Category: politics & law

Soros: This Is Act 2 of the Crisis

I’ve been interested in Soros ever since reading “The Alchemy of Finance” in the early ’90s and an even bigger fan since seeing him speak at the “Secretary’s Open Forum” at the U.S. Department of State in 2003.  The following is a clear, concise, and up-to-date explanation of his main theories and their implications for financial markets and their participants and regulators.

This Is “Act 2″ of the Crisis
George Soros
2010-6-14

In the week following the bankruptcy of Lehman Brothers on Sept. 15, 2008 — global financial markets actually broke down, and by the end of the week, they had to be put on artificial life support. The life support consisted of substituting sovereign credit for the credit of financial institutions, which ceased to be acceptable to counterparties.

As Mervyn King of the Bank of England brilliantly explained, the authorities had to do in the short term the exact opposite of what was needed in the long term: they had to pump in a lot of credit to make up for the credit that disappeared, and thereby reinforce the excess credit and leverage that had caused the crisis in the first place. Only in the longer term, when the crisis had subsided, could they drain the credit and re-establish macroeconomic balance.

This required a delicate two-phase maneuver just as when a car is skidding. First you have to turn the car into the direction of the skid and only when you have regained control can you correct course.

The first phase of the maneuver has been successfully accomplished — a collapse has been averted. In retrospect, the temporary breakdown of the financial system seems like a bad dream. There are people in the financial institutions that survived who would like nothing better than to forget it and carry on with business as usual. This was evident in their massive lobbying effort to protect their interests in the Financial Reform Act that just came out of Congress. But the collapse of the financial system as we know it is real, and the crisis is far from over.

Indeed, we have just entered Act II of the drama, when financial markets started losing confidence in the credibility of sovereign debt.  Greece and the euro have taken center stage, but the effects are liable to be felt worldwide.

(more…)

Advertisements

Jeff Bezos’ & Amazon’s Big “Tell”

(Why do I single out Bezos here?  Because responsibility goes to the top and Bezos is the Founder, Chairman, CEO, and President of Amazon.)

2009-7-23 UPDATE: See bottom of this post.

I wasn’t going to comment on the recnt (and ironic) Jeff Bezos debacle, but yesterday a commenter on Cringly’s blog said: “Amazon has destroyed their business in one careless stroke. Once you lose the public trust, you never get it back.”

Although I think “destroyed” and “never” are too strong words, I share the sentiment, especially the part about violating trust (for example, violate my trust once and you’re out, with little chance of reinstatement).

Why is “destroyed” too strong a word?

Because, probably enough of Amazon’s customers don’t know or care about Bezos’ Orwellian, jack-booted thug maneuver or are not thoughtful enough to understand why it’s such a big deal.

Most of the people who do care might somehow punish Amazon a little, such as by going on a temporary buyer’s strike or writing a negative blog post (like this one), but they will probably come back to big bro Bezos and his website that knows more about you than you may know yourself.  The more you use Amazon, the more it learns about you, of course.  It’s the same, with Google, NetFlix, your credit/debit card purchases, mobile phone and location data, RFID chipped cards and passports, but all that’s another story. Reminds me, though, see this interesting Wired UK article: “The new hidden persuaders.”

So, why is this debacle so interesting?

(more…)

New Plan Ties College Loan Payments to Income

This is an important article for anyone who has student loan debt. The more your debt, and lower your imcome, the more important the article.

The new repayment option — the Income Based Repayment (IBR) plan — went into effect on July 1, 2009. It limits what borrowers have to pay to “15% of the difference between their gross income and 150% of federal poverty guidelines.”

What exactly that means, is up to your lender to determine, as I understand it. But it does appear that payments can be as low as $0.00. That’s bad, because interest accrues and is added to the outstanding balance, but it’s good because after borrowers “make payments on loans” for 25 years, the balance is forgiven.  (But what does “make payments on loans” mean?  What if those “payments” are $0.00?)

Bottom line is that everyone who feels burdened by their student loans should read this article, and its links, and figure out if this new plan is something for them. If it is, take action.

Problem is, how to figure all this stuff out? It may be so important, and complicated, that some people might want/need professional advice. That’s actually something I’ve long been interested in, but it’s been low on the priority list compared with my other projects. I would love to hear from any of you with the relevant knowledge, experience, and drive to setup a web- and phone-based business providing student loan consulting (in partnership with me). I’ve already got a good domain name: StudentLoanConsulting.com. I guess I could always sell or license that name as well. If you’re interested in any of this, just contact me.

Now on to the article:

(more…)

Ten Principles for a Black Swan-proof World

A year and a half ago, Nouriel Roubini gave us his recipe for financial meltdown, The Twelve Steps to Financial Disaster, each of which unfolded in sequence. Now Nassim Nicholas Taleb gives us his “Ten Steps for a Black Swan-proof World” (below).

Roubini’s steps were the inevitable outcome of a flawed system. Sadly, perhaps, Taleb’s steps are not inevitable.

Additional reading:

Now on to the article:

(more…)

Article: The Quiet Coup

A long, but interesting and important article.

The Quiet Coup
By Simon Johnson
2009-05
The Atlantic

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

One thing you learn rather quickly when working at the International Monetary Fund is that…

(more…)

First Post From the USA and First Post From the New MacBook

Just time for a quickie:

  1. NYT: Bailout Plan: $2.5 Trillion and a Strong U.S. Hand
  2. NYT Graphic: The Government’s $8.8 Trillion Bailout Tab
  3. Nouriel Roubini: Treasury’s Financial Stability Plan: Will It Work?
  4. Nouriel Roubini: It Is Time to Nationalize Insolvent Banking Systems
  5. Video and My Comments: Obama and Henrietta Hughes at Town Hall Meeting

UPDATE: Two additional articles:

  1. NYT: Stopping a Financial Crisis, the Swedish Way
    (September 2008)
  2. Matthew Richardson and Nouriel Roubini: Nationalize the Banks! We’re all Swedes Now (current)

(more…)