"Tivo-ifies the web" Paul Kedrosky

60 Minutes on the Price of Oil

60 minutes comes down firmly on the side of speculation vs demand as an explanation of last years oil price shock and traces the problem back to Enron and the deregulation of oil futures.

The analysis is good but non-conclusive. Unlike houses, both the equivalent boom and bust in oil happened together, in a much shorter period of time and in a more extreme fashion. This caused central banking policy moves which take 6 months to have an effect to switch from inflation concerns to deflation in a matter of weeks.

The Oil bubble was perhaps a bigger trigger of the market crash than housing and the fact that we have very little insight as to whether or not Wall Street speculation, Opec deceit about supply or BRIC economy growth determined oil prices, is terrifying.

1 comment business

The Ascent of Money

One of the surprising things about money is that the people who directly manage it are often tedious, but the subject itself is fascinating. In book form, J.K. Galbraith’s (no relation), ‘Money’ is my favorite, and this documentary comes close to what a film version of that might have looked like.

Obviously, current events make this series particularly important. For the embed, I have picked my favorite part: episode 5, which is about property. For those in denial about what happens with a property crash and zero interest rates, a Tokyo realtor shows us around a Tokyo apt. which was worth 3 times what it is now…a decade ago. The parallel between the UK/US property bubble and Japan is something which I was banging on about on my blog, in mean spirited fashion, before the crash.

Episode 5 of 6: Running Time 48 mins.

All of Niall Ferguson’s excellent 6 part series, the Ascent of Money, can now be viewed on Google.

The Ascent of Money makes it into the Smashing List

Episode 1.
Episode 2.
Episode 3.
Episode 4.
Episode 5.
Episode 6.

Thanks to Karl Hafer

6 comments business, the smashing list

Nassim Taleb (Black Swan) Interview

Charlie Rose interviews Nassim Taleb who famously compared investment bankers to turkeys. Taleb is best known for his book about the importance of seemingly impossible but inevitable events such as Black Swan sightings after the discovery of Australia, where they exist.

A turkey gets fed very well, until it gets slaughtered. Right up to turkey killing day, turkey analysts and advisors would recommend investing in relationships with farmers to feed and shelter them. So it has been with bankers from the 80s till now.

Rose asks Taleb for a balanced view of how bad the economy will really get, compared to the extreme doomsayers such as Nouriel Roubini, who correctly predicted each step of this ‘great recession’ and who worried Rose’s viewers by saying that it meant the end of American empire.

Taleb’s reply is that it will be worse than Roubini thinks. At which point there is an audible thud as Charlie Rose slams his hands on the desk, aghast.

Full interview, running time: 20 mins.

Via Calculated Risk

1 comment business, interviews

Niall Ferguson, the Ascent of Money

Unfortunately nobody has uploaded the excellent UK Channel 4 documentary version of Niall Ferguson’s timely book about the history of money, but this conversation is a good taster. Have a look out for the series of the same name.

Running time: 1 hour.

11 comments business, interviews

Keynes’ Begging Trip to America

After WWII, which Britain had fought with American weapons while being supplied with American food, the UK was heavily in debt and on the brink of bankruptcy while the US economy was booming. The US demanded repayment for the wartime loans and so John Maynard Keynes went to Washington to ask for an $8billion bailout. He was refused, but given a loan of half the amount on condition that made the US dollar the new reserve currency. This loan was only paid off in 2006.

What does this have to teach us about today? In the details, not very much, but in the big picture view, it says a lot about how we might expect creditors such as China and Japan to behave towards the US, now that dollar priced hegemony may be ending. The current strength of the dollar is a panic move and prefaces an increasingly likely collapse, during which the US will be at the mercy of Asia.

If you want to get really spooked consider this:

“Victor Shih, a specialist in Chinese central banking at Northwestern University, said that when he visited the People’s Bank of China for a series of meetings this summer, he was surprised by how many officials resented the institution’s losses [on dollar assets].

He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.”

In other words the fate of the US economy may be in the hands of people who believe in conspiracy theorists. See the full piece here on Yves Smith’s great finance blog.

(despite the jingoistic commentary next to this video clip, on YouTube, its a serious piece by a well respected British historian)

4 comments business, history

Banking With Hitler

Contradicting the notion that the Swiss were alone in banking for the Nazis. There are lots of very poor documentaries about this kind of thing, don’t let that put you off.

1 comment business

A Short Film About Detroit – and a crazy idea for the recession.

Embedding disabled on this, however here is the link.

Why am I choosing to highlight this film? The US car industry is essentially bankrupt, and Detroit is already the equivalent of a failed state within a contracting economy. The median price of a house in Detroit is, staggeringly, less than $10,000. Surely, with a deep prolonged recession it is beyond hope?

The financial sector has been saved by the government, but too late to prevent significant in the ‘real economy’, there will, as a result, be a need for massive government spending to stave off the effects of unemployment. This either happens naturally through conflict or war, or via the preferable alternative of things like the New Deal.

So what should the New Deal Light, New New Deal, or Deal 2.0, or whatever look like? It will have to employ lots of people and will therefore be some kind of large scale industrial project, but it will also have to have a strategic benefit of the type that has the kind of long term return that only governments can consider. In America’s case this obviously will have to do with energy, and more specifically portable energy, and even more specifically portable energy that solves a fundamental problem with the way America uses energy. American planning inextricably revolves around cars more than any other nation on earth, this is a problem that the government can realistically help solve, and only now will it have the stomach to do so.

As Paul Kedrosky predicts, clean tech. “was just given a two-year window to gestate before the major economies worldwide turn higher and begin driving energy prices straight up.”

So my hypothetical proposal is this: nationalize GM and Ford and create a plan to subsidize switch the majority of all cars on the road to the most fuel efficient form possible, using a pragmatic combination of goal driven R&D and industrial scale production, in a realistic timeframe, using whatever means is necessary, and with the zeal of the Apollo Moon Shot.

Is this a crazy idea?

9 comments business

Milton Friedman – the Bumbling Old Man That Killed the American Dream

The events of the last 6 months are more significant than 911 and will no doubt result in more suffering. They are partially a result of the ideas of the man whose choir performs the surreal song called ‘The Corporation’, in the first video. A more apt title might be American Requiem. Two other videos are more in depth pieces by Milton Friedman: on limited government and appearing on Icelandic State Television in 1984 (oh the irony).

The United States has recently had to nationalize the majority of mortgage lending and is in the process of nationalizing large sections of the banking industry which is now rated below Namibia. US treasuries are less credit worthy than the McDonalds hamburger chain’s, the stock market has had a worse week than during the crash that brought on the Great Depression, banks have completely stopped lending to other banks and ships are sitting in docks unable to sail without letters of credit. This cancer has spread, and with banks in many other countries being nationalized to avoid collapse, the IMF said today that we risk systemic global financial meltdown. And this is the sober world of finance.

The reason why this happened is not because of subprime mortgages, Collateralized Debt Obligations or Credit Default Swaps any more than the USSR fell apart because of Boris Spassky’s inferior chess strategy or a cunning plan by Ronald Reagan. Russia fell apart because of the increasingly powerful economic engine of the West and adherence to a flawed, extremist ideology.

The emergence of China’s economic leviathan is the root cause destabilizing effect that turns leveraged debt in the form of CDOs and CDSs into nation busters, but second component, the extremist ideology came from an unlikely source, a nice old man with patrician charm.

The nice old man was Milton Friedman, part of the Chicago School of economists who dreamed up monetarism, an extreme form of laisser-faire capitalist economics, not far removed from Social Darwinism. Economics is arguably not a science and I suspect that monetarism, when treated scientifically, reveals a scientific misunderstanding in its core premise, by thinking of the economy as a closed system rather than open one. I’ve outlined this hunch on my blog and I’d love if someone better qualified than me could someday prove it, however a formal proof of its fallacy is not required to identify its problems when adopted as ideology. Monetarism’s problems started when it morphed into a self-contradictory political ideology called Libertarianism which will be defined as the period from Reagan until Monday afternoon.

Political ideology is like diet, moderation and balance are good. You can’t have unregulated capitalism or people will make money out things like slave trading. Similarly you can’t have totalitarian socialism or you end up with everything run like the DMV, with unmotivated people doing things that people don’t want, slowly, and in drab environments.

On an ideological level, there is nothing consistently libertarian about flag waving Reaganite Republicans, or there wouldn’t be an American army or flag. There is also nothing intrinsically socialist about French left-bank intellectuals or there wouldn’t be any cafes or any music, after all, there is nothing more entrepreneurial than starting a band or opening a cafe. Both extremes are self contradictory, and the truth is somewhere in the middle, to paraphrase the architecture critic, Rayner Banham: politics is about creating a well tempered society.

Libertarianism is like Joseph Heller’s Catch 22, a form of political ideology where there is no polis, no society, to be political about. As with anything with a logical flaw, its adoption has ended up revealing that flaw. In this case, a Libertarian approach to capitalism, denying the existence of government, and therefore regulation, has ended up with the government owing much of the economy. This is a far, far worse outcome than if there had been well regulated capitalism in the first place.

15 comments business, FEBL

Dick Fuld’s half billion dollar pay

Dick Fuld’s “televised humiliation was orchestrated by a veteran Democrat, Henry Waxman, whose simple question about Fuld’s alleged $480m of earnings – Is that fair? – hit the banker like a haymaker, rendering him speechless.” Link

The expression the buck stops here was supposed to refer to responsibility rather than reward, the other kind of bucks. Fuld claimed full responsibility for Lehman’s collapse but the responsibility came with reduced reward (share options wiped out) rather than risk. Laws are being rewritten to save banks and voters may wake up to the fact that they can make these laws do whatever they want – like seize Fuld’s assets, put him in jail etc.

This might seem naive, but people really do have that power now, and retribution against a few will save the anger of the mob spilling into the traditional avenues for choosing scapegoats like antisemitism. People like Fuld need to be given the equivalent of a loaded revolver to do the honorable thing. Sure, its unfair, like being paid lots when the times are good, but if he doesn’t other people will suffer more. The buck stops.

4 comments business

Ronald Reagan Speaks Out Against Socialized Medicine

Paul Krugman dug out this little gem from the past.

Its quite amazing how Reagan is revered these days , when at the time he seemed so ridiculous. Now many ideological Reaganite capitalists look radical rather than conservative and are simultaneously crying out for what counts as socialism by their measure.

Lets hear the Gipper tell you why government run things like our remaining banks, or the army for that matter, are silly; lament the fact that the US will never enjoy the same cheap healthcare you can get anywhere else in the developed world and remind you that Reagan really was an anachronistic throwback – a vacuuous, accidental sage like Chauncey the gardener in Being There .

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