Thursday, January 31, 2008

The real "change" candidate

He's back. Sort of sad, really. Hopefully voters will remember that, back in 2000, had even 547 of the 97,421 Florida Nader supporters switched to Gore, there would never have been a President George W. Bush. Or the awful, never-cited, and illegitimate Bush v. Gore decision. Thanks, Ralphie!

Letter to John Edwards


Please endorse Barack Obama for President. With your wife's terminal
condition, the political power you seek is no longer a matter of
urgency. Many men drop out of politics because of their wives and
their families, even when they do not have terminal conditions.
Politicans do this because they have come to realize that, while they
may have great aspirations, some things are more important. I believe
this is the case now. Your wife would want to do what your heart tells
you to do. I believe she wants to die knowing how great you were
morally and not that you were a savvy political operator. Would you
want your wife's thoughts on her deathbed to be of you joining the
Clintons and being a politician or as a special politician who has a heart, a
moral man, who refused to sacrifice principle for power.


Monday, January 28, 2008

Sunday, January 27, 2008

The Obamonster Win

Obama's win in South Carolina may be fatal for his campaign Upon hearing of the huge victory margin, I immediately thought that the Clintons actually wanted Obama to win in order to define him as the "Black Candidate." Indeed, they have been drumming up the rhetoric on issues of his race. The want to put him in a box and prevent him from sending his message of unity. These bastards.

My thoughts were quickly forgotten. But just now I read a report from Dick Morris, the Clintons' ex-campaign strategist who says this is exactly their intentions The Dick Morris Thesis.

Saturday, January 26, 2008

The Obamonster

Feb 5. may not decide the race. But if there is an obvious blowout, it might. Below are my predictions for Feb 5. What are yours?

Feb 5 Alabama 60 delegates at stake - Obama
Feb 5 Alaska 18 delegates at stake - Clinton
Feb 5 Arizona 67 delegates at stake - Unsure
Feb 5 Arkansas 47 delegates at stake - Unsure
Feb 5 California 441 delegates at stake - Obama
Feb 5 Colorado 71 delegates at stake - Obama
Feb 5 Connecticut 60 delegates at stake - Obama
Feb 5 Delaware 23 delegates at stake - Unsure
Feb 5 From Abroad 11 delegates at stake - Obama
Feb 5 Georgia 103 delegates at stake - Obama
Feb 5 Idaho (D) 23 delegates at stake - Unsure
Feb 5 Illinois 185 delegates at stake - Obama
Feb 5 Kansas (D) 41 delegates at stake - Unsure
Feb 5 Massachusetts 121 delegates at stake - Obama
Feb 5 Minnesota 88 delegates at stake - Unsure
Feb 5 Missouri 88 delegates at stake - Unsure
Feb 5 New Jersey 127 delegates at stake - Unsure
Feb 5 New Mexico (D) 38 delegates at stake - Unsure
Feb 5 New York 281 delegates at stake - Unsure
Feb 5 North Dakota 21 delegates at stake - Unsure
Feb 5 Oklahoma 47 delegates at stake - Unsure
Feb 5 Tennessee 85 delegates at stake - Clinton
Feb 5 Utah 29 delegates at stake - Unsure

Unsure may be updated at anytime.

What is the Clinton Strategy?

Josh Marshall has an interesting take on the Clinton campaign strategy. The Clinton campaign, he says, is using attack ads, Bill's emotional negativity, and the absurd comments about Martin Luther King both purposefully and skillfully with the goal of discouraging new voters, who are coming out in droves for Obama. The Clinton camp wishes to keep these new voters out of politics. The hope is that these disenfranchised voters will stay disenfranchised, alienated, and absent just because they will stay so disgusted...the very reason they became apathetic and AWOL from the local voting booth in the first place.

This makes sense to me. But I wonder if the strategy will backfire. I sense that many voters(count me in) are now in a "mad as hell and not gonna take it anymore" kinda mood. These new voters are voting in this election precisely because they are sick of it all - the negative politics, a perceived dysfunctional political system, and the politics-induced policy paralysis in Washington. Perhaps the Clintons will strengthen their resolve.

Obama offers us hope. He offers us a solution. A large part of his campaign is based on the maybe real, but at least perceived chance for authentic change. What kind of change? Not just policy change. But politics itself. Indeed, this is the central message of his campaign.

The Clintons are trying to kill this hope. A smart campaign move - in my opinion - as Obama has garnered the momentum of a raging bull, and thus the power.

The surest way to zap the powerful is to negate everything about them. With Obama, the strongest thing about him is his hope.

Friday, January 25, 2008

Legalize It?

A question to show sophisticated types who go to lawyer schools and/or universities with large endowments. Apparently, a Senate committee looking into college and university endowments might, require "colleges to spend more of their endowments." I have no doubt that such a turn of events would be desirable. My question: how in the world can this be legal? Since when can you coerce a private corporation to spend its money on x or y? It's a real head-scratcher!

Update: I'm referring here to Trustees of Dartmouth College v. Woodward. According to Louis Menand's account in the Metaphysical Club, the 1819 Supreme Court ruling 1)established academic freedom by making private educational institutions safe from government interference, and 2) established that the Contract Clause protected private corporations having business with the public from state regulation. The ruling overturned the New Hampshire Supreme Court decision that the government could regulate private enterprises that served the public interest.

I don't know anything else about the history of this decision, but this current event seems to speak to it directly.

Thursday, January 24, 2008

How fucking long has this guy been around?

Beatle Bob and Whiskeytown in 1997. How many years has BB spent on his schtick? If only Ryan Adams had pulled a Keith Richards on that guy...

The Individual Career, Fortune, and the Economy

Here in New York, at least among the law-students and yuppies with whom I hang, the state of the economy is constantly on the tongues and minds of all. Some of this is, of course, because we are people interested in world events, and economic news is some of the most important news there is, because it affects so many lives. But it's also addressed as a question of self-interest: people are concerned about the economy's effects on their careers. I recently rediscovered an interesting New York Times article on this subject, which provided some links to some research on the topic.
Three studies indicate that students who graduate into a bad economy can harmed in the long-term as a result of beginning their careers with lower-paying jobs. The first (for which only the abstract is available), by Alec Levenson, found that a 3-4 year recession before age 25 had no statistical effect on white men, but did affect the employment rates and hours worked for black men, black women, and white women. This suggests that those whose position in the work force is most tenous are most at risk in a poor economy.
A second study (PDF) indicates that those who graduate in a bust make about 10% less than those who gradudate in a boom. The gap between the graduates closes slowly, lasting around eight years. Interestingly, those who graduate in bad economies move around more, and this contributes about 30% of the eventual rise in their incomes. Switching jobs, sectors, and locations is good for a career, which makes sense, because, being risk averse, most people would not take these risks of unless there was a proportionally larger benefit to doing so. Finally, the most "advantaged" (highest earning capacity) workers are hurt less and recover more quickly than those who make the least.
A third study, by Paul Oyer, that focused on MBAs was more pessimistic in one way, but revealing in others. It found that MBAs who graduated in a bull market were much more likely to take investment banking jobs over other opportunities, and were therefore significantly wealthier in lifetime earnings. So there's the rub: if we measure success/happiness by income, graduating in a bad economy is a Bad Thing.
But maybe there are positive effects to graduating in a bad economy. I-Banking, while lucrative, requires long hours and constant stress, perhaps leading to unhappiness. Some even argue (I think incorrectly) that investment banking serves no useful purpose. So while we could say that those graduates who don't go into investment banking are worse off, we might actually find that they are happier or more fulfilled working in other fields. While classical economics assumes us that more choice is always better, and thus that having the opportunity to work for an investment banking firm is better than not having it, more recent research has shown that sometimes we are better off when more immediately appealing but less inherently valuable choices are restricted.
So how should we, as young people, students, people at the beginning of our careers, think about the economy? We should not hesitate to follow it as an interesting and meaningful world event. But its effect on our well-being is not clear, for more reasons than I can list. A salesman who is forced into a government position because of a poor economy might find himself happier and more fulfilled later in life, because the choice to work harder and longer and make more money is not available to him, allowing him build firmer relationships with family and friends. The idea that we can't know the economy's effect on our own lives would seem to endorse taking a more stoic, come-what-will attitude. Or we could take the other route: Oyer, the author of the MBA study, recommends that those interested in careers in finance place a large short on financial markets before they enter school to ameliorate their risk. Finance-bots would do well to follow his advice.

Wednesday, January 23, 2008

Late MLK Day post

I don't have much to say that hasn't been said better elsewhere -- but I can point out a great source that people here may not know of: this great show from San Francisco's progressive radio station, KPFA. This is a radio program from 1964 about the kidnapping and murder of anti-racist volunteers in Mississipi. It's harrowing to think about just how dangerous the American South was for blacks and champions of social justice. Not that these problems have completely faded: racists recently marched on MLK Day in Jena, a recent racial hot spot. Anyway, try to listen to the whole thing, perhaps in the background when you have some spare time, but things really pick up around the 25 minute mark with the narrative about the workers' disappearance.

Also, in order to properly honor King, excerpts from his speech "The Domestic Impact of the War" (also heard on KPFA):

"Now what are some of the domestic consequences of the war in Vietnam? It has made the Great Society a myth and replaced it with a troubled and confused society. The war has strengthened domestic reaction. It has given the extreme right, the anti-labor, anti-Negro, and anti-humanistic forces a weapon of spurious patriotism to galvanize its supporters into reaching for power, right up to the White House. It hopes to use national frustration to take control and restore the America of social insecurity and power for the privileged. When a Hollywood performer, lacking distinction even as an actor can become a leading war hawk candidate for the Presidency, only the irrationalities induced by a war psychosis can explain such a melancholy turn of events."

"In the past two months unemployment has increased approximately 15%. At this moment tens of thousands of people and anti-poverty programs are being abruptly thrown out of jobs and training programs to search in a diminishing job market for work and survival. It is disgraceful that a Congress that can vote upwards of $35 billion a year for a senseless immoral war in Vietnam cannot vote a weak $2 billion dollars to carry on our all too feeble efforts to bind up the wound of our nation's 35 million poor. This is nothing short of a Congress engaging in political guerrilla warfare against the defenseless poor of our nation."

"The government will resist committing adequate resources for domestic reform because these are reserves indispensable for a military adventure. The logical war requires of a nation deploy its well fought and immediate combat [this is in the text but doesn't seem to make much sense] and simultaneously that it maintain substantial reserves. It will resist any diminishing of its military power through the draining off of resources for the social good. This is the inescapable contradiction between war and social progress at home. Military adventures must stultify domestic progress to ensure the certainty of military success. This is the reason the poor, and particularly Negroes, have a double stake in peace and international harmony. This is not to say it is useless to fight for domestic reform, on the contrary, as people discover in the struggle what is impeding their progress they comprehend the full and real cost of the war to them in their daily lives."

Tuesday, January 22, 2008

Credit Crisis Turning Corner

In a couple(2) months, the credit crisis will be behind us. That is, if CDS contracts don't unwind and if the bond insurers stay a float with a decent rating. If not, much more pain. This is more likely than not, "as everything that could go wrong has."

FT calls this time and place a "Minsky Moment" after the Wash U professor Hyman Minsky. “A collapse of debt structures and entities in the wake of asset price decay, the breakdown of ‘normal’ banking functions and the active intervention of central banks”. This follows an extraordinary dependence on credit growth in the recent cycle.

Bernake has all but discarded inflation concerns. He will cut rates deeper and faster. 75bps cut signals they don't care - neither do the markets, oil declined today. But a lot can happen in two months in this enviornment. The Fed will do anything it can to avoid a recession, but the fact remains that it is in a tough position as most foreign governments are refusing to buy dollars. Furthermore, this is compounded by the stimulus plan which will double the deficit and make the dollar go lower - deficit = dollar value.

Note: George Soros just came out and said this was the worst market crisis in 60 years. That's WWII. When the next recession happens - americans will be living in a very different country. Already, soros says that "the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy." To China.

Almost was right

Happy Birthday, Jim

Scrouge on Screwed.


Monday, January 21, 2008

Stock Market Crash Tomorrow

Global indicies went down on average over 5 percent today. FTSE was at 5.6 decline, just missing the 5.7 decline after September 11.

Additionally, Bank of China, the state-owned bank, is telling the WSJ it may have to writedown large sums of subprime loans.

If China suffers the kind of shit we are going through as a result of their own subprime mortgage crisis, the global economy will be officially exploding. Economic well-being will drop considerably worldwide. It may be the next Great Depression.

Look for the stock market to crash tomorrow, as in over 500 points. Dow Jones futures are predicitng a 550 point decline tomorrow.

We are still waiting for the bond insurers to drop - one bond insurer, AMBAC, has already had its rating downgraded which means billions of dollars of bonds it insures are in theory supposed to be downgraded. The bond insurers lend their AAA ratings to less credit worthy parties in order to get them cheaper loans. When their rating is downgraded, the loans price increases, etc, etc. If one of the bond insurers go out of business, or if they continue to lose their ratings(others include MBIA and AMBAC) then banks will be forced to put 60 billion dollars of crappy bonds back on their balance sheets. And thus, get fucked.

Bushs plan will not work - the markets have voted.

Saturday, January 19, 2008

Are We Republicans?

Which candidate best fulfills your idea of a post-enlightenment society?

Barack's familial line is truly global. With a mother from Kansas and a father from Kenya, Barack grew up in Indonesia as a Muslim before converting to Christianity. His politics of inspiration are a boon to those who find strength through such a medium(but lets not forget that it is after all just rhetoric). He is honest, vulnerable, and human and he lets it show with an openly formless identity. He has a JD from Harvard but decided to do community organizing in Chicago instead of going to one of those top firms. He then rode an organic wave to his senatorial victory and his position today.

But Mitt Romney was the CEO of Bain consulting, established universal health care in Massachusetts without penalizing any party, and comes from a politically experienced upbringing. He has an MBA and JD from Harvard. He was the Valedictorian at BYU. He has lied over and over about his past positions, tried to weasel away questions about the Iraq War by saying they are "non sequitor" on national debates, cunningly uses semantics to make enhancing claims about his life and campaign, and has spent the most money of any candidate yet including 20 million dollars in Iowa and yet he lost.

Hilary Clinton is an organized, tough, very smart, thick-skinned, power-hungry serious bitch who was beautiful in her younger day. She is a feminist to the max - not even divorcing Bill Clinton so that she could maintain her own interests. Bill was merely the ferry to her future. I don't even know if she is actually a woman so I its hard to say what difference it would make to all the more soft(normal)woman out there if she were president. Would it make a difference? Probably.

These men and women truly are the best of the best of our society; each one is a very special, talented, and intelligent individual. This, unlike George W., who never did anything on his own in his entire life, and knew absolutely nothing about the complexities of foreign policy. But we know why he didn't know anything about foreign policy - the neocons didn't want him too.

Which one of the candidates listed above would create the post cold-war, post-enlightenment society that embodies the best of the human condition? Which candidate will correct our course, establish peace domestically and internationally, not through weapons of war but through genuine lasting peace and [add any other list of values that are post-enlightenment]

Obama, literally, seems to embody the cultural norms that we all share - tolerance, diversity, respect, disdain for false arrogance, kindness, a belief in the value of people, community, and individualism(in the sense that his campaign is really a movement around him).

But Mitt Romney, Mitt Romney's brain seems to function in a way that indicates his persona will be able to inject post-enlightenment ideals back into our national discourse and understand the nature of the world in a post-enlightenment way. The evidence for this is contained within his lies. His lies indicate more than he is just a lier, they are smoking-gun evidence that he is playing a rational game. Because Romney, ever since his days as a finance chief, and ever since he has been involved in politics, has been using extreme semantics to defend himself, even against video that captures him saying contractory statements. He has been successful. He is so clearly a robot - a calculating machine - a risk-reward device - an insanely rational former human being stacked with immense knowledge turned into a computer, a calculating computer and a very very fast and accurate on too.

We need both these things. Obama's cultural understanding combined with Mitt Romney's rational game playing. Obama's politics of inspiration, diversity, and nuance with Mitt Romney's calculating power-hungry genius. Both men have the ability to grasp complexity and this is exactly what Bush does not have. Obama's heart and values. Mitt Romney's brain.

I would therefore, would love to see a Barack, Romney ticket in this spirit or an alteration of the election process to allow for such a thing.

Friday, January 18, 2008

Credit Crunch May Be Nearing End

I think this credit crunch may be nearing its end. What I mean by that is that banks will start lending to each other at a normal pace. And when I mean near, I mean in the next thirty days or so the rates will return to normal.

However, there is still significant asset depreciation to be had in the markets. the valuations of houses, companies, and bonds will all surely go down as there is a broad evaluation of traditional assumptions mainly that debt is actually risky. So the stock market will definitely continue to go down as the earthquake of subprime mortgages suffers from aftershocks while business activity will actually return to normal rates.

However, this prognosis is conditional on whether the bond insurers and the Credit Default Swap markets stay intact. There is a strong possibility that these markets will literally implode, causing many people to lose lots of money, and also will have a strong ripple effect across other financial innovative instruments that will ultimately lead to the unraveling of the modern banking system; a system where innovation upon innovation are all linked together in a Jenga like fashion - pull one piece and syanora. These innovations have only been around for sixteen years approximately but have grown in complexity and in size.

From MarketWatch: "If Ambac and MBIA(bond insurers) lose their top ratings, billions of dollars of muni bonds will be downgraded, and the guarantees that have been sold on mortgage-related securities such as collateralized debt obligations, or CDOs, will lose value.
"The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame," Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday.
Kravec cut her rating on Ambac and MBIA on Friday because she thinks that ratings downgrades are "highly probable" now."

Today, AMBAC was downgraded. Lets see what happens as it may spell a real catastrophe.

Thursday, January 17, 2008

Economic matters and a sort-of book review

Just as the experience of the Iraq War has strongly affected -- some might say radicalized -- many young people's approach to American politics, so also the coming fiscal year promises to teach the uninitiated an economic lesson or two.

I certainly can't accuse John Liberty of failing to report to us on this looming crisis. However, I will try to relate my own recent experiences and research in a more introductory way. I've tried over the last month or so to familiarize myself with economic news, and in a few specific cases this has meant reading article and book-length pieces on the history and trajectory of the current economic system. A typical day means checking the WSJ, the FT, and several high quality economic blogs: Krugman, DeLong, and Thoma, for example. Also, despite its obvious radical leanings, and thus (dis)colorations, the World Socialist Website provides consistent, understandable analysis. Other good leftist perspectives include this piece by Joel Geier from the latest International Socialist Review and this interview in International Socialism.

By far the most helpful source has been the late Andrew Glyn's Capitalism Unleashed: Finance, Globalization and Welfare, his last published work before his untimely death. Lest you think this is merely a left-wing screed, it received high praise from the FT's own free market maven Martin Wolf, who called it "lucid and penetrating."

While I encourage you to read this short book yourselves, I can touch on some of its most salient points here, although I've already returned it to the library and so lack specific figures in many cases. Glyn, like many economists, locates a "Golden Age" in the post-WWII era of the '50s and '60s, when unprecedented growth was combined with high worker benefits and regulatory practices in the advanced capitalist economies (less so in America, a notorious outlier as far as "welfare states" go). When the "stagflation" of the 70s set in, it was Paul Volcker, Jimmy Carter's Federal Reserve Chairman, who found the solution in 1979 which would affect future practices: ratcheting up interest rates, which while causing a recession managed to end inflation.
Since the productive "Golden Age," capitalists and governments have sought ways to revive weak profit rates through what has come to be called "neoliberalism": the deregulation of markets, weakening of labor unions and dismantling of the welfare state in many cases. Increased growth and job creation were the promises made to the working and consuming class, but Glyn shows how in many cases this has not gone according to plan. Furthermore, European countries, particularly the Western and Northern states, continue to confound predictions and expectations by retaining higher welfare standards. As even Martin Wolf is shown to admit in one citation, the high taxation levels necessary to maintain welfare policies have not necessarily caused capital flight or lack of competitiveness. Also, the more "liberal" (i.e. free market) economies of the US, UK, Australia and New Zealand experience much higher levels of poverty, even when their economies are booming and European nations are in recession, and thus periods of high unemployment. The U.S. also actually lags behind such countries in terms of social mobility, which goes against much American rugged individualist ideology. The UK has experienced an even greater decline in class mobility. Of course, these trends, particularly the high levels of social security in Europe, could and probably will be affected by future developments in the cheap labor economies of Asia, as well as by an influx of culturally heterogeneous and lower-wage-demanding immigrants.

The really interesting bits are on finance, since it is hard to overstate after reading this book just how important the financialization of the market has been over the last twenty years, not only economically but politically. (For yet another analysis from the left, see "Finance and American Empire" from the 2005 Socialist Register.) Enormous CEO salaries (which, as an interesting point of comparison, some Europeans when polled thought should be 3:1 to worker salaries, while in America the ratio in opinion is something like 13:1), severance pay, retirement funds, and generous stock option plans have incentivized all sorts of risky behavior that entails no individual punishment but massive social cost -- so-called "moral hazard."

With this rise in finance and corporate governance has come a corresponding assymetrical relationship in the political world, where massively unequal incomes create political inequality as the "voice of the majority" is edged out. (For an excellent overview of this state of affairs see "American Democracy in an Age of Rising Inequality," a report by the American Political Science Association in 2004.) Corporate ownership of media and greater attention paid to those with existing resources tends to reflect and promulgate the underlying assumptions of neoliberalism as well -- in the press and among pundits and economic analysts, economic failure can be remedied (so the story goes) only by further deregulation, and costs have to be cut at the labor level and jobs and wages "rationalized" to protect the bottom line.

Risk is, by definition, risky, and indeed finance and neoliberalism have created an environment of much greater and more frequent crises as compared to the industry and trade market of the mid century. To return to a by now familiar name, Martin Wolf has just said, in a column two days ago: "Regulators may have to step in [on corporate pay]. The idea of such official intervention is horrible, but the alternative of endlessly repeated crises is even worse." His fear is that "the political legitimacy of the market economy itself" could be destroyed by the current system, because "no industry [other than finance] has a comparable talent for privatising gains and socialising losses."

I am running out of memorized juicy bits here, so all I can do is to reiterate the readability, even-handedness, and all-around helpfulness of this book. Some of the key concepts of economics, particularly currency speculation and trading, remain fuzzy for me, but a few more times through this book or with help from other sources and they should be much clearer. Let me just say that I have no intention of sounding like an expert in these matters, and many of you probably know much more than me based on your own studies and even career experience; I only wish to encourage fellow travelers, who like me probably spend a lot more time reading Slavoj Zizek than Forbes -- and who knows at this point which is the more radical choice?

Supreme Court: Corporate Fraud Cases Restricted

The Supreme Court yesterday strictly limited the ability of investors who lost money through corporate fraud to sue other businesses that may have helped facilitate the crime, a decision that could doom stockholder efforts to recover billions of dollars lost in Enron and other high-profile cases.

In a victory for business interests in a case they had identified as their most important of the year, the court ruled 5 to 3 to protect corporate partners such as vendors, consultants and others from liability if stockholders cannot show they relied on deception from such "secondary actors'' in making their investment decisions.

"That was a complete victory for the defendants," said Georgetown University law professor Donald C. Langevoort. "The judicial system has become more conservative and more sensitive to economic rights and business interests. This is one of many cases that has restricted the scope of investor recovery."

The case decided yesterday, Stoneridge Investment Partners v. Scientific-Atlanta, involves a scheme by a cable company and two of its vendors that allowed the company to disguise a revenue shortfall and present investors a healthier financial picture. Investors sued the company, Charter Communications, and then went after the two vendors, Scientific-Atlanta and Motorola.

Justice Anthony M. Kennedy, writing for the majority, said stockholders had no knowledge of the actions of the two vendors and thus cannot show those companies' actions influenced investors "except in an indirect chain that we find too remote for liability.''

Kennedy drew from the court's 1994 decision that private suits are not allowed against companies "aiding and abetting" corporate fraud by others. He wrote that Congress the following year determined that "this class of defendants should be pursued by the SEC and not by private litigants,'' referring to the Securities and Exchange Commission.

The case attracted national attention for its similarity to a case filed by investors who want to sue banks and others that allegedly allowed the energy trader Enron to disguise its financial problems before a collapse that produced heavy losses. It carries implications for other investor-motivated suits over alleged corporate fraud, including attempts by shareholders to recover billions of dollars in widening losses in mortgage industry investments.

The decision continued a winning streak for business interests in securities cases that extends back to the court's 2004 case and marked the reemergence this term of the court's ideological split.

Kennedy was joined by the four more conservative members of the court, Chief Justice John G. Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr. Embracing an argument advanced by the U.S. Chamber of Commerce, the five said expanding the availability of stockholder suits "may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets.''

Justice John Paul Stevens said the majority has a "mistaken hostility'' toward such private actions, allowed by the court long ago under federal securities law. Stevens wrote such suits play an important role in insuring "investor faith in the safety and integrity of our markets.''

He said Congress has acted "with the understanding that federal courts respected the principle that every wrong would have a remedy.''

His dissent was joined by Justices David H. Souter and Ruth Bader Ginsburg. Justice Stephen G. Breyer, who owns stock in Cisco, which now owns Scientific-Atlanta, did not take part in the decision. Roberts had also recused himself from the case, but rejoined it, apparently after taking action to eliminate a financial conflict.

Plaintiffs' lawyers say sometimes the only way for investors to recover money lost because of a company's fraudulent actions is to go after those who helped perpetrate the fraud. They are often the only ones left with money after a scheme collapses.

Sean Coffey, a lawyer who frequently files fraud cases on behalf of shareholders, said the decision "significantly diluted accountability for wrong-doers at the same time that investor confidence in the integrity of our capital markets is suffering yet another body blow, this time from the subprime debacle."

The ruling intensifies pressure on regulators and prosecutors to step up their attack on corporate fraud rather than relying on investor lawsuits to shoulder some of the burden.

Duke University law professor James D. Cox, who follows the government's antifraud initiatives, noted that neither agency sued Scientific-Atlanta or Motorola in connection with the Charter scheme. "The SEC is a nonplayer in these cases," he said.

The SEC had supported weighing in on behalf of plaintiffs in the Stoneridge case, but it was overruled by President Bush and Treasury Secretary Henry M. Paulson Jr., who feared it would hamper business with expensive and frivolous lawsuits.

Corporate lobbyists embraced the ruling.

"This decision ensures that overzealous litigation does not derail the U.S. economy," said Ira Hammerman, general counsel at the Securities Industry and Financial Markets Association. "The wrong ruling would have unleashed a tsunami of damaging side effects, infecting the entire U.S. economy and harming investors."

Dan Newman, a spokesman for the attorneys who represent Enron plaintiffs, said they were analyzing the ruling. The court will consider whether to review the Enron case at its private conference this week.

"We're looking at a variety of options because clearly the innocent victims of the Enron debacle don't deserve to be left holding the bag for the fraud orchestrated by powerful banks," Newman said.

Some legal experts said the ruling, while unfavorable to many plaintiffs, could have been written in a way that was even more damaging. Former SEC commissioner Harvey J. Goldschmid, who joined in a brief supporting the plaintiffs, said that investors may find hope in a distinction that Kennedy appeared to draw between third parties in the securities and financial services industry and those who handle "ordinary business operations."

The opinion, Goldschmid said, may leave room for shareholder lawsuits against underwriters, accountants, lawyers and bankers while forestalling such cases against vendors selling goods. [from]

Tuesday, January 15, 2008

Begging for a caption contest

Monday, January 14, 2008

Great Depression

Great Depression

Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.

U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.

Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.

Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''

Credit Default Swaps

If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.

The CDS market is worth about $45,000bn (€30,500bn, £23,000bn). This is not an easy figure to imagine. It is more than three times the annual gross domestic product of the US. Economically, credit default swaps are insurance. But legally, they are not, which is why this market is largely unregulated.

Technically, they are swaps: two parties swap payments streams – one pays a regular premium for protection, the other pays up in case of default. At a time of low insolvency rates, many investors used to consider the selling of protection as a fairly risk-free way of generating a steady stream of income. But as insolvency rates go up, so will be the payment obligations under the CDS contracts. If insolvencies reach a certain level, one would expect some protection sellers to default on their obligations.

So the general health of this market crucially depends on the rate of insolvencies. This in turn depends on the economy. The US and Europe are the two largest CDS markets in the world. It is now widely recognised, including by the Federal Reserve, that the US economy is heading for a sharp downturn, possibly a recession. The eurozone, too, is heading for a downturn, but possibly not quite as sharp.

According to the National Bureau of Economic Research, the average length of US recession, excluding the 2001 recession, was 11 months. The 2001 recession was shorter, which brings down the average to about 10 months. The US has been quite lucky. Germany, for example, suffered a downturn at the beginning of this decade. It lasted a near eternity – 15 quarters – and included two separate technical recessions. Interestingly, and perhaps most relevant to today’s debate, is the fact that this downturn was also aggravated by a national credit squeeze. German banks cleaned up their balance sheets after a decade of binge-lending.

The German experience has taught us that persistent problems in financial transmission channels cause long economic downturns. Today, the really important question is not whether the US can avoid a sharp downturn. It probably cannot. Far more important is the question of how long such a downturn or recession will last. An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession.

A truly awful scenario would be a long recession. The US did experience some longish recessions in the past, for example from November 1973 until March 1975, but there was no CDS market around at the time.

So what then would be the effects of these scenarios on the CDS market? Bill Gross of Pimco*, who runs the world’s largest bond fund, last week produced an interesting back-of-the-envelope calculation that received widespread publicity. He projected that the losses from credit default swaps caused by a rise in bankruptcies could be $250bn or more – which would be similar to the expected total loss as a result of subprime.

This is how he arrived at this estimate. His calculation assumes that the corporate insolvency rate would return to a normal level of 1.25 per cent (measured as the default rate of all investment grade and junk debt outstanding). As the entire CDS market is worth about $45,000bn, $500bn in CDS insurance would be triggered under this assumption. The protection sellers would probably be able to recover some of this, so the net loss would come to about half of that. This estimate is very rough, of course. Most important, it is based on the assumption that the hypothetical US recession would not turn into a prolonged slump. In that case, one would expect corporate default rates not merely to return to trend, but to overshoot in the other direction.

So one could take that calculation as a starting point. A downturn lasting two years could easily trigger payments streams of a multiple of $250bn.

At this point we might be tempted to conclude that this all is irrelevant, since this is only insurance, which is a zero-sum financial game. The money is still there, only somebody else has got it. But in the light of the current liquidity conditions in financial markets, that would be a complacent view to take.

If protection sellers were to default en masse, so too could some protection buyers who erroneously assume that they are protected. Given that the CDS market is largely unregulated there is no guarantee of sufficient liquidity behind each contract.

It is not difficult at all to see how the CDS market has the potential to cause serious financial contagion. The subprime crisis came fairly close to destabilising the global financial system. A CDS crisis, under a pessimistic scenario, could produce a global financial meltdown.

This is not a prediction of what will happen, merely a contingent scenario. But it is contingent on an event – a nasty and long recession – that is not entirely improbable.

Friday, January 11, 2008

Krugman's Got It Wrong

Krugman says "we haven't had a recession yet because because of booming exports." He then, on his blog, which was introduced to me by scantron, shows a graph that illustrates how much our exports have increased to save us.

But Krugman - we are importing oil at record cost. That's why our trade deficit was determined to be the highest it has been in 14 months. It increased, not decreased.

All the Fed can do is create another housing boom by easing monetary policy. Oh, and cause major inflation in the process. That could save us from a recession but it won't save us from the next one.

Thursday, January 10, 2008

A people's history of large object scaling

In headlines across the country:


Wednesday, January 09, 2008

People are dumb, pt. 45,019,573

"She [Hillary Clinton] said we have been an 'on-your-own society.' She said, 'It's time to get rid of that and replace it with shared responsibility.' That's out with Adam Smith and in with Karl Marx."

--Mitt Romney, 7-22-07


-- tee shirt design, 2008


"They [Hillary Clinton and John McCain] are more centrist, so there wouldn't be as stark a difference between them on fiscal policy than you'd see with some of the other candidates."

--Michael Darda, chief economist at MKM Partners LLC, quoted in Reuters, "McCain, Clinton wins may soothe Wall Street," 1-09-08

Tuesday, January 08, 2008

Election II

What do the voters want? THEY WANT FEELINGS!


God, I like Barack Obama. Is he full of shit? Will the next president be able to put bush on trial for his crimes? Should he be? The democrats are terrific. What do you think?

The Coming Economic Depression

I know many of you think I am an alarmist. This is true.

Everyone needs to understand the gravity of this economic situation. This is not your normal boom and bust cycle, your normal "it blows up and then we start again." What tha we are witnessing are the beginnings of major stagflation(gold and commodities are all at record highs(which is the definition of inflation) and, I am sorry to say this, the early signs of a depression.

Today the market took a nose dive after trading largely in the green, as it became clear that consumer spending is starting to be hit by the mortgage turmoil in the most basic of services: cell phone, tv, and internet payments. AT&T announced it was having funding troubles because people defaulting on those payments has increased by a lot.

And there is the root of our demise: the consumer, the debt-laden consumer. With a negative savings rate, after largely being around 9 percent in the positive before Bush, the debt laden consumer is broke. Credit card defaults are up 40% over last year. Home prices are decreasing, which many people use as a credit card, with the hope that the home price increases we have seen in the last couple years would continue and they would be able to pay it off after selling their home.

The last time the consumer had a negative savings rate was 1929. Today and 1929, that's it. This is by no means a smoking gun on the depression question.

With the rise of those blaming the federal reserve and rallying around Ron Paul, it becomes clear that there is widespread dissatisfaction with the controllers and policy makers responsible for our economy, the rule-setters set no rules for too long. And the public is starting to think abolishing the federal reserve is the answer.

I saw someone on the L subway platform today handing out free DVDs. Totally free. They were real copies of "The Zeitgiest," the movie that advocates the abolishment of the federal reserve.

Tens of people were taking copies. Many were standing there amazed at the concept of free knowledge. It was the biggest crowd I have seen take interest in the subway people.

The Next Depression will not occur this year, although it could if there is a major stock market crash - which is unfortunately becoming more and more likely. 250 point drops are a lot for one day. We are by definition past the "correction" stage, as in the "correction of excesses and speculation"(its defined as a 10% drop in a short period of time).

Corrections lead to a bear market. A bear market is a decline of 20% off the highs of a twelve month period. Corrections, if they continue, lead to a bear market. A bear market is marked by widespread pessimism. Hence, people sell as they think profits will be lower.

The Fed can not stop this problem. The market rate cut is being priced in right now, but the market is falling. Traders must know that the fed is powerless to stop this downturn. A downturn that I believe will lead to a depression. Keynes thinks the same thing:

"Keynes himself, however, pointed out that when interest rates become too small – below about 2% – then people no longer have an incentive to save, preferring to hold money for what he called "transactions demands." If there are no savings, banks get no money with which to make loans, and it is this drying up of savings – and loans – that causes the regular business cycle to break down."

Remember that 1% interest rate we had after Sept 11 courtesy of Alan Greenspan? Thus, people took out loans instead of saving. We have now a depreciating home values(which has preceded every recession I might add), a negative savings rate, a war in Iraq that is putting the federal government more in debt, and a consumer that is in debt and can't pay back their loans, whether its mortgage or credit card or as of today, not even cell phones.

If this trend continues, if things fall further, it will grind the economy to a halt, no matter how low the Fed cuts rates. The fed would prefer not to cut rates right now because inflation is so bad, but the banks are reeling. Grocery stores in New York City have to order half the food they are used to ordering because food prices have doubled. Iraqi people, who rely on government hand out of foods, will be getting only one or two raw food materials,as opposed to the usual twelves because the other ones are too expensive.

Lastly, the innovations of the modern banking system are unraveling. Derivatives will be the new buzz word guys, as derivatives are what will finally be our undoing. Derivatives are what has created all the wealth out thin air. But if the instruments that underly derivatives are exploding, so will the derivatives - but the thing is the derivative is worth MORE than the asset price. Everything is multiplied. The current derivatives market is bigger than the U.S. GDP. I have included a graph below to illustrate this point.

Guys, this has the potential for a serious worldwide economic breakdown. Calls are being made by the public to rewrite our broken federal reserve through the ron paul campaign. If the Federal Reserve goes down - that is the definition of an economic collapse. The very fact that the idea has taken hold among such a large population means that it is breaking down.

If we begin to see derivatives taking large write downs, you will definitely see the Next Great Depression.

Are Our Movies Sexist?

At least two journalists this past month have said yes. First, Meghan O'Rourke wrote an article in Slate picking up where Knocked Up star Katherine Heigl left off. That particular movie, they both agreed, is "a little sexist":
Women, by contrast, are entirely concerned with pragmatic issues. We never see Alison or her older sister, Debbie, pursue or express her own creative impulses, sense of humor, independent interests; their rather instrumental concerns lie squarely in managing to balance the domestic with the professional. It's as if women's inner worlds are entirely functional rather than playful and open. Knocked Up was, as David Denby put it in The New Yorker, the culminating artifact in what had become "the dominant romantic-comedy trend of the past several years—the slovenly hipster and the female straight arrow."
Next came Times reviewer Manohla Dargis. In a parenthetical remark midway through her review of There Will Be Blood, she wrote, "Like most of the finest American directors working now, Mr. Anderson makes little on-screen time for women."

Two different critiques, but I find both to be entirely persuasive. There Will Be Blood certainly follows The Departed as both the best film of the year and the most sexist. Whereas Scorsese's film features one bumbling, unprofessional, and "emotional" woman, Anderson almost literally wipes them off the landscape. (The absence of females is so ubiquitous that it resembles more than just "there weren't many women working in the oil industry." The protagonist is presumably a virgin, while the central family has a weak father yet a mother who does not utter a single line of dialogue.)

That the Gangster and the Western are eternal cinematic leitmof does not help the female cause. Nonetheless, it is odd that they have not been successfully reimagined in a way that places women more at the core of the story.

It seems unlikely that we'll be treated to more dynamic women in film until we have more female directors. Where are they? Why does the film industry resemble a 1920s ... film industry?

Monday, January 07, 2008

What hath the "surge" wrought?

Does this blog still exist? If so, I'm swooping in to ring in the new year as a Debbie Downer. According to The Independent (via Iraq Body Count):
  • The previous year was the second deadliest since the war began.
  • Between 22,000 and 24,000 civilians killed.
  • The number of civilians killed by the U.S. (mainly due to increased airstrikes) doubled.
Good thing voters don't care about Iraq anymore! (Because we're "winning," the 2008 election has become a "bread and butter, domestic issues" campaign, doncha know.)

I feel good about democracy. Barack Obama gives me hope.

Meanwhile, January 11 is an International Day of Action to Shut Down Guantanamo. Write a letter or something.