Today’s Water Cooler: More midterms fallout, protests in Belgium, ObamaCare in Mississippi, Bill Watterson, Guy Fawkes, and drone pr0n.
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Thursday, November 6, 2014
Nomi Prins: Why the Financial and Political System Failed and Stability Matters
Yves here. We’re delighted to be featuring a post by Nomi Prins, a former Goldman managing director turned critic of the way the financial services industry has become a “heads I win, tails you lose” wager with the entire economy at stake. Many readers are likely familiar with her through her books, such as Other People’s Money: The Corporate Mugging of America and It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions, as well as her regular TV appearances.
Topics: Banking industry, Credit markets, Derivatives, Doomsday scenarios, Guest Post, Politics, Regulations and regulators
Posted by Yves Smith at 9:55 am | 40 Comments »
Links 11/6/14
Topics: Links
Posted by Yves Smith at 6:55 am | 45 Comments »
Midterms 2014: The Red Wedding for Democrats
Democrats lost the midterms because they stood up for their principles: Neo-liberalism.
Topics: Guest Post, Politics, Privatization, Social policy, Social values, The destruction of the middle class
Posted by Lambert Strether at 5:55 am | 216 Comments »
The Return of the Trade Cold War?
Yves here. With an active US effort to isolate Russia, which Russia is seeking to undermine (with only limited success so far) in strengthening ties with China and other emerging economies, most analysts have seen the geopolitical struggle in terms of short-term effects, such as on Russia’s and Europe’s growth rates over the next year. At the same time, the Chinese initiative to create a development bank, meant to rival the World Bank, is seen by many as an important step in breaking the dollar hegemony, along with moves by China and Japan to enter into oil contracts denominated in currencies other than the greenback.
As we’ve discussed in previous posts, we believe the frisson over the demise of the dollar as the world’s reserve currency is greatly overdone. As much as the US is abusing its role, particularly in its aggressive use of its influence over the dollar payments system as a weapon, there are simply no viable candidates for replacement on the horizon.
However, this post examines a consequence of US economic aggression against Russia that has not rceived the attention that it merits: that of reducing the amount of international trade, something economists see as a driver of growth. Note that per the Lipsey Lancaster theorem, there is ample reason to doubt the near-religious belief that more open trade is always a good thing. However, sudden restrictions in trade, which is what is taking place with US/European sanctions on Russia and Russia implementing counter-sanctions, is certain to cause short-term dislocations. And as we noted in a recent post, the cordon sanitaire being placed around Russia will led it to operate more as an autarky, which may not necessarily be a negative in the medium to long term.
This post seeks to identify the impact of reduced trade between Russia and Europe. This sort of analysis could become more germane going forward. While a currency rival to the dollar any time soon looks to be far-fetched, ever-more obvious US economic imperialism may lead other countries to strengthen trade ties among themselves to the detriment of the US, or like Russia, to move to greater self-sufficiency as a defensive measure. While economists assume that our current open trade system could never be rolled back, that was the tacit assumption during the last great era of open trade, the period right before World War I. The Great War put that all in rapid reverse gear. While no one expects a violent rupture, we may be in the early stages of seeing fractures developing in the trade system.
Topics: Economic fundamentals, Europe, Free markets and their discontents, Globalization, Guest Post, Russia
Posted by Yves Smith at 4:50 am | 10 Comments »
Saudi Cut In Oil Price for US May Lead To Price War
Yves here. We pointed out last month that the US was on the list of Saudi targets when it made clear it was not supporting oil prices at a level higher than $80 a barrel. Some readers rejected the idea that Riyadh would launch a price war to undermine the US, when in fact the desert kingdom has been mightily unhappy with US policies in the Middle East for some time (in case you managed to miss it, ISIS started out as Prince Bandar’s private army and odds are high that it continues to get Saudi support).
A major news story today, that the Saudis are letting oil prices drop further, provides more support for our jaundiced assessment last month.
Topics: Commodities, Energy markets, Guest Post
Posted by Yves Smith at 2:05 am | 15 Comments »
2:00PM Water Cooler 11/5/14
Today’s Water Cooler: Mid-term madness! And FIFA executive buys Manhattan apartment for his cats. Not that there’s anything wrong with that.
Topics: Guest Post, Water Cooler
Posted by Lambert Strether at 1:58 pm | 114 Comments »
Young and Under Pressure – Europe’s Lost Generation
Yves here. Even though this post hews to the convention of a describing the labor market conditions in Europe in clinical terms, the data reveals deeply troubling conditions, such as a high and in some countries rising level of families with no wage earner, which sets the stage for the continuation of poverty, as well as putting them in danger of becoming homeless. “Lost generation” is too kind a term to depict the conditions facing the young. Instead of being able to make choices and at least to a degree, shape their future, they are desperately trying to find a foothold of any kind.
Topics: Economic fundamentals, Europe, Guest Post, Social values, The destruction of the middle class
Posted by Yves Smith at 9:55 am | 37 Comments »
Links 11/5/14
Topics: Links
Posted by Yves Smith at 6:55 am | 145 Comments »
Private Equity Kingpin KKR Threatens Iowa Pension Fund Over FOIA Request
A new story on private equity secrecy by Mark Maremont at the Wall Street Journal started out with a bombshell, that of private equity industry kingpin KKR muscling a public pension fund to deny information requests about its practices:
Topics: Legal, Politics, Private equity, Regulations and regulators
Posted by Yves Smith at 6:00 am | 21 Comments »
Are Immigrants Bad for Government Budgets?
Yves here. One of the major charges leveled at immigrants in the US is that they use public services (the stereotype is that they show up in emergency rooms, which are not a taxpayer expense,* as well as send children to school) and don’t provide anywhere near the contribution to the economy in terms of tax contributions relative to what they extract.
Notice that that charge is implicitly made of illegal immigrants, who presumably don’t pay income taxes (although I personally know one who does, by virtue of being in an immigration Schrodinger’s cat uncertainty state and having a Social Security card and meticulously paying taxes for 15 years while no longer having a visa and not having become a citizen. Will not bore you whit his shaggy dog story). But their incomes are often so low that it’s not clear they’d pay much even if their taxes were reported, save regressive FICA taxes. Yet they do pay other taxes: sales taxes, gasoline taxes, and property taxes embedded in their rents.
There is a separate public policy argument about immigration and foreign guest workers on H1-B visas, which is that at least the way it is conducted in America, that in combination with an anti-labor-bargaining policies, cheap immigrant labor gives employers even more leverage against workers. This post focuses narrowly on the “are they worse than natives in terms of impact on the public purse?” The study focuses on the UK. One of the striking revelations is how little decent data there is on this topic, particularly in a country that has no where near the number of unofficial immigrants as the US.
Topics: Guest Post, Social policy, Taxes, The destruction of the middle class
Posted by Yves Smith at 3:03 am | 60 Comments »
Tom Engelhardt: “Escalation” or Fearmongering, as the Dominant Political Strategy
“Escalation” or amping up minor threats to public safety, is the new toy of the political class for manipulating voters. Making these small threats loom large in the public eye also conveniently diverts attention from bigger issues, like inequality, high unemployment, and the rise of McJobs.
Topics: Guest Post, Health care, Politics, Social policy, Social values
Posted by Yves Smith at 10:11 pm | 44 Comments »
2:00PM Water Cooler 11/4/14
Today’s Water Cooler: Dark money and the mid-terms, “Money is speech,” your vote is your own, Cuomodammerüng, and RIP Tom Magliozzi.
Topics: Water Cooler
Posted by Lambert Strether at 1:58 pm | 66 Comments »
Why Greenberg May Win the AIG Bailout Trial
Due to the hour, and the fact that I want to work up the argument longer-form over a series of posts, I’ll give only an overview now as to why the popular handicapping on the AIG bailout trial, that the suit is ridiculous and not worthy of attention, is wrong.
While this case by any logic should be ridiculous, the Fed so egregiously overstepped its authority in the way it handled AIG (and for that matter, its other bailouts) that they handed Greenberg a decent legal argument. And to add to the government’s self-inflicted woes, all of its bailout cheerleading also plays straight into Greenberg’s hands.
Probably the biggest relief to the government so far is that the media has virtually ignored the trial. The only major news organization that has a reporter there daily is Bloomberg. Their reporter, Andrew Zajac, concurs with our view (and quoted us) that David Boies, the Greenberg attorney, has decent odds of winning the case. If Boies does prevail, you can expect an Administration-led firestorm of outrage, with the arguments previewed in a Steve Rattner op-ed in the New York Times.
But the grandstanding serves to obscure the legal argument, which when you get past the technicalities, has real significance politically. That is why the officialdom would rather distract the public by hammering on “That ungrateful deadbeat Greenberg. Who is he to want more money when by all rights he should have been wiped out?” If anyone bothered to look at what is really at stake here, it is that the Fed, with the help of the Paulson Treasury, greatly abused its powers. And that matters because as a practical matter, the Fed is unaccountable for its actions.
Topics: Federal Reserve, Legal, Regulations and regulators
Posted by Yves Smith at 9:55 am | 42 Comments »
Links 11/4/14
Topics: Links
Posted by Yves Smith at 6:58 am | 103 Comments »