to ask: How is it possible that the worst polluter of carbon dioxide and other toxic emissions on the planet is not a focus of any conference discussion or proposed restrictions? By every measure, the Pentagon is the largest institutional user of petroleum products and energy in general. Yet the Pentagon has a blanket exemption in all international climate agreements.The Pentagon wars in Iraq and Afghanistan; its secret operations in Pakistan; its equipment on more than 1,000 U.S. bases around the world; its 6,000 facilities in the U.S.; all NATO operations; its aircraft carriers, jet aircraft, weapons testing, training and sales will not be counted against U.S. greenhouse gas limits or included in any count.
Report: Vaccine Advisers Had Financial Conflicts - A new report finds that the Centers for Disease Control and Prevention did a poor job of screening medical experts for financial conflicts when it hired them to advise the agency on vaccine safety, officials said Thursday.Daniel R. Levinson, the inspector general of the Department of Health and Human Services, found that the centers failed nearly every time to ensure that the experts adequately filled out forms confirming they were not being paid by companies with an interest in their decisions. The report found that 64 percent of the advisers had potential conflicts of interest that were never identified or were left unresolved by the centers. Thirteen percent failed to have an appropriate conflicts form on file at the agency at all, which should have barred their participation in the meetings entirely, Mr. Levinson found. And 3 percent voted on matters that ethics officers had already barred them from considering
Understanding Obamacare – The debate in Washington this fall ought to have been about why the United States has the worst health-care system in the developed world, why Americans pay twice the Western average to maintain that system, and what fundamental changes are needed to make the system better serve us. But Democrats rendered those questions academic when they decided the first principle of reform would be, as Barack Obama has so often explained, that “nothing in our plan requires you to change what you have.” This claim reassured not just the people who like their current employment benefits but also the companies that receive some part of the more than $2 trillion Americans spend every year on health care and that can expect to continue receiving their share when the current round of legislation has come to an end. The health-care industry has captured the regulatory process, and it has used that capture to eliminate any real competition, whether from the government, in the form of a single-payer system, or from new and more efficient competitors in the private sector who might have the audacity to offer a better product at a better price.
RBI cuts dollar holdings in forex reserve to 50% - The dollar holdings in India’s foreign exchange reserves are probably around 50 per cent as the Reserve Bank of India has diversified reserves in favour of non-dollar currencies as the trend is globally. The RBI appears to have been one of the leading central banks in this diversification away from the falling dollar. “Our analysis suggests that India holds not more than 50 per cent of its reserves in dollars, as against 59 per cent for other emerging markets (where the allocation has been disclosed) and around 64 per cent for the advanced markets,” Within the overall ambit of safety and liquidity, RBI has had to take a very pro-active stance in reserves allocation to protect its own balance sheet against potentially serious valuation losses, which last fiscal reached a huge $37.7 billion,” he pointed out.
Borrowers with modified loans falling into trouble (AP) – One of the biggest challenges to ending the foreclosure crisis is this: A surprising number of homeowners who get their monthly payments reduced fall behind again within a year. When borrowers get into financial trouble, lenders have several ways to help. They can offer grace periods, longer repayment schedules, lower interest rates or reduced balances. But nearly 40 percent of homeowners who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. With the economy still weak and employers continuing to cut jobs, “even if you’ve gone through a modification, your situation may deteriorate,” said Fred Phillips-Patrick, director for credit policy at the thrift office.
U.S. Commercial Real Estate Index Falls 1.5% (Bloomberg) — Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space. The Moody’s/REAL Commercial Property Price Indices fell 1.5 percent in October from September to the lowest since August 2002. Prices were down 36 percent from a year earlier and are 44 percent below the peak in October 2007, Moody’s Investors Service Inc. said in a statement. Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month.
Another Mortgage Meltdown Dead Ahead - In the short term, a catastrophic deflation is quite possible. But in the long term, extremely high levels of inflation are now inevitable. Over the next two years, Alt-A and Option ARM loans face massive resets. Even with today’s low interest rates, most of these home loans will see their monthly payments adjust far higher. The result: loan losses and write-downs will balloon for banks, and mortgage holders will get hit with another wave of homeowner defaults.
US Companies Shut Out As Iraq Auctions Oil Fields - Those who claim that the U.S. invaded Iraq to get control of the country’s oil reserves will be left scratching their heads by the results of last weekend’s auction of Iraqi oil contracts: Not a single U..S. company secured a deal in the auction of contracts that will shape the Iraqi oil industry for the next couple of decades. Two of the most lucrative of the multi-billion-dollar oil contracts went to two countries which bitterly opposed the U.S. invasion — Russia and China – while even Total Oil of France, which led the charge to deny international approval for the war at the U.N. Security Council in 2003, won a bigger stake than the Americans in the most recent auction.
Supreme Court Guts Due Process Protection – Yves Smith - Reader Walter passed along this distressing sighting from Chris Floyd’s blog. American civil liberties were gutted last week, and the media failed to take note of it. The development? If the president or one of his subordinates declares someone to be an “enemy combatant” (the 21st century version of “enemy of the state”) he is denied any protection of the law. So any trouble-maker (which means anyone) can be whisked away, incarcerated, tortured, “disappeared,” you name it. See Floyd’s commentary…The implications are FAR worse. Anyone can be stripped, with NO RECOURSE, of all their legal rights on a Presidential say so. Readers in the US no longer have any security under the law. Roman citizens enjoyed a right to a trial, a right of appeal, and could not be tortured, whipped, or executed except if found guilty of treason, and anyone charged with treason could demand a trial in Rome. We have regressed more than 2000 years with this appalling ruling.
Simple Answers to Simple Questions (Bernacke Edition) – Matt Yglesias is being obtuse as he feigns confusion as to why Senate Republicans are voting against Bernacke despite Bernacke’s promise to tie the anchor of 10% unemployment around the Democrats’ necks for the next five years. it’s somewhat baffling to me that six Republicans on the Senate Banking Committee voted no on his nomination. Bernanke’s approach, at the end of the day, makes GOP wins in 2010 and 2012 very likely. To have it both ways — get ahead of bash the bankers crowd that is legitimately pissed off @ 10% unemployment and a decade of no-wage gains already and the prospect of another decade of stagnant wages (if we are lucky), and get the policy that will produce 10% unemployment… smart politics on the part of the Republican Party.
Société Générale Predicts Global Economic Collapse In Two Years Time – Société Générale has advised clients to be ready for a possible “global economic collapse” over the next two years, mapping a strategy of defensive investments to avoid wealth destruction. In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems. Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years. “As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report
Manufacturing Employment Falls to Record Lows, Therefore Productivity Soars to Record High Levels – Here’s some pretty grim news about U.S. manufacturing — employment in that sector fell below 12 million this year for the first time since 1946, and is now at the lowest level (11,648,000 manufacturing jobs in November) since March of 1941 (see chart, BLS data here). Since the onset of the recession in December 2007, manufacturing employment fell for 24 consecutive months, as the U.S. economy shed an average of 89,000 manufacturing jobs each month for the last two years. From the peak manufacturing employment of 19.55 million jobs in 1979, the American manufacturing workforce has shrunk by more than 40%, as almost 8 million manufacturing jobs have been eliminated over the last thirty years, with almost 6 million of those losses taking place just since 2000. And there’s nothing to suggest that the trend won’t continue, so we can expect a continued contraction of U.S. manufacturing employment.
Change the bathwater, keep the baby - Atlanta Fed blog – What have we learned from the experience of the last two years? The Wall Street Journal offers up one discouraging conclusion: “For much of the past century, America has served as the global model for the power of free markets to generate prosperity…“In the 2000s, though, the U.S. quickly went from being the beacon of capitalism to a showcase for some of its flaws… “But one thing is certain: America’s success or failure over the next decade will go a long way toward defining what the world’s next economic model will be.” One of the article’s implied alternatives for the world’s next economic model seems a bit of a stretch: “The troubles in the U.S. stand in sharp contrast to the relative success of other countries, notably China. With a system that is at best quasi-capitalist, China’s economic output per person grew an inflation-adjusted 141% over the decade, and hardly paused for the global crisis, according to estimates from the International Monetary Fund. That compares with 9% growth in the U.S. over the same period.”
China’s Excess-Capacity Nightmare - Back in 1958, the year of China’s ill-fated “Great Leap Forward,” Chairman Mao had big plans for the steel industry. While production had been just over five million tons in 1957, he expected the country to catch up with or even surpass the United States by 1962, producing 80-100 million tons per year, and to reach 700 million tons per year by the mid-1970’s, making China the undisputed world leader. All this was to be accomplished using small “backyard steel furnaces” operated by ordinary people with no particular technical expertise. Today, Mao’s dream of catching up with the rest of the world has been realized, albeit a bit behind schedule, not only in steel making, where annual capacity has reached 660 million tons, but in many other sectors as well. In 2008, China ranked first in steel (about half of world production), cement (also about half), aluminum (about 40%), and glass (31%), to take just a few examples. The country topped the US in auto production in 2009, and remains second only to South Korea in shipbuilding, with 36% of global capacity.
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