Billionaires in Zimbabwe

Zimbabwe is to introduce a bank-note worth Z$100bn in response to rampant inflation - but the note will barely cover the cost of a loaf of bread reports the BBC.

Simply awful. It is horrible that the entire world is unable to put an end to this madness. I am not sure whether Samantha Power even remotely considered such a nightmarish scenario unfolding, the way Mugabe is creating this atrocious mess, when she wrote about the ten ways to kill a country.

America too big to fail?

A neat summary of the issues in the NY Times:

One fundamental reality continues to offer assurances that foreigners will still buy American debt:
In the global economy of the moment, the United States itself is too big to fail.

The logic for that assurance goes like this:

The American consumer has for decades served as the engine of world commerce, using borrowed cash to snap up the accoutrements of modern living — clothes and computers and cars now manufactured, in whole or in part, in factories from Asia to Latin America. Eliminate the American wherewithal to shop, and the pain would ripple out to multiple shores.

Globalization, in other words, allowed China and Japan to amass the fortunes they have been lending to the United States.

But globalization also emboldened American capitalists to take huge risks they might have otherwise avoided — like borrowing to erect forests of unsold homes from California to Florida, delivering the speculative disaster of the day. They were operating with bedrock confidence that money would never run out. Someone would always buy American debt, delivering more cash for the next go.

And this same interconnectedness appears to have reassured regulators in Washington about the health of the American financial system, as they declined to intervene against highly speculative lending during the real estate boom. Mortgages were being distributed to investors around the globe, and so were the risks, the regulators reasoned. Anyone who bought into that risk would have a strong interest in seeing that the American financial system stayed upright.

In other words, in the estimation of people in control of money, the United States cannot be allowed to collapse, just as Fannie and Freddie cannot be allowed to fail. Too much is riding on their survival.

The central truth of that logic still seems to be apparent as the Treasury keeps finding takers for American debt.

So the government offers its rescue of the mortgage companies, and foreigners keep stocking the government’s coffers. “They don’t want the U.S. to go into the worst downturn since the Depression,” Mr. Tilton says.

But all the while, the debt mounts along with the costs of an ultimate day of reckoning. Debate grows about the wisdom of leaning on foreign credit, and about how much longer Americans will retain the privilege of spending and investing money that isn’t really theirs.

Bailouts amount to mortgaging the future to stave off the wolf howling at the door. The likelihood of a painful reckoning is diminished, while the costs of a reckoning — should one come — are increased.

The costs are getting big.

Mel Tormé: coming home baby now ...

I was reminded of this wonderful song. Even after all these years, it is a beauty ....

The economic downturn: who is to blame?

In an earlier post, I noted that it starts with Alan Greenspan, the former chair of the Federal Reserve. And, I wrote about consumer greed as a factor in an oped for Planetizen. Apparently, I am not the only one who starts with Greenspan though, of course, he is not the only one nor the most significant actor. Here is an excerpt from a NY Times report, which ends with the consumer also being at fault:

Who’s to blame?
There is plenty to go around.

In the estimation of many economists, it starts with the Federal Reserve. The central bank lowered interest rates following the calamitous end of the technology bubble in 2000, lowered them more after the terrorist attacks of Sept. 11, 2001, and then kept them low, even as speculators began to trade homes like dot-com stocks.

Meanwhile, the Fed sat back and watched as Wall Street’s financial wizards engineered diabolically complicated investments linked to mortgages, generating huge amounts of speculative capital that turned real estate into a conflagration.
“At the end of this movie, it’s clear that the Fed will have to care about excesses,” Mr. Barbera said.

Prices multiplied as many homeowners took on more property than they could afford, lured by low introductory interest rates that eventually reset higher, sending many people into foreclosure.

Mortgage brokers netted commissions as they lent almost indiscriminately, offering exotically lenient terms — no money down, no income or job required. Wall Street banks earned billions selling risky mortgage-linked securities around the world, aided by ratings agencies that branded them solid.

Through it all, a lot of ordinary Americans borrowed a lot more money then they could afford to pay back, running up enormous credit card bills and borrowing against the value of their homes. Now comes the day of reckoning.

The Onion foretold President Bush's record

Reviewing the track record of President Bush, it is easy to think that he planned every step after consulting with The Onion, which published a remarkably on-the-mark piece in time for his inaugural back in January 2001.

In this piece, the Onion noted, among things, that:
massive debts, at least one Gulf War, massive tax cuts and recession, "tear this nation into two", more economic inequality ....

Unfortunately, everything came true.

Europe most profitable for McDonalds. Really.

McDonald's European operations are headed by, you would not believe it, a Frenchman!  And, Europe is the American chain's most profitable region.  And we live with a false impression that Europe hates McDonald's, and somehow we are the only people on earth who consume its burger and fries.  BTW, I had the iced, cooled, coffee yesterday.  Not bad at all.  I would like it a little but creamier and sweeter, but it was quite all right.

Anyway, back to McD's and Europe.  Of course, there are incredible differences between a typical McD's in South Los Angeles and one in Paris.  The bottom line (from Der Spiegel):
Europe is now McDonald's largest region by revenues, despite having roughly one-quarter the number of outlets as the US. Last year, revenues from company stores and royalties from franchisees topped $8.9 billion in Europe, compared with $7.9 billion in the US. It's a trend that analysts expect to continue when the world's biggest restaurant group reports second-quarter results on July 23. West expects US sales to rise by 3.4 percent, vs. 9 percent for Europe (19 percent if you include the foreign currency impact). This year, he reckons, McDonald's, the most American of brands, will generate 55 percent of its earnings outside the US.

We are the people China has been waiting for :-)

Even before the controversy post-New Yorker cover, which gave a whole new name to the phrase "cover story", commentators and comedians were wondering whether Obama's "blackness" will preclude jokes about him.  And then came the New Yorker cover.  Personally, I don''t care for the cartoon.  It is not the kind of cartoons I have enjoyed in the magazine.  Nor is it the kind of cartoons/videos I enjoy in The Onion. 

Joel Stein in the LA Times has the best take on it, when he ends his column with:
"We are the people we've been waiting for"? Actually, I'm pretty sure we're the people who put all our money in Yahoo and then bought a house to flip and now are hocking everything we have. We're the people China has been waiting for.

The economy baffles even Samuelson!

Well, not Paul Samuelson, but Robert Samuelson.

As always, Samuelson has quite a few interesting observations. His concluding thoughts are the best in that piece:

Today's global economy baffles experts -- corporate executives, bankers, economists -- as much as it puzzles ordinary people. Countries are growing economically more interdependent and politically more nationalistic. This is a combustible combination. The old global economy had few power centers (the United States, Europe, Japan), was defined mainly by trade and was committed to the dollar as the central currency. Its major countries shared democratic values and alliances. Today's global economy has many power centers (including China, Saudi Arabia and Russia), is also defined by finance and is exploring currency alternatives to the dollar. Major trading nations now lack common political values and alliances.

It is no more possible to undo globalization than it was possible, in the 19th century, to undo the Industrial Revolution. But our understanding of international markets, shaped by impersonal economic forces and explicit political decisions, is poor. Countries try to maximize their advantages rather than make the system work for everyone. Considering how much could go wrong, the record is so far remarkably favorable. Alas, that's no guarantee for the future.

A secret presidential succession plan? OMG!

Bruce Ackerman, who authored this piece in Slate.com, is no consipracy theory nut case. He is a law professor at Yale. And, slate.com is no National Inquirer.
Which is why his commentary is troubling and terrifying. Apparently there have always been rumors that Reagan put into play some kind of a presidential succession executive order that will bypass our understanding that the speaker of the House will be the one after the VP. But, how can something like this ever be done in a democracy? A president creating his own succession plan as if it were a monarchy? Bizarre, and eerie.

Anyway, Ackerman concludes his comments with:
If Reagan did issue an illegal order, Congress should publicly determine how subsequent administrations dealt with it. Perhaps President George H. W. Bush or Bill Clinton expressly repudiated the order. Or perhaps they reaffirmed it, thereby laying the foundation for President Bush, with the encouragement of Vice President Cheney, to do the same—through a process entirely independent of the administration's formal directives on the subject.

In any event, it is time for Congress to find out. Even if Reagan's initial illegal order has been rescinded, Congress must deprive it of all value as a precedent. Lawmakers should pass legislation that expressly nullifies all secret orders, present and future, through which the president asserts the imperial privilege of naming his own successor.

Presidential candidates or products to market?

It is not news to anybody that elections are becoming more and more like Coke and Pepsi duking it out.  It is, therefore, no surprise that this presidential election will be the first billion dollar campaign ever.  And my university has money problems when we are searching for two million dollars!

This piece in Salon explains how the Obama campaign has incorporated all the marketing slicing and dicing tricks of the trade from the corporate world.  It ends thus:
It seems Joe McGinnis had it right 40 years ago, when "The Selling of the President" chronicled how techniques from Madison Avenue helped send Richard Nixon to Pennsylvania Avenue. If Obama wins the White House in part by looking at voters the way corporations look at consumers, by 2012 it may be even harder to tell where politics ends and marketing begins. (emphasis added)

Report from Nouriel Roubini: OMG, we are in deep shit!

The email (you too can sign up at his blog) says that this will be the worst ever since the Great Depression. Read for yourself:
This is by far the worst financial crisis since the Great Depression

Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust

Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust

Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.

In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.

The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression

Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.

This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.

This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.

This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.

Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.

The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.

The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.

But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.

The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.

Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008

Paid maternity leave

From: the Economist

Another one bites the dust

I may have been barely into the teens when my father's friend visited us from America. And one of the things he brought with him impressed me a whole lot: the Polaroid camera. It was sheer magic--to take a photo, and less than a minute later was the photo in our hands. We are now so much used to newer and newer gizmo every day that we are no longer awed as we were just a couple of decades ago :-(

Well, that Polaroid era is coming to an end. Excerpt:
Polaroid has now stopped making its instant film and expects supplies to run out completely in 2009. While the organization stopped manufacturing commercial type cameras almost two years ago, the slow realization that film photography has had its day will come as little consolation to the company’s global workforce. Factories will close in Massachusetts, Mexico, and the Netherlands, leaving a core staff of about 150 employees at its headquarters at Concord, California. At the height if its powers, in the 1970s, the company employed over 20,000 workers. The decision to stop production was “due to dramatic technological changes in the photographic industry,” said the company, “which will see the organization transitioning from its analog instant film business into new and innovative digital instant photography technologies.”

Planetizen's notable opeds in 2007

Mine made that list. Am excited. I wonder if being listed first also means that it was the best oped of that year? Cool!
Read it here

The wisdom (ha ha) of Greenspan

I guess the only credit he deserves is for cautioning against "irrational exuberance." That was during the go-go-internet years of the mid-1990s--they already seem like a few hundred years ago! If only he had smarts to think about the horrible ways in which mortgage and investment bankers were inflating assests and egos; on the contrary, he was an ardent supporter of sub-prime mortgages.
Over to Bill Fleckenstein: Alan Greenspan was recommending adjustable-rate mortgages in February 2004 -- just as short-term rates were making their lows. Then, in a speech on April 8, 2005, he extolled subprime lending:
"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

His term ended, and Ben Bernanke took over. Bernanke was famous for his "savings glut" thesis--"the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."

Even as Bernanke was touted as a potential replacement for Greenspan, this is what Daniel Gross wrote:
The savings-glut meme changes the terms of the conversation about global imbalances. It's not our fault that we rely on foreigners to fund our desire to spend in excess of our resources. Au contraire. Our extreme consumption and failure to save become something of a virtue. Somebody has to keep the world's factories humming and absorb all the products made in Japan, China, and elsewhere. And until the rest of the world becomes More Like Us in its consuming habits, the imbalances are likely to persist.
The savings glut may be an accurate and subtle take on the world's economic imbalances. But less subtly, it minimizes the impact of the potentially destructive monetary and fiscal policies pursued by the U.S. over the last five years. It also lays the responsibility for change squarely on the backs of foreigners and makes a virtue out of what appear to be our own failings. No wonder Bernanke is so popular at the White House.

And, ironically enough, it is Bernanke trying to manage a liquidity and credit crisis. So quickly we burnt up all those savings, eh? Well, as Bernanke, Paulson, and the Congress pour billions more down this sinkhole, let us turn to The Onion for the best report of all:
"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

USA trips and falls

Miss USA, that is, and it was at the Miss Universe contest. And, two years in a row. An apt metaphor for a country that, sadly, seems to stumble and fall, instead of winning year after year. Have we all become Gerald Ford, who tripped and fell enough times for Chevy Chase to mercilessly lampoon him on SNL?

From the Times (London):
For the second year in succession, the American entrant in the Miss Universe pageant failed to meet the crucial challenge of walking and smiling at the same time.
Crystle Stewart, from Texas, tripped and fell on stage at the global beauty contest today, just as Miss USA did last year.

Watch it happen:


Compare it with the fall in 2007:

Touchdown Jesus in the classroom

The primacy of athletics over education bothers me. A lot. Despite (or because of?) the Trojans winning national championships.

I still remember how the Fighting Irish ran circles around awful USC teams until Pete Carroll arrived at USC. But, Notre Dame and Stanford always offered a special attraction because of their much higher calibre--academic--students. This LA Times oped brings up all these issues. An excerpt:
Although Notre Dame cuts football players a break in regard to admissions, its relatively high 79% federal graduation rate (FGR) -- the best measure of whether recruited athletes fit a school's academic profile -- indicates that the university recruits athletes who actually are likely to graduate from Notre Dame. The average FGR for last year's top 25 Football Bowl Subdivision teams was about 50%. Louisiana State University, the 2007 national champion, graduated 38% of its players; runner-up Ohio State University graduated 48%. (California's football powerhouses produce mediocre results at best, with USC at 54%, UCLA at 51% and UC Berkeley at 44%.)

.... Perennial powers such as LSU and the universities of Georgia, Florida and Oklahoma, on the other hand, have teams with graduation rates in the 35% range. Notre Dame endured a crushing loss to LSU in the 2007 Sugar Bowl. These data suggest that schools that hold their ground on academic standards for athletes may be at a disadvantage in college sport's recruiting wars. Is it merely coincidence that Stanford and Duke, two of the teams the Irish were able to beat in 2007, have football graduation rates over 90%?

The National Collegiate Athletic Assn. no longer discloses the average standardized test scores of various football teams. But would anyone be surprised to find that test scores, like federal graduation rates, correlate negatively with gridiron success?

Wives of billionaires

This is Tina Ambani, wife of Anil Ambani--the sixth richest man in the world. (Photo from Forbes)

She was Tina Munim and was a hindi film star. Later, as most female actors of those days did, she married a rich guy and ditched movies.

The only movie of hers that I watched was Karz, which was one heck of a masala movie.

Here is a youtube clip from Karz: (Click here for a translation of the Hindi lyrics to English)