Cheerleader Journalist vs. Analysts: Inane vs. Sane

Here's the picture, via tpm, students: Nouriel Roubini and Nassim Taleb had a 3-hour long line to get into their talk at Davos.  Who was waiting to get in?  Folks like Bill Gates.

Roubini is "famous" now, so CNBC invites him and Tasseb on to the channel.  The problem is that either these journalists are too isolated, stupid or brainwashed to understand what Roubbini and Taleb had to say, or they are selling a product (unlimited growth, DOW 50,000!) that just doesn't exist right now.  They seem to think there is some sector that will give their portfolios a miracle cure, which is silly.  Our problems are systemic.*  It's not just banking or insurance or production or demand.  It's all entangled and until the finance sector clears its bad assets and can clearly put value on real, physical production (as opposed to circulating mathematical-model hedge funds that relate to no real-world products) then the system will not work.  It's really fascinating to watch these clueless people who seem to think that a little cheerleading is going to get everybody through this.  (Oh, and they also think that all bankers are geniuses and deserve high salaries for crashing the system.)

http://www.cnbc.com/id/15840232?video=1027496846

Video link 

*Of course, there will always be some stock somewhere that makes money.  The point is, Roubini and Tasseb are not talking about isolated stocks, but about a whole (screwed up) system.

Crashing the system II

I'm happy to see (via M. Thoma) that those who are crashing the systems are at least not making quite as much money.

Change is in the air for financial superclass, by David Rothkopf, Commentary, Financial Times: ...The re-engineering of international finance has been one of the transformational trends of our times – in just a quarter-century, capital flows became massive, instantaneous and controlled by a new breed of traders representing a handful of major financial institutions from a few countries. Their rewards have transcended any in history as shown by an estimate ... that the top hedge fund manager last year made $3bn.

The concentration of power has also steadily grown..., the key executives are in the US and Europe, underscoring the transatlantic nature of this elite. Change, however, is in the air. The history of elites is one of their rising up, over-reaching, being reined in and supplanted by a new elite. Several recent developments suggest that the financial crisis could signal the high-water mark of power for this group.

First, the crisis is prompting a re-regulatory drive. The power of financial elites had been evident in their ability to argue that global financial markets and markets in new securities should remain “self-regulating” (how many of them would hop into a self-regulating taxicab?), then when crisis comes ... these champions of less government involvement have then persuaded governments to cauterise their wounds.

Now, however, there are encouraging, if preliminary, signs of a push towards more effective collaboration between governments – the first steps towards creating the much needed checks on global markets... This could erode the agility of financial elites to play governments off against each other, with the weakest regulator setting the rules.

Checks on markets? Gosh, I wish someone had thought about that before.

Get rich and stay that way!

A new article by the Financial Times indicates that the truly rich are weathering the current financial crisis just fine, thank you.

World’s rich shrug off credit crunch

By Daniel Thomas in London

Published: April 20 2008 16:38 | Last updated: April 20 2008 16:38

The ranks of the world’s rich swelled to 8m during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year.

There was a 4.5 per cent increase last year in so-called “high net worth individuals”, those with assets of more than $1m, according to the 2008 wealth report compiled by Citi Private Bank and Knight Frank, published on Monday.

There was particularly strong growth of wealthy populations in the emerging economies of China and India, as well as those countries that have access to ­natural resources such as Kazakhstan.

Countries such as Brazil, Canada, Australia and ­Russia also each added more than 8,500 wealthy residents in 2007 on the back of the commodity boom.

The report says that the rate of growth of high net worth individuals has outpaced growth in both gross domestic product, and GDP per head, which it believes indicates that the rich are getting richer relative to their respective countries.

“This is not a perfect measure of relative wealth growth across income levels,” it says, “but there is an indication here that the ­plutonomy model retained its strength through 2007 and is in rude health.”

The US is still home to most of the world’s truly rich. High net worth individuals make up 1 per cent of the US population, with 3.1m people claiming to be dollar millionaires, and 460 to be billionaires.

Japan claims the next highest population of the wealthy, with 765,000 dollar millionaires, and then the UK, where there are 557,000.

The UK has seen the biggest increase in billionaires, however. Numbers rose by 40 per cent in 2007, from 35 to 49. China’s high net worth population grew by 14 per cent in 2007, and now number 373,000, almost as many as in Germany.

The report says there was little change in the investment activity of the very rich during the credit crunch in 2007, other than a shift away from structured finance. It says the very wealthy are “weathering the crunch” much better than insti­tutional investors, owing to the diversity of their port­folios.

More than 50 per cent invest in property, which has fuelled a rapid growth in luxury house prices across the world.

I'm not sure what the surprise is here, if any, but it does lend further (albeit circumstantial) evidence to the idea that the neoliberal economic regime will keep the world's weathly wealthy no matter what? Why? Well, if the economic system is tilted towards you and you pull most of the levers, why would capital flows reverse direction? Or, to put it differently, why would those in power do anything to put their wealth at risk?

The Bear Stearns example is pertinent. Rather than let the markets decide, the elite class used its power to subvert the market and pay off weathly stakeholders. Rather than fix the system, they protect themselves.

A Trillion Here, A Trillion There, A Trillion Everywhere

Channeling Brad Delong again for this graph:

A Trillion Here, A Trillion There

Brad Delong points to this article at Vox EU referring to the Fed's attempts to control the crisis in the finance industry. I will post some U.S. bugdet numbers for comparison's sake. My point is: if the federal government were to spend a trillion dollars on a military mission to "save our way of life," you better believe we would hear about it. (Ok, maybe not, our media suck.)

Just take a look at this:

[...]

These new programs are very different from the ones that had been in place prior to the crisis.... By changing the level of the monetary base (really commercial bank reserve deposits at the central bank) Fed officials keep the market-determined federal funds rate near their target.... Given the quantity of assets it owns, the Fed can decide whether it wants to hold Treasury securities, foreign exchange reserves, or a variety of other things.... By the end of March 2008, the Fed had committed more than half of their nearly $1 trillion balance sheet to these new programs:

• $100 billion to the Term Auction Facility,
• $100 billion to 28-day repo of mortgage-backed securities,
• $200 billion to the Term Securities Lending Facility,
• $36 billion to foreign exchange swaps,
• $29 billion to a loan to support the sale of Bear Stearns,
• $30 billion so far to the Primary Dealer Credit Facility.

Changes in the composition of central bank assets are intended to influence the relative price a financial assets -- that is, interest rate spreads. So, by changing its lending procedures, Fed officials hoped that they would be able to reduce the cost of 3-month interbank loans and the spread between U.S. agency securities and the equivalent maturity Treasury rate. At this writing, these programs have met with only modest success.

[...]

Now, here are a few budget numbers from 2007 courtesy of Wikipedia:

• $586.1 billion (+7.0%) - Social Security
• $548.8 billion (+9.0%) - Defense^[2]
• $394.5 billion (+12.4%) - Medicare
• $294.0 billion (+2.0%) - Unemployment and welfare
• $276.4 billion (+2.9%) - Medicaid and other health related
• $243.7 billion (+13.4%) - Interest on debt
• $89.9 billion (+1.3%) - Education and training
• $76.9 billion (+8.1%) - Transportation
• $72.6 billion (+5.8%) - Veterans' benefits
• $43.5 billion (+9.2%) - Administration of justice
• $33.1 billion (+5.7%) - Natural resources and environment
• $32.5 billion (+15.4%) - Foreign affairs
• $27.0 billion (+3.7%) - Agriculture
• $26.8 billion (+28.7%) - Community and regional development
• $25.0 billion (+4.0%) - Science and technology
• $23.5 billion (+0.8%) - Energy
• $20.1 billion (+11.4%) - General government

I don't want to argue the specifics of these numbers (military spending is actually higher than stated here). I'm also not saying that our government should refrain from action, though I think the Bear Stearns bailout was misguided and that homeowners, not hedge funds, should be getting the billions.

My point is that we are going through a national emergency simply by definition of the proportion of our government's emergency spending on a single problem.

But Pennsylvanians are bitter.