Category: Current Affairs

A Friday article says this:

The worldwide financial crisis is proving a lot more damaging than was expected. Not in Cayman, yet, but we had better get ready for it to affect us severely sooner or later.

I’ve googled around and can’t seem to find any reports worse than that one.  It’s fair enough to argue those banks are doing OK because bailouts from abroad have limited systematic risk in the world as a whole.  But still Cayman Island banks don’t seem to have gotten into trouble on their own, at least not so far. 

Cayman banking is not laissez-faire as is sometimes believed, but still it is relatively unregulated and measured in terms of liabilities it is the world’s fifth largest banking center.  And it’s doing OK.  As Arnold Kling has been pointing out, transparency isn’t everything.

Panama, by the way, also does not seem to be having major banking problems.  The country has no central bank or lender of last resort, yet the banking system is highly liquid.

The point is not that the private client-based, tax haven, sometimes drug money, Panama and the Cayman Islands systems are automatic models for the U.S.  Rather many of the critics of deregulation are not trying hard to come up with the deepest possible explanation of the crisis.  A key principle of science is to consider the outliers or the points which might appear to refute your hypothesis.

It would be useful if someone would do a comparative international study of where the banking crisis has been most severe, least severe and why.

Addendum: Larry Ribstein comments.

Details here, and that is big news too; update here.  Here is The New Yorker on Bob Barr.  Kramnik just blew a superior position and now is probably doomed in the match with Anand.

The disappearance was deemed so important that the Prime Minister,
Bruce Golding, also took an interest in the theft and ordered a report
into how 500 truckloads of sand was stolen, transported and presumably
sold.

Here is the full story.

Should the Fed burst bubbles?  Maybe in its role as regulator, if not monetary policy.  Anand draws first blood in an amazing game.  Robert Aliber’s "pooling equilibrium" idea for reviving asset markets.  The splendid Alton Ellis, a giant of Jamaican music, just passed away.  Credit indicators are easing.  The demand for classic whiskey is robust.

For the past three years, [Bhumika] Chaturvedi has been a top collection agent at
her call center, phoning hundreds of Americans a day and politely
asking them to pay up. As the U.S. financial crisis plunges Americans
into debt, her business is one of the fastest-growing sectors in Indian
outsourcing. It is also one of the few sectors of outsourcing in India
that is still hiring aggressively.

By the way:

India handles an estimated $16 billion — or about 5 percent — of delinquent U.S. accounts

The responses are numerous:

"My mortgage payments are just too high, honey. I just can’t make the
payment this month," a weeping woman with a Southern accent recently
told her in response to a call for a $200 credit card payment. "I’m
sure y’all heard about the credit crunch and gas prices. I’m flat
broke."

I wonder what the Indian bill collector thinks in these moments.  Has anyone tried saying: "Pay up.  My aunt earns $1300 a year and pays 80 percent interest on her microcredit loans"?  Probably not.  In fact the strategy is the opposite:

Aparup Sengupta, global chief executive officer and managing director
of Aegis, encourages his debt collectors to use a "hospitable Indian
touch," meaning less arm-twisting and more emotional therapy.

"This business is a performing art," Sengupta said. "We are part
therapists because the core of the issue is that every human being
wants to be honorable in life. We don’t just push someone into a bad
situation. We try to create a real solution."

Decorating the office are dozens of yellow smiley faces with the
words, "Happy People. Happy Customers. Happy Investors," along with
other posters that read: "Connect and Collect."

If I owed money I would simply stop answering the phone. 

Elsewhere markets are generally up.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion; Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York and State Street each receiving $2 to 3 billion. Wells Fargo will get an additional $5 billion, reflecting its acquisition of Wachovia, and Bank of America receives the same for amount for its purchase of Merrill Lynch.

…The government will purchase perpetual preferred shares in all the
largest U.S. banking companies. The shares will not be dilutive to
current shareholders, a concern to banking…executives, because
perpetual preferred stock holders are paid a dividend, not a portion of
earnings. The capital injections are not voluntary, with Mr.
Paulson making it clear this was a one-time offer that everyone at the
meeting should accept.

Here is the story.  No matter what your point of view, you ought to be stunned by this development.

Addendum: Brad DeLong adds musical commentary.

“Some said we should just stick capital in the banks, take preferred
stock in the banks. That’s what you do when you have failure,” Mr.
Paulson told the Senate Banking Committee on Sept. 23. “This is about
success.”

Here is the link.

Pretty soon we’ll get to the point where almost everything in this economy of ours is booming:

All over sunny San Diego,
tough economic times
have forced people to cut back on their $4 lattes and sushi dinners.
But one new business is booming — and ka-booming — precisely
because of frustration from the worst financial crisis to hit the
United States in decades.  Welcome to Sarah’s Smash Shack, where pent-up patrons can relieve
stress by hurling dinnerware and bric-a-brac against a wall, as hard as
they can, day and night, seven days a week.  San Diego entrepreneur Sarah Lavely charges her clients $10 and up
to pulverize plates and glasses during 15-minute intervals. Music
blares, clients dress in protective gear and a neon sign urges them to
"Break More Stuff."(…)San Diego may boast surf and sunshine year round, but it also has
its share of black economic clouds. Its real estate market has been hit
hard by the high rate of foreclosures in California, the second highest
in the nation, and its unemployment rate has risen to 6.4 percent from
4.8 percent in a year…

Here is the link and I thank John de Palma for the pointer.

…the financial benefit to Paulson of accepting the call of duty is surely greater than that enjoyed by any other public servant in U.S. history.  Goldman Sachs has long had a policy that all deferred compensation becomes payable promptly to any partner who accepts a senior position in the federal government.  Congress passed a law a quarter-century ago that people taking senior appointed federal position who convert their investments into either an index fund or a blidn trust can do so upon assuming office with zero taxable capital gain until such investments are later sold.  If Paulson took advantage of these provisions, they enabled him to sell his shares in Goldman Sachs without raising any public questions without tax and to diversity his large personal invetments in a single stroke.  For just over two years’ service, the saings in Paulson’s personal income taxes could have been as large as $200 million.  Paulson had no interest in diversifying his investments and had never sold a share of Goldman Sachs stock.

I wonder what the total benefits for Paulson have turned out to be.  Indeed, it is rare that taking a job in government is such a good business decision (please note: I am not suggesting any conspiracy or evil intentions here).

That passage is from Charles Ellis’s The Partnership: The Making of Goldman Sachs.  This book gets better and better, as you keep on reading it.  Definitely recommended.

Veronique de Rugy and Philippe Lacoude.

Stan Liebowitz.

Please feel free to leave other references in the comments; there is a greater rush of material coming out than I can keep track of.

Addendum: Here is a (non-libertarian) dose of optimism.

A E4bn loan from Russia might make financial sense – although Russians might think otherwise given Moscow’s shaky finances. But it would create strategic ructions. Iceland is a NATO member, but Russia would want something in return for a loan equal to almost a third of the tiny state’s GDP. The US would fret this could eventually mean a Russian military presence in the North Atlantic.

Here is the story.  It seems that Iceland may prefer Russia to the IMF, but Russia does not yet seem on board.  I can only wonder what Bobby Fischer would have said…

Banks are hoarding cash in expectation of pay-outs on up to $400bn of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and ­dealers.

This
added pressure on the frozen financial system comes as authorities
prepare to meet participants in the so-far unregulated $54,000bn credit
derivatives market to speed up plans for the creation of a central
clearing house.

Here is the story.  Here is my earlier post on derivatives and clearinghouses.

The financial collapse of Iceland.

Economic topology, the video version.

Via Josh Hall, here is econjobrumors.com.

Abandoned house goes for $1.75 on eBay.

Economic experiments, using people with "personality disorders."

Fannie Mae said it will set aside the loan of a woman who shot herself
as sheriff’s deputies tried to evict her from her foreclosed home….

"We’re going to forgive whatever outstanding balance she had on the
loan and give her the house," Faith said. "Given the circumstances, we
think it’s appropriate."

In other words, the taxpayers are now subsidizing self-injury.