Raw notes oct 19 2008

October 19, 2008 § Leave a comment

    Ba’ath seeks showdown with Baghdad

    A coalition in Iraq of at least 22 Ba’athist insurgent groups has announced a switch from guerrilla tactics using small arms in hit-and-run attacks to a more conventional approach with a regular army capable of launching a large-scale attack for the final "liberation" of Baghdad. At this stage the move might contain more rhetoric than reality, but it is a clear indication of what lies ahead.

    Pasted from <http://atimes.com/>

    From Peter:

    Q: What the difference between today’s investment bankers and pigeons?

    A: Pigeons can still make a deposit on a BMW.

    From Sidd:

    I went to an ATM today, and it asked to borrow a twenty till next week.

    Pasted from <http://calculatedrisk.blogspot.com/>

    http://www.scribd.com/doc/7110639/Chapter-11

    Man in the News: John Maynard Keynes

    By Ed Crooks

    Published: October 17 2008 19:43 | Last updated: October 17 2008 19:43

    clip_image002

    “We have reached a critical point,” John Maynard Keynes wrote in March 1933. “We can … see clearly the gulf to which our present path is leading.” If governments did not take action, “we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict.”

    As the world reels from a 1929-style stock market plunge and a 1931-style banking crisis, his words are a fair assessment of the dangers we face once again. Keynes, whose life’s mission was to save capitalism from itself, is more relevant than at any time since his death in 1946.

    His renewed influence can be seen everywhere: in Barack Obama’s planned stimulus package, for example. When George W. Bush said his administration’s plan to take equity in banks was “not intended to take over the free market, but to preserve it”, he could have been quoting Keynes directly.

    The key to Keynes was his commitment to preserving the market economy by making it work. He was dismissive of Marxism but believed the market economy could survive only if it earned the support of the public by raising living standards.

    The role of the economist, he believed, was to be the guardian of “the possibility of civilisation”, and no economist has ever been more suited for that role.

    Lionel Robbins, later head of the London School of Economics, described Keynes as “one of the most remarkable men that have ever lived,” surpassed in his time only by Winston Churchill. Even Friedrich Hayek, Keynes’ staunchest adversary, described him as “the one really great man I ever knew, and for whom I had unbounded admiration”.

    His optimistic, positive thought reflected his comfortable and happy upbringing and career. An academic’s son, he won scholarships to Eton and Cambridge and fell in with the Bloomsbury Group, the circle of writers and artists such as Virginia Woolf and Lytton Strachey who embodied an ideal of cultured living.

    He was an imposing figure, six feet, six inches tall and full of jokes, gossip and sharp observations. Alongside economics, he had an array of other interests as mathematician, administrator, academic, investor, journalist, art collector, politician, impresario and diplomat. He was even an exemplary husband, devoted to his wife, Lydia Lopokova, a ballerina. In his language he could be carelessly provocative. But, as he said: “Words ought to be a little wild, for they are the assaults of thoughts on the unthinking.”

    When bad policies were making economic problems worse, he felt a moral obligation to change them. He worked with distinction at the Treasury during the first world war and at the war’s end argued presciently against the imposition of excessively harsh conditions on Germany. When his advice was ignored, he left and published his views in his first great polemic, The Economic Consequences of the Peace .

    Returning to Cambridge, Keynes kept up a flow of books and articles, including The Economic Consequences of Mr Churchill, savaging Britain’s return to the gold standard in 1925. It was not until the Great Depression, however, that his ideas reached their full flowering, published as The General Theory of Employment, Interest and Moneyin 1936.

    The heart of the book is the idea that economic downturns are not necessarily self-correcting. Classical economics held that business cycles were unavoidable and that peaks and troughs would pass. Keynes contended that in certain circumstances economies could get stuck. If individuals and businesses try to save more, they will cut the incomes of other individuals and businesses, which will in turn cut their spending. The result can be a downward spiral that will not turn up again without outside intervention.

    That is where government comes in: to pump money back into the economy by some means, such as spending on public works, to persuade individuals and businesses to save less and spend more themselves.

    Keynes wrote to George Bernard Shaw that he expected the General Theory to “largely revolutionise … the way the world thinks about economic problems”, and so it proved. Economists such as Paul Samuelson and James Tobin systematised Keynes’ ideas, using them as the foundations of what became orthodox thought and economic policy for more than two decades after the second world war.

    The cover of Time magazine in December 1965 quoted Milton Friedman saying: “We are all Keynesians now.” Friedman later said he had been misrepresented by selective quotation, but the point held good. Charles L. Schultze, then US budget director, felt able to tell Time: “We can’t prevent every little wiggle in the economic cycle, but we now can prevent a major slide.”

    By the time Richard Nixon borrowed Friedman’s line in 1971, however, the tide was already beginning to turn. Like a share tip from a lift boy, Nixon’s endorsement was a si
    gn that Keynes’ intellectual stock was about to fall. Keynesian economics seemed as inadequate in the 1970s stagflation as classical economics had been for the 1930s depression, and Friedman’s monetarism eclipsed it among policy-makers in the US and Britain.

    After crude applications of monetarism also foundered in the 1980s, modern macroeconomic orthodoxy blended ideas from both, reflecting a belief in the ability of monetary and fiscal policy to affect employment and growth, but also concern for inflation and budget deficits.

    As the financial crisis has deepened, that orthodoxy has been shaken. The problems Keynes faced in the 1930s, such as the ineffectiveness of monetary policy and banking failures triggered by falling asset prices, again seem the most pressing. Keynes’ solutions, including greater public spending funded by borrowing, are becoming popular. The criticisms that this will fuel inflation and raise budget deficits are still heard but are increasingly seen as irrelevant.

    Robert Skidelsky writes at the end of his definitive three-volume biography that Keynes’ ideas “will live so long as the world has need of them”. It certainly seems to need them now. Keynes was scathing about the view that the Great Depression was a return to normality, a necessary correction after the unsustainable excesses of the 1920s. On the contrary, he argued, the economic expansion should be seen as the normal state of affairs and the downturn was an “extraordinary imbecility”.

    With the right policies, he said, the good times could be brought back. He was right then; we must hope he will be right again.

    Pasted from <http://www.ft.com/cms/s/0/a754a046-9c79-11dd-a42e-000077b07658.html>

    “Wall Street’s financial meltdown ,” write Michael Hudson and Jeffrey Sommers, “marks the end of an era. What has ended is the credibility of the Washington Consensus – open markets to foreign investors and tight money austerity programs (high interest rates and credit cutbacks) to “cure” balance-of-payments deficits, domestic budget deficits and price inflation.

    Pasted from <http://www.counterpunch.org/>

    “Wall Street’s financial meltdown ,” write Michael Hudson and Jeffrey Sommers, “marks the end of an era. What has ended is the credibility of the Washington Consensus – open markets to foreign investors and tight money austerity programs (high interest rates and credit cutbacks) to “cure” balance-of-payments deficits, domestic budget deficits and price inflation.

    Pasted from <http://www.counterpunch.org/>

    “Washington’s idealized picture of how “free markets” operate (as if such a thing ever existed) promised that countries outside the United States would get rich faster, approaching U.S.-style living standards if they let global investors buy their key industries and basic infrastructure. For half a century, this neoliberal model has been a hypocritical exercise in poor policy at best, and deception at worst, to convince other economies to impose self-destructive financial and tax policies, enabling U.S. investors to swoop in and buy their key assets at distress prices.”

    Pasted from <http://www.counterpunch.org/>

    The problem is that the oversight and stability of the world credit system is no longer within the purview of familiar international institutions like the International Monetary Fund or the Bank of International Settlements. Private traders are now installed at all the strategic nodes, gambling with stratospheric sums in such speculative pyramids as the credit derivative market which was almost nonexistent in 2001, yet which reached $17.3 trillion by the end of 2005. Warren Buffett, America’s most famous investor, has called credit derivatives "financial weapons of mass destruction."

    As the great American historian Gabriel Kolko remarked in a detailed run-down on the crisis in CounterPunch at the end of July:

    "Contradictions now wrack the world’s financial system, and a growing consensus now exists between those who endorse it and those, like myself, who believe the status quo is both crisis-prone as well as immoral. If we are to believe the institutions and personalities who have been in the forefront of the defense of capitalism, and we should, it may very well be on the verge of serious crises."

    Translation: Capitalism has its downsides, and right now we’re at the edge of the precipice.

    Pasted from <http://www.counterpunch.org/>

    ANOKE, Va. – Barack Obama’s transition team recently held a large organizational meeting as part of an accelerated effort to plan for a possible new administration, Democratic officials said Friday, as the nominee embarked on a late-campaign tour of traditional Republican states with a fresh attack on John McCain.

    Under the direction of John Podesta, a former White House chief of staff under Bill Clinton, the transition effort includes a dozen separate groups divided into different areas of responsibility, these officials said. One added that Cassandra Butts, a longtime associate of Obama, is in charge of the group dedicated to personnel for a new administration.

    The effort is largely separate from the campaign structure that helped plan and execute Obama’s remarkable rise to the position of front-runner in a race in which he is bidding to become the first black president.

    The officials spoke on condition of anonymity, saying they were not authorized to discuss any post-election planning that might be under way.

    While Podesta is overseeing Obama’s transition, McCain’s effort is being led by John Lehman, who was Navy secretary in the Reagan administration and a member of the commission that investigated the terrorist attacks of Sept. 11, 2001.

    The disclosures came as Obama accused McCain of wanting to cut $882 billion from Medicare over a decade to finance his health care plan. He said the result would be more costly drugs, diminished services and lower quality care for seniors.

    "It’s entirely consistent with Sen. McCain’s record during his 26 years in Congress where, time and again, he’s opposed Medicare," Obama said. "In fact, Sen. McCain has voted against protecting Medicare 40 times."

    In response, McCain’s campaign issued a statement saying Obama was "simply lying." The statement said the Republican planned to trim spending, but said his plans "do not cut a single benefit."

    Ahead in the national polls, Obama made his charge as he campaigned in a traditionally Republican state where he has invested heavily in hopes of collecting 13 electoral votes. He is spending far more on television advertising in Virginia than McCain and has 50 offices statewide. The trip was his seventh here since wrapping up the Democratic nomination in June.

    Still, in a state that once boasted the capital of the Confederacy, Obama’s campaign indicated it understands the challenge involved in trying to elect the nation’s first black president.

    Democratic Sen. Jim Webb never mentioned race as he introduced Obama to the predominantly white crowd at the Roanoke Civic Center in the southwestern part of the state. But, he said, "Barack Obama’s father was born in Kenya. Barack Obama’s mother was born in Kansas by way of Kentucky," he said, adding that Obama would be the "14th president of the United States whose ancestry and whose family line goes back" in the region.

    "You can trust him. I trust h
    im," Webb added.

    Obama’s remarks on Medicare amounted to a new front in the campaign’s health care wars, and were aimed at persuading older voters to abandon McCain.

    McCain wants to provide tax credits to encourage Americans to purchase private health insurance. To pay for it, he has proposed requiring workers to pay income taxes on the health benefits they now receive tax-free from their employers.

    McCain’s campaign says additional funding will be required to cover the full cost of the program.

    "It turns out, Sen. McCain would pay for part of his plan by making drastic cuts in Medicare — $882 billion worth, $882 billion in Medicare cuts to pay for an ill-conceived health care plan, even as Medicare already faces a looming shortfall," Obama said.

    "It would mean a cut of more than 20 percent in Medicare benefits next year. If you count on Medicare, it would mean fewer places to get care, and less freedom to chose your own doctors," he added.

    In response, Doug Holtz-Eakin, an economics adviser for McCain, said whatever amount of Medicare the Republican decides to trim, "The important thing is those savings do not come at the expense of either the quality or the quantity of health care America’s seniors will receive."

    Obama said his own proposals for Medicare include "eliminating wasteful subsidies to big HMOs in Medicare, and making sure seniors can access home-based care, and letting Medicare negotiate with drug companies for better prices."

    The reference to subsidies referred to the money the government pays to support private alternatives to traditional government-run Medicare, but attempts by some Democrats to eliminate them ran into bipartisan opposition in Congress over the past two years.

    Recent studies show the government pays an estimated $112 for Medicare patients in private coverage for every $100 it spends on the traditional program, and that eliminating the difference could save more than $150 billion over a decade.

    Critics say the private alternative is wasteful. Supporters argue it often provides benefits such as vision care that are unavailable in government-run Medicare.

    Like Obama, numerous other Democrats favor allowing the agency that runs Medicare negotiate directly with pharmaceutical companies, saying that would lead to cheaper prices for prescription medicines.

    But the non-partisan Congressional Budget Office said last year the change was unlikely to result in lower prices unless the government decided to limit the drug choices available to seniors like the Veterans Administration does.

    Pasted from <http://news.yahoo.com/s/ap/20081017/ap_on_el_pr/obama>

    Robert Pollin: I think U.S. Treasuries are now, and will remain for some time, the single safest, and most desirable, financial instrument in the global financial system.  I don’t think foreigners will shift dramatically away from Treasuries, though they may do so modestly.

    Pasted from <http://www.counterpunch.org/whitney10162008.html>

    More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable).

    Pasted from <http://www.counterpunch.org/whitney10162008.html>

    The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market — triggering a fantastic speculative boom.

    Pasted from <http://www.counterpunch.org/whitney10162008.html>

    Thomas Jefferson on Bankers

    I believe that banking institutions are more dangerous to our liberties than standing

    armies. If the American people ever allow private banks to control the issue of

    their currency, first by inflation, then by deflation, the banks and corporations

    that will grow up around [the banks] will deprive the people of all property until

    their children wake-up homeless on the continent their fathers conquered. The issuing

    power should be taken from the banks and restored to the people, to whom it properly

    belongs.

    —Thomas Jefferson, 1802

    "Paper is poverty,… it is only the ghost of money, and not money itself."

    –Thomas Jefferson to Edward Carrington, 1788. ME 7:36

    "Experience has proved to us that a dollar of silver disappears for every dollar

    of paper emitted." –Thomas Jefferson to James Monroe, 1791. ME 8:208

    "The trifling economy of paper, as a cheaper medium, or its convenience for

    transmission, weighs nothing in opposition to the advantages of the precious metals…

    it is liable to be abused, has been, is, and forever will be abused, in every country

    in which it is permitted." –Thomas Jefferson to John W. Eppes, 1813. ME 13:430

    "Scenes are now to take place as will open the eyes of credulity and of insanity

    itself, to the dangers of a paper medium abandoned to the discretion of avarice

    and of swindlers." –Thomas Jefferson to Thomas Cooper, 1814. ME 14:189

    "It is a cruel thought, that, when we feel ourselves standing on the firmest

    ground in every respect, the cursed arts of our secret enemies, combining with other

    causes, should effect, by depreciating our money, what the open arms of a powerful

    enemy could not." –Thomas Jefferson to Richard Henry Lee, 1779. ME 4:298,

    Papers 2:298

    "We should try whether the prodigal might not be restrained from taking on

    credit the gewgaw held out to him in one hand, by seeing the keys of a prison in

    the other." –Thomas Jefferson to Thomas Pleasants, 1786. ME 5:325, Papers

    9:472

    "That we are overdone with banking institutions which have banished the precious

    metals and substituted a more fluctuating and unsafe medium, that these have withdrawn

    capital from useful improvements and employments to nourish idleness, that the wars

    of the world have swollen our commerce beyond the wholesome limits of exchanging

    our own productions for our own wants, and that, for the emolument of a small proportion

    of our society who prefer these demoralizing pursuits to labors useful to the whole,

    the peace of the whole is endangered and all our present difficulties produced,

    are evils more easily to be deplored than remedied." –Thomas Jefferson to

    Abbe Salimankis, 1810. ME 12:379

    "The banks… have the regulation of the safety-valves of our fortunes, and…

    condense and explode them at their will." –Thomas Jefferson to John Adams,

    1819. ME 15:224

    "I sincerely believe… that banking establishments are more dangerous than

    standing armies, and that the principle of spending money to be paid by posterity

    under the name of funding is but swindling futurity on a large scale." –Thomas

    Jefferson to John Taylor, 1816. ME 15:23

    "The incorporation of a bank and the powers assumed [by legislation doing so]

    have not, in my opinion, been delegated to the United States by the Constitution.

    They are not among the powers specially enumerated." –Thomas Jefferson: Opinion

    on Bank, 1791. ME 3:146

    "It has always been denied by the republican party in this countr
    y, that the

    Constitution had given the power of incorporation to Congress. On the establishment

    of the Bank of the United States, this was the great ground on which that establishment

    was combated; and the party prevailing supported it only on the argument of its

    being an incident to the power given them for raising money." –Thomas Jefferson

    to Dr. Maese, 1809. ME 12:231

    "[The] Bank of the United States… is one of the most deadly hostility existing,

    against the principles and form of our Constitution… An institution like this,

    penetrating by its branches every part of the Union, acting by command and in phalanx,

    may, in a critical moment, upset the government. I deem no government safe which

    is under the vassalage of any self-constituted authorities, or any other authority

    than that of the nation, or its regular functionaries. What an obstruction could

    not this bank of the United States, with all its branch banks, be in time of war!

    It might dictate to us the peace we should accept, or withdraw its aids. Ought we

    then to give further growth to an institution so powerful, so hostile?" –Thomas

    Jefferson to Albert Gallatin, 1803. ME 10:437

    "If the debt which the banking companies owe be a blessing to anybody, it is

    to themselves alone, who are realizing a solid interest of eight or ten per cent

    on it. As to the public, these companies have banished all our gold and silver medium,

    which, before their institution, we had without interest, which never could have

    perished in our hands, and would have been our salvation now in the hour of war;

    instead of which they have given us two hundred million of froth and bubble, on

    which we are to pay them heavy interest, until it shall vanish into air… We are

    warranted, then, in affirming that this parody on the principle of ‘a public

    debt being a public blessing,’ and its mutation into the blessing of private

    instead of public debts, is as ridiculous as the original principle itself. In both

    cases, the truth is, that capital may be produced by industry, and accumulated by

    economy; but jugglers only will propose to create it by legerdemain tricks with

    paper." –Thomas Jefferson to John W. Eppes, 1813. ME 13:423

    Pasted from <http://engforum.pravda.ru/showthread.php?p=2612599>

    THE RECKONING

    Building Flawed American Dreams

    By DAVID STREITFELD and GRETCHEN MORGENSON

    SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this town, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.

    As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.

    Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.

    And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work.

    Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.

    “People bought here because of Cisneros,” says Celia Morales, a Lago Vista resident. “There was a feeling of, ‘He’s got our back.’ ”

    But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.

    Pasted from <http://www.nytimes.com/2008/10/19/business/19cisneros.html?hp=&pagewanted=print>

    http://www.nytimes.com/2008/10/19/business/19cisneros.html?hp=&pagewanted=print

    http://query.nytimes.com/mem/archive-free/pdf?_r=1&res=9404E2DC143EE73BBC4950DFB5668383669FDE&oref=slogin

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