EconoMonitor

Nouriel Roubini's Global EconoMonitor

RGE’s Weekly Roundup

Check out all of the RGE analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis [Available to RGE Clients Only]:

Latin America: What’s Coming Up? by Bertrand Delgado and Juan L. Maldonado

The main event this week in Latin America will be the monetary policy decision in Mexico, where RGE expects the central bank to stay on hold at 4.5%.  Moreover, inflation expectations in Brazil are likely to continue to deteriorate as a result of higher-than-expected inflation last week. Finally, market participants will pay attention to economic and fiscal numbers in Argentina, as well as GDP dynamics in Peru.  As expected, Chile’s and Peru’s central banks stayed on hold at recent meetings, indicating that recent surprises on inflation were driven by internal supply side shocks rather than demand pressures.  We are introducing the section “What Else is Cooking in LatAm?” highlighting other important issues affecting the region.

 

On Nouriel Roubini’s Global EconoMonitor, Nouriel argues that a credible IMF program that ties financial support to the progressive achievement of fiscal and structural reform goals is the right way to teach Greece and the other PIIGS how to fly.  Please read Teaching PIIGS to Fly.

Don’t miss Roubini CNBC Squawk Box Interviews and Report on Sovereign Debt and Global Growth.

 

On the RGE Analyst’s EconoMonitor, Rachel Ziemba looks at the health of the Iranian banking system in Iranian Bank Tremors and considers what the year of the Tiger might mean for regional and global markets in Will the Year of the Tiger Drive Markets.

In LatAm Update: Brazil Inflation Tops Expectations, Peru GDP Grows Robustly and Stars Align for an Early Hike in Brazil, Mexico’s Regulators Ease Pension Fund Investment Rules Bertrand Delgado and Juan L. Maldonado provide their weekly LatAm analysis and consider what else is cooking in LatAm.

In 2010 Philippines Elections: Ready, Steady, Go…? Melissa Fabros looks at the sprint for the presidency in a relatively young and unruly democracy.

In The Greek Picture Complicates Further: Is the IMF the Solution? Elisa Parisi-Capone considers the challenges in implementing an appropriate strategy.

 

On the Finance & Markets Monitor, Joseph Mason points out that some of the programs like TALF removed the market discipline necessary to improve securitization, but that doesn’t mean we can’t create thoughtful regulation to make up lost ground.  See Prerequisites for a Standalone Securitization Market.

In The New Normal James Hamilton discusses what we should be looking for in the way of a new format for policy decisions and announcements from the Fed.

 

On the Global Macro EconoMonitor, Arun Motianey argues that inflation and asset bubbles in the emerging economies are integral to global rebalancing and is the price we must pay for stabilization of the global economy.  See Emerging Market Bubbles are Essential for Global Stabilization.

In Unwinding Global Imbalances, Yves Smith considers the crises that are popping up due to global imbalances, but unfortunately shifting gears in an economy is a protracted exercise.

In Foreign Holdings of U.S. Treasuries: Was It Really That Bad? No. Rebecca Wilder clears up any misunderstandings brought forward by misleading reports.

 

On the U.S. EconoMonitor, Barry Ritholtz looks for a silver lining in anticipation of another 5 million foreclosures.  See Coming Soon: 5 Million More Foreclosures.

In Greg Mankiw on the Deficit, James Kwak reacts to a NYT’s op-ed piece from Greg Mankiw, and notes that there is no politically palatable way to solve the long-term deficit problem, but you certainly can’t ignore rising health care costs.

In A Thought on Evan Bayh and Partisan America,Robert Reich warns of the danger of partisan anger, which undermines the capacity of our democracy to do the public’s business.

Also on the U.S. EconoMonitor:

The Punch Bowl, the Party, the Exit by David Altig

Why Is Wal-Mart Paying Retail Prices by James Kwak

 

On the Asia EconoMonitor, Michael Pettis instructs that you can’t run large trade surpluses if your trade partners are no longer able or willing to run the corresponding trade deficits.  Please see Rising Wages in China are a Good Thing.

In China, China, China! Rebecca Wilder explains why the world cares about Chinese monetary policy.

 

On the Latin America EconoMonitor, Walter Molano compares Brazil’s closed economy to a beautiful jail.  Read Brazil, Inc.

 

On the Europe EconoMonitor, Edward Harrison reports on the chorus of voices that is growing opposing a bailout of Greece. Read The Dutch Join the Germans in Rejecting Bailout of Greece.

In Just what is the Real Level of Government Debt in Europe, Edward Hugh sheds some light on “receivables”.

In European Hangover, Walter Molano considers the prospects for a sustainable solution.

22 Responses to “RGE’s Weekly Roundup”

PeterJBFebruary 19th, 2010 at 2:05 pm

@ blindmanThe succinct definition of The Core of Economic Theory, in just a few words, drawn from Matt Taibbi’s latest rave, “Wall Street’s Bailout Hustle”, ably assisted by the interpretations of blindman and team:Perfecting the art of ‘Mugging old ladies’!Why? ‘Because it’s easy and highly profitable’.References:”Sure, mugging old ladies is against the law, but it’s also easy. “http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/7It’s tough being a successful banker and economist.Ho hum

PeterJBFebruary 19th, 2010 at 6:30 pm

Speaking of the fundamentals of socio-economics as it is practised:The root and core Principle: “Delusions are states of refuge. The mind, unable to comprehend realities or to deal with them, finds its ease in superstitions, beliefs and modes of irrational procedure. It is easier to believe than to think.””I have recently turned over the pages of the newspapers and periodicals of that time to verify the recollection that events as they occurred were treated with no awareness of their significance. And it was so. Intelligence ]read: intellect]was in suspense. The faculty of judgment slept as in a dream; the imagination ran loose, inventing fears and fantasies.” (My emphasis)”Naïve trust in the power of words to command reality is found in all mass delusions.”In the panic of 1893 confidence was destroyed. People disbelieved in their own things, in themselves, in each other.Important banking institutions failed for scandalous reasons. Railroads went headlong into bankruptcy, until more than a billion dollars’ worth of bonds were in default, and in many cases the disclosures of inside speculation were most disgraceful.United States senators were discovered speculating in the stock of corporations that were interested in tariff legislation, particularly the “Sugar Trust.””The name of Wall Street became accursed, not that morality was lower in Wall Street than anywhere else, but because the consequences of its sins were conspicuous.All industry sickened.A scourge of unemployment fell upon the land; and labor as such, with no theory of its own about money, knowing only what it meant to be out of work, assailed the befuddled intelligence of the country with that embarrassing question: Why were men helplessly idle in this environment of boundless opportunity?”From Mises Daily:Bimetallic Nightmareby Garet Garrett on February 19, 2010[Excerpted from chapter 4 of The Driver (1922). An MP3 audio version of this article, excerpted from the audiobook by Jeff Riggenbach, is available as a free download.]Comment: Fundamentals are founded in science, not technology, rhetoric nor religion and, these distinctions must, a priori, be established through our strict adherence to the formal processes of scientific pursuit. We can no longer afford to place the/our responsibilities of society to that long line of morons and idiots (read: false-pretenders) claiming the birthright to the throne/kingdom of humanity, which we have established, without any doubt whatsoever, is no more than selling your soul to the devil or in real terms, sacrificing your children, and their children, to the whims, fancies and ways of self serving incompetent parasites and default warmongers.Understand the difference between intelligence = technology which all form of emergent phenomenon (life forms) contain, and share, functionally, a priori, andintellect = Man, of comprehension of the two essential components of Universal knowledge, being, physics and human behaviour; there is nothing else and this is the foundation of values.Keywords: intellect | fundamentals | morons | “leadership” | incompetence | values |To become a Heretic is to become of the ancient Principle of Kristos,or Man (as opposed to ‘man’),the/a God,where to ignore this road of Heresy, condemns you to remaining merely a useless stomach or disposable, non-functional part of a single celled amoebic, sycophantic and parasitical fungal mat.Ho hum

PeterJBFebruary 19th, 2010 at 7:12 pm

Context: Hanlon’s Razor:For those that do not believe that global “leadership” is incompetent (which is, after all, is a socio-economic fundamental as is in blatant evidence throughout written history):From Bill Bonner of Daily Reckoning fame:Government SachsBill BonnerParis, France – It’s Goldman this. And Goldman that. And Goldman rhymes with greed. But it’s “Thank you, Mr. Blankfein,” when it’s money that you need.Goldman need not worry about persecution; it has friends in high places. Such as Mario Draghi. Mr. Draghi has a long and impressive résumé. Not only has he been a managing director of Goldman Sachs, in charge of business development in Europe, he’s also served as director general of the Italian Treasury and lately, Italy’s central bank governor. And now he’s up for the post of head of the ECB, to replace Jean-Claude Trichet, who is scheduled to step down next year. He is Goldman incarnate – banker, servant of the people, one of the financial world’s high priests from whose hands come unction, salvation…and cash.In the US, Goldman is so tight with the feds it is known as “Government Sachs.” But what’s new? Governments always turn to rich, well-connected moneymen for finance. The Rothschilds largely financed Britain’s continental allies in its war against Napoleon in the early 19th century. Then, in the early 20th century, JP Morgan financed the British in WWI. In both cases, the lenders found innovative and often complex ways to keep the money flowing. Now, we are in the early 21st century and Goldman is providing the money. end quoteComment: Surely that which GS et al does is natural socio-economic destruction or IOW free-markets at work (after full regulatory capture) in full lust of quantitative reward? What would it take to subtly manoeuvre this destructive force towards constructive and responsible qualitative socio-economic growth? A little thought, perhaps? A little comprehension, perhaps? A little grasp of the socio-economic plot, perhaps?Keyword: little | natural |And more to the point, then, surely that which “leadership” (read: regulatory authority, er, government) does is incompetence, stupidity, sub-human, natural, normal, expected, predictable, etc.?Even the Head of the FedRes, a specialist in BIG Depressions, slept through a full decade of screaming red flags of warnings and a national (and global economy) of rapid disintegration at a full spectrum of socio-economic levels. Obviously his hand was elsewhere but on the tiller.There can only be one Cause and only one place to point the finger to find the trigger for the current Global Economic Collapse and that is at “leadership” and their faith-based “economic-science” and self-serving incompetent systemic economic wet-dreams.It is time, for “leadership” to get the socio-economic fundamentals right (for a change) and get off its box of tricks (delusions) of that which they term “governance”, which is nought but impositional manipulations and deception which only serves themselves – albeit, well!Ho hum

PeterJBFebruary 19th, 2010 at 8:10 pm

If there can possibly be any doubts (but, there should always be doubts, as the nature of the Heretic, is to question everything; believe nothing!):From:The Daily Reckoning Week in ReviewMelbourne, AustraliaFebruary 15th to February 19th, 2010By Nick Hubble”Albert Edwards from Société Générale has broken the mould when it comes to being an investment banker. In other words, he is saying it like it is. Exactly like it is.””My own view on this is that obviously we should never have got into this wholly avoidable mess in the first place. But having got here, there really is no way out that does not trigger a major market-moving upheaval.”Ultimately economic prosperity over the past decade has been a sham: a totally unsustainable Ponzi scheme built on a mountain of private sector debt. GDP has simply been brought forward from the future and now it’s payback time. The trouble is that, as the private sector debt unwinds, there is no political appetite to allow GDP to decline to its ‘correct’ level as this would involve a depression. So burgeoning public sector deficits and Quantitative Easing are required to maintain the fig-leaf of continued prosperity.”There are also always figments of sanity and reason scattered throughout all that there is.Keywords: sham | no political appetite | fig-leaf | Heretic |Ho hum

MorbidFebruary 20th, 2010 at 1:13 pm

When a “shock” comes to a system – the feedback loop is not prepared to handle a paradigm shift type of “shock”. Thus, like the head of a household who loses his job on which everything depends – the reaction is to try to continue on like “nothing” happened – that the system can recover by simply repeating past behaviors.Can you say, “IT WON’T WORK!”Thus the stupidity of all the economic rats – they are on a sinking ship – and don’t even know how to change the feedback loop to survive.Like I have said before on this forum, is it all about –Pay me now. Or PAY ME LATER!But HOPIUM rules the Earth – the stupid little egos that “think” they can “think” their way out of this mess.LOOK OUT BELOW!

blindFebruary 20th, 2010 at 8:26 pm

look out all over. in and out, up and down,near and far.look and see. see and know.know and be.act accordingly, in accord..one , two, three…..go!

blindFebruary 20th, 2010 at 8:29 pm

look out all over. in and out, up and down,near and far.look and see. see and know.know and be.act accordingly, in accord..one , two, three…..go!

PeterJBFebruary 22nd, 2010 at 6:18 am

For those interested in political tools and ideological machinations, and pseudo science passed on and, er, adopted as physics; a fascinating account:”He who controls time, controls all else. Caesar understood it, Pope Gregory understood it, and Wu Zetian understood it, as the French Hebertists would a full century after her.””Asians will do well to understand that the year 2000 is a good time to reject Western cultural imperialism and to look for a true revival of their own rich heritage. The first step is to recognize that the concept of the new millennium has no meaning in Asian culture.”http://www.henryckliu.com/page217.htmlhttp://verbewarp.blogspot.com/2006/03/warning-to-east.html”time” only exists as the innate temporal nature of each life phenomena or that current sustainable simplicity which has arisen out of unknown complicit complexity. All contenders to “time” today are false-pretenders as well as false prophets, which badly impacts our will to build our civilizations in permanent states. It depicts our infancy in matter scientific as well as clearly indicates our immaturity if affairs of the serious nature.IOW, there are perhaps maybe, only a few, out of 7 billion persons on this planet, that even begin to comprehend just what “time” is and what this means.Mr. Henry C. K. Liu is obviously one of that few.Ho hum

PeterJBFebruary 22nd, 2010 at 6:41 am

Krugman Blaming the Victim for the Crime… and, Krugman being his usual know-nothing-of-any-importance-or-significance, er, being caught out again (Has he no shame, but he is consistent, so I guess that gets you a Nobel Prize, plus maybe a car wash?):”The US is losing jobs to China because US trade policy encourages cross border wage arbitrage. Even if China did not exit, US transnational companies would ship low-paying job off shore to other low wage countries. But these jobs are mostly unskilled jobs at wages that no US workers would accept. In the long run, a strong innovative industrial base with rising wages is the best guarantee for full employment. Until US trade policy focuses on this economic truth, blaming China may make US workers feel good, but it will not solve job loss problems that are fundamentally created by US trade policy.”http://www.henryckliu.com/page214.htmlHo hum

Little SaverFebruary 22nd, 2010 at 10:45 am

“Interviews with dozens of government officials show that Mr. Geithner has acted as a brake on administration officials seeking punitive action against big financial firms.”(WSJ article on Treasury Secretary Tim Geithner: Bailout Anger Undermines Geithner).Yes, you read this well: the Treasury Secretary who protects big banks against administration officials seeking punitve actions.Still wondering why big banks can continue to milk public finances?

blindmanFebruary 23rd, 2010 at 6:55 pm

http://www.garynull.org/wp-content/uploads/2010/02/GaryNullShow022310.mp3.nice to hear it read out loud with commentary.also upcoming schedule..side notice , note.on the t.v.. pbs news. another, endless, discussionwith distinguished commentators… topic …” don’t ask, don’t tell “. gay rights. the right to servetheir country and be left alone? in the military. their rightto execute foreigners with impunity as any heterosexual,qualified, can. so we have a rule / law that says as asoldier you cannot inquire as to another’s sexuality, butexecuting them, another, is o.k…” don’t ask, don’t tell “. fire away..can we work that into the criminal justice system andpublic education system, perhaps into the national anthem.all citizens bound to adherence to the principle of greatest,supreme, ignorance. no asking (anything), and definitelyno telling of (anything). this should make the “powerful”in positions of leadership more confident / comfortable andperhaps less likely to recklessly order / direct theongoing slaughter of their fellow, yet superior, fellows..saw an interesting program yesterday on pythons in the everglades..but really, if it wasn’t for the civil rights angle / (sexualpreference) = what you like to do with your junk, personal?way back when, this population wouldn’t be concerned with theexecution of professional executions at all. or f.. it.just give them more money, if the bankers say so..and why should people be prohibited from killing strangersjust because they are gay? it does seem like a violation ofa right, perhaps an “unalienable right”. and why should aperson not be given the opportunity to order the executionsof large groups of unidentified strangers, be they heterosexualor otherwise, just because they are “gay”, in the “life”..it is refreshing to know that our culture, media, and governmentare aggressively and diligently delving into these difficult andimportant moral issues in an open and forthright manner. proudam i..i get the impression from these discussions in the media that”gays” are generally interested in participating in military service in furtherance of the agenda of the military and it’ssponsors. seems odd and inconsistent. i know they also haveyoung mothers with infants at home trained to kill strangers,and the bankers do their part from the office and on the golfcourse. and all the other contingents and the tax payers andchurch tithers and synagogue members, the experts and heroes and the rich and the poor..big tent. be all you can be meets i have a dream, but the truthis they all live by don’t ask and don’t tell and its pervasiveand resulting profound ignorance, and even bigger fools look tothem for guidance, leadership and protection..it is frustrating. there is in front of us the biggest storyof the century, being replayed day in and out, and no one ingovernment or the media can even find it. it cannot be stupidityalone, or even primarily, there must be malice here. well, ofcourse there is plenty of malice evident! it is a global industry!.and the “gays” should have a piece of the action, sure.pregnant mothers too, and flying hogs and golfers.

blindmanFebruary 23rd, 2010 at 10:44 pm

http://www.counterpunch.org/auerback02232010.htmlFebruary 23, 2010Profiting From the Hysteria They StokedMake War on Goldman SachsBy MARSHALL AUERBACK and L. RANDALL WRAY…”The Wall Street Journal recently highlighted an article by Simon Johnson and Peter Boone, lamenting that the demands being foisted on Greece and other struggling Euro-nations would “massively curtail demand, lower wages and reduce the public sector workforce. The last time we saw this kind of precipitate fiscal austerity—when nations were tied to the gold standard—it contributed to the onset of the Great Depression in the 1930s”. Where we disagree with Johnson and Boone is the suggestion that the IMF be brought in to craft a solution. Any help from this organization will come with tight strings attached—indeed, with a noose around Greece’s neck. Germany and France would be crazy to commit their scarce euros to a bail-out of Greece since they face both internal threats from their own taxpayers and external threats from financial vampires who are looking for yet another nation to attack.Here’s a more appropriate action: declare war on Goldman Sachs and other global financial firms that created this mess. Send the troops, the planes, the tanks, and the ships. Attack every outpost of the saboteurs on European soil. Blockade the airports and ports. Make Wall Street traders and CEOs fear for their lives, or at least for their freedom to travel. Build some Guantanamo-like facility to hold these enemy financial combatants until they can be tried, convicted, and properly punished.Ok, if a literal armed attack on Goldman is too far-fetched, then go after the firm using the full force of the regulatory and legal systems. Close the offices and go through the files with a fine-tooth comb. Issue subpoenas to all non-clerical staff for court appearances. Make the internal emails public. Post the names of all managers and traders on Interpol. Arrest anyone who tries to board a plane, train, or boat; confiscate their passports; revoke their visas and work permits; and put a hold on their bank accounts until culpability can be assessed. Make life at least as miserable for them as it now is for Europe’s tens of millions of unemployed workers.We know that the Obama administration will not go after the banksters that created this global financial calamity. It has been thoroughly co-opted by Wall Street’s fifth column—who hold most of the important posts in the administration. Europe has even more at stake and has shown somewhat more willingness to take action. Perhaps our only hope for retribution lies there.Some might believe the term “banksters” is too mean. Surely Wall Street was just doing its job—providing the financial services wanted by the world. Yes, it all turned out a tad unfortunate but no one could have foreseen that so many of the financial innovations would turn into black swans. And hasn’t Wall Street learned its lesson and changed its practices? Fat chance. We know from internal emails that everyone on Wall Street saw this coming—indeed, they sold trash assets and placed bets that they would crater. The crisis was not a mistake—it was the foregone conclusion. The FBI warned of an epidemic of fraud back in 2004—with 80 per cent of the fraud on the part of lenders. As Bill Black has been warning since the days of the Saving and Loan crisis, the most devastating kind of fraud is the “control fraud”, perpetrated by the financial institution’s management. Wall Street is, and was, run by control frauds. Not only were they busy defrauding the borrowers, like Greece, but they were simultaneously defrauding the owners of the firms they ran. Now add to that list the taxpayers that bailed out the firms. And Goldman is front and center when it comes to bad apples.Lest anyone believe that Goldman’s executives were somehow unaware of bad deals done by rogue traders, William Cohan reports that top management unloaded their Goldman stocks in March 2008 when Bear Stearns crashed, and again when Lehman collapsed in September 2008. Why? Quite simple: they knew the firm was full of toxic waste that it would not be able to continue to unload on suckers—and the only protection it had came from AIG, which it knew to be a bad counterparty. Hence on March 19, Jack Levy (co-chair of M&As) sold over $5 million of Goldman’s stock and bet against 60,000 more shares; Gerald Corrigan (former head of the NY Fed who was rewarded for that tenure with a position as managing director of Goldman) sold 15,000 shares in March; Jon Winkelried (Goldman’s co-president) sold 20,000 shares. After the Lehman fiasco, Levy sold over $6 million of Goldman shares and Masanori Mochida (head of Goldman in Japan) sold $56 million worth. The bloodletting by top management only stopped when Goldman got Geithner’s NY Fed to produce a bail-out for AIG, which of course turned around and funneled government money to Goldman. With the government rescue, the control frauds decided it was safe to stop betting against their firm. So much for the “savvy businessmen” that President Obama believes to be in charge of Wall Street firms like Goldman.”…”Indeed, we suspect that the same financial firms that helped to get Greece into its predicament are profiting from—and stoking the fires of—the hysteria. He goes on, “what Greece really needs now is a holiday from further market confusion being created by contradictory, alarmist public commentary”. Greece, Euroland in general, and the rest of the world all need a holiday from the manipulation and destruction of our economies by Wall Street firms that profit from speculative bubbles, from burying firms, households, and governments under mountains and debt, and even from the crises that they create. Governments all over the globe should use all legal means at their disposal to ferret out the bad faith and even fraudulent deals that global financial behemoths are foisting on us.”

blindmanFebruary 23rd, 2010 at 10:55 pm

http://www.eurosavant.com/2010/02/21/cds-just-another-evanescent-bubble/.CDS: Just Another Evanescent Bubble?More on the Greek debt crisis from Naked Capitalism: German Paper Says AIG May Have Sold CDS on Greece. That German paper would be the excellent business-sheet Handelsblatt, and the full translation of the article into English which that blog’s proprietor requests in her post follows after the jump.UPDATE: Correction! Looking at that original German piece, it clearly comes originally from the Frankfurter Allgemeine Zeitung or FAZ – often called Germany’s own New York Times. I have noticed before how the two papers clearly have an arrangement allowing Handelsblatt to reprint certain FAZ material. Credit where it is due . . .The fever-curve of the Greek debt crisisBy Markus Frühauf20 February 2010.Greek banks as insurersOn the other hand, whoever expected Greece’s rescue by Europartner countries would have had to position himself on the CDS market as an insurer, that is, as a seller of payment protection. The take in premiums from insurance protection sold provides increased revenue. But it’s on the seller-side that the weak points of the CDS market become evident. It’s still unclear who has sold insurance protection for Greece. In one study analysts from the major French bank BNP Paribas referred to market-rumors that Greek banks had insured a large sum by CDS. If this is correct, then the payment protection they have provided is worth nothing. Greek banks hold State debt of over 40 billion euros. This corresponds roughly to the entire amount of equity in the Greek credit market. A bankruptcy of the State would lead to a collapse of the banking system.London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency.Even if these are mere rumors about the Greek banks and AIG, this example makes clear the weakness of CDS markets. This protection is sold by banks or insurers who themselves have access only to limited capital resources. They have as a rule clearly lesser credit-worthiness than the states for which they are selling insolvency protection. Insurance by CDS could turn out to be just a bubble.

blindmanFebruary 23rd, 2010 at 11:12 pm

http://www.counterpunch.org/baker02172010.htmlFebruary 17, 2010Goldman Sach’s Great TrickThe Savvy Mr. BlankfeinBy DEAN BAKERLast week, when President Obama was asked about the $9 million dollar bonus for Goldman Sachs CEO Lloyd Blankfein, he described Mr. Blankfein as a savvy businessman, adding that Americans don’t begrudge people being rewarded for success. While Obama later qualified his comment about Mr. Blankfein and his fellow bank executives, it’s worth examining more closely some of the ways in which Blankfein and the Goldman gang were “savvy.”Perhaps the Goldman gang’s best claim to savvy was in buying up hundreds of billions of dollars of mortgages and packaging them into mortgage-backed securities, and more complex derivative instruments, and selling them all over the world. Mr. Blankfein and Goldman earned tens of billions of dollars on these deals.The great trick was that many of the loans put into these securities were issued fraudulently, with the banks filling in phony information so that borrowers could get loans that they would not be able to repay. But this was not Goldman’s concern. They made money on the packaging and the selling of the securities. Goldman did not care that the loans in their bundles might not be kosher.In fact, Goldman actually recognized that many of these loans would go bad. So they went to the insurance giant AIG and got them to issue credit default swaps against many of the securities it had created. In effect they were betting that their own securities were garbage. Now that is savvy. (It says something else about the highly paid executives at AIG.)Goldman doesn’t just confine its savvy to the U.S. economy; it shares it with the rest of the world as well. According to the New York Times, it worked closely with the Greek government over the last decade to help it conceal its budget deficit. The trick was to construct complex financial arrangements that appeared on the books as “swaps,” even though they were in fact loans. Greece was adding billions of dollars to its debt, and thanks to the ingenuity of the Goldman crew, no one knew about it until now.But Goldman’s greatest triumph was to get the government to come to its rescue when the financial sector was melting down in the fall of 2008 as the housing bubble that they had helped to fuel began to collapse. Treasury Secretary and former Goldman CEO Henry Paulson rushed to Congress and demanded $700 billion for the banks, no questions asked. He dragged along Federal Reserve Board Chairman Ben Bernanke for support, along with Tim Geithner, then the important head of the New York Federal Reserve Bank and now President Obama’s Treasury Secretary.Using exaggerations and half-truths, this triumvirate convinced Congress that we would have a second Great Depression if it didn’t cough up the money immediately with no conditions. At that point Goldman, Morgan Stanley, Citigroup and most of the other major banks were staring at bankruptcy. While this cascade of bank failures would have been bad news for the economy, there was no plausible scenario in which it would have led to a second Great Depression.There was also no reason that Congress could not have put conditions on its money. For example, Congress could have dictated that as a condition of getting the money that bankers would get the same sort of paychecks as other workers, that they would get out of highly speculative activity, that the largest banks would be downsized and that the principle would be written down on bad mortgages. At that point, Congress could have told the bank honchos that they had to run around Wall Street naked with their underpants on their head. The bankers had no choice; their banks would crash and burn without government support.But the savvy Mr. Blankfein and the other bankers got the money no questions asked. In fact, Goldman even got the government to pick up the bankrupt AIG’s debts. Thanks to the government’s intervention, Goldman got paid every penny on its bets with AIG. This came to $13 billion, enough money to pay for 4 million kid-years of health care under the State Children’s Health Insurance Program.No one should doubt that Mr. Blankfein is a very savvy banker. Without his ingenuity Goldman Sachs would likely be out of business, its component divisions being auctioned off to the highest bidder. Instead it is making record profits and paying out record bonuses.But unlike the successful ballplayers to whom President Obama compared Mr. Blankfein, Goldman’s success is inherently parasitic. It comes at the expense of taxpayers and the productive economy. Goldman and the other Wall Street banks are successful in the same way as the savvy Bernie Madoff was successful. It seems that President Obama must still decide whether he stands with the Wall Street banks or whether he stands with the workers and businesses who actually produce wealth.

blindmanFebruary 24th, 2010 at 12:12 am

Beware of Greeks Buying ShipsMichael MoranFeb 23, 2010 8:06PMHow Secret Greek Military Spending, and Cold War Thinking, Helped Push the Eurozone to the Brink of DisasterIn the final moments of Stanley Kubrick’s brilliant Cold War farce Dr. Strangelove, the American president and his military advisors are evacuating the war room, having bumbled with the Soviet Union into a full exchange of nuclear weapons that will destroy most life on earth. As they head to their subterranean bunker, the hawkish Gen. Turgidson (played by George C. Scott) has a brainstorm about the world survivors will emerge into a century later when the fallout dissipates.“I think we should look at this from the military point of view,” he says. “I mean, supposing the Russkies stash away some big bomb, see. When they come out in a hundred years they could take over!Something similar appears to have happened in Greece with regard to its military budget. In spite of outward appearances that its age-old disputes with Turkey were on the mend, Greece apparently hid €8.7 billion in military spending between 1997 and 2003. This may not sound like Armageddon. But now, in part because of this kind of accounting, the European Union is facing the gravest financial crisis in its long history.”……”Perhaps most surprisingly, the Greeks have become among the most vocal supporters of Turkey’s EU membership bid.Enter Dr. StrangelovolopolousBut no one, it seems, told Greece’s military men. The generals went back to their barracks in 1974, but Greece has remained an outlier on military affairs within NATO – supporting Serbia, for instance, during the 1990s, and maintaining closer ties than most with Moscow.For years – until 2004 – Greece also refused to open its books to the EU’s statistical unit, Eurostat, on the topic of defense spending, insisting the numbers were confidential.As it turns out the Greek military was engaging in a major modernization prompted by fears of the U.S. largesse directed at Turkey since the early 1990s, and Turkey’s own exponentially higher GDP and population growth rates.The Eurostat audit which uncovered the “underreporting” of Greece’s military spending in 2004 got very little press at the time. Certainly, the EU made little of it, something German and French taxpayers are coming to regret.So it appears Greek defense spending bucked the downward trend of the 1990s as Athens ordered up a new class of warships (Standard-class frigates from Britain, Type 24 submarines from Germany), hovercraft and patrol boats (from Russia and Ukraine), and most recently, high-performance jet fighters (late model F-16s from the U.S.).Until the financial crisis, plans to hold a competition for a next generation fighter – probably between the Eurofighter, the American built F/A-18 and F-35, and Sweden’s JAS-39 Grippen – were in high gear. (Russian interests had been promoting Sukhoi’s latest offerings, as well).” …….

PeterJBFebruary 24th, 2010 at 6:08 am

Speaking of highly profitable investments:Consider: “probability”:Keywords: von Mises | brother | value | consider | profitable |Ho hum