(Quote from President George Bush this week.[1])
Non-financial blue chip corporations are having difficulties raising money in the commercial paper market, along with their financial counterparts. They are now borrowing from banks at higher rates. Of course, many banks have high levels of investment in these same corporations and this suggests that, in reality, corporations outside of the large global conglomerates are the ones left without any real defence.
Interbank lending has shut down. Oligopoly banks with interlocking directorates and interlocking ownerships with the big 500 are not trading with each other. Are they also refusing to trade with their own global financial subsidiaries? If the latter statement is true the irony is stark, along with the economic repercussions. Intracorporate trade now makes up such a huge percentage of global economic transactions and this fact makes the unfolding crisis without modern historical precedent.[2]
Privately-owned central banks and public treasury officials have not been prepared to seize and shut down insolvent firms. The emphasis has been on financial bailouts rather than control of the outcome. It’s a panic and the risk has increased. Large private lenders with significant control in the overnight market are demanding higher compensation. (A billion dollars lent overnight at the US Fed rate (2%) yields only about $55,000, an amount deemed insufficient in today’s risky environment)[3].
In 1930 the private central banks increased the monetary base but with these same banks being insolvent and funds being withdrawn by worried depositors, money supply contracted regardless. ($16 billion was withdrawn from WaMu before it went down, according to Bloomberg [4].) What percentage of deposits went out of the banking system? How much was converted to cash and gold and how much was capital flight? What research has been done on this?
The determinants of how the crisis plays out go beyond the actions of financial and political authorities. Investor and consumer action will shape its evolution as well.
If central banks (i.e. the conglomerate of major private banking firms accessing taxpayer funds) continue to lend below-market rate (to themselves) the taxpayer will remain the only source of capital.
The taxpayer needs to insist that their lending is backed up by equity in these ‘private’ firms and be prepared shut them down quickly if they are now insolvent. The transition from publicly-funded ‘private’ banks to publicly-funded ‘public’ banks is not a big one.
[1] As cited by Juan Falcone on Naked Capitalism's "Europe Opens Ugly" as published on 26th September 2008.
[2] "Giant multinational corporations dominate the area of international exchange and a very large share of world ‘trade’ is actually between branches of these same corporations. In North America trade associated with U.S. parent multinationals or their foreign affiliates accounted for 54 percent of U.S. exports of goods and 36 percent of imports.[2] Forty percent of trade between the US and Canada in 1998 was intra-corporate.[3]. “Forty percent of the US-Europe trade is between parent firms and their affiliates, and in respect of Japan and Europe, it is 55 per cent; with regard to US-Japan trade, it is 80 %.”
From 'General Concept of Transfer Pricing'.By Khurram Khan. [t-price.pdf]
http://www.hmaconsultants.com/pdf/t-price.pdf
As cited in 'It's not international trade. Don't be fooled', Brenda Rosser. 24th July 2008
[3] Juan Falcone on Naked Capitalism's "Europe Opens Ugly" as published on 26th September 2008.
[4] Juan Falcone on Naked Capitalism's "Europe Opens Ugly" as published on 26th September 2008.
Saturday, September 27, 2008
Why has interbank lending shut down?
3 reasons. Are there more?
(i) Banks are terrified of not getting their money back due to bankruptcy and not being able to access funds if they need them.
(ii) Why borrow and lend to your fellow banks if you can get plenty of cheap funding from your central bank.
(iii) Lending is dead because interest rates are too low to reflect 11% inflation and the existing default risk.
(i) Banks are terrified of not getting their money back due to bankruptcy and not being able to access funds if they need them.
(ii) Why borrow and lend to your fellow banks if you can get plenty of cheap funding from your central bank.
(iii) Lending is dead because interest rates are too low to reflect 11% inflation and the existing default risk.
HUSTLER
by the Sandwichman
Wikipedia: Hustling is the deceptive act of disguising one's skill in a sport or game with the intent of luring someone of probably lesser skill into gambling (or gambling for higher than current stakes) with the hustler, as a form of confidence trick.... A skilled hustler may pretend to be intoxicated, unintelligent, or otherwise impaired (that is, until it is time to run the table or make a game-winning shot).
What if Governor Palin has been coached to deliberately low-ball her interview performances with Charlie Gibson and Katie Couric so that she can pull a stunning reversal during the vice-presidential debate and come off as (comparatively) sharp, knowledgeable and articulate?
Bets?
Wikipedia: Hustling is the deceptive act of disguising one's skill in a sport or game with the intent of luring someone of probably lesser skill into gambling (or gambling for higher than current stakes) with the hustler, as a form of confidence trick.... A skilled hustler may pretend to be intoxicated, unintelligent, or otherwise impaired (that is, until it is time to run the table or make a game-winning shot).
What if Governor Palin has been coached to deliberately low-ball her interview performances with Charlie Gibson and Katie Couric so that she can pull a stunning reversal during the vice-presidential debate and come off as (comparatively) sharp, knowledgeable and articulate?
Bets?
Thursday, September 25, 2008
George Bush solves the immigration crisis
Give George Bush credit. He is managing to shut down the flow of illegal immigration. Of course, he did it by trashing the economy, but now people are not as enthusiastic about coming to work in the United States.
The Financial Crisis Goes Beyond Finance
I just dashed off the first draft of a discussion of the financial crisis to be published in a South Asian publication. It is very preliminary. I could appreciate any pointers. Thanks.
Financial-Crisis
Financial-Crisis
Is the bailout for China?
A RUMOUR: Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis. [1] There's talk that Chinese authorities have since denied this claim.
China is worried about the default risk on its loans to the US. The nation is also losing on the principal value of its borrowings to the US because of the steady revaluation of the Yuan. (This revaluation has been done, whether justified or not, as a result of pressure from the US).
The Paulson plan is expected to inject $700 billion into (private) banks. This financial capital is then expected to be used by (for profit) banks to create up to 14 trillion dollars credit to buy the quantity of extra treasuries that will go onto the market. I don't see why a nationalised bank can't perform this function?
Some leading financial authorities in China want the Asian nations to agree to refrain from panic selling of US treasury securities in order to prevent a free-fall in their value. Such an agreement is unlikely given the history of wars and antagonism between the various nations.
Whatever the outcome of this immediate saga it is almost certain (IMHO) that China's 'export-growth strategy' will come to an end. That will be a day for the forests and planet earth to celebrate!
[1] http://www.reuters.com/article/companyNewsAndPR/idUSPEK16693720080925
China is worried about the default risk on its loans to the US. The nation is also losing on the principal value of its borrowings to the US because of the steady revaluation of the Yuan. (This revaluation has been done, whether justified or not, as a result of pressure from the US).
The Paulson plan is expected to inject $700 billion into (private) banks. This financial capital is then expected to be used by (for profit) banks to create up to 14 trillion dollars credit to buy the quantity of extra treasuries that will go onto the market. I don't see why a nationalised bank can't perform this function?
Some leading financial authorities in China want the Asian nations to agree to refrain from panic selling of US treasury securities in order to prevent a free-fall in their value. Such an agreement is unlikely given the history of wars and antagonism between the various nations.
Whatever the outcome of this immediate saga it is almost certain (IMHO) that China's 'export-growth strategy' will come to an end. That will be a day for the forests and planet earth to celebrate!
[1] http://www.reuters.com/article/companyNewsAndPR/idUSPEK16693720080925
Crazy Like Foxes
Now it all makes sense. From the incomparable Josh Marshall:
Saving Sarah!
Saving Sarah!
These guys are just digging into such depths of nonsense and desperation that pretty soon they're going to pop out in China, which will be helpful since they can ask the Chinese for the trillion dollars it'll take to bail out McCain's pals on Wall Street for the mess his economics advisor Phil Gramm made possible. Here's the latest attempt to exploit the financial market crisis for political ends (from CNN)...
McCain supporter Sen. Lindsey Graham tells CNN the McCain campaign is proposing to the Presidential Debate Commission and the Obama camp that if there's no bailout deal by Friday, the first presidential debate should take the place of the VP debate, currently scheduled for next Thursday, October 2 in St. Louis.
So we need to put the country first and cancel the vice presidential debate.
Wednesday, September 24, 2008
Financialization
I just posted a brief section on financialization, taken from my recent book: The Confiscation of American Prosperity.
financialization
financialization
Nothing 'punitive' or banks won't participate
The New York Times reported Monday, “Mr. Paulson said that he was concerned that imposing limits on the compensation of executives could discourage companies from participating in the program.
“’If we design it so it’s punitive and so institutions aren’t going to participate, this won’t work the way we need it to work,’ Mr. Paulson said...” [1]
And
"Bernanke wants government [taxpayer] to pay significant premium over current "firesale" price for troubled assets. Specifically, he wants to pay close to the "hold-to-maturity" price, which he argues is much higher than the mark-to-market firesale price. Bernanke and Paulson believes this is necessary to get banks to participate." [2]
Apart from feathering the next of his colleagues, don't you get the impression that Paulson is hiding something? After all the Paulson bailout plan has been extended to the financial securities of foreign banks in the US. I suspect that the US Government has placed some form of pressure on them to purchase subprime collateralised debt obligations and other dodgy financial securities in the first instance (Just as the Bush administration did to local authorities in US states.) And we know that a high degree of fraud has been involved in selling such 'products'.
[1] Paulson warns: No limits on CEO pay
By Barry Grey. 23 September 2008
http://www.wsws.org/articles/2008/sep2008/ceo-s23.shtml
[2] US Treasury Bailout Auction Scam and How To Stop It
Politics / Credit Crisis Bailouts Sep 23, 2008 -
By: Mike_Shedlock
http://www.marketoracle.co.uk/Article6429.html
“’If we design it so it’s punitive and so institutions aren’t going to participate, this won’t work the way we need it to work,’ Mr. Paulson said...” [1]
And
"Bernanke wants government [taxpayer] to pay significant premium over current "firesale" price for troubled assets. Specifically, he wants to pay close to the "hold-to-maturity" price, which he argues is much higher than the mark-to-market firesale price. Bernanke and Paulson believes this is necessary to get banks to participate." [2]
Apart from feathering the next of his colleagues, don't you get the impression that Paulson is hiding something? After all the Paulson bailout plan has been extended to the financial securities of foreign banks in the US. I suspect that the US Government has placed some form of pressure on them to purchase subprime collateralised debt obligations and other dodgy financial securities in the first instance (Just as the Bush administration did to local authorities in US states.) And we know that a high degree of fraud has been involved in selling such 'products'.
[1] Paulson warns: No limits on CEO pay
By Barry Grey. 23 September 2008
http://www.wsws.org/articles/2008/sep2008/ceo-s23.shtml
[2] US Treasury Bailout Auction Scam and How To Stop It
Politics / Credit Crisis Bailouts Sep 23, 2008 -
By: Mike_Shedlock
http://www.marketoracle.co.uk/Article6429.html
JOKER MCCAIN
by the Sandwichman
Last week, the fundamentals were strong. This week he suspends his campaign to offer "leadership" in the bailout. aooga! aooga! dive! dive!
Last week, the fundamentals were strong. This week he suspends his campaign to offer "leadership" in the bailout. aooga! aooga! dive! dive!
Plan B: How to Restore Financial Markets Without a Bailout
In the last several days there has been an emerging consensus among well-informed analysts (like this and this) regarding the Fed/Treasury plan to bail out financial markets. It goes something this: the US financial sector faces a liquidity crisis on top of a solvency crisis. The liquidity part is that financial intermediaries (only some of them banks) are increasingly unable to meet their obligations to depositors and counterparties because they have no access to credit. Highly leveraged, they do not have the resources at hand to carry on their business. If this were the entire problem, the Fed could solve it by offering to buy mortgage-backed securities and similar assets at their actual market value. In that case there would be no bailout, just an infusion of liquidity to tide the markets over.
But there is an underlying solvency crisis: as housing values have declined, assets tied to them are no longer worth the financial obligations institutions have incurred in acquiring them. A large portion of the financial system (no one knows at this point how large this is) has negative net worth. This is why Bernanke has spoken of purchasing assets at their face rather than market value.
There are two gigantic problems with the bailout scheme, in addition to all the smaller ones. First, overpaying banks, investment funds and other financial players to the tune of hundreds of billions of dollars is an ethical and moral hazard nightmare. These people have made obscene fortunes in wild speculation; now that their bets have gone sour is it the public’s duty to cover their losses? Second, it is not even clear that the strategy will work. We don’t know how much it will take to bring the financial sector back to life, partly due to the lack of transparency that helped get us into this mess in the first place, and also to the understandable reluctance of firms to mark down all the paper that has declined in value. It may well be that between one and two trillion dollars will be needed to get the markets back on their feet, and this may exceed the financial and political resources of the federal government.
A big improvement (championed by Paul Krugman) would a buyout of the firms rather than the assets, even as an option as formulated in the Dodd proposal. Still, and especially in light of the difficulty in disentangling viable portfolios from moribund ones, the cost may be too great. It would be nice to have something completely different on the table. So read on: here is a Plan B, an alternative to bailouts that might restore a functioning credit mechanism to the US economy.
The concept: The existing approach tries to bring existing institutions out of insolvency and credit gridlock. Plan B allows these institutions to go belly up but rapidly creates a parallel financial mechanism to rescue sound assets from the rubble while offering credit to new borrowers. Rather than providing a public prop, it provides a public alternative.
The plan: Create a new publicly-financed, publicly-run enterprise; for the purposes of this description we can call it Fund US. Its initial capitalization would be provided by a Treasury issue. The amount could well be much less than the $700B (or $1.4 trillion in borrowing authority) that headlines the existing plan. This is because the fund would be permitted to leverage up to some reasonable ceiling—say six-to-one. So give it $300B as an initial allocation.
One initial function of Fund US would be to open a window for the purchase of existing financial assets at fair market value. This is not necessarily the same as the value of the moment, since, by its size relative to the markets as a whole, Fund US would be a price-maker. One possibility would be to honor prices as of September 15, before any general public plan was broached. Another, specifically for MBS’s, would be to use an algorithm based on a decline of the Case-Schiller Index to long run trend. Either way, this would protect the genuine value of financial wealth tied to housing from the cascade of defaults likely to sweep through the private sector.
The other main function would be to serve as an all-purpose financial intermediary to the US economy and to foreign interests that do business here. It would underwrite existing loans or other contracts, originate new credit and assemble a portfolio of financial assets in a manner consistent with prudent management. On the liability side, it would accept deposits and sell instruments like mutual funds and secondary debt. In other words, it would do what the current system does, subject to greater constraint.
What could assure this constraint? Here are some ideas: (1) The limit on leverage would be statutory. (2) Full transparency could be written into the legislation authorizing Fund US. All assets and liabilities would be publicly reported and all terms made explicit. (Small borrowers and lenders could have their individual identities protected for privacy purposes.) (3) There could be systems of oversight and undersight. The first would be provided by an outside board of disinterested specialists, primarily academics in the fields of accounting and finance. For the second, we might have front-line employees, who analyze and perform individual transactions, constitute themselves into a review body. This entity could give frequent public assessments of the quality of the Fund’s activities and their adherence to overall policy objectives—institutionalized, routinized whistle-blowing capacity. (4) All employees of the Fund, top to bottom, should be paid fixed salaries—no commissions or bonuses. (5) The Fund’s goals should be to maintain the value of public equity, minimize aggregate risk and have the capacity to supply credit sufficient to meet the needs of the economy. Profit maximization, returns in excess of what is necessary to supply a net worth buffer, would not be a goal.
Of course, one paragraph cannot possible provide sufficient detail to demonstrate that such an institution is feasible. On the other hand, how many paragraphs do we have at this point for the mega-bailout?
Two additional elements of Plan B are required to complete this brief sketch. First, Fund US would not be a chartered monopoly. Any financial institutions that survive the ongoing shakeout can compete against it, as can startups. Indeed, because of its lack of incentive for aggressive marketing on both sides of the ledger, it may eventually evolve toward being a financial intermediary of last resort. This would be fine. Second, for competition in this market to be constructive, new regulation must be extended to all players along the lines currently being discussed. In particular, limits on leverage and transparency requirements should apply to all intermediaries, whatever their institutional morphology.
I will not make any great claims for Plan B. Its details require much more working out. There is also a valid concern that it may not be possible to get a massive new institution up and running before existing credit channels freeze up. It would have been much better to have developed a public fund slowly and carefully during the pre-crisis phase, but who was thinking this far ahead? I am less bothered by the ideological objection to a public institution taking on the functions of private firms and competing with them. To take one example, more than half of all the assets in the German banking system are in public and cooperative banks. Germany isn’t utopia (and one of its state banks was mauled because it indulged in dubious US assets), but it is, along with China, the world’s leading industrial exporter. It runs a huge trade surplus with the US, largely due to the strength of its small and medium-size enterprises. Small firms in Germany are global players because they have the same access to capital as big ones, something that can’t be said for the US. This is not to say that we should copy the German template, just that there is no reason to assume that public financial institutions can’t support a successful modern economy.
Plan B is offered to you as a stimulus to creative thinking about the current imbroglio. I would be interested to find out if it can withstand scrutiny.
But there is an underlying solvency crisis: as housing values have declined, assets tied to them are no longer worth the financial obligations institutions have incurred in acquiring them. A large portion of the financial system (no one knows at this point how large this is) has negative net worth. This is why Bernanke has spoken of purchasing assets at their face rather than market value.
There are two gigantic problems with the bailout scheme, in addition to all the smaller ones. First, overpaying banks, investment funds and other financial players to the tune of hundreds of billions of dollars is an ethical and moral hazard nightmare. These people have made obscene fortunes in wild speculation; now that their bets have gone sour is it the public’s duty to cover their losses? Second, it is not even clear that the strategy will work. We don’t know how much it will take to bring the financial sector back to life, partly due to the lack of transparency that helped get us into this mess in the first place, and also to the understandable reluctance of firms to mark down all the paper that has declined in value. It may well be that between one and two trillion dollars will be needed to get the markets back on their feet, and this may exceed the financial and political resources of the federal government.
A big improvement (championed by Paul Krugman) would a buyout of the firms rather than the assets, even as an option as formulated in the Dodd proposal. Still, and especially in light of the difficulty in disentangling viable portfolios from moribund ones, the cost may be too great. It would be nice to have something completely different on the table. So read on: here is a Plan B, an alternative to bailouts that might restore a functioning credit mechanism to the US economy.
The concept: The existing approach tries to bring existing institutions out of insolvency and credit gridlock. Plan B allows these institutions to go belly up but rapidly creates a parallel financial mechanism to rescue sound assets from the rubble while offering credit to new borrowers. Rather than providing a public prop, it provides a public alternative.
The plan: Create a new publicly-financed, publicly-run enterprise; for the purposes of this description we can call it Fund US. Its initial capitalization would be provided by a Treasury issue. The amount could well be much less than the $700B (or $1.4 trillion in borrowing authority) that headlines the existing plan. This is because the fund would be permitted to leverage up to some reasonable ceiling—say six-to-one. So give it $300B as an initial allocation.
One initial function of Fund US would be to open a window for the purchase of existing financial assets at fair market value. This is not necessarily the same as the value of the moment, since, by its size relative to the markets as a whole, Fund US would be a price-maker. One possibility would be to honor prices as of September 15, before any general public plan was broached. Another, specifically for MBS’s, would be to use an algorithm based on a decline of the Case-Schiller Index to long run trend. Either way, this would protect the genuine value of financial wealth tied to housing from the cascade of defaults likely to sweep through the private sector.
The other main function would be to serve as an all-purpose financial intermediary to the US economy and to foreign interests that do business here. It would underwrite existing loans or other contracts, originate new credit and assemble a portfolio of financial assets in a manner consistent with prudent management. On the liability side, it would accept deposits and sell instruments like mutual funds and secondary debt. In other words, it would do what the current system does, subject to greater constraint.
What could assure this constraint? Here are some ideas: (1) The limit on leverage would be statutory. (2) Full transparency could be written into the legislation authorizing Fund US. All assets and liabilities would be publicly reported and all terms made explicit. (Small borrowers and lenders could have their individual identities protected for privacy purposes.) (3) There could be systems of oversight and undersight. The first would be provided by an outside board of disinterested specialists, primarily academics in the fields of accounting and finance. For the second, we might have front-line employees, who analyze and perform individual transactions, constitute themselves into a review body. This entity could give frequent public assessments of the quality of the Fund’s activities and their adherence to overall policy objectives—institutionalized, routinized whistle-blowing capacity. (4) All employees of the Fund, top to bottom, should be paid fixed salaries—no commissions or bonuses. (5) The Fund’s goals should be to maintain the value of public equity, minimize aggregate risk and have the capacity to supply credit sufficient to meet the needs of the economy. Profit maximization, returns in excess of what is necessary to supply a net worth buffer, would not be a goal.
Of course, one paragraph cannot possible provide sufficient detail to demonstrate that such an institution is feasible. On the other hand, how many paragraphs do we have at this point for the mega-bailout?
Two additional elements of Plan B are required to complete this brief sketch. First, Fund US would not be a chartered monopoly. Any financial institutions that survive the ongoing shakeout can compete against it, as can startups. Indeed, because of its lack of incentive for aggressive marketing on both sides of the ledger, it may eventually evolve toward being a financial intermediary of last resort. This would be fine. Second, for competition in this market to be constructive, new regulation must be extended to all players along the lines currently being discussed. In particular, limits on leverage and transparency requirements should apply to all intermediaries, whatever their institutional morphology.
I will not make any great claims for Plan B. Its details require much more working out. There is also a valid concern that it may not be possible to get a massive new institution up and running before existing credit channels freeze up. It would have been much better to have developed a public fund slowly and carefully during the pre-crisis phase, but who was thinking this far ahead? I am less bothered by the ideological objection to a public institution taking on the functions of private firms and competing with them. To take one example, more than half of all the assets in the German banking system are in public and cooperative banks. Germany isn’t utopia (and one of its state banks was mauled because it indulged in dubious US assets), but it is, along with China, the world’s leading industrial exporter. It runs a huge trade surplus with the US, largely due to the strength of its small and medium-size enterprises. Small firms in Germany are global players because they have the same access to capital as big ones, something that can’t be said for the US. This is not to say that we should copy the German template, just that there is no reason to assume that public financial institutions can’t support a successful modern economy.
Plan B is offered to you as a stimulus to creative thinking about the current imbroglio. I would be interested to find out if it can withstand scrutiny.
The unpublished history of AIG.
In 1962 the founder of AIG gave control of the company's US holdings to Maurice R. "Hank" Greenberg. Greenberg then changed the focus of AIG from personal insurance to "high-margin corporate coverage" and, in 1987, he appointed Henry Kissinger as chairman of AIG’s International Advisory Board.
Maurice Greenberg's history is a very interesting one to follow. After all, he is a past Chairman, Deputy Chairman and Director of the Federal Reserve Bank of New York - an organisation that loaned money to AIG at AIG's request to prevent the company's collapse this month and on terms that were acceptable to the AIG board.
In 2005 AIG's board forced Greenberg to resign from his post as Chairman and CEO under following criticism from Eliot Spitzer, attorney general of New York State. Spitzer alleged fraudulent business practice, securities fraud, common law fraud, and other violations of insurance and securities laws. The charges were dropped later and civil action followed. The year before two AIG executives pleaded guilty to criminal charges in connection with their "illegal course of conduct" relating to 'payoff agreements' with (at least) one other corporation for steering clients to AIG and for soliciting rigged bids for insurance contracts.
Other current positions of AIG's most influential man:
- As current Chairman of the Starr Foundation Greenberg "oversees the disbursement of major financial support to academic, medical, cultural, and public policy institutions."
- He is Honorary Vice Chairman and Director of the Council on Foreign Relations and a member of David Rockefeller's Trilateral Commission.
- Current Chairman and Trustee of 3 institutions founded by the Rockefeller family.
- A former Chairman and current member of the US–Korea Business Council, a member of the US–China Business Council, and the Business Council.
In the past he has served on the Board of Directors of the New York Stock Exchange, the President’s Advisory Committee for Trade Policy and Negotiations, and the Business Roundtable. (Former US President Reagan offered him a job as as Deputy Director of the CIA, which he declined.) in the years of 1998-2005 Greenberg was a member of Hong Kong Chief Executive's Council of International Advisers .
From Wikipedia today.
http://en.wikipedia.org/wiki/Maurice_R._Greenberg
http://en.wikipedia.org/wiki/American_International_Group
Maurice Greenberg's history is a very interesting one to follow. After all, he is a past Chairman, Deputy Chairman and Director of the Federal Reserve Bank of New York - an organisation that loaned money to AIG at AIG's request to prevent the company's collapse this month and on terms that were acceptable to the AIG board.
In 2005 AIG's board forced Greenberg to resign from his post as Chairman and CEO under following criticism from Eliot Spitzer, attorney general of New York State. Spitzer alleged fraudulent business practice, securities fraud, common law fraud, and other violations of insurance and securities laws. The charges were dropped later and civil action followed. The year before two AIG executives pleaded guilty to criminal charges in connection with their "illegal course of conduct" relating to 'payoff agreements' with (at least) one other corporation for steering clients to AIG and for soliciting rigged bids for insurance contracts.
Other current positions of AIG's most influential man:
- As current Chairman of the Starr Foundation Greenberg "oversees the disbursement of major financial support to academic, medical, cultural, and public policy institutions."
- He is Honorary Vice Chairman and Director of the Council on Foreign Relations and a member of David Rockefeller's Trilateral Commission.
- Current Chairman and Trustee of 3 institutions founded by the Rockefeller family.
- A former Chairman and current member of the US–Korea Business Council, a member of the US–China Business Council, and the Business Council.
In the past he has served on the Board of Directors of the New York Stock Exchange, the President’s Advisory Committee for Trade Policy and Negotiations, and the Business Roundtable. (Former US President Reagan offered him a job as as Deputy Director of the CIA, which he declined.) in the years of 1998-2005 Greenberg was a member of Hong Kong Chief Executive's Council of International Advisers .
From Wikipedia today.
http://en.wikipedia.org/wiki/Maurice_R._Greenberg
http://en.wikipedia.org/wiki/American_International_Group
Tuesday, September 23, 2008
The global crisis in dot-point. Part Two
[This is such an extraordinary week. So many economic writers are focussing on a very narrow range of financial crises. However, the structural problems that created this catastrophe need also to be addressed quickly.]
** The provision of essential goods and services has been left to ‘market’ demand.
Today’s news: Chesapeake Energy CEO Aubrey McClendon said Tuesday he would not be surprised if US drillers dropped hundreds of rigs in the next couple of quarters due to lower natural gas prices.[1]
** Inflation has been inappropriately treated as a monetary phenomenon with policy implementation resulting in world-wide recessions.
[Inflation] “became a problem which had to be treated, but by means other than those recommended by Dr Friedman and his colleagues. So they decided, because they thought it was a monetary phenomenon, which it wasn't, that the way to cure it was to crack down on the monetary system to tighten money and raise interest rates. And they had a little go at it in 1974-75, and they brought on a little recession, at least in our part of the world. And then in 1980-81, Paul Volker, who was at that time the Chairman of the Federal Reserve Board in Washington, and who had become a disciple of Dr Friedman, said, 'We will put this to the test'. And so he brought on a horrendous recession which was virtually world-wide…”[2]
** The functioning of critical domestic institutions is dependent on the inflow of foreign capital.
“…The fact is that Henry Paulson and this economic team and this failed administration in terms of economic policy, they have to say whatever they can about this money because without that foreign capital we have institution after institution that is simply insolvent.”[3]
** Finance capital is monopolized.
“No bank in the world will loan to a country blacklisted by the World Bank. To obtain funding from any bank, developing world governments must adjust their policies (called structural adjustments) to the dictates of the IMF/World Bank/NAFTA/ GATT/WTO/MAI/GATS/FTAA/military colossus. It is specifically under the imposed structural adjustment rules of that colossus that protections for the fast developing nations were withdrawn. Not only is the developing world locked within the parameters of the decisions of international capital, if any developed world government veers from the prescribed path, enough capital will flee to turn the economy downward, the politicians (not the subtle finance monopolists) will be blamed and—to maintain themselves within the good graces of the voters—the politicians will bend to the wishes of capital, even if it is to the detriment of the nation of their birth or of the world.”[4]
[1] Tuesday, September 23, 2008
Credit Crunch Hitting the Oil Patch
http://www.nakedcapitalism.com/2008/09/credit-crunch-hitting-oil-patch.html
[2] Paul Hellyer, former Deputy Prime Minister of Canada, talking at a conference, 'Reclaiming Democracy', in Sydney
[3] Lou Dobbs 2/4/08 "America being sold to foreign governments"
Submitted by Kim Berry on Mon, 02/04/2008 - 21:31
http://www.economicpopulist.org/?q=content/lou-dobbs-2408-america-being-sold-foreign-governments
[4] Chapter 11. Emerging Corporate Imperialism, from the book, Economic Democracy; The Political Struggle for the 21st Century.
http://www.ied.info/books/economic-democracy/corporatemercantilism
** The provision of essential goods and services has been left to ‘market’ demand.
Today’s news: Chesapeake Energy CEO Aubrey McClendon said Tuesday he would not be surprised if US drillers dropped hundreds of rigs in the next couple of quarters due to lower natural gas prices.[1]
** Inflation has been inappropriately treated as a monetary phenomenon with policy implementation resulting in world-wide recessions.
[Inflation] “became a problem which had to be treated, but by means other than those recommended by Dr Friedman and his colleagues. So they decided, because they thought it was a monetary phenomenon, which it wasn't, that the way to cure it was to crack down on the monetary system to tighten money and raise interest rates. And they had a little go at it in 1974-75, and they brought on a little recession, at least in our part of the world. And then in 1980-81, Paul Volker, who was at that time the Chairman of the Federal Reserve Board in Washington, and who had become a disciple of Dr Friedman, said, 'We will put this to the test'. And so he brought on a horrendous recession which was virtually world-wide…”[2]
** The functioning of critical domestic institutions is dependent on the inflow of foreign capital.
“…The fact is that Henry Paulson and this economic team and this failed administration in terms of economic policy, they have to say whatever they can about this money because without that foreign capital we have institution after institution that is simply insolvent.”[3]
** Finance capital is monopolized.
“No bank in the world will loan to a country blacklisted by the World Bank. To obtain funding from any bank, developing world governments must adjust their policies (called structural adjustments) to the dictates of the IMF/World Bank/NAFTA/ GATT/WTO/MAI/GATS/FTAA/military colossus. It is specifically under the imposed structural adjustment rules of that colossus that protections for the fast developing nations were withdrawn. Not only is the developing world locked within the parameters of the decisions of international capital, if any developed world government veers from the prescribed path, enough capital will flee to turn the economy downward, the politicians (not the subtle finance monopolists) will be blamed and—to maintain themselves within the good graces of the voters—the politicians will bend to the wishes of capital, even if it is to the detriment of the nation of their birth or of the world.”[4]
[1] Tuesday, September 23, 2008
Credit Crunch Hitting the Oil Patch
http://www.nakedcapitalism.com/2008/09/credit-crunch-hitting-oil-patch.html
[2] Paul Hellyer, former Deputy Prime Minister of Canada, talking at a conference, 'Reclaiming Democracy', in Sydney
[3] Lou Dobbs 2/4/08 "America being sold to foreign governments"
Submitted by Kim Berry on Mon, 02/04/2008 - 21:31
http://www.economicpopulist.org/?q=content/lou-dobbs-2408-america-being-sold-foreign-governments
[4] Chapter 11. Emerging Corporate Imperialism, from the book, Economic Democracy; The Political Struggle for the 21st Century.
http://www.ied.info/books/economic-democracy/corporatemercantilism
Monday, September 22, 2008
Possible Economics Nobels?
And on a different note, here are my thoughts on possible recipients for this years Sveriges Bank Prize in Economic Science in Memory of Alfred Nobel. First, I hope that it does not go to either of two prominent macroeconomists who regularly get mentioned. This would be an extremely inappropriate year for such, given what is going on. However, here are five I could live with who I think are on the list, at least one of whom I do not think has been publicly mentioned, or at least not much.
William Baumol, for lots of things
Jagdish Bhagwati with Avinash Dixit, for international trade theory
Gordon Tullock with Anne Krueger, for rent seeking
Benoit Mandelbrot, possibly with Eugene Fama, just to freak everybody out, although Mandelbrot is the more deserving in my view (for complexity) but certainly for recognizing the reality of fat tails in financial markets, now more evident than ever (if they give it Fama and not Mandelbrot, that would be a ridiculous farce).
Richard Easterlin, for happiness. He is the man on that one, and deserving. Of this group, it is him and Mandelbrot whom I would most like to see.
BTW, to Brenda, there ought to be one for ecological economics, but I doubt this is the year, and I am not sure who should get it.
William Baumol, for lots of things
Jagdish Bhagwati with Avinash Dixit, for international trade theory
Gordon Tullock with Anne Krueger, for rent seeking
Benoit Mandelbrot, possibly with Eugene Fama, just to freak everybody out, although Mandelbrot is the more deserving in my view (for complexity) but certainly for recognizing the reality of fat tails in financial markets, now more evident than ever (if they give it Fama and not Mandelbrot, that would be a ridiculous farce).
Richard Easterlin, for happiness. He is the man on that one, and deserving. Of this group, it is him and Mandelbrot whom I would most like to see.
BTW, to Brenda, there ought to be one for ecological economics, but I doubt this is the year, and I am not sure who should get it.
Ruth Marcus Misrepresenting Obama on Social Security
In today's WaPo, Ruth Marcus tries to put herself back into "journalistic symmetry" after having sharply criticizing McCain for his fallacious ads last week by misrepresenting Obama's and McCain's (and more importantly, Bush's) positions on Social Security. She declares that Obama is lying to old people in Miami that privatizing Social Security, which McCain has supported as recently as this Sunday will hurt their pensions, citing the never-quite-fully-explicated "plan" that Bush put forward in 2005 and that McCain supported.
Now, it is true that that plan claimed it would not cut current benefits of current retirees. However, it would start removing revenues from the system to go into the private accounts of young people, with about a six-year window of people in their 40s being targeted to get neither private accounts, but definite cuts in their benefits. There are two problems here.
One is that even though there would be no immediate cuts in benefits, taking away revenues would weaken the system and increase the likelihood of cuts being imposed in the future, quite possibly on people currently receiving benefits. The second is the ongoing hypocrisy of declaring that the future economy is bleak and that therefore the future of social security revenues is bleak, even as in a majority of years in the past decade the revenues did better than the "low cost projection" that has the system never running a deficit, much less going "bankrupt," while on the other hand the stock market is supposed to perform wonders so as to provide these fabulous returns on private accounts.
In any case, Marcus is simply off base in going after Obama. Privatizing Social Security does threaten the system by reducing its revenues, thereby increasing the dangers for current recipients down the road, and his formulation in Miami was about what would have been the case if those seniors did have their Social Security in private accounts, which is accurate.
Now, it is true that that plan claimed it would not cut current benefits of current retirees. However, it would start removing revenues from the system to go into the private accounts of young people, with about a six-year window of people in their 40s being targeted to get neither private accounts, but definite cuts in their benefits. There are two problems here.
One is that even though there would be no immediate cuts in benefits, taking away revenues would weaken the system and increase the likelihood of cuts being imposed in the future, quite possibly on people currently receiving benefits. The second is the ongoing hypocrisy of declaring that the future economy is bleak and that therefore the future of social security revenues is bleak, even as in a majority of years in the past decade the revenues did better than the "low cost projection" that has the system never running a deficit, much less going "bankrupt," while on the other hand the stock market is supposed to perform wonders so as to provide these fabulous returns on private accounts.
In any case, Marcus is simply off base in going after Obama. Privatizing Social Security does threaten the system by reducing its revenues, thereby increasing the dangers for current recipients down the road, and his formulation in Miami was about what would have been the case if those seniors did have their Social Security in private accounts, which is accurate.
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