"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Tuesday, May 25, 2010

Really great links - Financial repression - Four biggest banks insolvent under mark-to-market - Life of a financial speculator - Collective intelligence

Martin Wolf - Financial repression - "What do governments do when it becomes expensive to borrow? They promise to mend their ways, of course. But, by now, it is often too late: nobody believes them. So they tell the central bank to buy their bonds, which starts a run on the currency. Pegged exchange rates collapse and floating exchange rates fall. Inflation becomes an imminent threat.
        At this point, desperate governments look for ways to force institutions to hold their bonds, willy nilly. This is the point at which financial repression begins: banks are forced to hold government bonds, for “liquidity”; pension funds are forced to hold government bonds, for “safety”; interest rate ceilings are imposed on private lending; to prevent “usury”; and, if all else fails, exchange controls are imposed, to ensure nobody can easily escape from such regulations."

Rebel A. Cole and Garett Jones - Big banks back to brink of ruin - "Bank of America, Chase, Citigroup and Wells Fargo - the four largest bank holding companies in America - required massive government aid in late 2008. They barely survived into 2009. Now, somehow, these banks have reported upbeat results in the fourth quarter of 2009 - a shocking turnaround. Or was it?
        Can these bank forecasts possibly be accurate, or have the banks hired Bernie Madoff to perform their forecasts? Sadly, it looks as if Bernie is hard at work, predicting an unrealistically bright future for these banks.
        If we're right about these losses, three of the four biggest banks have such bad loan portfolios that they would be deemed insolvent under mark-to-market accounting rules. Only Citi would be marginally solvent, but it has serious problems outside of its loans portfolio that drag it into insolvency as well. One can safely predict that these four megabanks, as well as most other lenders, will lose much, much more on mortgage-related loans than rosy-eyed regulators or the banks themselves are publicly acknowledging"

BBC - A day in the life of a financial speculator - Amusing video about hedge fund manager Hugh Hendry

Matt Ridley - Collective intelligence - "Human evolution presents a puzzle. Nothing seems to explain the sudden takeoff of the last 45,000 years—the conversion of just another rare predatory ape into a planet dominator with rapidly progressing technologies. Once "progress" started to produce new tools, different ways of life and burgeoning populations, it accelerated all over the world, culminating in agriculture, cities, literacy and all the rest. Yet all the ingredients of human success—tool making, big brains, culture, fire, even language—seem to have been in place half a million years before and nothing happened. Tools were made to the same monotonous design for hundreds of thousands of years and the ecological impact of people was minimal. Then suddenly—bang!—culture exploded, starting in Africa. Why then, why there?
        The answer lies in a new idea, borrowed from economics, known as collective intelligence: the notion that what determines the inventiveness and rate of cultural change of a population is the amount of interaction between individuals"

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