Yearly Archives: 2008

Michael Lewis – ‘The End’ describes the subprime mess 1

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In the late 1980’s, Michael Lewis left his job as a bond trader at Salomon Bros. and wrote ‘Liar’s Poker.’  The book was an eye-opening description of fast-paced life at one of the world-renown Wall Street firms.  Included was a portrayal of John Meriwether’s fabled ‘arb group’ which eventually spun off to form Long Term Capital Management.

The End (Portfolio; Nov. 11, 2008) is Lewis’s lucid and scary description of the subprime mortgage and CDO market debacle. The article is long but is well-worth your time. Lewis is a marvelous story-teller.

Evolution’s new wrinkle: Proteins with cruise control provide new perspective

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From News at Princeton comes this article Evolution’s new wrinkle: Proteins with cruise control provide new perspective.

A team of Princeton University scientists has discovered that chains of proteins found in most living organisms act like adaptive machines, possessing the ability to control their own evolution.

Why is this political?  Anything having to do with evolution and intelligent design is political.

The scientists do not know how the cellular machinery guiding this process may have originated, but they emphatically said it does not buttress the case for intelligent design, a controversial notion that posits the existence of a creator responsible for complexity in nature.

I report, you decide.

The Real Lesson From FDR

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Paul Krugman’s column, Franklin Delano Obama?, explains a lot about what did and didn’t happen during Franklin Roosevelt’s attempt to solve the Depression era economic crisis.  We are probably going to hear a lot of attacks on Roosevelt’s record.  It is nice to keep in mind what were his true successes and failures.

I have heard the right wing attacks that Krugman debunks.  This is the first time I have heard a rebuttal from someone that I can believe.

Obama Campaign’s Battle Plans

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RichardH has suggested the article Battle Plans by Ryan Lizza in The New Yorker, Nov 17, 2008.

I am only up to page 3 of this 8 page article, but I am enjoying reading it very much. If this article had only been published before the election, I would have tried to vote for Obama twice.

The article just reinforces the idea that he actually is what I voted for.

I have finished the article. I was tempted to quote the last paragraph here as an inducement to get you to read the article. I stopped myself, though. That would be like telling you the butler did it in order to get you to read a mystery novel.

A Quiet Windfall For U.S. Banks

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Follow this link to read the Washington Post story on the recent Tax Ruliing by Treasury Secretary Paulson that gives banks an estimated $140 billion tax break.

It is hard to know what to make of this story.  If rescinding this decision would do great harm to the economy, then maybe it was not a bad decision.  Should Congress be in the business of making laws that wreck the economy just so they can exert their authority?

If it was a bad decision, then there ought to be a way to put it right without wrecking the economy.

Until this contradiction can be answered, then I don’t think we have enough information to decide what to do.  This news story is just the beginning of what we need to know.

Any comment from the tax and economic experts reading this post?

Iran Criticizes Obama’s Tough Language on Nuclear Arms 1

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Follow this link to the AP story published on Huffington Post.

I hope all sides understand how the game is played.  When Obama takes office, maybe all can fine-tune their rhetoric.

I can see Obama needs to show his tougher side to prevent foreign powers from taking advantage of him. However, I wish he could find a way to do so without appearing to continue the blind, unilateral policies of the Bush administration.  While it may be true that Obama believes that it is “unacceptable” for Iran to develop nuclear weapons, he still gets to choose which truths he speaks about in any situation.

He could have emphasized that he hopes that in a new atmosphere the two sides could talk to each other frankly about the issues that concern them and come to a timely and peaceful resolution. He could also emphasize that the U.S. will always have the strength to protect its own interests, but it never hurts to discuss common concerns with the people who disagree with you.

Obama could have chosen not to make such overt threats against Iran. It may be that fear of American right-wing backlash caused Obama to feel that he had to say what he did. Every now and then, I get the feeling that even Obama is not immune to the raging propaganda that we get for news in this country.

China Announces $586 Billion Stimulus Plan

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Follow this link to the AP story on Huffington Post.

This news raises a few questions in my mind.

How did the Chinese government get so smart about running a capitalist economy? How is it that a  former communist country knows more about macroeconomics than John McCain and his advisers? Could it be that they have left ideology behind in order to focus on what works? Will the few remaining Republicans in the US Congress get out of the way and let President-Elect Obama and the Democrats do what needs to be done?

Why Not Hyperinflation?

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Follow this link to a Minyanville article that explains why hyperinflation in  the United States is not of concern in the near future.

One of the explanations in the above article for there not being a worry about inflation corresponds to my previous post Central Bank Rate Cuts Will Not Work.

There is also mention in the Minyanville article about why deflation might not be such a bad thing. If you think of high tech electronic products like personal computers, cell phones, and digital cameras, they have been sold in an environment of deflation for these products for years.  In other words, the cost for an equivalent amount of functionality in these products has been rapidly declining ever since these products have been on the market.  The makers and sellers of these products have found a way to survive and even thrive in such an environment.  It isn’t easy, but it is possible.

Central Bank Rate Cuts Will Not Work

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The central banks of the world like the Federal Reserve in this country are drastically lowering interest rates to stimulate the economy.  In this environment, this will not work as well as they wish it would.  This should not be hard for capitalists to understand if they give it half a moment of thought.

Suppose you are a manufacturer of widgets.  Suppose your warehouses are full of inventory and your factories are producing widgets faster than you can sell them.  Suppose you look around and see that your competitors in the widget making business are in the same position.  Moreover, they are cutting prices like mad in an attempt to sell what they already have produced.

You are all using up whatever cash you have to pay employee salaries, pay for energy to keep your buildings open and machines running, pay to run the trucks to carry your inventory to warehouses and the few customers that are still buying.

What kind of a deal on low interest rates do you think the bank would have to offer you to encourage you borrow to invest in more factories, hire more employees, and buy more raw materials?

If it takes you more than 30 seconds to conclude that there is no interest rate at zero or above that could get you to invest, then you aren’t much of a capitalist.

If you are fairly wealthy and you see the cost of companies dropping like a rock, would you immediately start buying or might you sit on your cash and wait for a better deal to come along?  What kind of interest rate would the bank have to offer to charge you to get you to borrow against your assets in order to buy more?

What is it that actually is in short supply and could benefit the economy by having more? We could have more public transportation for those who cannot afford to run their cars as much and so that we could use energy more efficiently, we could have better education so that our children would be able to be more productive when the economy turns around, we could get more modern water and sewer facilities to improve our health, we could do maintenance on our public infrastructure so that it won’t deteriorate from lack of care, etc.  Paying people to do these things is what will get money flowing again. It will increase demand for the widgets and raw materials that you can’t give away now.

What entity can look at the big picture of the whole economy and afford to make decisions on a broader basis than one person or one company or one industry?

If you cannot figure this out, see Obama’s Challenge: A Transformative Opportunity.