Crossposted from The Stars Hollow Gazette

Obama’s Economic Quagmire: Frank Rich and Adam Moss Talk About What’s Really in Ron Suskind’s Revealing New Book About the White House

By Adam Moss and Frank Rich, The New Yorker

9/17/11 at 4:38 PM

Frank Rich: It’s the most ambitious treatment of this period yet because Suskind integrates the White House story with the Wall Street story, giving them equal weight rather than downsizing one to serve as the backdrop to the other. He is truly after the big picture, not just the petty stuff. He has no agenda of his own that I can detect, he had enormous cooperation from the White House, and he names sources (and avoids blind quotes) far more than the norm for a book of this Woodward genre. And even for someone like me, who’s read most of the overlapping books and reported on some of this myself, there are new revelations and details. A depressing book yes, but savvy and informative. And some of that depression will be temporarily alleviated by the doubtlessly entertaining circular firing squad that is likely to emerge in the next week once Summers, Geithner, Warren, Emanuel, Rubin, Volcker, Orszag, Rouse, Barney Frank (who does not fare well), and perhaps the president get their hands on it.

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(T)he buck stops with Obama. There’s a poignant moment of sorts in December 2008 when the North Dakota senator Byron Dorgan implores the president-elect not to go with his economic team. “I don’t understand how you could do this,” he tells him. “You’ve picked the wrong people!” As indeed Obama did, under the tutelage of Robert Rubin, who also tried to finagle a White House guru role for himself, not unlike the perch from which he helped wreak havoc at Citigroup during its subprime orgy. So Suskind’s book often reads like Halberstam’s “Best and the Brightest,” with Summers and Geithner as McNamara and Bundy. But the quagmire isn’t a neo-Vietnam like Afghanistan – it’s the economy, and the casualties are measured in lost jobs. After the stimulus bill passed in February 2009, Suskind writes, “little else happened on the jobs front for a year and a half,” with proposals being “talked to death without resolution.”

What should the White House do? Panic!

By James Carville, CNN Contributor

updated 11:05 AM EST, Sun September 18, 2011

For God’s sake, why are we still looking at the same political and economic advisers that got us into this mess? It’s not working.

Furthermore, it’s not going to work with the same team, the same strategy and the same excuses. I know economic analysts are smart — some work 17-hour days. It’s time to show them the exit. Wake up — show us you are doing something.

Bill Daley struggles to fix Barack Obama’s slump

By GLENN THRUSH & JOHN BRESNAHAN & AMIE PARNES, Politico

9/16/11 6:54 PM EDT

The 63-year-old scion of Chicago political royalty was brought in as President Barack Obama’s chief of staff to provide fresh blood, corporate-world experience and adult supervision to a young, free-wheeling White House staff. But critics inside and outside the West Wing are questioning whether he is the tough, competent manager needed to shake up the operation and propel Obama into the 2012 election year.

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As a banker and former secretary of commerce, Daley’s ability to soothe relations with Republicans was a major justification for bringing him from Chicago – much to the disgust of many Democrats who wanted Obama to take a more combative approach after the 2010 elections. But Daley’s failure to achieve any negotiating successes has only intensified the chorus of criticism from Democrats that Obama is too willing to compromise.

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There’s also a primal scream aspect to the criticism, rooted in deep concerns among many Democrats about 2012, and, perhaps, the desire to find someone other than the man at the top of the ticket to blame.

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The irony, of course, is that Daley is doing what his boss wants. He takes his role of gatekeeper seriously, and has restricted the torrent of paper and people into the Oval Office. The decision to downsize and deprioritize Obama’s legislative affairs team was made before Daley ever entered the building on a blueprint from interim chief of staff Pete Rouse.

Evidently untrue.

Berlusconi boasts of sleeping with eight women in one night

Silvio Berlusconi was at the centre of further sordid revelations about his sex life on Saturday after the Italian leader was caught boasting of having sex with eight women in one night.

By Nick Squires, The Telegraph

8:58PM BST 17 Sep 2011

The taped conversations also suggested for the first time that Mr Berlusconi gave money to the women he allegedly slept with, contradicting his repeated insistence that he has never paid for sex.

In revelations which are set to test Italian tolerance to the limit, the conversations also offered the strongest evidence yet that the scandal-prone billionaire used taxpayers’ money and state-owned aircraft to fly alleged prostitutes around Italy.

Last week Mr Berlusconi pushed through parliament a 54 billion euro austerity package which will hit pensions, public services and retirement ages, sparking violent clashes between riot police and demonstrators outside parliament in Rome.

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The taped conversations revealed in extraordinary detail how parties involving dozens of young starlets and escort girls were organised for the 74-year-old Italian premier by a middleman, Gianpaolo Tarantini, 36, a convicted cocaine dealer. Mr Tarantini is being investigated for allegedly recruiting young women, and has also been accused of blackmailing the prime minister in exchange for his silence over the alleged prostitution ring.

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The latest revelations will increase concerns in Italy over whether Mr Berlusconi can concentrate on rescuing Italy from its acute economic problems at a time when the country risks being sucked into the euro zone crisis.

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Mr Berlusconi already faces four trials on charges ranging from bribery, tax fraud and false accounting to paying for sex with Karima El Mahroug, a teenage exotic dancer who prosecutors claim was working as an underage prostitute.

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Mr Tarantini is currently in custody for allegedly extorting hundreds of thousands of euros from Mr Berlusconi. The premier says he gave money to Mr Tarantini and his wife, who was also arrested, because he is a generous man who was trying to help a “family in need.”

Brag as he might, Silvio is unlikely to beat the record of Wilt ‘The Stilt’ Chamberlain.

USA.  USA.

As disappointing as some of MSNBC’s recent personnel decisions have been, I’m willing to give Chris Hayes a chance.

He has a new show named Up with Chris Haynes on at 8 – 10 am Saturday and Sunday.  Considering the competition it can hardly fail to be better.  Whether it’s good enough to encourage watching any weekend beltway bootlicking gasbag show is up to you.  Courtesy of digby we have a link to yesterday’s debut and the following sample.

Crossposted from The Stars Hollow Gazette

Yikes! ISS crew endures comms blackout during re-entry

By: William Harwood, CNET

September 16, 2011 6:33 AM PDT

A Russian Soyuz capsule carrying three of the International Space Station’s six crew members suffered an unexpected communications blackout just before plunging back into Earth’s atmosphere, completing a nail-biting descent in radio silence with repeated calls from flight controllers near Moscow going unanswered.

Finally, recovery crews spotted the Soyuz TMA-21’s braking parachute, communications with ground crews were established and the spacecraft touched down in Kazakhstan at 9:59 a.m. local time Friday (8:59 p.m. PT Thursday), tipping over on its side as it closed out an expedition lasting 164 days since launch April 4 from the Baikonur Cosmodrome.

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There was no immediate explanation for the communications dropout. The repeated, unanswered calls from mission control near Moscow were eerily reminiscent of the fruitless calls to the shuttle Columbia during the orbiter’s ill-fated descent to Earth in 2003.

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Engineers have traced the Soyuz-U engine failure to a kerosene fuel line blockage that disrupted the operation of a turbopump used to feed propellants to the main combustion chamber. A Russian commission investigating the failure reportedly has raised questions about quality control. But it’s not yet clear how that issue will be resolved.

This week’s episodes originally aired October 4, 2003.

Crossposted from The Stars Hollow Gazette

Lots of people think, as I did until recently, that ETFs are relatively low risk, low cost investments that track well understood and popular market indexes like the S&P 500 without forcing individual investors to actually assemble a portfolio of the underlying assets.

Not so much.

Terry Smith has put together a list of 4 problems with ETFs as they are traded today of which I think #3 is the biggest-

Because you can exchange trade these funds, they are used by hedge funds and banks to take positions and they can short them. Because they can apparently rely upon creating the units to deliver on their short, there are examples of short interest in ETFs being up to 1000% short i.e. some market participant(s) are short 10 times the amount of the ETF. If the ETF is in an illiquid sector, can you really rely upon creating the units as you may not be able to buy (or sell) the underlying assets in a sector with limited liquidity? The danger of allowing short sales which are a multiple of the value of a fund in an area where it may not be possible to close the trades by buying back the stocks are clear, but amazingly, during the debate in which I have been engaged by various cheer leaders for ETFs, they have claimed that there is no such risk in shorting ETFs. They clearly do not understand the product they are peddling, and if they can’t what chance has the retail investor got?

In other words leverage is creating notional supply in excess of the actual supply of an asset which leads to illiquidity when the demand exceeds it.

I’m sorry, you can’t buy anymore X at any price.

Now economists would argue that there is always a price at which a supply of X is available and on certain theoretical levels they are correct, but there is a practical level at which the price becomes too expensive and someone, somewhere is either deprived of the item they had a contract to purchase OR is forced to spend lots of money making good those promises.

This is apparently what happened at UBS.

The $2 Billion UBS Incident: ‘Rogue Trader’ My Ass

Matt Taibbi, Roling Stone

POSTED: September 15, 8:39 AM ET

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.

In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.

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In the financial press you’re called a “rogue trader” if you’re some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you’re a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.

In other words, “rogue traders” are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.

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Sooner or later, this is going to blow up in our faces, and it won’t be one lower-level guy with a $2 billion loss we’ll be swallowing. It’ll be the CEO of another rogue firm like Lehman Brothers, and it’ll cost us trillions, not billions.

‘Rogue trader’? That’s the same as ‘rogue reporter’

The ‘rogues’ are those who get caught while people presiding over systems that go wrong say: ‘How deplorable’

Michael White, The Guardian

Friday 16 September 2011 06.40 EDT

A “rogue trader” in a City of London bank is really like a “rogue reporter” on the News of the World. He’s the one who gets caught and sent to jail when the people who presided over the system that allowed him to lose $2bn – or, in Clive Goodman’s case, to hack some royal phones – say “how deplorable” before business as usual is restored.

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Have we learned nothing? Apparently not. Adoboli is 31, with less visible expertise and experience than his evident ambition to make money. Who left him in charge of the tea money? Yet he was able to lose $2bn in a corner of the investment market known as exchange traded funds (ETFs), which even the FT is having a struggle explaining to its more ignorant readers (bank chairmen, people like that) in today’s edition.

Apparently, they’re the hottest thing since the collateralised debt products that blew up Lehman and others in 2008. The FT columnist Gillian Tett says she wrote a column in May warning that ETFs were heading for a scandal, but not quite this soon.

A rogue trader at UBS or a rogue bank?

by John Gapper, Financial Times

September 15, 2011 3:45 pm

Given the recent history of UBS, it is fair to ask if Kweku Adoboli is a rogue trader or his employer is a rogue bank.

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(T)he bank’s entire senior layer of management was forced out following its involvement in the 1998 collapse of Long-Term Capital Management, the US arbitrage hedge fund run by John Meriwether. UBS had pressed to be closely associated with an operation it regarded as smartly and safely run.

There are similarities between the products relating to the LTCM case and the trading desk on which Mr Adoboli worked. As Izabella Kaminska of FT Alphaville points out, banks’ Delta 1 desks traded and hedged exchange-traded derivatives in  ways that involve complex – and difficult to monitor – risk-taking. Mr Kerviel worked on SocGen’s Delta 1 desk.

Crossposted from The Stars Hollow Gazette

U.S. Poverty Rate, at 15 Percent, Is the Highest Since 1993

By SABRINA TAVERNISE, The New York Times

Published: September 13, 2011

46.2 million people now live in poverty in the United States, the highest number in the 52 years the Census Bureau has been tracking it, said Trudi Renwick, chief of the Poverty Statistic Branch at the Census Bureau.

That figure represented 15.1 percent of the population, up from 14.3 percent in 2009, and 11.7 percent at the beginning of the decade in 2001. The poverty line in 2010 for a family of four was $22,113.

And in new signs of economic distress among the middle class, median household incomes adjusted for inflation declined by 2.3 percent in 2010 from the previous year to $49,400. That was 7 percent less than the peak of $53,252 in 1999.

Crossposted from the Stars Hollow Gazette

An Impeccable Disaster

By PAUL KRUGMAN, The New York Times

Published: September 11, 2011

On Thursday Jean-Claude Trichet, the president of the European Central Bank or E.C.B. – Europe’s equivalent to Ben Bernanke – lost his sang-froid. In response to a question about whether the E.C.B. is becoming a “bad bank” thanks to its purchases of troubled nations’ debt, Mr. Trichet, his voice rising, insisted that his institution has performed “impeccably, impeccably!” as a guardian of price stability.

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(T)he problem is the E.C.B.’s obsession with maintaining its “impeccable” record on price stability: at a time when Europe desperately needs a strong recovery, and modest inflation would actually be helpful, the bank has instead been tightening money, trying to head off inflation risks that exist only in its imagination.

And now it’s all coming to a head. We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.

So will the E.C.B. do what needs to be done – lend freely and cut rates? Or will European leaders remain too focused on punishing debtors to save themselves? The whole world is watching.

Understanding Trichet and Conpany: A Note

Brad Delong

September 12, 2011

What are Jean-Claude Trichet and company really thinking right now?

The most likely scenario is this: they bet on mean-reversion in unemployment, on the magic full-employment equilibrium-restoring properties of the market, on their role as prudent stewards of financial rectitude, and on a take-no-prisoners commitment to price stability in all circumstances as the driving force behind the great moderation.

They were wrong.

They now have a choice.

They can admit that they were wrong. Then they will probably have to resign, and then be snubbed worldwide. Nobody likes a loser.

Alternatively, they can double down. Their reputations right now are underwater. What do they have to lose reputationwise by saying more absurd nonsense? And there is a chance that tomorrow the confidence fairy will appear, wave her magic wand, and the V-shaped recovery will start.

That is my guess as to how to understand what Trichet and Company are now saying: they are reputationally-bankrupt zombies gambling for resurrection.