November 2010 archive

Krugman’s piece yesterday was widely quoted and most people chose to focus on this section of it-

Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Which is kind of appalling from a morality standpoint, but it’s also not working on a practical level.

Thanks to Atrios I was able to give you the rest of the story yesterday, but I think it’s instructive to reflect on Krugman’s reporting of the actual factual results-

Strange to say, … confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy – and are fleeing Irish debt because of that economic weakness.

…

Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line – a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

…

(A)t this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?

Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes – approvingly! – “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls – that is, by limiting the ability of residents to pull funds out of the country.

And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump.

…

Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

He did win a Nobel Prize in Economics and stuff.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future

Find the past “On This Day in History” here.

November 27 is the 331st day of the year (332nd in leap years) in the Gregorian calendar. There are 34 days remaining until the end of the year.

On this day in 1703, a freak storm over England, that had begun around November 14, peaks.

The unusual weather began on November 14 as strong winds from the Atlantic Ocean battered the south of Britain and Wales. Many homes and other buildings were damaged by the pounding winds, but the hurricane-like storm only began doing serious damage on November 26. With winds estimated at over 80 miles per hour, bricks were blown from some buildings and embedded in others. Wood beams, separated from buildings, flew through the air and killed hundreds across the south of the country. Towns such as Plymouth, Hull, Cowes, Portsmouth and Bristol were devastated.

However, the death toll really mounted when 300 Royal Navy ships anchored off the country’s southern coast-with 8,000 sailors on board-were lost. The Eddystone Lighthouse, built on a rock outcropping 14 miles from Plymouth, was felled by the storm. All of its residents, including its designer, Henry Winstanley, were killed. Huge waves on the Thames River sent water six feet higher than ever before recorded near London. More than 5,000 homes along the river were destroyed.

Eddystone Lighthouse is on the treacherous Eddystone Rocks, 9 statute miles (14 kilometres) south west of Rame Head, United Kingdom. While Rame Head is in Cornwall, the rocks are in Devon.

The current structure is the fourth lighthouse to be built on the site. The first and second were destroyed. The third, also known as Smeaton’s Tower, is the best known because of its influence on lighthouse design and its importance in the development of concrete for building. Its upper portions have been re-erected in Plymouth as a monument.

The first lighthouse on Eddystone Rocks (first picture above) was an octagonal wooden structure built by Henry Winstanley. Construction started in 1696 and the light was lit on 14 November 1698. During construction, a French privateer took Winstanley prisoner, causing Louis XIV to order his release with the words “France is at war with England, not with humanity”.

The lighthouse survived its first winter but was in need of repair, and was subsequently changed to a dodecagonal (12 sided) stone clad exterior on a timber framed construction with an Octagonal top section as can be clearly seen in the later drawings or paintings, one of which is to the left. This gives rise to the claims that there have been five lighthouses on Eddystone Rock. Winstanley’s tower lasted until the Great Storm of 1703 erased almost all trace on 27 November. Winstanley was on the lighthouse, completing additions to the structure. No trace was found of him.

Well, it’s that holiday time of year again when all you want is some mindless entertainment to spare you from dealing with your relatives and TV programmers screw with you by replacing all your familiar favorites with sappy specials and marathons of your least liked shows made more inpenetrable by the one line crawl of uselessness that TV Guide channel has become.

Thank goodness kindly uncle ek is here to highlight a few moments of blessed distraction as well as some of the potential pitfalls to be avoided.

I look on it as a public service.

My job is made a little easier because of a neat little network ‘day at a glance’ feature of Zap2it TV Listings.  Click on the channel name.  I’m going from my last diary to Paid Programming.  I’m putting the main meat below the fold because the table is too long for the Front Page.  It’s arranged by time and marathons (4 half hour episodes, 3 hour episodes, double features, themes, and Instapeats) may be noted earlier than you expect, but they do also include the running time so you know when they end.

Nothing like watching A Christmas Story 25 times in a row.

I’m rolling publishing again because it’s much easier.  Right now this covers until 10 am and I’m missing 10 channels.  Expect an update.

Update: Now good to 7 am with all 41 channels and you didn’t miss anything.  Tomorrow is the last edition of extended Thanksgiving coverage.

U.S. now in Afghanistan as long as Soviets were

The last Red Army troops left in 1989, driven out after nine years and 50 days by U.S.-backed fighters known as mujahedin. Despite contrasts, the U.S. and Soviet wars have common narrative elements.

By Laura King and Sergei L. Loiko, Los Angeles Times

November 27, 2010

Reporting from Kabul, Afghanistan, and Moscow – As wartime days go, Friday was a fairly quiet one in Afghanistan. Helicopters skittered across the sky; convoys rumbled along desert roads; soldiers in mountain outposts scanned the jagged peaks around them.

But one thing set the day apart: With its passing, the length of the U.S. military’s campaign in Afghanistan matched that of the Soviet Union’s long and demoralizing sojourn in the nation.ion.

Most everyone who is aware of The Who as a major British band realize that the three instrumentalists were very good at their crafts, and some say that Keith Moon may have been the best rock and roll drummer who ever lived.  However, the bass player, John Entwistle, did much more than play bass.

John Alec Enwistle, born 19441009 and died 20029627, was one of the original members of the band.  He and Pete Townshend formed a band in the late 1950s, and he left to join Roger Daltrey’s band in the early 1906s.  He convinced Daltrey to have Townshend join, and with the admission of Keith Moon The Who were formed.

Evening Edition is an Open Thread

Now with 57 Top Stories.

1 US rushes to contain new WikiLeaks damage

AFP

24 mins ago

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Paul Krugman: Eating the Irish

What we need now is another Jonathan Swift.

Most people know Swift as the author of “Gulliver’s Travels.” But recent events have me thinking of his 1729 essay “A Modest Proposal,” in which he observed the dire poverty of the Irish, and offered a solution: sell the children as food. “I grant this food will be somewhat dear,” he admitted, but this would make it “very proper for landlords, who, as they have already devoured most of the parents, seem to have the best title to the children.”

O.K., these days it’s not the landlords, it’s the bankers – and they’re just impoverishing the populace, not eating it. But only a satirist – and one with a very savage pen – could do justice to what’s happening to Ireland now.

Katrina vanden Heuvel: The GOP: Gobbling Up Our Blessings

Thanksgiving may be a time to give thanks for our blessings, but in Washington, the resurgent Republican conservatives want needy Americans to have fewer of them. The new Republicans have the same old leaders – and their passion hasn’t changed. It isn’t about offering a hand up to the afflicted – it’s about handouts to the connected.

In the lame-duck session now convened until the end of the year, Republicans have continued their strategy of obstruction – opposing the New START treaty, opposing repeal of “don’t ask, don’t tell,” opposing consideration of immigration reform, opposing even passage of appropriations for the current year. Their passion is focused on getting one thing done. They will run through the wall to extend the extra tax cuts enjoyed by those, largely millionaires, earning more than $250,000 a year.

Forget about deficit reduction. According to Republicans, these tax cuts – costing an estimated $700 billion over the next decade – need not be balanced by spending cuts, or “paid for” in the Washington parlance.

Robert Reich: Sarah Palin’s Presidential Strategy and the Economy She Depends On

Monday night, Sarah Palin watched from the audience as daughter Bristol danced on ABC. Twenty-three million other Americans joined her from their homes. Tuesday, the former vice-presidential candidate started a 13-state book tour for her new book, “America By Heart,” which has a first printing of 1 million. Her reality show on TLC, “Sarah Palin’s Alaska,” is in its third week. Last Sunday she was the cover story in the New York Times magazine.

It’s all part of The Palin Strategy for becoming president in 2012 – or 2016 or 2020.

Iceland Is No Ireland as State Free of Bank Debt, Grimsson Says

By Jonas Bergman and Omar R. Valdimarsson, Bloomberg News

Nov 26, 2010 9:21 AM ET

Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks to the government’s decision to allow the banks to fail two years ago and because the krona could be devalued.

“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”

…

“Iceland is faring much better than anybody expected,” Grimsson said. The Icelandic state’s liability on foreign depositor claims stemming from Icesave accounts at failed Landsbanki Islands hf should be put to a national referendum, he said.

“How far can we ask ordinary people — farmers and fishermen and teachers and doctors and nurses — to shoulder the responsibility of failed private banks,” said Grimsson. “That question, which has been at the core of the Icesave issue, will now be the burning issue in many European countries.”

(h/t Atrios)

I don’t have a Nobel Prize in Economics, but unlike Paul Krugman I don’t think this was inevitable.  I blame people and institutions.

I blame Vacuity and prestige schools that will accept and pass any legacy moron (like George W. Bush).

I blame Vanity and an academic atmosphere that prizes novelty and publication above scholarship, teaching, and facts.

I blame Venality and the greed of our upper class elites who can starve to death on mere millions because they can’t conspicuously consume as much as their billionaire brethren and are disappointed because they think it’s a birthright.

The Instability of Moderation

by Paul Krugman, The New York Times

November 26, 2010, 9:40 am

The brand of economics I use in my daily work – the brand that I still consider by far the most reasonable approach out there – was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention. In the Samuelsonian synthesis, one must count on the government to ensure more or less full employment; only once that can be taken as given do the usual virtues of free markets come to the fore.

…

I’ve always considered monetarism to be, in effect, an attempt to assuage conservative political prejudices without denying macroeconomic realities. What Friedman was saying was, in effect, yes, we need policy to stabilize the economy – but we can make that policy technical and largely mechanical, we can cordon it off from everything else. Just tell the central bank to stabilize M2, and aside from that, let freedom ring!

When monetarism failed – fighting words, but you know, it really did – it was replaced by the cult of the independent central bank. Put a bunch of bankerly men in charge of the monetary base, insulate them from political pressure, and let them deal with the business cycle; meanwhile, everything else can be conducted on free-market principles.

…

Last but not least, the very success of central-bank-led stabilization, combined with financial deregulation – itself a by-product of the revival of free-market fundamentalism – set the stage for a crisis too big for the central bankers to handle. This is Minskyism: the long period of relative stability led to greater risk-taking, greater leverage, and, finally, a huge deleveraging shock. And Milton Friedman was wrong: in the face of a really big shock, which pushes the economy into a liquidity trap, the central bank can’t prevent a depression.

(h/t Atrios)

Today is a half day trading day in the U.S. and unlike some shills for Wall Street I can’t imagine why you’d want to be long in stocks after Wednesday’s ‘irrational exuberance’.  Sell high, buy low is after all- basic.

Retail investors (it’s hard to call people who own stocks ‘normal’ because they’re a tiny minority) may still hold a majority of corporate equity but they have been leaving the market in droves because after the great financial meltdown of 2008, the Flash Crash, and the recent revelations of systemic Title Fraud and Insider Trading.

As I mentioned, most people don’t own stocks, they invest in mutual funds (Republicans and Blue Dogs like to call them ‘stocks’ to inflate the numbers of the ‘investor class’, but they’re really not), bonds, certificates of deposit, annuities, and other ‘safe’ investments.  Many people just keep their money in a bank because they live paycheck to paycheck and don’t have any surplus to spare.  What savings they have is in the equity of the house they’re living in and in today’s depressed market it’s not what it used to be.

But most people have bank accounts and a lot of them are really, really angry at the banksters.

It’s the same in Europe where ex-soccer star Eric Cantona is urging people to do something about it-

Join a World-Wide Bank Run in December — Move Your Money

Robert E. Prasch, The Huffington Post

November 24, 2010 04:03 PM

(O)rganizers are calling for the use of a new weapon, one available to any of us with a bank account. It is the simple act of removing all of our money from the banks, and doing so en masse on the same day — December 7th.

…

Of late, the famously mercurial temper that Cantona exhibited on and off the soccer pitch has been redirected from rivals and unruly fans. A prominent target is French President Nicolas Sarkozy’s proposal to create a ministry, museum, and mass public debate on “national identity,” all of which Cantona publically ridiculed as “idiotic.” His sights are now trained on the banking and financial system that he — correctly — holds responsible for France’s current economic problems. This is important because Sarkozy and the EU leadership is using this crisis to erode welfare state protections even as ostensibly scarce public monies are deployed to shore up the banks most responsible for the problem.

Which brings us to the economics of a mass withdrawal of deposits from the banks. Will it bring about an actual bank run or financial crash? Certainly not. For one thing, an organized and deliberate action such as Cantona proposes lacks the element of panic so characteristic of bank runs. Additionally, the banks and the central banks overseeing them will have time to prepare for the event, and should be able to reallocate their holdings of cash, reserves, and other assets in advance. If necessary, banks can always borrow short-term funds on the inter-bank market or even directly from the central bank. A mass withdrawal should, however, shrink the profitability of banks, as retail deposits are normally considered cheap and stable sources of funds with which to finance loans. Large European banks, relative to their American peers, are more dependent on retail deposits, so they will especially miss these funds when the time comes to calculate profits and bonuses.

But what of the politics? Here in the United States it is now overwhelmingly clear that a dozen or so of the largest financial institutions responsible for the crash and ensuing recession have gained, not lost, by their irresponsible decisions. They repeatedly tell us that they have “learned lessons.” This is true, they have: Learned that their past decisions have enriched senior management beyond belief. Learned that their market share is now substantially larger than before the crash. And learned that the government has deemed them Too Big To Fail (this latter designation lowers their cost of funds and enhances their profitability). Showing admirable “bi-partisanship,” Republican and Democratic administrations have worked hard and seamlessly to bring about these “lessons.” This summer, the Dodd-Frank Financial Reform and Consumer Protection Act enshrined the perspective of financial elites that reform should be primarily symbolic. In a sentence, over $12,000,000,000 of stock market, real estate, and other asset values disappeared, while rates of home foreclosures and unemployment soared, with virtually NO political or legal consequences. I might be a cynic, but I hope to never be as cynical as those who engineered these outcomes.

Now Prasch may not be aware of it, but this is an idea I’ve heard circulated among the blogs since at least early this year.  There’s nothing new about it.

But I would like to encourage my readers to consider it if they haven’t already.  There’s really no reason to keep your money in a major bank unless it’s more than the $250,000 the FDIC will insure, and at that you may be exposed to more risk than you realize.  If your money is in a Credit Union or a Savings and Loan or a Local or Regional Bank your checks still get cashed and your credit and debit cards still work and most of them will change your pennies to folding money without charging you 10% for the privilege.