Another thought on derivatives
Professor Robert Schiller of Yale discussed some recommendations for financial reform of the excesses of recent years in the Washington Post: To limit risks to the system, build better derivatives. Some of today’s derivatives — the complex bundles of toxic real estate loans that helped drag Lehman Brothers down — turned out to be “financial weapons [...]

Professor Robert Schiller of Yale discussed some recommendations for financial reform of the excesses of recent years in the Washington Post:

To limit risks to the system, build better derivatives. Some of today’s derivatives — the complex bundles of toxic real estate loans that helped drag Lehman Brothers down — turned out to be “financial weapons of mass destruction,” as the legendary investor Warren E. Buffett warned back in 2003. The problem isn’t derivatives per se but a certain kind — derivatives that spun a massive web of over-the-counter contracts, relying on the solvency of countless banks and other institutions, and ultimately endangered the entire financial system when they fell apart. Some kinds of derivatives, such as those maintained by futures exchanges using procedures that effectively eliminate the risk that the other party in the agreement will default, are more useful — and far safer — than others. It is high time to redesign derivatives to avoid what Buffett called “mega-catastrophic” risks.

For some time, the nearly $60 trillion in credit default swaps have been an accident waiting to happen, and now that event has happened, aided and abetted by bad government policies. We certainly hope that the bailout buys time for fixing the problem.

That was then, this is now
Martin Wolf wasn’t all that concerned back in January. He didn’t, for example, favor interest rate cuts as one tool in dealing with the credit issues in the US and EU. FT: In times of panic, grown-ups keep their nerve. In a financial crisis, central banks must be the grown-ups. This week, however, the [...]

Martin Wolf wasn’t all that concerned back in January. He didn’t, for example, favor interest rate cuts as one tool in dealing with the credit issues in the US and EU. FT:

In times of panic, grown-ups keep their nerve. In a financial crisis, central banks must be the grown-ups. This week, however, the board of the US Federal Reserve seemed to panic by implementing an extraordinary 0.75 percentage point cut in its interest rates prior to its next scheduled meeting. The move was apparently in response to a falling (though still more than fully valued) stock market. So should the Bank of England follow suit? The answer is: no.

He seems a tad more concerned now about the current world economic situation and now favors rate cuts and a whole lot more, including very expensive recapitalizations of UK banks. FT:

As John Maynard Keynes is alleged to have said: “When the facts change, I change my mind. What do you do, sir?” I have changed my mind, as the panic has grown. Investors and lenders have moved from trusting anybody to trusting nobody. The fear driving today’s breakdown in financial markets is as exaggerated as the greed that drove the opposite behaviour a little while ago. But unjustified panic also causes devastation. It must be halted, not next week, but right now.

The time for a higgledy-piggledy, institution-by-institution and country-by-country approach is over. It took me a while – arguably, too long – to realise the full dangers. Maybe it was errors at the US Treasury, particularly the decision to let Lehman fail, that triggered today’s panic. So what should be done? In a word, “everything”. The affected economies account for more than half of global output. This makes the crisis much the most significant since the 1930s. First of all, the panic must be dealt with…

This panic is also going to have a big impact on economies. So central banks,other than the Federal Reserve, should lower interest rates. Only last week I thought a half-percentage point cut in rates made sense for the UK. If I were on the monetary policy committee today, I would argue for a full percentage point. The world has changed, greatly for the worse.

The finance ministers and central bank chiefs of the Group of Seven leading high-income countries will soon convene in Washington. For once, these are the right people. They must travel with one task in mind: restoring confidence. History will judge their success. These people may go down as the authors of another great depression. It is a destiny they must now avoid, for all our sakes.

Mr. Wolf had a once held a rosy view of the risks of lowering interest rates back in January. FT: “what are the risks? Unfortunately, they are large. One is indefinite continuation of an excessively low rate of US national saving. Others are a loss of confidence in the US currency and much higher inflation.Yet another is a further round of the very asset bubbles and credit expansion that created the present crisis.” Ah, those were the days.

Projection?
Rex Murphy in the Globe and Mail Even after two autobiographies, Mr. Obama remains something of a floating, uncrowded presence. His story (and he is so impressively self-aware as to have made the most acute comment on it) is temptingly open-ended, very much a page to be written on. He himself has written, most memorably: “I [...]

Rex Murphy in the Globe and Mail

Even after two autobiographies, Mr. Obama remains something of a floating, uncrowded presence. His story (and he is so impressively self-aware as to have made the most acute comment on it) is temptingly open-ended, very much a page to be written on. He himself has written, most memorably: “I serve as a blank screen on which people of vastly different political stripes project their own views.”…

This is the nature of Mr. Obama’s particular kind of charisma. People project their best wishes on him, they fill in the blank of a very attractive and plausible outline. His is not, emphatically, a charisma of deeds. For what has he done, save run for president? He is an accommodating vessel — cool, smart, biracial and “unfinished.” This is the Gatsby quality of him that others have noted. Like Gatsby, he is a receptacle of others’ glamorous invention…

Mr. Obama’s charisma is, in this sense, external, something extended to the candidate. And it follows that that which is given may equally be taken away. The sparkle has, in fact, dimmed. He travels now in a lower orbit, closer to Earth — which is to say, he grows more mundane…He has shrunk into a combative partisan. He crowds his own screen, leaves less space for projection. Others are not writing his narrative now — he’s inscribing his own.

This analysis seems similar to one made back in February by Dr. Krauthammer, who thought the magic aura might well last until January 21, 2009.

Somebody’s pal
Mr. Ayers might not be the Democratic candidate’s pal, but he certainly is someone’s pal. City Journal reports some of his recent comments: “the profound educational reforms under way here in Venezuela under the leadership of President Chávez. We share the belief that education is the motor-force of revolution…I look forward to seeing how you [...]

Mr. Ayers might not be the Democratic candidate’s pal, but he certainly is someone’s pal. City Journal reports some of his recent comments:

“the profound educational reforms under way here in Venezuela under the leadership of President Chávez. We share the belief that education is the motor-force of revolution…I look forward to seeing how you continue to overcome the failings of capitalist education as you seek to create something truly new and deeply humane…Venezuela is poised to offer the world a new model of education—a humanizing and revolutionary model whose twin missions are enlightenment and liberation…Viva Presidente Chávez! Viva la Revolucion Bolivariana! Hasta la Victoria Siempre!”

“Viva Presidente Chávez! Viva la Revolucion Bolivariana! Hasta la Victoria Siempre!” We think any fellow who talks about the “motor-force of revolution” and shouts “Hasta la Victoria Siempre!” and who hosts campaign events for a non-pal is usually just “a guy who lives in my neighborhood, who’s a professor of English in Chicago.” Certainly a candidate wouldn’t “know the history” of such a man, even if he was so very public about his views. All that time serving on boards together and so forth, they were probably just talking about the Cubs or whatever.

One foreign policy, two foreign policies, whatever
Amir Taheri reported the other day that Senator Obama was conducting a little foreign policy of his own on his trip to Iraq. NY Post: In Monday’s Post, I discussed how Barack Obama, during his July trip, had asked Iraqi leaders not to finalize an agreement vital to the future of US forces in Iraq [...]

Amir Taheri reported the other day that Senator Obama was conducting a little foreign policy of his own on his trip to Iraq. NY Post:

In Monday’s Post, I discussed how Barack Obama, during his July trip, had asked Iraqi leaders not to finalize an agreement vital to the future of US forces in Iraq — and how the effect of such a delay would be to postpone the departure of the US from Iraq beyond the time Obama himself calls for.

The Obama campaign has objected. While its statement says my article was “filled with distortions,” the rebuttal actually centers on a technical point: the differences between two Iraqi-US accords under negotiation — the Status of Forces Agreement (SOFA, to set rules governing US military personnel in Iraq) and the Strategic Framework Agreement (SFA, to settle the legal basis for the US military presence in Iraq in the months and years ahead). The Obama camp says I confused the two…If there is any confusion, it’s in Obama’s position — for the two agreements are interlinked: You can’t have any US military presence under one agreement without having settled the other accord…

My account of Obama’s message to the Iraqis was based on a series of conversations with Iraqi officials, as well as reports and analyses in the Iraqi media (including the official newspaper, Al Sabah) on the senator’s trip to Baghdad. It is also confirmed by Iraqi Foreign Minister Hoshyar Zebari. In a long interview with the pan-Arab daily Asharq al-Awsat, Zebari says: “Obama asked me why, in view of the closeness of a change of administration, we were hurrying the signing of this special agreement, and why we did not wait until the coming of the new administation next year and agree on some issues and matters.” Again, note that Zebari mentions a single set of agreements, encompassing both SFA and SOFA.

Zebari continues: “I told Obama that, as an Iraqi, I believe that even if there is a Democratic administration in the White House it had better continue the present policy instead of wasting a lot of time thinking what to do.” In other words, Obama was trying to derail current US policy, while Zebari was urging him not to “waste time.”

It would seem that the real disagreement is not between Mr. Taheri and Senator Obama, but between Iraqi Foreign Minister Hoshyar Zebari and the Illinois Senator. The Obama campaign says: “Barack Obama has never urged a delay in negotiations,” while Mr. Zebari says something that seems to be the opposite. If the Foreign Minister of Iraq is to be believed, Senator Obama’s private diplomacy was far more than simply “inappropriate.”

The book will be a bestseller
Dominic Lawson in the Independent discusses some of the root causes of our current financial mess: What is the proximate cause of the collapse of confidence in the world’s banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie [...]

Dominic Lawson in the Independent discusses some of the root causes of our current financial mess:

What is the proximate cause of the collapse of confidence in the world’s banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush – and other Republicans – to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings – to which its senior executives’ bonuses were linked – by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae’s executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.

Yet Barney Frank and his chums blocked all Bush’s attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush’s initiative, Frank declared: “The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially.” His colleague on the committee, the California Democrat Maxine Walters, said: “There were nearly a dozen hearings where we were trying to fix something that wasn’t broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines.”

When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that “our assets are so riskless, we could have a capital ratio of under 2 per cent”.

That was back in 2003 and of course things got much worse from there. In 2008, four months after we reported that Fannie and Freddie might be insolvent, Massachusetts Congressman Barney Frank, the Chairman of the Financial Services Committee, on July 14, 2008, said this:

I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They’re not in danger of going under. They’re not the best investment these days from a long term standpoint going back. I think they are in good shape going forward. They’re in the housing market. I do think their prospects going forward are very solid. And in fact we’ll do some things that will improve them.

Only seven weeks after Frank’s upbeat comments, the US government decided to “take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies’ chief executives…The government rescue of Fannie and Freddie is likely to leave a trail of billions of dollars in losses for stockholders.” The two institutions endorsed as “fundamentally sound” by their chief congressional overseer were, in effect, nationalized.

When the book comes out on this systemwide crisis, there will be no shortage of villains. Wall Street underwriters, derivatives packagers, and their willing accomplices in the ratings agencies will no doubt figure prominently, but none will be more prominent than the managements of Fannie and Freddie and their political enablers. It will be a politically incorrect bestseller. However, it is still to be determined if the book will have any heroes.

Electronic Artists
oh, how far has the ea apple fallen from the tree when they are being called out for “creating an environment where anonymity is not only accepted, but expected as well.”  by mainstream media even. ouch. ah.  i miss the old days of putting developer names on the box. m3mnoch.

oh, how far has the ea apple fallen from the tree when they are being called out for “creating an environment where anonymity is not only accepted, but expected as well.”  by mainstream media even.

ouch.

ah.  i miss the old days of putting developer names on the box.

m3mnoch.