Daily Archives: April 8, 2015

Missing My 50th Reunion

I have been thinking of skipping my 50th reunion at MIT since it became KIT (The Koch Institute of Technology).  I was wavering though, because it would be nice to visit with some of my old classmates.

Well, KIT managed to settle it for me with the following flyer they sent to me in email. Notice one of the featured presentations.

  • Faculty presentations from the Koch Institute for Integrative Cancer Research

Alexis Tsipras risks fresh schism with Europe after warning of new Cold War with Putin 1

The UK Telegraph has the story Alexis Tsipras risks fresh schism with Europe after warning of new Cold War with Putin.

Mr Tsipras also risked opening up a new schism with the European Union, repeating his claim that economic warfare would not resolve Europe’s simmering security problems with its eastern giant, and could presage a new “Cold War in Europe”.

Ahead of the visit, EU officials warned Greece of undermining the continent’s unity over economic sanctions imposed on Moscow in the wake of the Ukraine crisis.

The Kremlin has been courting Greek political support against its Western-backed sanctions, threatening a fresh rupture between the debtor state and the EU.
“If one of the Europe’s leaders acts according to his national interests then it is perceived as a violation of the principle of solidarity – as if the principle of solidarity, as it might seem, was invented only in order to support the Russophobic minority in the European Union,” said Mr Lavrov.

Russian companies would also look to take part in the tenders for planned privatisations of Greece’s strategic assets – including its ports, airports and energy grids. The likes of state-backed Gazprom have already been invited to take part in the exploration of oil and natural gas off Greece’s eastern shore.

I tried to string enough excerpts together to justify my opinion.  I am not sure it completely conveys how I got to the conclusion that I did.

The western oligarchs are trying to rape Greece, but they want Greece to maintain its solidarity with them.  They want to drive Greece into a privatization of its assets at fire-sale prices to the western oligarchs, but Greece may sell them to the Russian oligarchs.

The western oligarchs want to maintain sanctions on Russia so that they can force the Ukraine to take the same deal and eventual rape that they are offering Greece.  Greece may have found an alternative path that frustrates both aims of the western oligarchs.

As they say in this country, “Payback is a bitch.”  Maybe I should have said itch in my comment on the Telegraph web site.

With the notorious nudes they have on page three of some of their newspapers, I didn’t think they would be so sensitive.  Must just be a cultural misunderstanding.

Sen. Schumer and 7 other Democrats are making a terrible choice siding with GOP on Iran bill

The Daily Kos has the article Sen. Schumer and 7 other Democrats are making a terrible choice siding with GOP on Iran bill.

Chuck Schumer, the expected replacement as top Senate Democrat when Harry Reid retires at the end of his term, has made a big splash in the past few days by saying he supports a bill designed to give Congress the clout to wreck a deal with Iran. He is not, of course, the only Democrat backing the Corker-Menendez bill, S. 615, the Iran Nuclear Agreement Review Act of 2015. Since March 26, when Schumer quietly signed on as the latest of eight Democratic co-sponsors of the bill, it’s had 21 co-sponsors, including one independent, Sen. Angus King of Maine.

But given his clout, Schumer could be key to making it okay for other Democrats to support the bill, giving it the 67 votes it would need to override the veto that President Obama has vowed to impose.

I always knew there were reasons why I thought Chuck Schumer was a jerk.  This is one of the reasons besides his being the Senator from Wall Street.  I shudder to think what he might say about Elizabeth Warren if only his Wall Street friends were listening.  Is he also the Senator from the military/industrial complex.  He is certainly no friend of Israel in taking this stance.

I hope we can muster enough outcry to prevent Shumer from replacing Harry Reid.  If he did replace Harry Reid, Elizabeth Warren might have less reason to want to stay in the Senate and more reason to want to run for President.  That could be a good thing.  Maybe there really is a silver lining in every cloud.

The “Special Snowflake” Syndrome of American Conservatives

The article The “Special Snowflake” Syndrome of American Conservatives has been posted on The DailyKos.

In other words, people still haven’t lost sight of the only sensible view of religious liberty there is: we should all be free to live according to our consciences, up until the moment that those consciences drive us to impose our beliefs on another person. In a world full of competing, often contradictory ideas, this is the only view of religious liberty that is feasible, or could possibly be evenly applied.

This “commonsense” attitude is eloquently explained in this article in a way that might make it more common.

Is Elizabeth Warren running?

I just received an email from Mark Crain, MoceOn.org Political Action.

Every interview she does, everywhere she speaks, Elizabeth Warren hears the same question: Are you running for President of the United States?
So we put together this tongue-in-cheek site that’s a one stop shop for anyone wondering: Is Elizabeth Warren running?

Check out iselizabethwarrenrunning.com today to find out if Senator Warren’s in the race. You might be surprised by what you find!

This humorous website is the kind of thing people might email to friends or share on Facebook. And, as you’ll see, it helps tell a broader story about how well-positioned she is to run and what real-world results this campaign urging her to run has already achieved.

I have turned my focus to a candidate who says he would run if he felt he could mount a serious campaign. That other candidate is Bernie Sanders. I don’t want to spend all my efforts on trying to draft someone who says she does not want to run.

I wouldn’t mind if they both ran for the nomination. I could accept either one as the eventual nominee.

Elizabeth Warren On Conan O’Brien

I missed this interview on TV last night.

Elizabeth Warren posted on Facebook about her interview.

Last night, Conan O’Brien and I talked about how we’re demanding some real accountability from the big banks that broke our economy.

Interview with Conan O'Brien

This is actually part 2 of the interview. Part 1 is also interesting.

What is in part 2 is a very valuable part of the discussion, but I wouldn’t want you to listen to both parts without understanding what I have to say below.

At the beginning of Part 2, Conan O’Brien starts off with the comment:

I studied history, I studied literature, I never studied economics and I regret it because there is so much now that I feel I would have a better understanding of, but … .

As I heard him say this, I was thinking economics is not what you want to ask Elizabeth Warren about. She has many of the same misconceptions about the topic that Republicans (and some other Democrats) have.

In part 1 of the interview, they start a discussion about student loans. Elizabeth Warren talks about the $66 billion dollars in profit that the government makes on student loans. Her bill would eliminate that profit. Conan O’Brien then says about the $66 billion that the government should not be making in profit “Obviuosly the money has to come from somewhere” and they get into discussion of her plan to “pay for it”.

This is where they descend into the weeds of both of them misunderstanding economics, or at least misunderstanding money and government budgets. It is not at all “obvious” that the money has to come from where they think it does.

They both could stand to have read two recent posts out of the many that I have written on the subject. The two recent ones are The Fed Could Have Also Helped Main Street Instead of Just Wall Street and When Will the White House and OMB Ever Learn About Sector Financial Balances?. I hope that if I keep pressing this issue, eventually this knowledge will seep into the minds of the public. Then the public will force the politicians to learn about this, too.

The Fed Could Have Also Helped Main Street Instead of Just Wall Street

In this post I am going to perform a little magic trick.  At the end, I will reveal how I did it.

The Federal Reserve Bank (FED) bailed out the banks with a program it called Quantitative Easing(QE). The QE progam bought toxic assets from the big banks to rescue them from insolvency.  These toxic assets were Collateralized Debt Obligations (CDOs).

A CDO is a financial intrument that Banks sold to the public.  It pays high rates of interest, which is why buyers wanted them so badly.  The flow of interest payments to the investors was funded by the mortgage payments of the package of mortgages that comprised the CDO.  They became toxic assets when enough of the mortgagees could no longer afford to make their payments.

The FED bought CDOs so that the Banks no longer had the obligation to pay the interest.

The Fed just created the money to buy these assets.

What if the FED had bought actual mortgages directly instead of buying packages of mortgages in the form of CDOs?  They could have told the mortgagees that they wouldn’t hold them responsible for payments if they couldn’t make them.  After all, some  of the mortgagees aren’t paying anyway.  The difference is that we wouldn’t have so many homeless people who were foreclosed upon, and we wouldn’t have vacant houses that are deteriorating before our very eyes as weather and vandalism take their toll.

As I tried to dig up references to justify what I wrote above, I came across a few surprises.

Forbes has the article Bernanke Admits To Congress: We Are Printing Money, Just ‘Not Literally’

“Where does the Fed get the money to buy [assets],” Congressman Keith Rothfus asked the Chairman.  “Do you create the reserves,” he queried in a follow up, receiving a simple “yes” from Bernanke.  And finally, the money shot: are you printing money? “Not literally,” the Fed Chairman surprisingly responded.

YouTube video of explanation of Bernanke’s Financing of the Asset Purchase

These securities purchases were financed by adding to the reserves held by the banks at the Fed; they did not significantly affect the amount of money in circulation.  The Fed has multiple ways to unwind the large-scale asset purchaes (LSAPs) including selling the securities back into the market.

If I left it there, I can use that as proof that the Fed just created the money to buy the toxic assets.  If you view the video, you will see some sleight of hand to prove that it did and it didn’t do what you think you just saw.

Then there is the New Economic Perspectives article Where Did the Federal Reserve Get All that Money?

John Carney just wrote a very nice piece, showing that not only was the Fed able to find buyers for its assets but that markets actually bought them back at a premium. Bernanke addresses the second objection in his remarks below – idle balances don’t chase any goods – but it’s the financing of the asset purchases that I want readers to understand, because this is fundamental to understanding Modern Monetary Theory (MMT).

This article refers to the Bernanke video above.  The above link is to the relevant 5 minute excerpt of a lecture.  The Board of Governors of the Federal Reserve System has links to the full lecture The Aftermath of the Crisis.

When I saw the 5 minute snippet of the lecture, I saw some amazing sleight of hand.  As I was mulling that over, I came across the New Economic Perspectives article mentioned above, it looked like even experts whom I respect got taken in.  I was pleased to see that in the comment thread that followed that article, there were a few who caught the trick that I saw.

Here is only a part of the conversation that gives you an insight to the sleight of hand.

Right. But those were risky assets, and I’m saying that this is not a full accounting.

Do we know what kind of losses the Fed has yet to realize?

Say you paid $2 trillion in risky assets with a face value of $2.5 trillion, which may pay 10% interest or may pay nothing and lose 50% of its value. Say it’s 50-50, but you’re levered 20:1– owing $1.9 trillion in debt. You’re either going to make $200 billion or lose $200 billion… on your $100 billion gamble.

Now the Fed buys the stuff off you for $2 trillion and you pay off your debt. You realize no gain, but you weren’t expecting to, anyway. You’re more liquid than before, with far less risk.

The Fed, however, realizes $125 billion in interest on $1 trillion in assets, which it dutifully turns over to Treasury. What’s not mentioned is the $125 billion loss on the rest. Sure, the $125 billion would have gone to the you, and is now at Treasury. But there’s a $125 billion loss at the Fed that also would have gone to you.

And that assumes the Fed pays you fair value for those assets, which is pretty unlikely. Suppose the market price for your assets was falling– maybe you would have only realized $1.8 trillion if you sold to anyone else. That doesn’t matter to the private sector, but that’s still another $200 billion subsidy to the private sector.

And so on.

That drew another possibly more interesting response, but I can’t go on forever quoting everything I have read.

The trick I played is using some of Bernanke’s words that I believe to be true to prove a point, while asking you to ignore Bernanke’s words that at best are trying to avoid revealing the truth.  The meta-trick is that what I did is exactly what Ron Paul and Rand Paul do all the time.  They do it to make a false point, but I do it to reveal the truth, if you believe me.

Maybe I will write another blog post trying to explain where are all the mirrors in this house of mirrors.