They know who they are

David Brooks taking on Chris Hayes in his New York Times perch: 

The problem is that today’s meritocratic elites cannot admit to themselves that they are elites. Everybody thinks they are countercultural rebels, insurgents against the true establishment, which is always somewhere else.

Across the page, Paul Krugman:

"Is there a V.I.P. entrance? We are V.I.P." That remark, by a donor waiting to get in to one of Mitt Romney’s recent fund-raisers in the Hamptons, pretty much sums up the attitude of America’s wealthy elite.

Don't drive on your drink

Saudi Customs authorities displaying bottles of what looks like whisky that were hidden inside seemingly new tires. Photo via Saudi Press Agency.

Why the LIBOR rigging had no impact whatsoever

As a service to humankind, this blog is making available at no charge to everyone an argument that will save hundreds of millions of pounds in legal and consulting fees concerning the LIBOR rigging scandal. This argument required countless hours to develop and involved the use of highly sophisticated computer technology, as seen in the diagram above. Yet through the use of advanced concepts not unrelated to those used to search for the Higgs boson, we have conclusively shown that the alleged rigging of reported LIBOR by the various banks was irrelevant. The logic is as follows.

Everyone says that the scandal comes from the fact that the interest rates in other loan markets were set as LIBOR plus a spread, therefore if LIBOR was understated or overstated, the rates in those other markets must have been affected as well. Picking one hypothetical other market, let i stand for the interest rate in that market, L the quantity of loans, S the supply of loans, and D the demand for loans. Through the miracle of economics, that market has an equilibrium interest rate and quantity of loans denoted i* and L*.

Now here's the thing: you can break up that i* into any sets of numbers that add up to it, but through the aforementioned miracle of economics, there's only one interest that brings about equilibrium in that market. Unless you've got some reason why the process for reporting LIBOR affected S and D, there's no reason why the interest rate should have changed. So if LIBOR was off by 1 percentage point, then somewhere along the chain the equilibrium will involve adding 1 percent to keep the market where it was before, as illustrated by our highly complex equation below the diagram which relies on the deep mathematical property that 1-1=0.

OK, do we actually believe this? We're not sure, but it would advance the argument if this was taken as the baseline position.

Would the Republic of Ireland participate in a Tory referendum on UK EU membership?

At first it sounds crazy: if this or a future Tory government in the UK was to put EU membership to a referendum, as they are under increasing pressure to do, the voting base would surely just be the United Kingdom. But in the House of Commons yesterday, David Cameron had to be reminded of his sloppiness even on that point:

Kate Hoey (Vauxhall) (Lab): May I simply ask the Prime Minister to look at his terminology? In his statement, he mentioned Britain 12 times; he did not mention the United Kingdom once. Does he agree that if there is to be a referendum, which I think is inevitable, the people of Northern Ireland should have a very strong say? He must, in the European Council, refer to the United Kingdom, or the UK for short; saying “Britain” excludes Northern Ireland.


The Prime Minister: As ever, the hon. Lady is right about almost everything, and I am rightly chastised.

So anyway, there would have to be a referendum in Northern Ireland as part of the exercise. Now here's where things get tricky. The Good Friday Agreement between the UK and the Republic of Ireland contains the following text:

The two Governments: (i) recognise the legitimacy of whatever choice is freely exercised by a majority of the people of Northern Ireland with regard to its status, whether they prefer to continue to support the Union with Great Britain or a sovereign united Ireland; (ii) recognise that it is for the people of the island of Ireland alone, by agreement between the two parts respectively and without external impediment, to exercise their right of self-determination on the basis of consent, freely and concurrently given, North and South, to bring about a united Ireland, if that is their wish, accepting that this right must be achieved and exercised with and subject to the agreement and consent of a majority of the people of Northern Ireland;

Could not the Irish government argue that a referendum on the question of Northern Ireland leaving the EU with the UK has outcomes so inimical to a united Ireland that under the treaty, the Republic would have to be consulted through an all-Ireland referendum on the question?

He's walking the walk

Everyone has their theories and interpretations about why United States Supreme Court Chief Justice John Roberts voted to uphold the Affordable Care Act, aka ObamneyCare. Here's another.

After he was appointed to the court, he was diagnosed with epilepsy. He'd had a seizure years ago and then had another one during his term. Long medical story short, 2 seizures = epilepsy.

As a result, he may have had time to contemplate what life is like outside a well-regulated public sector health insurance plan for those with pre-existing conditions. An epilepsy diagnosis can pose big problems in the private insurance market. That's a much more plausible theory than the one about his medicine being the problem.

Royalty is all Greek to him

One notable thing in the video of the handshake seen around the world -- Martin McGuinness and Queen Elizabeth -- is that McGuinness apparently forgets that Prince Philip (an actual Mountbatten) is there too, and the latter has to offer his hand to him before Martin responds.

Not going anywhere

After announcing the actual numbers from the Egyptian presidential election with the victory for Mohammed Mursi, the chairman of the electoral commission went into the thanks portion of his address. The first two entities thanked were the judges -- whose most recent act was to dissolve the recently elected parliament -- and the armed forces -- whose most recent act was to strip most of the powers from the presidency.

The counter-revolution is being televised.

Condolence call with a message

Via Saudi Press Agency, the photo shows King Abdullah receiving a mourner of the deceased Crown Prince Nayef. The mourner is Refat al-Assad, brother of Hafez al-Assad and estranged from the rest of the al-Assad clan in Damascus.

Offer Not Applicable in Republic of Ireland

European Central Bank board member Benoît Cœuré explains the virtues of banks financing themselves through unsecured borrowing:

Moreover, interbank money markets play a significant role in providing incentives for banks to conduct business in a safe and sound manner, thus ensuring market discipline. Specifically, in the unsecured money markets, where loans are uncollateralised, interbank lenders are directly exposed to losses if the interbank loan is not repaid. This gives lenders incentives to collect information about borrowers and to monitor them over the lifetime of the interbank loan, making the loan repayment more probable. Therefore, unsecured money markets play a key peer monitoring role. The information banks acquire about each other may not be readily available to regulatory authorities and central banks. 

There's a country of interest between those two countries

That's the Deputy Defence Minister of Saudi Arabia (and son of the late Crown Prince Sultan) Prince Khalid meeting the commander of the Konya Airbase in Turkey prior to Saudi Arabia and Turkey participating in the Anatolian Eagle 2 military exercise. Khalid also met the President of Turkey.

It's not just in the Eurozone where things are in motion.

Note to foreign ministries of the world: just like your colleagues in finance ministries, don't make any holiday plans for this weekend.

Hamlet without the Prince, the King, the Queen, the Lord Chamberlain, the courtiers etc

From IMF review of Spain's bank resolution and crisis management framework --

While the overall legal and policy framework for providing emergency liquidity assistance (ELA) is broadly sound and reflects good practices, some features could be further specified. These include stricter definition and interpretation of a “solvent bank”, “systemic importance,” and “temporary liquidity support.”

Petty nationalistic complaint

Máire Geoghegan-Quinn, European Commissioner for Research, Innovation and Science, a position obtained as a political appointee of Ireland's disgraced Fianna Fail party, speaking in Belfast yesterday --

In a very big way, and with a sense of determination, the Northern Irish have shown everyone else how to "collaborate to innovate".

There is something not quite right about that sentence. Have the people of Northern Ireland really done this, or have the administrative institutions of Northern Ireland's government shown some interesting results in this area, assuming we accept her premise?  At some point, in other words, living in Northern Ireland has become a distinctive political identity. That may in fact be the case, but it may come as news to some that it's now official EU policy.

Ireland's commercial property crash leads to crime innovation

Irish Times:

A gang has stolen the contents of a safe from a busy city-centre post office after spending a number of days chipping through the wall of a vacant hotel next door. The gang member who stole the money waited until the post office safe was open before bursting through the last section of wall yesterday morning and taking the money as the stunned postmistress looked on.

Wall Street Journal inadvertently makes case for Irish Yes vote

In the context of Ireland's referendum on the fiscal treaty tomorrow, a Wall Street Journal Europe editorial uncorks this rationale for Ireland to want to avoid the fiscal rules in the treaty:

Ireland is Europe's best case study in how a little short-term budget imbalance can go a long way if it's used to fund tax cuts and supply-side reform. The fiscal pact threatens to rob all EU countries of that flexibility. 

Such a broad statement is hard to pin down and it should be noted that some of Ireland's acclaimed corporate taxation system has been around in some form since the 1950s. But nonetheless the statement -- pinning a supply side interpretation on a past fiscal misdeed likely means one thing -- that Charlie McCreevy is still whispering in the Journal's ear as successfully as Fianna Fail did in the glory years of the mid-2000s.

A little history is in order. In late 2000 and early 2001, Charlie McCreevy was Ireland's finance minister. And in that period, he was busy sowing the seeds of Ireland's fiscal disaster: the low interest rates due to the introduction of the euro had already generated a property boom on top of what had been a foreign investment driven economy, and the tax revenue was rolling in. And the plan was to spend it all on (1) tax cuts (2) massive public sector pay increases ("benchmarking"), and (3) any and all items to help buy the next election which was due within 2 years.

Not entirely surprisingly, the still nascent budget monitoring of the European Council of Finance Ministers was unimpressed, and asked for curtailing of measures that were obviously stoking an over-heating economy. Charlie, cheered on by a boosterish and gullible media, and with the intellectual backing of economists who should have known better, told them to F*** Off (using supply-side language), and other than a few cosmetic adjustments to his budget measures, got his way. When people look back at why the European budget rules had so little teeth, they tend to focus on the later brush-offs by France and Germany, but Ireland got their first. Here's an excellent account by Frank Barry of how the 2001 decisions played into the broader political economy of the country to produce the outcomes we see now.

But Charlie, stinging from the sharply revised views of his tenure, still finds sympathy in some quarters, the giveaway being how the WSJ defence uses the same supply-side terminology that Charlie used in 2001. But if the  fiscal pact had been around then, that episode could have turned out differently. 

They've never had it so good

In two recent posts, the estimable Paul Krugman has reproduced a chart from Jonathan Portes which appears to show that the United Kingdom has slashed public investment since 2008. In the chart, public investment falls from 3.5 percent of GDP to 1.5 percent over the space of 3 years. No wonder Krugman says "they're eating the seed corn" and all in the name of that awful Coalition austerity.

But if you reflect a little bit on that information, you might find yourself asking: really -- they managed to halve public investment over three years? It's the kind of thing you might notice, and indeed the kind of things that others might notice given how hard it is to cut any component of public spending.

And then you start digging. Whereupon it turns out that the UK government did not slash public investment by half over three years, at least not in any sense of active cuts to the capital budget. No. What they did was not continue a very temporary last gasp of New Labour splurge on investment that had taken investment far above its historical average, and indeed far above any level achieved in the Blair-Brown era.

Here's the historical series on public sector net investment as a share of GDP since 1970 (Table 4.1, 7th column). That Brown surge briefly got investment up to a level that hadn't been seen since Are You Being Served was in its original run, and even the current Coalition "cuts" have it back it a level about the same as the Cool Brittania years.

Now stimulus advocates could say that the point still stands: surely the time to boost investment is when interest rates are so low. But you could also look at the preceding 30 years and wonder what was holding back investment then? And the answer might be that revenues were so squeezed by the other commitments of the welfare state that there was no room for public investment. Which might in turn explain why public infrastructure in the UK can seem so shabby today. Which might give you an insight into where those awful austerity people are coming from: the state has to be restructured to make room for the things that the state used to do. It could be that both sides have a point. Which means that one side is not so obviously wrong.

Amateurs

Iran news agency -- A top secret document disclosed in Egypt in the last few days revealed that the Saudi monarchy, specially the regime's Foreign Minister Saud bin Faisal bin Abdul-Aziz Al Saud, has been attempting to prevent Islamists' victory in Egypt's presidential election.

Saudi News Agency In response to a question from Saudi Press Agency (SPA) on a current document on the internet supposedly from the Minister of Foreign Affairs of the Kingdom of Saudi Arabia to the Embassy in Cairo on the Egyptian elections, Ambassador Osama Naqli, Chairman of Information Department of the Ministry of Foreign Affairs, said this document is clearly rigged and its contents are against the Kingdom's policy of non-interference in the internal affairs of the states. He added that the document is not in line with the formal correspondences of the Saudi Ministry of Foreign Affairs in terms of form, style and content, as well as the rigged signature is not the Foreign Minister's signature or any ministry's official. The Ministry of Foreign Affairs uses Hijri calendar not Gregorian calendar on its documents.

He can't count to 4 in Spanish either

BBC --Irish musician Bono and former Beatle Sir Paul were among those to pay tribute to the Queen.  There were cheers when Bono praised the Queen for making her trip to the Republic of Ireland last year. He joked: "And the Queen spoke Gaelic, I can't even speak Gaelic." 

1,2, 3 ... 14?

Probably well covered elsewhere

The lead story on BBC World Service news at midnight on Monday was the death of Robin Gibb. Just as well there's not other stuff happening in the world at the moment.

Is there austerity in Ireland?

It might seem like a strange question. But the debate over austerity in the Eurozone has reached the It Didn't Work Because It Hasn't Been Tried phase. Here's National Review's Veronique de Rugy taking on Paul Krugman:

My position about austerity in Europe — and why it hasn’t worked– is that in most cases austerity measures have taken the form of some spending cuts mixed with tax increases. With rare exceptions like the Baltic states and Sweden (countries that are growing today), most countries have adopted the “balanced approach” to austerity ... But we can’t deny that austerity in Ireland took the form of both some spending cuts (modest) and tax increases. And that, we know through some 21 peer-reviewed studies, isn’t conducive to debt reductions. My prescription for Ireland is the following: Implement real austerity in the public sector (cut spending) rather than austerity in the private sector (increase taxes). Better yet, implement austerity in the public sector (cut spending) and prosperity in the private sector (cut taxes).

As it happens, the IMF has looked at the spending-tax mix of Ireland (and Portugal) in some detail:


Plans were front-loaded and expenditure-based (in both cases, two-thirds of the adjustment was initially expected from spending cuts). In Ireland, the history of successful expenditure-based fiscal consolidation in the 1980s and 1990s ensured that plans remained expenditure-led throughout, with revenue raising playing a lesser role.

In essence therefore the argument reflects the view from conservative economists that austerity won't work if it contains any tax increases at all, and indeed should if anything be accompanied by tax cuts. Now the trouble is that Ireland's tax increases may have been painful, but they do appear to have increased revenue. Revenue collapsed because of the property bust and the impact of weak economic activity on the tax take, but when tax rates and charges were increased, the leak of revenue was staunched. By the same token, tax cuts would have led to losses in revenue, meaning even wider deficits or even bigger spending cuts. Our Eurozone "partners" would never have gone for the former, and the general public would never have gone for the latter. And in any event, the idea that tax cuts are just what the doctor ordered in a busted economy is a tough sell on its merits.

Nevertheless, there is another angle to the debate. After two rounds of cuts to public sector take-home pay (through a pension levy and pay cuts), Ireland has sworn off further cuts in pay and benefits in the public sector despite a budget deficit excluding bank bailouts of 10 percent of GDP. As a result, austerity has taken the form of fairly blunt chops to the delivery of public sector programs, but with the biggest single element of those programs off limits. And as the country enters 2013 budget season, this process has been going on for 5 years.

The point is that whether Ireland botched austerity by dragging it out and foreswearing the most sweeping instrument of austerity is an open question.

The Iron Chancellor

Wall Street Journal on the years-long Greek economic crisis: Mr. [George] Papandreou [PM] says that when he asked German Chancellor Angela Merkel for gentler conditions in 2010, she replied that the aid program had to hurt. "We want to make sure nobody else will want this," Ms. Merkel told him.

Also: From the start, Greece's surfeit of debt undermined its chances. Mr. Papandreou's financial adviser, Lazard Ltd., told him the country's bond debts were unsustainable and needed restructuring. ... "I'd like to cut my debt in half too," Ms. Merkel told Mr. Papandreou during a meeting at the Berlin chancellery, according to the Greek premier.

Strange moments in French election TV coverage

On France 2.

A little while before the estimated results were released, the cameras were waiting outside Francois Hollande's office in Tulle. Meanwhile, Segolene Royal -- former partner of M. Hollande -- was in the outdoor studio panel back in Paris. Eventually the camera crew got in to see a smiling M. Hollande at his desk with an even more smiling Valerie Trierweiler -- current partner of M. Hollande -- on the opposite side. Awkward.

Later the studio did a segue from an interview of Marine Le Pen to get her reaction straight to an interview of Yannick Noah to get his reaction. For a while, Yannick was on the split screen with Marine as they got ready to interview him. Just what the FN voters wanted to see.

Mother of Parliaments

Speaker of the UK House of Commons John Bercow during the raucous special Question and Answer with the PM over the handling of the News Corp. bid for BSkyB --

Order. Most questions have focused on the terms of the urgent question. I have sadly to tell the hon. Gentleman that that was a million miles away from it and does not require an answer. It was completely out of order. We will take another Member who, I am sure, will be in order—[Interruption.] Order. I do not require any sedentary chuntering in the background.

He doesn't do irony

 New York Times Tom Friedman --

As I walk around the streets of Beirut, that verse from “The Sounds of Silence” keeps rattling around in my head: “The words of the prophets are written on the subway walls, and tenement halls ...”

Thus revealing his pre-1980s musical awareness. Fans of the latter vintage would know better the wordplay on those lyrics in Rush's Spirit of Radio. Its cynicism is more appropriate to the rest of Friedman's column.

No, Pope Benedict did not endorse the House Republican budget

Leading Republican "thinker" Congresssman Paul Ryan at Georgetown University the other day:

The overarching threat to our whole society today is the exploding federal debt. The Holy Father, Pope Benedict, has charged that governments, communities, and individuals running up high debt levels are “living at the expense of future generations” and “living in untruth.” 

The words in quotation marks have started popping up in the Googlesphere recently, which suggests that someone is e-mailing around the quotes. It's important to look at the source, which is a book-length interview of Benedict by the German journalist Peter Seewald:

Q: If it is a question of a good example, the State has not proved to be very exemplary either. Governments today pile up debts to heights never seen before. A single country like Germany spent no less than 43.9 billion Euros just on interest payments to banks; in other words, for the fact that despite all our wealth we have lived beyond our means. Those interest payments alone would be enough to provide food for a year for all the children in developing countries. Worldwide, since the onset of the financial crisis, government debt has increased by 45 percent—by now totaling more than 50 trillion dollars—inconceivable figures, and a completely unprecedented situation. In 2010 the member states of the European Union alone are taking out more than 800 billion Euros of new loans. The new debt in the United States government budget is pegged at 1.56 trillion dollars, the high point of all time. The Harvard Professor Kenneth Rogoff says, therefore, that there is no normality any more, but only an illusion of normality.Certainly generations to come are being burdened with colossal debts. Isn't that also an insanely big moral problem? 


A: Naturally, because we are living at the expense of future generations. In this respect it is plain that we are living in untruth. We live on the basis of appearances,and the huge debts are meanwhile treated as something that we are simply entitled to. Here, too, everyone understands in theory that it would require careful deliberation to recognize again what is really possible,what one can do, and what one may do. And yet people do not take it to heart. Above and beyond the individual financial plans, a global examination of conscience is indispensable. The Church has tried to make a contribution in this regard with the encyclical Caritas in veritate. It does not give answers that would solve everything. But it is a step toward putting things into another perspective and looking at them not only from the point of view of feasibility and success, but from the point of view that sees love of neighbor as something normative and is oriented to God's will and not just to our desires. In this respect impetus would have to be provided in this way so that a change of consciousness can really come about.

A few things to note. The question is as long as the answer. By the end of the question, economics professor Ken Rogoff sounds like the dudes who wrote The Matrix. Benedict's answer -- as Ryan's carefully worded excerpt acknowledges -- says absolutely nothing about budget deficits per se, and especially not anything about the right way to address them. It's as much, if not more so, a critique of private debts as public ones to the extent that it addresses Seewald's 10-clause question at all.

Anyway, Ryan should know better (but maybe he doesn't) to go before the Jesuits in Georgetown and start picking and choosing his Pope quotes. In other segments of the interview book, Benedict talks about off-limit topics for Ryan, like global warming and social safety nets. Indeed, bear in mind that Paul Ryan is a Republican from Wiscsonsin and consider this part of the encyclical that Benedict referred to his answer:

Through the combination of social and economic change, trade union organizations experience greater difficulty in carrying out their task of representing the interests of workers, partly because Governments, for reasons of economic utility, often limit the freedom or the negotiating capacity of labour unions. Hence traditional networks of solidarity have more and more obstacles to overcome. The repeated calls issued within the Church's social doctrine, beginning with Rerum Novarum, for the promotion of workers' associations that can defend their rights must therefore be honoured today even more than in the past, as a prompt and far-sighted response to the urgent need for new forms of cooperation at the international level, as well as the local level.

Paul Ryan supports Scott Walker, the union-busting governor of Wisconsin. Why do they hate the Pope?

UPDATE: Washington Post's Dana Milbank with more about the Georgetown even.

Note to self

Never, ever, appear on the cover of Pilka Nozna. There must be a curse.

Note to self

Never, ever, appear on the cover of Time magazine. There must be a curse.

Would you trust these people with a nuclear weapon

Who said the following today?

We need to end Barack Obama's presidency before Barack Obama's presidency ends our way of life.

(a) Ted Nugent
(b) Rush Limbaugh
(c) Mahmoud Ahmadinejad
(d) Reince Preibus

Although your reaction to (d) may be, Who?, he is in fact the Chairman of the Republican National Committee. And yes, he said it, at an event podium (15 minute mark) in Scottsdale Ariz. including Mitt Romney and John McCain, the two most recent Republican candidates for US president. Do they think about what the words coming out of their mouths actually mean?

Cool customer

The Saudi Ambassador to Yemen finds time to argue about his accent with an associate of Al Qaeda kidnappers phoning with a ransom demand:


Al-Shudokhi: The group (Al Qaeda in the Arabian Peninsula) has some demands which you can convey as they are. I am entrusted with this mission as a sign that everything is alright. I have been directed to talk plainly and tell you who I am and what is my name, since the state (Saudi Arabia) knows me.
Ambassador: Since the state knows you, why do not you tell me your name?
Al-Shudokhi: My name is Misha'al Mohammed Al-Shudokhi.
Ambassador: Are you from Qassim?
Al-Shudokhi: Yes, of course.
Ambassador: It seems that you have forgotten the accent of Qassim people.
Al-Shudokhi: No, I did not. We were brought up in Yemen, and this has affected my accent.
Ambassador: Qassim people would never lose their accent.
Al-Shudokhi: I am from Buraidah, take it as you like.

Newt Gingrich says centuries of Irish rebels were wimps

Here's the video. It's his speech to the National Rifle Association convention. After inflicting his Presidential campaign stump speech on an audience that admittedly deserved such a fate, he decided to address the actual topic of relevance to the NRA and said, inter alia:

When the British troops arrived at Lexington and Concord in April 1775 expecting to force the peasantry into surrender, something they had done quite well in Ireland, Scotland, Wales, and England, they suddenly found they weren't up against peasants, they were up against Americans.

Later in the same speech, Newt promised that a President Gingrich will seek a global treaty establishing a human right to keep and bear arms.

The airport drive is the whole country

What is about European Central Bankers and Tom Friedman-style presentations of the airport road as representative of not just the nation, but deeper truths? Here's the ECB's Jorg Asmussen in Dublin yesterday:


Coming to Ireland yesterday was a very short journey for me, leaving my office in Frankfurt at 3 pm and arriving in downtown Dublin at 6 pm. On the way from the airport my Counsellor, who is accompanying me today, remarked that Ireland, however, has apparently come a long way compared to the time when she visited Ireland for the first time as a backpacking student almost 20 years ago in the early 1990s. While she recalled that her first impression of travelling from the airport downtown was rather sad, with run down warehouses and poor residential buildings, the picture has completely changed: modern office buildings and residential areas line the streets on the short trip from the airport to downtown nowadays. This is anecdotal evidence, of course, but I think it depicts in a nutshell Ireland’s truly remarkable economic development over the last 20 years.