Wednesday, October 29, 2008

Odd numbers

Cryptic White House statement --

The President looks forward to participating in the United Nations meeting on interfaith dialogue, in New York City on 13 November. The President appreciates King Abdallah of Saudi Arabia's initiative in calling for this dialogue and remains committed to fostering interfaith harmony among all religions, both at home and abroad. The United States affirms its support for individual religious freedom, the right to practice one's religion, the equality of all people regardless of their religious faith, and the other principles of religious freedom enshrined in the U.N. Charter and the Universal Declaration of Human Rights.

Context: King Abdullah has indeed been pushing this agenda for a while (most recently with the help of his old royal links to King Juan Carlos) but it has attracted considerable criticism given the complete lack of religious freedom in Saudi Arabia. But since the King is coming to George Bush's Group of 20 financial crisis summit in Washington a couple of days later, Bush couldn't turn down an invitation to participate in the UN event. It will present a tricky challenge since Bush prefers to make his criticisms of Saudi Arabia out of earshot of the Saudis.

Look for John McCain to threaten to fly immediately to Saudi Arabia and disembark holding a Bible. Numerologists might note the UN dialog date is, in the American sequence, 11/13. 9/11+2, if you will. It's a bit strange that the White House statement refers to "13 November" i.e. in the European sequence and not the more usual November 13 for such statements. It's as if there is some cadence to "November the 13th" that they don't like.

Questions, not answers

Gordon Brown wasn't answering many questions at Prime Minister's Questions today. He yet again dodged David Cameron's prodding to admit that his debt and deficit rules are dead, which they are since Brown did not run sufficient surpluses during the boom to cover the extra borrowing he will need to do in the bust. In fact he seems to want to attach an asterisk to the bust, in the sense that if the bust wasn't "caused" by government, they're not obligated to stick to the rule. There has to be moral hazard in there somewhere.

But he also dodged Peter Robinson's question about the Army homecoming parade in Belfast on Sunday --

Mr. Peter Robinson (Belfast, East) (DUP): Will the Prime Minister join me in welcoming the decision by the Army to organise a homecoming parade in the city of Belfast? Does he recognise that the troops from Northern Ireland who have performed so well and so bravely in Iraq and Afghanistan come from both sections of our community? The decision taken by Sinn Fein to run a counter-parade and protest is therefore all the more preposterous, and has heightened tensions in Northern Ireland as a whole. Will the Prime Minister join me in urging people in Northern Ireland to ensure that we have a peaceful Sunday, and that everyone has due respect for the role that has been played by our brave troops, particularly in Iraq and Afghanistan? I have seen the role that they have played in the reconstruction of Afghanistan and the work that they are doing in mentoring the Afghan army. Will he urge everyone to do nothing to drag us back to the bad old days?

The Prime Minister: I want every Sunday to be a peaceful Sunday in Northern Ireland, and I want us to work together to ensure that we can undertake the remaining stages of the devolution that will make stability for the longer term possible. I also agree with the right hon. Gentleman that the troops in our armed forces deserve the support of every community from which they come. Where there have been parades in the different cities and towns of this country, not only have they been peaceful but large numbers of people have turned out because they want to give support to our troops and show them that they have the confidence of the British people. I want that to be a feature of our life in every part of the United Kingdom for many years to come.

Read it carefully: he never actually says that he endorses the Sunday parade.

UPDATE: on the fiscal point, Darling buries the golden rule. The claimed compliance is with non-recessions in 2000 and 2005.

Tuesday, October 28, 2008

Forum shopping

HBOS says it doesn't want its Irish subsidiary in the Irish government's bank guarantee scheme because the parent already got the money it needs from the UK government with less conditions. Barclays says it doesn't want the UK government's capital injections because it can get the same money with less conditions from state-backed Russian banks. And Credit Suisse doesn't want Swiss government bailout money because it can do better with the state-owned Qatar Investment Authority. Did anyone think that 21st century banking would be about the finding the best socialist sugar daddy?

Saturday, October 25, 2008

Where's Sarah?

It used to be that when one went to the McCain campaign website, the first visit of each day ("splash") would feature a Palin-heavy intro screen including embedded video remarks from Sarah Palin, before heading to the main page. To the left is a screenshot of what the intro screen has now. Among the questions on the page: "Why vote McCain?". If you look carefully enough, her name is mentioned once. They could have used this picture as the banner. They didn't.

Friday, October 24, 2008

The fiscal winds of change

The Wall Street Journal opinion page has decided that arguments about taxation are the only thing that John McCain has left at this point -- notwithstanding McCain's enormous list of public spending commitments and lack of any financing measures. And the scare stories they trot out are so unreconstructed. Here's Alan Reynolds after crunching some numbers --

Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 -- roughly an extra $430 billion a year by 2012-2013.

Even accepting his numbers, how big is $430 billion 4 years from now? Well, George Bush's defence budget was $595 billion last year. This is what the conservatives don't realise. What did they think was going to be cut if George Bush loaded up the budget with new entitlement programs and massive debt? Soon enough politicians will start to look at the huge chunk of the budget that they can cut at fairly short notice. Fewer wars, fewer useless weapons, and fewer military contractors hand in glove with the government, and you're into some big savings pretty fast. And anyway, George Bush has defined deficit deviancy down so if Obama has to borrow the money, he can.

Then there's Andrew Biggs adopting the very strange McCain talking point that since Obama's tax credits are refundable, they give too much money to poor people --

While Mr. Obama calls his plan "Making Work Pay," under standard economic assumptions his plan would actually discourage work for anyone earning over $8,000 per year. The tax credit itself would increase workers' take-home pay, an "income effect" that reduces incentives to work.

The income effect is present at any level of income. It's just as likely to apply to a high income person who gets a tax cut as a low income person who gets a tax credit; indeed since the low income person could still use more money to meet basic needs, they might be more inclined to maintain or increase their hours of work even with the Obama tax credit.

But then it seems to be conservative dogma these days that poor people need less money to make them work harder, while rich people need more money to make them work harder.

That my friends is why John McCain is going down like a lead balloon in this election.

Thursday, October 23, 2008

Oh, wouldn't it be loverly

National Review Online's Lisa Schiffren, after defending the $150,000 Sarah Palin wardrobe (having previously attacked a fictitious Michelle Obama room service order) --

Because I like Sarah Palin, and want her to succeed, I would be really happy to know that, should she find herself back in Alaska for the next four years, (or, for that matter, in D.C.) she chose to spend a little of the money that would otherwise go to her clothing budget on a personal library of conservative classics. Going upmarket intellectually will complete the transformation, and make her truly prime-time ready.

Wednesday, October 22, 2008

Retraction awaited

National Review Online --

The Obama Diet — Not Just Arugula [Lisa Schiffren]

The "people's ticket" ordered a little snack from room service at the Waldorf, as the N.Y. Post's page Six reports:

[NY Post] "While he was at a meeting at the Waldorf-Astoria at 4 p.m. Wednesday, Michelle Obama called room service and ordered lobster hors d'oeuvres, two whole steamed lobsters, Iranian caviar and champagne, a tipster told Page Six."

I'd guess the bill for that snack came in at around $350. Iranian caviar ain't cheap — even if you negotiate for it yourself. What the hell . . . Your campaign contributions (soon to be your tax dollars) at work.

Does anyone else remember Gerald Ford toasting his own English Muffins in the family quarters of the White House? Michelle's style is a little more Leona Helmsley, who's ad campaign featured a picture of herself in one of her hotels, with the slogan, "a hotel fit for a Queen." Can you do that at the White House?

The story smelled wrong from the start. For one thing, it wouldn't seem to be in the Waldorf-Astoria's interest for its guests to know that their food orders wind up in the tabloids. But that's the least of the problems --

[NY Post] THE source who told us last week about Michelle Obama getting lobster and caviar delivered to her room at the Waldorf-Astoria must have been under the influence of a mind-altering drug. She was not even staying at the Waldorf. We regret the mistake, and our former source is going to regret it, too. Bread and water would be too good for such disinformation.

Schiffren has not addressed the false story, or her premises based on it, which are also by definition false. Incidentally, Michelle's alleged room service bill wouldn't even cover the loose change from Sarah Palin's shopping.

Tuesday, October 21, 2008

When being popular abroad is a good thing

Today the White House held an event to take note of the one continent where George Bush is relatively popular: Africa. One of the two Irish aid celebrities -- Bob and not Bono -- was in attendance. George took note --

The second choice to introduce me was Bob Geldof, musician. Of course, he'd have got up and said, I saw him try to sing while in Africa. (Laughter.) I've come to really appreciate Bob Geldof. He is a genuine person who has used his fame to help others in need, and it is a -- it's been a joy to work with you. You know, you and I might look differently, but I think we share the same compassion and the same hopes. And thank you for joining us today. (Applause.)

Maybe part of Bob's personal sacrifice for development is to put up with Bush.

Photo: REUTERS/Larry Downing

Axis of Whaling

When word broke a few weeks ago that Russia had emerged as a possible provider of an emergency loan to Iceland, the speculation about military concessions started. Now it appears that the loan will be a combination of IMF, Nordic countries, Russia, and ... Japan? Could Japan be building a coalition for the next vote at the International Whaling Commission?

Monday, October 20, 2008

They had plenty of help

Statement from UK Treasury --

HM Treasury warns businesses of serious threats posed to the international financial system

This constitutes advice issued by HM Treasury about serious threats posed to the integrity of the international financial system.

There is certainly enough material for such a warning, one would think. So what do they mean? Er, the huge threat to the financial system posed by some banking transactions in Iran, Pakistan, São Tomé & Príncipe , Uzbekistan and northern Cyprus. It's not clear which of these fiendish countries came with over the counter credit default swaps.

The peasants are revolting

You just can't satirise the material on National Review Online anymore --

Andy McCarthy

Cliff, I actually think it's exactly the form of tyranny the Founders feared. As an increasingly sizable majority pays no taxes, the minority's representation becomes ever more illusory. The minority will be taxed, its property rights will be eroded, and it will have no meaningful say in the matter. A tyrant is a tyrant, whether he's a king or a block-voting majority of dependents.

It's likely a waste of time trying to make a serious point about something like that, but the serious point is that lots of people in America don't pay much in terms of income or wealth taxes because they don't have much income. If you want participatory democracy, you need a participatory economy.

Age of Disclosure

With calls for greater transparency on financial markets sure to dominate policy dialogue over the next few months, why won't Dublin-based Intrade just identify the single institutional trader whose bets on the exchange have been imparting an upward bias to the estimates of John McCain's victory prospects?

States as dumping grounds

Judging from John McCain's website, he's decided to make health insurance one of his battleground issues this week. This doesn't seem like a good idea. Here he is explaining that his individual (as opposed to group) based plan will allow shopping for health insurance in any state --

the [tax] credit goes to the insurance company that the American family chooses to get coverage from, anywhere in the nation. The power of choice lies with the family – not government bureaucrats or insurance companies.

Here he is a few paragraphs later explaining how he would deal with the scandal of American health insurance -- the de facto bar on coverage for people with pre-existing conditions (an issue for which McCain has never had a good explanation):

John McCain believes that no American should be denied access to quality and affordable coverage simply because of a pre-existing condition. As President, John McCain will work with governors to develop a best practice model that states can follow – a Guaranteed Access Plan or GAP – that would reflect the best experience of the states to ensure these patients have access to health coverage.

Notice the switch. One minute anyone can shop for health insurance anywhere in the country. The next minute, people who have had a serious illess already have to stick to "GAP" plans developed in their own state -- assuming that states can come up with a definition of who is a resident. So for the bad risks, it's a state level solution. The healthy people can buy wherever they want.

Why would any state that wasn't planning to host companies which cherry-pick the best risks think this was a good idea?

Sunday, October 19, 2008

Sean John

The New York Times in the Belfast traditional music scene --

Midway through the set, I heard an unfamiliar language being spoken and turned to face a bearded, stringy-haired young man clad in baggy sweatshirt and jeans sitting beside me at the bar. He introduced himself as Caomhin (pronounced KEE-vin) Mac Giolla Caehain, a fiddler and devotee of Gaelic, which, like Irish folk music, has been enjoying a revival in Belfast the last few years.

Many of the people in the room, Caomhin (the name means gentle offspring) told me,

The discussion here could be much simplified by noting that "Caomhin" (sic -- it's missing an i) is just the original form of "Kevin", at which point one no longer to wonder why the pronunciation guide looks like, er, "Kevin" and the explanation of what the name means seems a tad less precious.

But an even greater outrage is the later description of Harp as an ale. It's a lager.

Saturday, October 18, 2008

Our new Canadian overlords

The only reason that George Bush gets to look like he's doing financial crisis meetings on a weekend with Nicolas Sarkozy and Jose Manuel Barroso at Camp David is that both men were already in Quebec City for the Canada-EU Summit, with Sarko already planning on staying on for the Francophone summit. So it's a short hop down to Maryland for the inevitable ride in "Golf Cart 1". But no Canada, no Bush meeting with the EU principals.

Friday, October 17, 2008

Not a very good cartel

Gordon Brown --

If you’re dependent for your basic energy needs on a commodity…whose price is being manipulated by a cartel and can be $10 10 years ago, $150 last year and $80 this year, and yet it affects everything that every company does in this country and other countries, you’re in a very difficult position.

Did OPEC want oil to be $10 10 years ago, $150 last year, and $80 this year?

Thursday, October 16, 2008

Stuff Happened

Laura Bush --

Iraq's cultural heritage organizations were once the best in the Middle East. But travel restrictions, diminished resources, and violence under Saddam Hussein's regime made it impossible for them to sustain this excellence.

The trick seems to be either to imply that the notorious April-June 2003 looting was just an appendix to the Saddam regime, or that everything was so bad under Saddam that nothing was worth saving. Anyway, she was announcing a new Iraqi cultural preservation initiative. Its only concrete manifestation in Iraq is an institution in relatively safe Erbil, northern Iraq. Everything else is an exchange program with US institutions and a vague promise to open the Iraqi National Museum soon -- the one that US troops ignored in deference to the need to defend the Oil Ministry in 2003.

Nation of rent-seekers

There's an American oil industry talking point that has circulated for some time (not least in extensive radio advertising): that since the big oil companies have lots of shareholders, including shares in Joe the Plumber/Joe Sixpack's mutual fund or retirement investments, higher taxes on oil companies would be higher taxes on The Two Joes. Here it is again at National Review's the Corner from Stephen Spruiell in the context of a supposed debunking of Barack Obama's tax agenda --

Who owns big oil? Oh, that depends. Do you own any oil-company stock? Invest in a mutual fund? Have money in an IRA or a pension fund? If you answered yes to any of those questions, then chances are that you do.

Ignore the issue of whether the size of Joe's shareholding in Exxon is anywhere comparable to that of Exxon's upper income shareholders. Look instead at how this logic could be used to argue against any economic reform. Suppose that we put an entire industry into a monopoly and that firm had lots of shareholders. Those shareholders would be earning dividends from the monopoly profits. But doesn't that mean that we shouldn't get rid of monopoly because doing so would sacrifice income to its plumber and sixpack shareholders?

Of course not. You choose the policies that lead to more efficient outcomes. You can't protect every incumbent from the consequences. And, in the case of oil companies, if you think that some portion of their income is a pure windfall, you can redistribute it through taxes with few adverse incentive effects. Even if there's a little old lady with $100 in shares in the company. She's still a vested interest. That my friends is called making tough decisions.

Attention news editors

A tempting news item to fill a few sentences and catch some eyeballs will cross your screen today. It will be about Irish bookmaker Paddy Power --

Obama Payout!

Perhaps it was the fluffing of the economic crisis, but for whatever reason, the race to be Next US President is slipping away from John McCain. We're certain Senator Obama will become President Obama so we're paying out over €1,000,000 on him to win the election. Applies to bets placed before Thursday 3.30am.

This is a publicity stunt. It makes no actuarial sense to pay out 3 weeks before an event is resolved when a lot could still happen. They've made this "mistake" before, when they paid out for a Yes vote on the Irish Lisbon referendum which was actually defeated. But of course it's not about actuarial soundness. They get at least one and maybe two publicity bonanzas -- one on the initial reporting of the early payout, and then another if they turn out to be wrong.

So don't give them the free advertising space this time.

Debate live blog

[newer posts 1st]

Final Assessment: No one's mind was changed. McCain still a poor debater. One tendency stuck out this time -- that of repeating campaign catchphrases that will mean little to the undecided voter (example: his mockery of health exceptions to abortion bans; also his ridiculing of "transplants", see below). Obama is much better at beginning with terms of reference that everyone will understand. [update: here's a very good explanation of McCain's problem]

Incidentally, as we've said before, the split-screen view of both candidates is a bad idea, and tonight it hurt McCain (see the 10.31 comment).

McCain is back to this talking point about "gold-plated" healthcare plans that he got from George Bush. He even mocked plans with coverage for "transplants". Hopefully the undecided voter knew that he meant hair transplants and not organ transplants.

McCain: No Child Left Behind was the first time we had taken a look at education from a nationwide perspective. Where was he during Brown versus Board of Education i.e. desegregation?

McCain is telling Obama to travel to Colombia when Palin hasn't been anywhere?

Oil is $71/barrel. Is US offshore oil economical at $71/barrel?

OK, one criticism of Obama: the US didn't invent the auto industry. Germany did.

McCain goes from arguing that the US can avoid all imports of Middle Eastern oil (& Venezuela) to saying that Canada could send all its oil to China rather than the US. Oil is a globally traded commodity. Global supply and demand. What one country might send to another country is irrelevant.

Does McCain know that Trig Palin has Down's and not autism? He keeps bringing up autism?

Acorn (which most voters have never heard of) is a bigger electoral fraud than Bush versus Gore?

Poor Maverick couldn't enjoy his Cardinals game because of all the Obama ads in between.

McCain told Rick Warren that John Lewis was one of the three people he most admired. Now he wants Obama to repudiate his words.

McCain never corrected his incorrect fact from last time about Ireland's corporate tax rate.

McCain keeps hammering at Fannie and Freddie as the source of the crisis. That's not what Ben Bernanke thinks --

This financial crisis has been with us for more than a year. It was sparked by the end of the U.S. housing boom, which revealed the weaknesses and excesses that had occurred in subprime mortgage lending. However, as subsequent events have demonstrated, the problem was much broader than subprime lending. Large inflows of capital into the United States and other countries stimulated a reaching for yield, an underpricing of risk, excessive leverage, and the development of complex and opaque financial instruments that seemed to work well during the credit boom but have been shown to be fragile under stress. The unwinding of these developments, including a sharp deleveraging and a headlong retreat from credit risk, led to highly strained conditions in financial markets and a tightening of credit that has hamstrung economic growth.

Does McCain have to open every debate with a nod to someone in hospital (Nancy Reagan this time, Ted Kennedy last time)?

Wednesday, October 15, 2008

It's his war till the end

George Bush signed into the law the national defence budget authorization for 2009 and then later issued his signing statement on the legislation i.e. where he explains which section of the law he won't be obeying. Among the sections he intends to violate --


No funds appropriated pursuant to an authorization of appropriations in this Act may be obligated or expended for a purpose as follows:

(1) To establish any military installation or base for the purpose of providing for the permanent stationing of United States Armed Forces in Iraq.

(2) To exercise United States control of the oil resources of Iraq.

SEC. 1508. (b) Combined Operations-

(1) COST SHARING- The United States Government shall initiate negotiations with the Government of Iraq on an agreement under which the Government of Iraq shall share with the United States Government the costs of combined operations of the Government of Iraq and the Multi-National Forces Iraq undertaken as part of Operation Iraqi Freedom.

(2) REPORT- Not later than 90 days after the date of the enactment of this Act, the Secretary of State shall, in conjunction with the Secretary of Defense, submit to Congress a report describing the status of negotiations under paragraph (1).

Note that there is a symmetry to the two sections, since the fact that the Iraqi government isn't paying for the war could be used as the political basis for claiming an entitlement to its oil.

Tuesday, October 14, 2008

And friend

Guest list for the de facto White House Columbus Day state dinner for Silvio Berlusconi --

Ms. Mary Cheney, Daughter of The Honorable Richard Cheney
Ms. Heather Poe, Guest of Ms. Mary Cheney

Heather Poe is Mary Cheney's same sex partner. They have a son. Just a few days ago, the White House put out a statement disagreeing with the Connecticut Supreme Court decision that said the state's ban on gay marriage was unconstitutional.

She could take a stand if she wanted to. But anyway, the most galling thing about the invitation is not her presence on it, but the repeated descriptions of reactionary right icons as "honorable". Incidentally, the first wine of the evening is a Ponzi, an apt commentary on the financial crisis.

Gossippers may also note that Condi Rice's guest is Gene Washington, Director of Operations for the National Football League. The gossip being that Condi could still bail on her return to Stanford University and get the job she's always wanted -- Commissioner of the League.

UPDATE: Welcome Boston Globe readers. Don't forget to read more posts!

Monday, October 13, 2008

If this is the new retooled McCain

Then God help us all. In this passage, he seems to compare America to a POW --

I know what fear feels like. It's a thief in the night who robs your strength.

I know what hopelessness feels like. It's an enemy who defeats your will.

I felt those things once before. I will never let them in again. I'm an American. And I choose to fight.

Does he see any future for America that can't be expressed in terms of fighting or in terms of his military experience?

Returns to the scene of the crime

Gordon Brown, asked about his past adulation of Alan Greenspan in the context of having to clean up a huge mess which was simmering during Greenspan's tenure --

If I may say so, Alan Greenspan was the first to recommend in the United States the Resolution Trust Corporation that has been taken up by all parties in the United States of America, he has actually led the way in proposing a solution to this problem.

Thus he never addresses the issue of Greenspan as a cause of the problem, and credits Greenspan with the obvious and widely shared idea of a taxpayer-financed cleanup -- an idea that Greenspan only came up so that his reissued book wouldn't sound so irrelevant. And who says he is shocked, shocked, that Wall Street lacked honesty and integrity.

Pay no attention to the name on the door

UK Chancellor Alistair Darling, coming to the conclusion that the huge actual and contingent outlays to support the banking sector don't need to be counted as debt --

So any additional borrowing and debt incurred by the Government, as a result of these proposals, is either:

1. in return for assets;
2. charged at commercial rates;
3. or in the form of a temporary loan to the banks.

So, as was the case with the temporary nationalisation of Northern Rock, the most appropriate measures of government borrowing and debt to judge the position of the public finances will be ones that exclude the Government’s stake in the banking sector.

UK Treasury statement explaining who will be running the new banking funds --

To reflect the implementation of the scheme, the government will tomorrow announce a revised debt remit for the Debt Management Office.

Question: If it's not debt, why is it being managed by the, er, "Debt" Management Office?


CNN's Late Edition today included the usual Wolf Blitzer chat with the political experts, including CNN's Candy Crowley. She confused Barack Obama and Osama bin Laden. It's not clear that anyone outside the rest of the CNN panel noticed. Is that a bad sign or a good sign?

BLITZER: What happens if Osama bin Laden makes another video appearance in the final days of this campaign as he did in 2004 in the final days, and when a lot of people thought that his appearance alone was enough to get George W. Bush elected -- re-elected against John Kerry?

BORGER: Well, I think this time it might remind people we haven't caught him. And both of the candidates are pledging to get him as soon as they get into office. So, I don't know if it would have a great deal of impact.

BLITZER: Do you agree, Candy?

CROWLEY: I totally agree. I mean, I think he appears now, it just -- I mean, the problem is everything plays into Barack Obama's arguments.

BORGER: Right.

CROWLEY: You know, when McCain goes nuclear on a character issue, he goes, well, he can't talk about the issues. If Barack Obama, you know, shows up suddenly, you know, on -- I'm sorry, if...

HENRY: Bin Laden. BORGER: McCain.


BORGER: Bin Laden.

CROWLEY: Mr. bin Laden. If bin Laden suddenly, you know, shows up on the TV, it helps Barack Obama, because what has been his argument? We haven't been fighting the right war

Sunday, October 12, 2008

Inefficient market hypothesis

An intriguing sentence in a Wall Street Journal report (subs. req'd) about the UK banking sector bailout, the flavour of the month on the way out of the banking crisis --

The capital raising will be for four of the U.K.'s largest banks: Royal Bank of Scotland Group PLC, Barclays PLC, HBOS PLC, and Lloyds TSB Group PLC.

One plan under consideration is to shutter London stock trading to allow investors to digest the news. That plan hasn't been finalized, said a person familiar with the situation.

This means that, among other things, Silvio Berlusconi was not pulling things of thin air when he spoke of G7 discussion about closing financial markets for some period of time. It does indicate the depth of disillusionment with the ability of these markets to function properly.

UPDATE: A new and more dramatic story in the Wall Street Journal (subs. req'd) says that the London Stock Exchange will open tomorrow, but --

LONDON -- In a dramatic turn, the U.K. government was finalizing plans Sunday night to take control of Royal Bank of Scotland Group PLC, by purchasing a big stake in the banking giant.

The government, which already has nationalized two other lenders, is now poised to become one of the world's biggest bankers. It also is buying a controlling stake in mortgage lender HBOS PLC as the government accelerates a rescue package that was unveiled just days ago to halt a dive in bank stock prices. The U.K. is set to unveil an investment in its banks of more than £35 billion ($59.70 billion) Monday.

The U.K. is expected to inject at least £15 billion into RBS. As part of the measures, RBS CEO Fred Goodwin, who built the bank in his eight years at the helm, is expected to step down, people familiar with the matter said. It is a comedown from a year ago when RBS was leading the world's biggest-ever bank acquisition.

Saturday, October 11, 2008

Fish another day

Reading about Iceland's seemingly mysterious surge in wealth --

The island erupted on to the world's financial stage in the early years of this decade. Icelanders bought up swaths of eastern Europe's telecommunications market, some of the best-known names on the UK's high street, including House of Fraser and Hamleys, and much of the Nordic banking system.

Inevitably, observers questioned where the money had come from. Tales of strange links to Russia abounded. "It is often implied that there is something dubious or shady about the origin of Icelandic financial strength," Ólafur Ragnar Grímsson, president, said in 2006, commenting on "far-fetched explanations" of Iceland's sudden wealth.

Much of the mystery centred around the charismatic figure of Thor Björgólfsson, even now barely 40, Iceland's richest man and founder of Actavis, the world's fourth largest maker of generic drugs. He began his career by setting up a brewery in St Petersburg, which he sold to Heineken in 2002. The sale earned him $100m.

Now it's clear: that was the idea for Die Another Day! Which now appears to be 6 years ahead of its time. So maybe it's not quite at the level of the classic discussion of the gold-based Bretton-Woods exchange rates by Colonel Smithers in Goldfinger. But impressive prescience nonetheless.

Tough times

French finance minister Christine Lagarde didn't trust the staffers and White House hangers-on enough to leave her handbag inside during George Bush's photo-op reassuring statement following his meeting with the G7. Or perhaps it's just a sign of her anxiousness to get on with business from what appears to have been a pointless meeting. It finished early.

AP Photo/Evan Vucci

Friday, October 10, 2008

Show him the money

From US Treasury Secretary Hank Paulson's Friday evening news dump (though no less predictable for that) that the government is going to buy equity in banks --

Such a program would be designed to encourage the raising of new private capital to complement public capital.

One huge unanswered question. Where will the private capital come from? In particular, is the US ready for major foreign presence in its banking sector?


Why did George Bush time his market-soothing statement for 10.25 eastern US time? One reason is that he was going to be stepping out the door anyway to cut his work weekend short with trips to Florida and South Carolina to attend private Republican fundraisers. Thus against the backdrop of a banking system sorely in need of more transparency, not to mention his exhortation that "we're in this together", he's doing closed-door speeches at taxpayer expense to the well-connected. Not much of a confidence-building measure. While it might be best to keep him off the TV, it does call into question how much preparation he can possibly be doing for his big meeting with the G7 ministers tomorrow -- a meeting that he seems to be crashing.

UPDATE: He used a symbolic wag of the finger at the Castro brothers as the public cover for his closed-door fundraiser in Florida.

Thursday, October 09, 2008

Does anyone know what this means?

Sarah Palin and John McCain were on Fox News last night with Sean Hannity. Here's a sample --

HANNITY: Governor, your side of the story. When did you really begin to realize that Senator McCain was seriously thinking about electing you as VP. And you said you wouldn't blink. But, as that process was — when did you think, this may happen?

PALIN: Oh, you know, really not until maybe we were face to face and I could look him in the eye and see the serious voice he will to offer this challenge to me, this responsibility that he asked that I could take on and of course, I was so happy to.

But, you for the years, I've been a big fan of his because of that independent (INAUDIBLE) that courses through your veins. And that's made me admire him. And I knew it was confirmation, it was right on that I was to support him when early on in the presidential race, he had said something in the newspaper that was controversial, imagine that, about what was going on in the administration. It was independent, is what he had used, the tone of his comments.

And I had been asked about it up in Alaska, by the local press and I said, oh no. It was spot on. You know? We don't need to keep going down that track, something that the administration was going on. And then I got a call from the Republican member of Congress who said, yes, I understand that you're thinking about supporting McCain. Well, let me tell you about the Hell he's put me through with earmark reform.

And I said, right on. That's confirmation. He is the guy that I'm going to support.

Earlier in the interview, McCain said that he's going to put a Vice President Palin in charge of finding a cure for autism.

This is the team that a major political party puts up to run the country -- and tens of millions of people will vote for them.

Wednesday, October 08, 2008

Both a borrower and lender be

Excellent news for AIG: the government funding for lavish corporate retreats will continue --

The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal Reserve Act.

Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.

Notice the description of the loan: the New York Fed is "borrowing" the securities in return for cash collateral. In a normal secured loan, it's the person who needs the cash who puts up the collateral e.g. a house. But according to the new Fedspeak, that's backwards. The cash you get from the mortgage is actually your collateral and the bank has borrowed the house. Being a huge corporation rules!

The debate

It looked like another draw. Obama wasn't perfect but again it was the manic McCain on display. This is the man who had to suspend his presidential campaign so that he could focus on the financial bailout legislation. But now he says he can do everything at once: every energy policy, health insurance reform, social security, Medicare, Afghanistan and Iraq. Everything will be an equal priority.

His discussion of Pakistan is very strange. In his first attempt at it, he seemed to be assuming that the General Petraeus counterinsurgency could be used in Pakistan. But the US is not occupying Pakistan, right? Later on he was a bit clearer that the Petraeus strategy would be applied in Afghanistan, but in doing so never addressed the extreme pessimism of the regional experts on the prospects for "winning" there that were quoted by Tom Brokaw as part of the question.

On the other hand, Obama never directly responded to an astute final clause to one of the audience questions -- that attacking targets in Pakistan as part of the Afghan war could be compared to the attacks on Cambodia during the Vietnam war. Then again, McCain didn't respond to that either.

Obama also missed a few openings that his campaign will surely try to exploit over the next few days. McCain saying that social security reform is "easy". Comparing it to the social security reform commission of the 1980s. Who headed that commission: Alan Greenspan. So let's close with a Greenspan quote --

Why do we wish to inhibit the pollinating bees of Wall Street?

They turned out to be mutant bees.

UPDATE: Where did McCain get his hair transplant joke -- that Americans are fussing about losing trivial benefits on their health insurance plan?

THE PRESIDENT: And so the whole purpose, by the way, of this discussion is to help the individual, but to also help the entrepreneur do their duty. That's why I've come. I've really come to say thanks to your Governor for being innovative. See, he's helping lay out a basic health care plan. One of the problems we have at state level is that over time a lot of mandates have been added to insurance. You know, the hair follicle benefit -- well, you don't need hair follicles, particularly if you have hair. (Laughter.) If you're going bald, you might think you do, but it's probably not a necessary part of a health care plan.

ONE MORE THING: McCain seemed to claim that Russia would veto any UN Security Council action against Iran if Iran attacked Israel. He doesn't seem to know much about the complex relationship between Russia and Israel. Pootie-Poot, pictured above with Israeli PM Olmert, could explain it to him.

Tuesday, October 07, 2008

Moments in presidential reassurance

George Bush, during a Q&A in Chantilly Va. today (near Dulles Airport -- we should be thankful he didn't fly to the event) --

My pals say, and I understand this, I fully believe this, that, how can you possibly stand there and let Wall Street do what they did? Listen, people are angry about the fact that people look like they're dragging out money when there's failure. I understand that. I don't mind rewarding success. It's when people make money off failure. And I think there's going to be a -- there needs to be a reassessment of these packages. There needs to be a reassessment of how interconnected people became; how they made promises that they were not in a capital position to fix.

It's not clear whether this was the standard of analysis when he phoned Gordon Brown (White House picture above) to discuss the financial crisis. He does seem to have had one of his VERY IMPORTANT folders in front of him during the call so perhaps he was better briefed for that.

Putin's new base?

Just a thought: what are the odds that one of the conditions that Russia will extract for its $5 billion emergency loan to Iceland is a right to place military aircraft there for north atlantic patrols?

UPDATE: Possibly unreliable source says the Russians want an abandoned US base for their own planes. An Arctic Cuba?

Our China

John McCain finds a few spare minutes between attacks on Barack Obama for stuff that happened when Obama was a child to issue a statement on US weapon sales to Taiwan. He supports such sales -- since the weapons would be pointed at a non-member of his proposed League of Democracies -- on various grounds, including:

These sales -- which could translate into tens of thousands of jobs here at home -- would help retain America's edge in the production of advanced weaponry and represent a positive sign in these difficult economic times.

In other words, the US should be out in the global marketplace selling weapons even more than usual, because there's a recession. It's as if there is a "military-industrial complex", if you will. But lest the main point be lost in all the contracts --

we should understand that the possibility of productive ties between Taiwan and China are enhanced, not diminished, when Taipei speaks from a position of strength

his position thus being that the US has to sell enough hardware and otherwise back up Taiwan so that it could handle a war with China. This from a man whose secondary campaign slogan (after "Country First") is Reform, Prosperity, Peace. Indeed.

Back to the future

The Enron scandal -- the first financial implosion of the Bush era -- was connected with the use of special purpose financing vehicles (SPVs). The current banking crisis began in August 2007 with the implosion of structured investment vehicles, which are basically off-balance sheet SPVs for banks. So what does the US Federal Reserve propose as their latest solution to the crisis? --

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will ... provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants.

So rather than purchase the stuff itself, it will lend to another entity to do it and have the loans secured by the stuff that the SPV buys. The hair of the dog that bit ya.

Monday, October 06, 2008

That's a lot of spilled hot coffee

So at a time when the entire financial system is starved of capital, Citigroup thinks it's a good idea to sue Wachovia and Wells Fargo for $60 billion. Even if the end result is nowhere near $60 billion, can the cost of this litigation possible be a good use of shareholders/taxpayers' money -- the latter being ultimately on the hook for all of the banking system? Instead of complaining about "frivolous" medical malpractice lawsuits, shouldn't George Bush be declaring this lawsuit a waste of everyone's money and order the suits into a room to sort out their differences?

UPDATE: The Feds talk sense into Citigroup, for now.

Friday, October 03, 2008

Message force multiplier

The Republic of Ireland's unlimited liability guarantee for 6 Irish HQ'd banks has made headlines the world over and become a sensitive topic in Europe and especially the UK given the competitive advantage now held by the 6 banks in an age of nervous depositors. Hence the row over the son of the Irish Nationwide (former mutual building society) sending out an e-mail to solicit deposits to their London branch. So who got the e-mail?

Guido Fawkes --

Top o' the Credit Ratings To You

Despite Gordon's whining to the EU it is now the case that Irish banks now represent the safest place to deposit money in Europe, with a AAA guarantee from a country with the lowest national debt to GDP ratio of any AAA country.

The e-mail --

Full text of the e-mail from Mr Fingleton jnr:

As you may be aware on Tuesday 30th September the Irish Government put in place a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and Interbank), covered bonds, senior debt and subordinated debt (lower tier II) with Irish Banks.

As Irish Nationwide qualifies under this scheme we now represent the safest place to deposit money in Europe with a AAA guarantee from a country with the lowest national debt to GDP ratio of any AAA country.

At least Guido didn't make it specific to Irish Nationwide.

UPDATE: The claimed fact about Ireland's debt is not true. See Table 32 (Excel file).

FINAL UPDATE: Irish Nationwide is fined €50,000 over the e-mail.

ONE MORE THING: Guido looks at Iceland, and says it is what a mass bailout does to a currency. By that logic, Ireland's debt statistics need another look too.

Ministry of the Fringes

One little detail about a road not taken in Gordon Brown's reshuffle today --

11:25: Plans for a possible merger of the Scottish, Welsh and Northern Irish departments to create a "ministry of the nations" have been put on hold, James Landale says.

It's not like the three have anything close to similar issues in running their respective devolved governments. On the other hand, there are already ideas for the ministerial emblem.

Palin-Biden debate

This blog boycotted it. It was so obvious that the pundit stories were written before the debate: if Palin managed to string two sentences together, she would be declared the winner for having exceeded expectations. Thus the basis for choosing the deputy to the Sheriff of the Free World.

But the boycott doesn't preclude reading the as-it-happened on other sites. The funniest one, unintentionally, is National Review's The Corner. Their site crashed 15 minutes into the debate. K-Lo explains --

I'm Deeply Sorry [Kathryn Jean Lopez]

We have at least five times the traffic we had last Friday night and our server couldn’t handle it. Most of us couldn’t access the NRO because of it. I am sorry.

Note the likely explanation -- the conservatives watching the debate cared not about its substance, but needed the reassurance from true believers that Sarah Palin was doing OK. It's like some weird version of the Keynesian Beauty Contest, with the added twist that the need for affirmation of one's opinion causes the entire operation to break down.

More entertainment comes when K-Lo prints a Biden-bashing e-mail from "a foreign policy insider", unnamed, but giving a lot of identifying information away:

As for NATO going in after the 2006 [Israel-Lebanon] debacle, well, I’m the one who rounded up 8,000 French and Italians and a few thousand other Euros to go into Southern Lebanon along with an assortment of others in August 2006 and while working that issue for about 40 straight days I don’t remember a peep from Biden or Obama about NATO – which wouldn’t be budged despite our intense pressure in Mons. So, we went straight to Rome and Paris. Que sera, sera.

Through the miracle of the Google, one quickly establishes that: Mons is the operational HQ of NATO, and that meetings there would not be summits but rather be conducted by deputy or ambassador types. Such as then US Ambassador to NATO, Victoria Nuland, also known as Mrs Robert Kagan as in brother of Fred and sons of Donald, neocon gene pool extraordinaire. Leaving Ms Nuland an excellent guess at K-Lo's on-message correspondent.

If it's not Nuland, one certainly hopes that the occupant of the relevant Pentagon position then and now, Daniel Fata, is not giving away insider details of military negotiations via the Palin fan-club e-mail to K-Lo.

UPDATE: The other possibility is Daniel Fried at the State Department.

Thursday, October 02, 2008

Anything but Clinton

One of Bill Clinton's crazy ideas as a young President was that there was an imbalance between advice the president receives on national security and economic policy. The former had a high level national security council with a national security adviser ensuring that the president was receiving integrated and coherent advice on security issues. There was nothing like it for economics. So Bill established a "National Economic Council" (NEC) and put heavyweights in the position of its director, making them equivalent to the National Security Adviser. It was a serious job.

Then along came Bush, and the NEC and its Director has been a troubled story. The first holder of the job, Larry Lindsey, got canned for saying that the Iraq war could cost a lot more than the free lunch estimates that were circulating in the run-up to it. Then came Stephen Friedman, notable for being yet another example of the Goldman Sachs connections to the White House, and Amanda Peet's father-in-law.

And now the current occupant of the job, Keith Hennessey, notable for writing a Ph.D. thesis bashing the Clinton healthcare plan and then moving up through the ranks of Republic operative positions to NEC director. Here's the webpage of the NEC. It's his bio. It doesn't link to anything else. And yet think about what economic policy involves now at a time of financial crisis: the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation, and various other government departments and agencies.

Mightn't it be useful for the president to have a mechanism to get everyone in the same room and to get a unified message from them? Unless Bush's goal is not to bring economic policy up to the level of national security, but to lower them both to the standard of Condoleezza Rice and Stephen Hadley. Mission Accomplished!

UPDATE: By way of comparison, Gordon Brown is thinking about establishing an economic emergency committee modeled on the structure for other crises, Cobra.

FINAL UPDATE: Gordon Brown is stealing our material.

It's not bread and peace

It's surely possible to pay too much attention to George Bush. But this usage sounded strange --

It's very important for us to pass this piece of legislation so as to stabilize the situation so that it doesn't get worse and that our fellow citizens lose wealth and work.

"Wealth and Work": it sounds like a populist campaign slogan. An implication that businessmen and workers really don't have a conflict with each other. The sort of thing that the Catholic Church was coming up with in the late 19th century as an antidote to socialism. Corporatism. A phrase that if used by Barack Obama, would be cited as evidence of Liberal Fascism, if you will.

Troops surge, hilarity ensues

George Bush has variously claimed that he stopped telling jokes at media events and gave up golf because war demands seriousness, not comedy. Here he is at the United States Service Organisation (USO, which arranges entertainment for overseas forces) gala --

I think we all know the moment things began to turn around in Iraq: It was when the USO decided to deploy Jessica Simpson. (Laughter.)

Bush actually has a line in Jessica Simpson jokes, so one wonders if it's an obsession of him or a speechwriter.

Wednesday, October 01, 2008

Joe Sixpack (of St Pauligirl)

We had hoped to stay away from dissecting the mis-statements of Sarah Palin. If John McCain wants to make a joke of the presidential election, that's his business, and anyway, Andrew Sullivan has a cottage industry in keeping track of her. But here she is in the only safe media venue the campaign could find outside of Fox News, Hugh Hewitt:

And you know, even today, Todd and I are looking at what’s going on in the stock market, the relatively low number of investments that we have, looking at the hit that we’re taking, probably $20,000 dollars last week in his 401K plan that was hit.

Over the last week, and that's before Tuesday's surge in the market, the Dow Jones industrial average is down about 6%. So if the First Dude is down $20,000 and was keeping his investments in a diversified stock portfolio, as he should, that means that he had about $330,000 in his retirement account. As Palin says, "It’s time that normal Joe six-pack American is finally represented in the position of vice presidency". That must be relative to the tens of millions that Cheney brought to the job.

Palin has another concern:

So there again, John McCain’s got some great ideas on granting authority, for instance, to the FDIC, making sure that our deposits are insured. He wants to increase that deposit insurance cap of all of our money, our savings, from $100,000 dollars up to $250,000 dollars, so that families like mine, so that we don’t have to worry about our money being safe or not under FDIC.

So she is telling us that they have bank deposits over $100,000, on top of the First Dude's stash in his retirement account -- otherwise why would they care about the FDIC limit?

Maybe we're getting some hints about why we still haven't seen sight of a Palin tax return.

UPDATE: If you think these amounts don't seem large, take a look at page A14 in this article.

FINAL UPDATE: Informed estimates indicate at least $1 million in total household assets. Joe Sixpack, indeed. Note that the AP article covers the Palins' real assets and income, not their still undisclosed financial wealth.

ONE MORE: Our estimate of their financial assets is confirmed as being in the right range. Many Joe Sixpack households have no financial assets.