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This is an Open Thread
Dec 05 2011
Dec 05 2011
and why they might be the best alternative.
I found this a thought provoking piece.
David Apgar: Could Germany Be Right about the Euro?
Sunday, December 4, 2011
What if there are good reasons for the preternatural calm of German Chancellor Merkel’s inner circle as the English-language media (based, after all, in the investor capitals of London and New York) light their collective hair on fire about the euro’s imminent immolation? Surprisingly, you can make a decent argument that the euro zone is at no risk of breakup – unless someone secretly switches its purpose from facilitating European trade to providing investors an implicit guarantee against losses.
Suppose, however, the feasibility of Mediterranean austerity – austerity at a scale big enough to impress the bond markets – is not what Merkel’s team is counting on. Suppose instead the Germans are really counting on the feasibility of a series of orderly partial defaults.
The big unasked question is not whether austerity might be tolerable but whether defaults would be as intolerable as the bond media insist. Here’s why Merkel’s team could have quietly concluded that the costs of a series of partial defaults are unavoidable even without any defaults, that some of those supposed costs may in fact be disguised benefits, and that the alternatives to selective debt relief are probably unsustainable.
As far as costs go, massive European bank restructuring comes to mind, especially following a cool €300 billion or so of losses on government bond holdings. It’s hard to say anything nice about bank restructuring, but at least we know how to do it. We know, for example, how to split good banks from bad banks. (Hint: rank balance sheet assets by quality and liabilities by seniority and draw a line across the balance sheet after the last asset of reasonably determinate value.) That’s handy when you need banks with systems in place ready to restart lending. And we know these transactions work when free from political interference as they were in Sweden in 1992. We also have institutions like the ECB ready to fix broken banks – unlike broken governments.
Less widely discussed, massive European bank restructuring may be unavoidable even if Europe somehow enlisted enough ECB printing presses, enough future earnings of all those carefree northern European taxpayers, and enough future benefits of all those docile southerners to plaster a smile on the face of every bond portfolio manager at BNP Paribas and Commerzbank. The scale of the bailout needed to avoid further investor losses as of today – much less tomorrow or next week – would entail cross-border consolidation or de facto nationalization of a significant portion of the euro banking sector.
The alternatives to partial defaults by countries that can’t afford to pay rising interest rates, furthermore, may be unsustainable. The most popular alternative has the ECB stepping in to buy bonds every time investors try to cut their exposure. At first blush, it looks clean – no forced austerity, no messy investor losses and bank restructurings, no burden on taxpayers in creditor countries like Germany. The only problem is that it would be inflationary.
And that inflation turns out to be quite a problem. With such ECB generosity on offer – and with euro zone inflation looming – why would any bond trader with a pulse stop after dumping her Greek, Portuguese, Irish, Italian, and Spanish exposure? Why not get rid of the French and German paper in the vaults, as well? Get rid of it all. Well, maybe not the Estonian bonds. But the ECB would be buried.
Ironically, the ECB purchaser-of-last-resort and eurobond alternatives probably would break up the euro zone. The inflationary strains of the former, and the accountability problems of the latter, would never survive the next referendum in a euro zone state. The purpose of the euro is to facilitate trade and commerce – not facilitate government borrowing.
This, then, is the impasse euro zone bond investors have reached. To avoid losses, they clamor for alternatives that could disrupt the currency itself – one of the few things that might actually make them worse off in real terms than they are right now.
Frankly there is no reason to believe that the Euro crisis is causing anything but kneejerk neoliberal responses from elites who are bound by faith alone to policies and doctrines that are factually proven failures.
Still, it does make you think.
Dec 05 2011
Armando warmed over some leftovers from prior to when he (and Eric Holder) went into a coma in early 2006 and missed the news over the next five and one half years concerning a couple of elections solidly entrenching the status quo on executive fiat, secrecy, and hardened criminality, the mugging of democracy by the Fed-backed gambling addicts, gajillion dollar bailouts and banks (still not) saved, society sacrificed, sovereign debt blowouts, some thing-a-ma-bobs about the extrajudicial dusting of Americans and suspending the Constitution (again!) for the sake of Battlefield America, etc., you get the idea. He begins (bold mine):
An age old question for a progressive site like Daily Kos, one committed to advancing progressive values within the electoral system, has been embodied in what many of us thought could be a definitive ethos (Big Lebowski reference): “More and better Democrats.”
He then cites two political physicists discussing gravity and space-time curvature. I only slightly re-arranged their equation and came up with a slightly different solution to achieve political escape velocity (Pve):
Pve = (2unipartiesGullibleMorons/really???)1/2
Where B (not shown) = universal constant of bullshit = shit is fucked up and bullshit
Also, neat graphic!
Dec 05 2011
So I woke up this morning to set up our Front Page and do a little light rating when I discovered that our display had reversed and Excellent/Pony was at the top and Hide at the bottom.
I expect this is the result of messing around on the Soapblox end of things and it’s fixed now.
I don’t think it’s been this way for more than 9 hours but you might want to go back for the last couple of days and check to see if you gave someone an unintentional Hide out of muscle memory and habit.
Since I’m on the subject I’ll note our poll (Monday Morning Meta) is overwhelmingly in favor of Pony over Excellent and this is your last chance to weigh in on the burning controversy.
Dec 05 2011
Massachusetts Attorney General Martha Coakley filed a law suit against five major banks and MERSover deceptive mortgage practices. One of those entities, GMAC, the mortgage lender of Ally Financial Inc., decided to stop mortgage lending in Massachusetts. The nation’s fifth-largest mortgage originator said it “has taken this action because recent developments have led mortgage lending in Massachusetts to no longer be viable,”. Seriously, they are not going to play in the state because Martha wants them to play by the rules. How dare she!
Yves Smith at naked capitalism says that in essence GMAC Mugs Massachusetts for Insisting on the Rule of Law, Suspends Mortgage Lending in the State
This move by GMAC, now Ally, is remarkably brazen. GMAC has effectively said that Massachusetts must hew to its demands of how to deal with foreclosures. It announced it is withdrawing from mortgage lending in the state in an effort to bring it to heel. [..]
GMAC is trying to get other big banks to follow suit. I hope the state and other groups that do substantial financial business with banks (largish churches are also attractive clients) make it clear than any effort to punish the state for enforcing the law will be met by moving their accounts to smaller institutions that respect the law. [..]
Sorry, for the first decade plus of the private mortgage securitization business, banks and servicers did hew to the requirements of state law. It was only in the late 1990s through 2004 or so that they started to fail to comply with the requirements of their own contracts (the breakdown appears to have taken place over time, with the biggest decay taking place during the 2002-2003 refi boom). That’s what has put their foreclosures on shaky footing, which in turn has led to wideranging legal abuses to get around the mess they created.
The insolence of the securitization industry continues to be astonishing. They act as if they have an imperial right to dictate to governments, and refuse to admit any role in a disaster of their own creation. I hope those of you who do business with Ally close your accounts immediately and tell the bank that it is due to their Mafia style move in Massachusetts.
If you’re a GMAC customer in Massachusetts, it’s time to move your loan.
Dec 05 2011
This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future
Find the past “On This Day in History” here.
December 5 is the 339th day of the year (340th in leap years) in the Gregorian calendar. There are 26 days remaining until the end of the year.
On this day in 1933, The 21st Amendment to the U.S. Constitution is ratified, repealing the 18th Amendment and bringing an end to the era of national prohibition of alcohol in America. At 5:32 p.m. EST, Utah became the 36th state to ratify the amendment, achieving the requisite three-fourths majority of states’ approval. Pennsylvania and Ohio had ratified it earlier in the day.
The movement for the prohibition of alcohol began in the early 19th century, when Americans concerned about the adverse effects of drinking began forming temperance societies. By the late 19th century, these groups had become a powerful political force, campaigning on the state level and calling for national liquor abstinence. Several states outlawed the manufacture or sale of alcohol within their own borders. In December 1917, the 18th Amendment, prohibiting the “manufacture, sale, or transportation of intoxicating liquors for beverage purposes,” was passed by Congress and sent to the states for ratification. On January 29, 1919, the 18th Amendment achieved the necessary three-fourths majority of state ratification. Prohibition essentially began in June of that year, but the amendment did not officially take effect until January 29, 1920.
The proponents of Prohibition had believed that banning alcoholic beverages would reduce or even eliminate many social problems, particularly drunkenness, crime, mental illness, and poverty, and would eventually lead to reductions in taxes. However, during Prohibition, people continued to produce and drink alcohol, and bootlegging helped foster a massive industry completely under the control of organized crime. Prohibitionists argued that Prohibition would be more effective if enforcement were increased. However, increased efforts to enforce Prohibition simply resulted in the government spending more money, rather than less. Journalist H.L. Mencken asserted in 1925 that respect for law diminished rather than increased during Prohibition, and drunkenness, crime, insanity, and resentment towards the federal government had all increased.
During this period, support for Prohibition diminished among voters and politicians. John D. Rockefeller Jr., a lifelong nondrinker who had contributed much money to the Prohibitionist Anti-Saloon League, eventually announced his support for repeal because of the widespread problems he believed Prohibition had caused. Influential leaders, such as the du Pont brothers, led the Association Against the Prohibition Amendment, whose name clearly asserted its intentions.
Women as a bloc of voters and activists became pivotal in the effort to repeal, as many concluded that the effects of Prohibition were morally corrupting families, women, and children. (By then, women had become even more politically powerful due to ratification of the Constitutional amendment for women’s suffrage.) Activist Pauline Sabin argued that repeal would protect families from the corruption, violent crime, and underground drinking that resulted from Prohibition. In 1929 Sabin founded the Women’s Organization for National Prohibition Reform (WONPR), which came to be partly composed of and supported by former Prohibitionists; its membership was estimated at 1.5 million by 1931.
The number of repeal organizations and demand for repeal both increased. In 1932, the Democratic Party’s platform included a plank for the repeal of Prohibition, and Democrat Franklin Roosevelt ran for President of the United States promising repeal of federal laws of Prohibition.
Dec 05 2011
The art of Griftopia
Felix Salmon, Reuters
Dec 2, 2011 11:43 EST
I’m in Miami right now, for the annual bacchanal of conspicuous consumption that is Art Basel Miami Beach. There are two equally important things going on here (and by “important” I mean “not important at all”) – a tiny group of people spending huge sums of money on art; and a small group of people in extremely expensive shoes gossiping about who’s buying what.
But the money sloshing around the art world is, ultimately, small potatoes. Any one artwork might sell for an astonishing amount of money… (b)ut compared with the sums of money in finance, the entire contemporary-art circus is basically a rounding error.
(A) work of art about the way in which the entire financial crisis is utterly incomprehensible to anybody who doesn’t study it day in and day out for months. Everybody wants easy answers or villains, but in fact everybody was to blame, and Powhida’s piece is a great way of showing how difficult it really is to understand this stuff. The CFTC, for instance, has a prominent part in the work, and goes unexplained: if you don’t know what it is – and 95% of the people looking at the work will have no idea what it is – then you’ll begin to get a good idea of just how beyond your grasp the financial crisis lies.
Here at Art Basel, everybody is in their comfort zone – the art world knows how to buy and sell and backstab and gossip, and it does it very well. And wading into the belly of the beast, Postmasters has brought Powhida’s works down to Miami, the natural home for high-impact pieces for people with short attention spans. I doubt they’ll do very well. But you never know: if people are still feeling the pain on the condo they bought at the top of the market because they thought it would be nice way to make a profit while having a pied-à-terre down here, Powhida might just pique their interest.
When art galleries ratify forgeries
Felix Salmon, Reuters
Dec 3, 2011 12:50 EST
Patricia Cohen has uncovered the art-world scandal of the year: it seems as though Knoedler, the 164-year-old Upper East Side institution, closed abruptly on Wednesday in large part to protect itself against a $17 million lawsuit from Pierre Lagrange. Lagrange spent that sum on a Pollock which he then discovered contained two paints which had not been manufactured until after Pollock died. And now it seems that Knoedler regularly sold AbEx paintings procured by Glafira Rosales with the vaguest of provenance.
The point here is that the art market, like the stock market, runs on a combination of trust and storytelling ability. The most expensive artists are nearly always those who can be credibly placed into central slot in the history of art; one of the main reasons that Abstract Expressionists in general are so expensive is because they have spent decades as the very heart of MoMA’s collection, which presented them as the pinnacle of 20th Century art, the artists standing on the shoulders of people like Picasso.
When gallerists sell paintings, they tell stories not only about the work, but also about the story behind the work, conjuring up romantic notions of dealings between Robert Motherwell and Mexican sugar magnates, brokered by “man named Alfonso Ossorio”. So long as the institution selling the work is trustworthy, potential buyers tend to take such stories at face value – and, of course, they have a vested financial interest in those stories being true, the minute they actually buy the piece.
Freedman would also have found it much harder to sell all those Motherwells if she hadn’t had the full institutional credibility of Knoedler behind her. That’s how galleries can be such lucrative businesses to be in: once you’re established, you can literally add hundreds of thousands or even millions of dollars to the value of a painting, just by hanging it on your wall. A fake Motherwell in a garage in Switzerland is worthless; in an Upper East Side gallery, it’s priceless.
Until the forgery is uncovered, of course.
A metaphor our times.
Dec 05 2011
I sit on the floor of the Duck House with thirty others, brainstorming for the January action. Neither men nor women dominate the group. We are young, and surprisingly old. Counter-culture and conservatively clad. We question whether it is nobler to seek permits or just show up unannounced. We speak of banners, flyers and street theater-anything to educate the public about our goal.
Even when I still lived in Arizona, I had heard of this place. Democracy Unlimited Humboldt County (DUHC) or “Duck” was on the forefront of the war against corporate power. In 1998, they helped pass a ballot initiative establishing the Democracy and Corporations standing committee in Arcata’s city council here in California.
The Committee’s primary functions are: to research and present to the Council options for controlling the growth of “pattern restaurants” in the community; to cooperate with other communities working on socially responsible investing and procurement policies; to make recommendations to the Council, and/or with the Council’s approval, provide educational opportunities to promote “fair trade”; to inform citizens of corporations with negative social and environmental impact; and to provide advice on ways to foster sustained locally-owned businesses, publicly or locally owned services and worker-owned cooperatives and collectives.–City of Arcata
The committee was hailed by Howard Zinn, Noam Chomsky, and Jim Hightower. Ralph Nader commented, “I look forward to Arcata being a luminous star in the rising crescendo of democracy in our country.”
Embolden by this success, they passed Measure T in 2004. It forbid nonlocal corporations from contributing to local political campaigns. Two corporations immediately challenged the initiative as unconstitutional. Before the case could be decided by the courts, Humboldt’s Board of Supervisors succumbed to corporate pressure and declared this popularly elected law nullified.
DUHC learned from this experience. They won’t be going it alone, this time. They are but one small seed of democracy, but they are amassing with others to change the political landscape in America. They have joined Move to Amend in a miliary campaign, and this time their aim is not a city ordinance in some far off town on the edge of America, but changing the highest law in the land.
Dec 05 2011
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