bex's blog

I'm Not So Sure About Glass-Steagall

Wed, 11 Nov 2009 10:06:26 -0800

I started this out as a comment to Sean Paul's recent opinion that we should reinstate the Glass-Steagall Act, which kept lending banks separate from investment banks. Doing so would deny investment banks access to cheap credit and FDIC insurance, which would mean they wouldn't be able to over-leverage themselves like they did over the last few years.

It sounds good to me... but frankly I'm not smart enough to know if its a good idea... and I do have one nagging concern... We need to make certain we keep our banking system not only stable, but profitable. Because if we don't, we might cripple part of our economy.

More after the jump.

Back when George Washington was president, Alexander Hamilton set up a financial system for our country. It had scary concepts like federal reserves, central banks, government bonds, etc. There were some financial bubbles and crises during this time... essentially because normal people went nuts and traded stocks instead of doing "real work."

However... Hamilton knew that in order for the US to be a strong country, we needed these things. We needed strong central banks who -- quite frankly -- didn't concern themselves over whether or not people were starving. That's the responsibility of the politicians; not the bankers. It sounded cruel, but that was the only way to create a country strong enough to avoid the tyranny of European powers.

Jefferson HATED Hamilton and his New York money men... and criticized Hamilton relentlessly for his greed. However, when Jefferson became president, did he dismantle the system? No... because it was necessary.

Fast forward to today... if we repeal Glass-Stegal -- but Dutch and English banks do not -- won't that cause capital flight? Won't people get a safe, high interest rate with foreign banks? Won't internet banking just cause people to chase the best deals, regardless of regulations?

UPDATE: And what about Chinese banks? It's usually not a good deal to put cash in savings accounts in European banks, mainly because exchange rates are too hard to predict, and your gains might be wiped out... but China pegs its currency to the dollar at an "official" rate. An insured savings account in China could make HUGE returns.

Yes, blending banks together means that they can take HUGE risks and still get government bailouts. So this is clearly a problem... but only if the banks are "too big to fail." Maybe instead what we need is a "cap" on how much the government will pay out for FDIC insured accounts? The government could make it clear that if you have money in a bank that is "too big to fail," your cash will no longer be FDIC insured.

Likewise... we need very firm regulations about inter-bank investment schemes that threaten the entire system. Things like credit default swaps should go the way of the dodo... but things like collateralized debt obligations might actually be OK.

I'd be perfectly happy keeping $50k in a savings account is an investment bank: it means that I'll probably get a higher interest rate. I'd get an even higher rate in a non-insured money market fund. If my bank fails, I won't see my money market again... but as long as my bank has assets under a certain amount -- say, $1 billion -- my savings account will be safe.

I think the cat is out of the bag, and Glass-Stegal will remain repealed... so we probably need to look towards regulations in other ways that allows banks to safely fail.

White House Reacts To Sibel Edmonds, Asks Congress To Sell Nuclear Secrets To Turkey

Thu, 24 Sep 2009 04:27:17 -0700

Originally posted Jan 15, 2008. Recent updates below in the comments ~ editors

A savvy blogger over at DailyKos has discovered an announcement by the Bush Administration, which appears to be pressuring Congress to retroactively approve the sale of nuclear secrets to Turkey.

hmmm...

Siebel Edmonds leaked her story to the UK Times two weeks ago, despite a court order. It was filled with tales of American diplomats acting in a treasonous manner by selling secretes to Turkey. If Bush gets the legislation he wants, then the treason will be authorized, and everything is hunky dory.

Naturally, this is all a bit fishy... and I hope those who broke the law for profit get punished severely. However, I can't find myself being too worried about Turkey having nukes. Geopolitically speaking, Bush may have fallen ass-backwards into something that could stabilize the middle east, and improve the US standing amongst Muslims.

Firstly, Turkey is probably the most modern, secular, and stable Muslim republic around. Besides human rights abuses, problems with the Kurds, and nationalistic rumblings, they're the top of the pile.

Second, a nuclear powered Turkey could redirect this nationalism away from violent extremism, and in the more positive direction of making Turkey a member of the "nuclear club." Very, very few countries at that table, and they all command respect. That usually satisfies the hurt egos that feed nationalism.

Third, its an interesting military barrier. Europe doesn't want Turkey in the EU because of the flood of Muslims through Turkey's porous borders. This could be a kick in the pants that would force Turkey to secure their borders. Also, a nuclear Turkey might be more willing to wait for full EU membership.

Fourth, all "clash of civilizations" stuff aside, this could make Turkey THE go-to guy when there's secular problems in the Muslim world. It reduces the influence of Iran, while not trying to step on the toes of religious countries like Saudi Arabia. Turkey could be a universally accepted half-way-point between the west and the mid east.

Of course, I'm no expert in Turkish history, or the Middle East... but I see some silver lining here... if and only if we have somebody competent running our foreign policy.

Half Baked Idea: Combat Terrorism in Central Asia by Supporting an Independent Waziristan

Mon, 30 Mar 2009 08:35:49 -0700

I don't know much about Central Asian's history, outside of what I read in "Three Cups of Tea" and the histories of Alexander the great... but it seems that outsiders have always been drawing their national boundaries.

Maybe it's time to end it?

The Waziristan region of Pakistan has always been a problem for the central government. Its a part of their Federally Administered Tribal Areas, and a huge stronghold for the Taliban. Terrorists are using these people -- and their long standing distrust of outsiders -- to attack anyone who dares to oppose the Taliban... but if history is any guide, its unlikely that the Pashto people like the Taliban any more than they like the Pakistani government... or the Americans for that matter. Likely, they are only temporary allies.

Perhaps what's needed is for Pakistan, Afghanistan, and the US to broker some kind of deal with Pashto tribal leaders to create a small, independent country, with its own uniquely Pashto kind of government?

This would be in the best interests of all involved... Pakistan would lose some land, but would gain some peace. The Taliban would be cut out of the process, and lose power. The US already reduced aid to Pakistan, they could raise it back as "compensation" for the land lost. If a delegation of 3 clan leaders were flown to Kabul, Islamabad, Washington DC, and the UN, and given treatment as visiting heads of state, they might get a taste for the respect they will get as national leaders... or they might consider us all sinful, evil creatures trying to tempt them.

It may cause other groups on the Afhgan / Pakistan border to cause trouble, but it might still be a useful tradeoff.

As everything, the devil is in the details... but what to Agonistas think of an independent Waziristan?

What's Wrong With Pakistan?

Thu, 19 Feb 2009 08:30:27 -0800

At first when I heard that local Pakistani authorities carved out a region for Sharia Law in Pakistan, I was very upset... Now, I'm not so sure.

I was confused. The Sawat Valley is a big tourist spot in Pakistan, so you would think that the residents would be more cosmopolitan. This morning, an expert on NPR explained why they wanted Sharia law. Apparently, the legal system is so corrupt, that it takes decades for them to rule on anything. The valley residents just want to bring back a 10-year old law -- signed by Benazir Bhutto herself -- that allowed Sharia appellate courts that were required to rule within 3 months. That is the primary reason why this has popular support.

If this is a legal requirement -- everybody is forced to use Sharia law -- then this is obviously a problem. But if its just an alternative to the legal system, then it wouldn't be that much different than mediation, arbitration, or Judge Judy.

Critics claim this is a toe-hold for extremists... which may be true. However, the simple solution may be for Pakistan to streamline the legal system, and allow quick mediation by an agreed-upon third party.

Unless I'm completely wrong about all this...

Vote Yes or No To Government Projects at Stimuluswatch.org

Sat, 14 Feb 2009 13:36:57 -0800

Do you want to make sure the stimulus money is spent wisely? Then cast your yes/no vote for projects at StimulusWatch.org.

This site was based on a list of projects drawn up at a recent Conference of Mayors. These are not officially part of the stimulus package, but they could potentially get federal funding. But before they do so, you might want to let the government know which ones should be given top priority.

I've given a thumbs down to some obvious pork-barrel projects... like a $17 Billion office park in rural Puerto Rico... and a thumbs-up to projects that got voted down by others, like making LA county solar-powered

I've already seen buzzwords like "porculus" bandied about... so I suggest folks get over to this site and start voting before the wing nuts skew the results...

Which is your favorite project?

When Does it Shift From Price Correction to Deflation?

Tue, 09 Dec 2008 09:33:22 -0800

The term "deflation" can mean two things. One, it can mean that inflation has reversed itself, meaning products are getting cheaper to purchase. This can be very bad for factory workers, because you might be forced to sell products for less than the cost of production... which leads to layoffs. It is also bad for debtors, because future dollars are worth much less than dollars today. Coupled with compound interest, this makes it extremely difficult to get out of debt.

However, it also has another definition: a general decrease in credit and the money supply. Frequently, this lack of credit causes prices to fall overall. It will certainly reign in prices that are held artificially high because of speculators, but it might not affect other prices.

My question is this: when does this lack of credit spill over into non-speculative goods?

House prices are falling... but they were too high, and were in bad need of a correction. Oil prices are falling, but its price was fueled by speculators, so it too needed to fall. The consumer price index is falling a little (not much; see chart below), but it was overinflated because of the price of energy. Stock prices are falling, but that's partially a correction, and partially panic because of the credit crisis.

I know a lot of folks on The Agonist say we are at the cusp of a deflationary spiral... but what makes you so certain? Is it the rising unemployment? Is it the lack of a certain kind of credit? Does everybody see these problems getting worse? And if so, which industries and/or products are likely to weather a deflationary period?

Just so you know...

Tue, 09 Dec 2008 08:43:25 -0800

(Hat tip: The Big Picture)

New Contest: The Credit Crisis In 30 Slides!

Fri, 17 Oct 2008 08:16:34 -0700

The good folks over at SlideShare announced a new contest: The Credit Crisis In 30 Slides.

Its a chance to demonstrate your exceptional grasp of the economic situation, and your ability to explain it clearly. I'd encourage folks at The Agonist to submit entries, drive traffic here, and maybe win an iPod ;-)

In either case, I'll be watching closely... although frankly, I think these guys might be able to nail it:

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

Is This The Bottom?

Fri, 10 Oct 2008 15:52:34 -0700

In Jim Cramer's first book -- confessions of a street addict -- he mentioned how panicked he was during a recession. He was nearly out of cash, people wanted out of his hedge fund, and he was surrounded by chaos. He penned an article, "GET OUT NOW!" telling everybody to pull out of the market... much like what he said a few days ago.

He then had his wife come it to try to calm the chaos. She proceeded to take what limited capital he had, and bought huge amounts of stock.

Flabbergasted, he wanted to know why she was buying as the market was crashing, before it hit bottom.

She looked at him with disbelief. "This is the bottom," she said.

Cramer's a bull... a 100% bull. He's always boosting stock to buy, always saying there's opportunity everywhere. As soon as a guy that gung ho becomes a Bear, then we've hit bottom.

That is, if history repeats itself... and this is only a severe recession, and not a depression...

Rove's October Surprise: Trig isn't Palin's Baby! Wait, yes he is!

Thu, 09 Oct 2008 17:02:53 -0700

Andrew Sullivan has been asking for months for the McCain/Palin campaign to produce the birth certificate for Palin's baby Trig.

For those who don't know the controversy here, there are many rumors going around that Trig -- the baby with down syndrome -- is not actually Sara Palin's son at all. The rumor is that her eldest daughter Bristol gave birth to Trig out of wedlock.

Now, baring any evidence, there is no truth to this rumor. However, the Palin campaign has steadfastly refused to provide any evidence that the baby is actually Sarah's child. The whole birth is shrouded in a bit of mystery, which is understandable given the circumstances, but it strikes some liberal bloggers as odd.

What would I do if I were as evil as Rove? I'd do the same thing he did with Dan Rather and Bush's records in the Texas National Guard:

Quietly encourage rumors that baby Trig is NOT Sarah Palin's child
Before the election, create a forged birth certificate that says Trig is Bristol's baby
One week prior to the election, leak this forgery to some semi-reputable liberal blog
Let the press have a field day
Get an expert to denounce it as a forgery
Produce a second birth certificate (forged or not) proving it's Sarah's child
Have a tearful/vengeful Sarah tear into the "liberal media" trying to tear families apart
Score 5-10% more on sympathy in swing states

That's what I'd do...

If Bernanke Measured Like Volcker, Inflation Would be 11%

Mon, 26 May 2008 21:04:04 -0700

I have no idea if this is true... so I'll defer to the experts here... According to Seeking Alpha:

The mainstream financial media has talked our heads off about “bottoms,” GDP growth, recessions and other news items. Amazingly, inflation, which is currently in the double digits (more on this later), hardly gets any mention. When it does, it’s the usual blather that it’s “better” or “worse than expected.”

A far more informative approach — and one that would be much more helpful to investors — would be to stop discussing inflation relative to expectations and start talking about inflation relative to reality. The Fed has changed its measure of inflation twice in the last 30 years; both times it chose to become more lenient. In fact, if you measured inflation today as you did when Volcker was Fed Chairman, you’d find inflation was in the double-digits.

Is there any truth to this?

My Presidental Preference In Order: Obama, McCain, Clinton

Tue, 04 Mar 2008 11:33:57 -0800

No doubt you've seen the polls that pit Clinton vs. McCain, then Obama vs. McCain... typically Obama beats McCain by a large margin, whereas Clinton beats McCain by a smaller margin. That's because several Obama supporters would rather vote for McCain than Clinton.

I'm one of these people. If Clinton wins the nomination, I'll be casting my vote in Minnesota for somebody else... and several of my friends are the same way. This is why:

First, the country is in one heck of a mess... I believe both Obama and Clinton can fix it better than McCain, but Clinton's fixes will not last. She will use her typical heavy handed tactics, and every move will be criticized and marginalized by the Republicans. Then, things will just go back the way things were after she loses power. McCain will do small fixes that last, Obama will do big fixes that last, Clinton will do big fixes that won't last.

Thus, if you want lasting change, the rank is: Obama, McCain, Clinton.

(more beneath the fold...)

Second, there's a very real possibility of a sizable Democratic majority in Congress. Perhaps even a filibuster-proof majority in the Senate. I find this better than the current situation, however I'm not relishing a partisan power junkie like Clinton steering that ship. A Republican president would be forced to encourage bi-partisan bills, otherwise nothing would get done. I believe Obama has the desire to engage his "enemies" more than Clinton -- both have admitted as much in the debates.

Thus, if you want bi-partisan solutions for a bi-partisan country, the rank is: Obama, McCain, Clinton.

Third, Iraq is a horribly failed policy... whoever is president next will inherit the mess. McCain -- although publicly supporting wars in both Iraq and Iran -- has been highly critical of the fiasco in his committee. He's better able to fix things, because his credentials are untainted. I know the pundits would be all over Clinton for a "redeployment". The "we'll win in Iraq unless we're betrayed from within" meme is already spreading... With Barack "Hussein" Obama as president, the people in the middle east may find it more difficult to hate the face of America. With a bit of work -- and engaging our enemies without preconditions -- I believe Obama could decrease violence in Iraq... then declare victory, and our redeployment would be greeted with flowers.

Thus, if you want to end the Iraq war without creating a new culture war, the rank is: Obama, McCain, Clinton.

Fourth, with the exception of Gulliani, I feel that Clinton is the candidate most likely to abuse the imperial presidency that Bush built. What revenge would she take against political enemies? She has a long list. Who's phone line would she tap? Would she be willing to scale back her own powers?

Thus, if you want to end the imperial presidency, the rank is: Obama, McCain, Clinton.

All of my criticisms have the same theme: I'm not a big believer in "top down" solutions to problems... the only lasting change comes from the bottom up... Americans need to create a culture of problem-solving, and let leaders emerge from that culture. Leaders should inspire us to do our best, and give us the kind of assistance that only a government can give.

I believe America is a system... its a flawed system, but a decent system nonetheless. In America, a better world will slowly evolve. If you force it, maybe you can make things better in the short term, but there will be side effects, and you run a very real risk of making things worse. The president is not a dictator, and thus shouldn't be the fountain of all policy matters. The president should be a manifestation of the American system, to benefit the public by allowing the right ideas to present themselves, and giving the ideas the right amount of support.

Obama is the kind of leader that we need... he's someone who enables bottom-up problem solving.

McCain is not that kind of leader, but he'd be a great placeholder, and a steadfast reminder of Republican failure... he'd energize the Democratic base to purge the bad element from their ranks, and win elections against the worst element in the Republican party. Both Democrats and Republicans would benefit from a people-powered purge, although the Republicans probably won't benefit for several election cycles. An ideal America has better Democrats, and better Republicans. Besides the Iraq war, there's little damage that McCain can do, considering the Democratic majority.

Clinton is not that kind of leader, and she seemed addicted to the old heavy handed way of doing things. Clinton will surround herself with yes-men, reward loyalty over competence, ignore good advice if it contains bad news, and bully anyone who gets in her way. Want evidence? Look no further than how she's run her campaign. She will use the imperial presidency and democratic majority to cram her ideas down everyone's throats.

To her credit, Clinton has some great ideas, and her supporters are probably hoping that she does exactly what I fear she'll do... but that's not how to create lasting change. That's not how an American president should behave. We had that with Bush. Enough.

If Clinton wins the nomination, I will not vote for her. Instead, I'll vote for a more flawed person who doesn't agree with all my values, but who will be forced to work within the system to get things done...

Then I'll continue to do what I can to fix the system...

Hillary: If Washington Doesn't Matter, Why Campaign There?

Tue, 12 Feb 2008 09:16:40 -0800

As mentioned by Atrios, it's difficult being Hillary these days... after so many wins by Obama, she's banging the drum that states that Obama won don't matter.

Question: if they don't matter, then why did you bother to campaign there?

That's a tough one to answer... Louisiana, Nebraska, Washington, Maine, Virgina, Missouri, Maryland, Hawaii, Wisconsin... if these states don't matter, then why bother with them at all? Why put in the effort to win, if you genuinely believed they don't matter? Why even fund your supporterd there? If only Ohio and Texas matter, why not focus 100% of your energy there?

She might have to... but the less she spends on the other states, the more it looks like a blowout by Obama... and Hillary is pulling a Guliani. She needs a winnable strategy, or an exit strategy.

Agonistas Should Write A Book!

Thu, 07 Feb 2008 15:58:52 -0800

I recently came across Lulu, a self-publishing site, and I thought it was about time Sean-Paul, Numerian, and the other econ folks on this blog put together a book!

You guys have taught me a lot more about economics than anywhere else, and I've read five econ books in 2007 alone. You really pierce the veil; not just describing how things should work, but also how people play the system to scheme extra cash into profits.

You could do print-on-demand books for about $20. You could also create a PDF eBook for around $2.50. I say, make a book, fix your profit margins at $5 or so, then let the people decide if they prefer a PDF or a dead tree...

Heck, even if all you did was slap together your 50 last posts, people would buy it to support you guys! Chime in the comments if you agree.

The Great Moderation

Mon, 28 Jan 2008 13:14:57 -0800

The Freakonomics boys have posted a little about the possibility of a Recession... and they brought up the concept of The Great Moderation.

The Great Moderation is an interesting phenomenon... between 1950 to 1984 there were six recessions, but since 1984 there was only one. In addition, the fluctuations between GDP are much less volitle these days... in the past we'd spike from +15% to -10%, these days we mozey between +6% and -3%.

(graphic beneath the fold)

Bernake had a speech about this, and attributed the Great Moderation to a combination of three factors:

Improved structure to the US economy: better computer models for sales, inventory, logistics, along with better business practices.
Improved fiscal policy: moderating inflation levels has helped moderate swings in the GDP.
Dumb luck

I'm less inclined to give he Fed credit for this... so I'd say its mostly a mix of #1 and #3. However, this does make me hopeful that if we hit a recession this year, it won't be as bad as some folks think.