Author Archives: Lila

Rogers Tells Greeks To Go Bust

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Rogers gets it right, as usual. From the Wall Street Pit:

“Commodities legend Jim Rogers talks in this Bloomberg interview about Greece’s fiscal problems which needless to say are hardly a new development. According to Rogers, a bankruptcy for Greece would benefit the euro.

“They should let Greece go bankrupt,” said Rogers. “It would be good for the euro. It would be good for Greece. It would be good for everybody. If Greece went bankrupt then everybody would say, boy, the euro is serious, is going to be a sound currency and the euro would go straight up. Is not gonna happen that way, but that’s what should happen.”

Exactly right.  Currencies go under because the governments behind them behave imprudently, as Cato’s Dan Mitchell points out.

Robert Wenzel, who has been right on top of the Greek story, writes:

“In fact, a Greek bankruptcy would be the best thing for the euro. It would show that the European monetary union is less subject to political pressures than individual sovereign states, for most assuredly the PIIGS, if they still managed their own moneys right now, would certainly be printing away right now.”

Had the US let the financial industry go under and refused to bail them out, the dollar would immediately have shot up. The decline of the dollar reflects the market’s loss of faith in the US and its reserve currency.

When governments act like genuine market participants – i.e. take their medicine –  their currencies strengthen. Greece, acting on its own, showing independence of European bureaucratic constraints or bail-outs, would have to be a positive for the euro, because it indicates an end to the bottomless pit of financial irresponsibility..

Rogers is also right that speculation isn’t the prime mover of these events.

In the Greek case, I understand the notional value of the CDS’s (credit default swaps) involved are not big enough to impact the debt. However, for whatever reason, Rogers avoids talking about the larger issue of fraud in the use of currency swaps, fraud in the original contracts, and fraud in short-attacks, which are quite a different matter from market participants voicing their “opinion.” (the notional value of CDS in relation to debt is apparently not large in this case, though it’s important in other cases, like AIG)

Rogers, like the rest of the financial industry, is thus talking the professional ideology of the financial industry, and you can see all the others – from Mish Shedlock to Zerohedge to Chanos – lining up to defend that ideology.

It’s unfortunate, but it’s also something I feared…that some of the “citizen journalist” sites would corral popular outrage over Goldman Sachs and its allied hedge funds….and then steer that outrage in ways that protect the industry. And that they would finally end in support of the big players, while defusing the original anger into essentially useless diatribes. Meanwhile, those engaged in any action that might actually weaken the powers-that-be would be demonized and marginalized.

That’s seems to be what’s happened. Which is why the  call for a ban of CDS contracts strikes me as not (necessarily) terribly useful.

My point is that that while it’s true that CDS’s have been gamed, a ban on them distracts from all the other issues of fraud. CDS’s are sold as if they’re insurance….and they’re used to gamble on price-movements. A player intent on fraud doesn’t need to rely on CDS contracts alone to commit a fraud. Ban CDS contracts, and he will just use another technique. Again, the problem is not the CDS contracts themselves, but the fraud involving them.

To recognize this, you just need to go back a bit. If you rewind twenty-five years, to Milken’s junk-bond innovations, there too what ought to have been an instrument of financing became an instrument of gambling.

Read Michael Lewis’ Liar’s Poker for a brilliant account from a former insider. Yet, today, it is Lewis, with Einhorn, who’s arguing to ban CDS’s.  You’d think Lewis of all people would know it isn’t the gun that’s the problem, it’s the people who use guns to commit crimes. (Felix Salmon has a good criticism of Lewis on CDS’s at Portfolio.com).

Indeed, Lewis himself makes that point in his book:

Quote:

“Junk bonds behave much more like equity, in shares, than old-fashioned corporate bonds…… Therein lies one of the surprisingly well-kept secrets  of Milken’s market. Drexel’s research department , because of its close relationships with companies, was privy to raw inside corporate data that somehow never found its way to Salomon Brothers. **When Milken trades junk bonds, he has inside information. Now it is quite illegal to trade in stocks on inside information, as former Drexel client Ivan Boesky has ably demonstrated. But there is no such law regarding bonds*** (My emphasis)

……Not surprisingly, the  line between debt and equity, so sharply drawn in the mind of a Salomon bond trader (Equities in Dallas!) becomes blurred in the mind of a Drexel bond trader…” (p. 217)

Lila: Eventually,  the flood of money attracted to junk bonds had to find new places to go. From that, sprang the leveraged buy-outs (LBO’s), the corporate raids of the 1980s.

Quote:

“The new  and exciting job of invading corporate boardrooms appealed mainly to men  of modest experience  in business and a great deal of interest in becoming rich. Milken funded the dreams of every corporate raider of note: Ronald Perelman, Boone Pickens, Carl Icahn, Irwin Jacobs, Sir James Goldsmith, Nelson Peltz, Samuel Heyman, Saul Steinberg, and Asher Edelman….” (P. 220)

Lila: Transpose an octave….fast forward twenty-five years…and you could be describing CDS’s…. And just as the problem then was not the junk bonds themselves, but the use made of them (to gamble and raid companies), so too with CDSs.

Of course, the raiders saw themselves as performing a valuable service in cutting out fat from management…and in many cases, that was so. But, killing someone to cure him isn’t usually regarded as the most brilliant of remedies. Why should it be different in the financial industry?

Again, the problem is the actors and the activity, not the instrument. We need to differentiate between them. We also need to differentiate clearly between short-selling (legitimate) and naked short-selling (fraudulent); between speculation (helpful to the markets proportionate to economic activity), versus casino capitalism (extremely game-changing and dangerous where it is now); between investment (socially productive) and gambling (socially destructive); between legal and fraudulent activity.

Now they’re all mashed up and argued fungibly.

People blame either the government..or the speculators, black and white, forgetting that in many cases the speculators ARE the governments…in the sense that they’re in collusion with some of the banks that have their functionaries creating government policies, and have their advocates in the media, influencing public opinion as they wish.

More on this later….

Meanwhile, sift through the opinion-making carefully…looking for a confusion of all the terms I’ve listed. Wherever you find that confusion, be wary. Sometimes the confusion is just honest error. The rest of the time it seems to show an intent to mislead.

Climate Scientists: Academic Barrow Boys

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Climate scientists are fighting back, reports The Washington Times.

Paul R. Ehrlich, a Stanford University researcher says:

“Most of our colleagues don’t seem to grasp that we’re not in a gentlepersons’ debate, we’re in a street fight against well-funded, merciless enemies who play by entirely different rules.”

Of course, climate skeptics (or rather, critics of anthropogenic global warming, AGW) would argue that it’s the climatistas who’ve brought Barrow boy (street-wise) tactics into what ought to be a nice, genteel gathering of Harrow alumni.

Popular British TV writer and eminent free-speech QC, John Mortimer, author of the serial, “Rumpole of the Bailey,” saw through this convenient sentimentality about “gentlepersons” a bit more keen-sightedly than most.

In one episode of the serial, Rumpole, Mortimer’s aging, scruffy, Shakespeare-quoting Old Bailey barrister, defends Nigel Timson, a youthful member of a clan with an inelegant and chequered past, a true Barrow boy, who’s accused of insider- trading at the silk-stocking firm where he’s a broker.

It doesn’t help things that Nigel is living with the daughter of the head of the firm, who isn’t keen on a Barrow boy for a son-in-law. The plot-twist is that the Barrow boy, despite his spotty family history, is actually innocent. I won’t tell you the rest, but the larger point is that clever crooks know how to play to their advantage on public preconceptions about class behavior.

The same holds true for university intellectuals. They also usually enjoy the general presumption that they hold to higher standards of behavior and ethics than the ‘baser sort’ outside the ivory towers.  What the climate fracas shows is that that presumption might be just as outdated as the presumption about the virtues of Harrow boys that Rumpole overturns…

Kurt Tucholsky On Love Of Country

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“We have just written “no” on 225 pages, “no” out of sympathy and “no” out of love, “no” out of hate and “no” out of passion – and now we would like to say “yes” for once. “Yes” – to the countryside and the country of  Germany America. The country where we were born and whose language we speak. (…)

And now I would like to tell you something: it is not true that all those who call themselves ‘national’ and who are nothing but gentrified militants have taken out a lease on this country and its language just for them. Germany America is not just a government representative in his tailcoat, nor is it a headmaster, nor is it the ladies and gentlemen of the steel helmets. We are here too. (…)

Germany America is a divided country. We are one part of it. And whatever the situation, we quietly love our country – unshakably, without a flag, or a street organ, no sentimentality and no drawn sword.”

(Kurt Tucholsky, Heimat, in Deutschland, Deutschland über alles, Berlin 1929, p. 226)

Chinese Electronic Espionage Leads To UK Office of Cyber Security…

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The Times Online reported in January that the UK’s MI5 was battling devious Chinese attempts to entrap UK businessmen, with electronic bugging devices….and sexual “honey traps”. (Not as imaginative as the CIA’s “acoustic kitty,”  but probably more effective):

“A leaked MI5 document says that undercover intelligence officers from the People’s Liberation Army and the Ministry of Public Security have also approached UK businessmen at trade fairs and exhibitions with the offer of “gifts” and “lavish hospitality”.

The gifts — cameras and memory sticks — have been found to contain electronic Trojan bugs which provide the Chinese with remote access to users’ computers.

MI5 says the Chinese government “represents one of the most significant espionage threats to the UK” because of its use of these methods, as well as widespread electronic hacking.

Written by MI5’s Centre for the Protection of National Infrastructure, the 14-page “restricted” report describes how China has attacked UK defence, energy, communications and manufacturing companies in a concerted hacking campaign.

It claims China has also gone much further, targeting the computer networks and email accounts of public relations companies and international law firms. “Any UK company might be at risk if it holds information which would benefit the Chinese,” the report says.

The explicit nature of the MI5 warning is likely to strain diplomatic ties between London and Beijing. Relations between the two countries were damaged last month after China’s decision to execute a mentally ill British man for alleged drug trafficking.

Earlier this month the United States demanded that China investigate a sophisticated hacking attack on Google and a further 30 American companies from Chinese soil.

China has occasionally attempted sexual entrapment to target senior British political figures. Two years ago an aide to Gordon Brown had his BlackBerry phone stolen after being picked up by a Chinese woman who had approached him in a Shanghai hotel disco.”

So now you know better than to fraternize too cozily at a Chinese trade event.

The 14-page “restricted” report by MI5 Director General, Jonathan Evans, lists attacks on UK defense, energy, communications and manufacturing companies and is the latest and most explicit warning from UK authorities on Chinese espionage.  It was sent to hundreds of business leaders in 2009.

Evans’ lobbying led to the creation of the Office of Cyber Security (due to open in March 2010).

The UK only follows the US on this. As far back as June 2009, Barack Obama announced the need for a new official position to oversee cybersecurity in the US, a move applauded by some in the IT community, like McAfee’s Director of Threat Intelligence, Phyllis Schneck, but criticized by others, like Wayne Crews, VP at the Competitive Enterprise Institute, who argued that attempts to collectivize and centralize information technology risks were liable to crowd out private enterprise solutions.

The Cat They Sent Out Into The Cold…

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The more you dig into the history of the CIA’s covert programs, the more it resembles not so much a fast-paced who-dunnit as a low-rent why-ever-did-they-do-it. Only it wasn’t low rent. A hefty wad of tax-payer money subsidized such expensive follies as Project Acoustic Kitty, in which the agency’s whizzes tried to turn man’s favorite feline into a wired-up bot that would snoop on conversations in back-alleys:

“Victor Marchetti, a former CIA officer, told The Telegraph that Project Acoustic Kitty was a gruesome creation. He said: “They slit the cat open, put batteries in him, wired him up. The tail was used as an antenna. They made a monstrosity. They tested him and tested him. They found he would walk off the job when he got hungry, so they put another wire in to override that.”

Mr Marchetti said that the first live trial was an expensive disaster. The technology is thought to have cost more than £10 million. He said: “They took it out to a park and put him out of the van, and a taxi comes and runs him over. There they were, sitting in the van with all those dials, and the cat was dead.”

The document, which was one of 40 to be declassified from the CIA’s closely guarded Science and Technology Directorate – where spying techniques are refined – is still partly censored. This implies that the CIA was embarrassed about disclosing all the details of Acoustic Kitty, which took five years to design.

Dr Richelson, who is the a senior fellow at the National Security Archive in Washington, said of the document: “I’m not sure for how long after the operation the cat would have survived even if it hadn’t been run over.”

From “CIA Recruited Cat To Bug Russians,” The Telegraph, November, 2001

Roderick Long On Confucian Libertarianism

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Masterful libertarian scholar, Roderick Long, has a very long, fascinating paper, “Rituals of Freedom: Austro-Libertarian Themes In Early Confucianism,” at Mises.org. It traces libertarian ideas in Confucian thought, and makes a convincing argument that Confucianism is a better source of libertarian inspiration than the much more frequently cited Daoism.

I’m republishing a post on Long’s paper by Brian Caplan, at Marginal Revolution, because the pdf of Long’s paper isn’t very reader-friendly for a blog and Caplan has nice quotes from the piece.

“Unfortunately, Long points out, a much stronger theme in Taoist is primitivist hostility to modern civilization. Listen to Lao-tzu describe the Taoist utopia:

Lessen the population. Make sure that even though there are labor saving tools, they are never used. Make sure that the people look upon death as a weighty matter and never move to distant places. Even though they have ships and carts, they will have no use for them. … Make sure that the people return to the use of the knotted cord [in lieu of writing]. … Then even though neighboring states are within sight of each other, [and] can hear the sounds of each other’s dogs and chickens … people will grow old and die without ever having visited one another.

In contrast, Long finds much of value in the Confucians:

The early Confucians, by contrast, may not be as radical in their anti-statism as the Taoists, but in my estimation they make up for this flaw by firmly yoking their anti-statism to the cause of civilization, commerce, and the Great Society; their overall program thus looks a lot more like contemporary libertarianism than the Taoist program does. One Confucian text, while noting approvingly Laozi’s hostility to despotism, sharply criticizes Laozi for wanting to “drag the present age back to the conditions of primitive times and to stop up the eyes and ears of the people”; the best ruler instead “accepts the nature of the people,” which is to long for “beautiful sounds and forms,” “ease and comfort.”

The highlight of Long’s article is his discussion of the Sima Qian (c. 145-85 B.C.). Almost two thousand years before Adam Smith, Qian opined that “Wealth and currency should be allowed to flow as freely as water!” and had arguments to defend his position. And who said that Chinese intellectuals had no appreciation for the merchant class? Few Western thinkers match Sima’s appreciation of entrepreneurship:

These, then, are examples of outstanding and unusually wealthy men. None of them enjoyed any titles or fiefs, gifts, or salaries from the government, nor did they play tricks with the law or commit any crimes to acquire their fortunes. They simply guessed what course conditions were going to take and acted accordingly, kept a sharp eye out for the opportunities of the times, and so were able to capture a fat profit. … There was a special aptness in the way they adapted to the times …. All of these men got where they did because of their devotion and singleness of purpose. … [T]here is no fixed road to wealth, and money has no permanent master. It finds its way to the man of ability like the spokes of a wheel converging upon the hub, and from the hands of the worthless it falls like shattered tiles. … Rich men such as these deserve to be called the “untitled nobility” …

Murray Rothbard praised Sima in his history of economic thought, but Long notes that he neglected to mention that he was a Confucian!

It is hard to read this piece and not stand in awe of Long’s command of the Chinese literature. This is a body of thought comparable to Western philosophy in its intricacy and depth. Even if you couldn’t care less about Chinese proto-libertarians, this article exemplifies the true meaning of scholarship. And so the Sage says: check it out!” Continue reading →

Shocks And Doctrines: WSJ Uses Quake To Critique Klein

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Bret Stephens in the Wall Street Journal adds some nuance to Naomi Klein’s black-and-white picture of Milton Friedman’s contributions to the Chilean economy, noting how prosperity and effective enforcement of building codes have protected Chilean victims of the recent earthquake from the devastation that Haiti suffered:

“In left-wing mythology—notably Naomi Klein’s tedious 2007 screed “The Shock Doctrine”—the Chicago Boys weren’t just strange bedfellows to Pinochet’s dictatorship. They were complicit in its crimes. “If the pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?” wrote New York Times columnist Anthony Lewis in October 1975. In fact, Pinochet had been mostly indifferent to the Chicago Boys’ advice until the continuing economic crisis forced him to look for some policy alternatives. In March 1975, he had a 45-minute meeting with Friedman and asked him to write a letter proposing some remedies. Friedman responded a month later with an eight-point proposal that largely mirrored the themes of the Chicago Boys.

For his trouble, Friedman would spend the rest of his life being defamed as an accomplice to evil: at his Nobel Prize ceremony the following year, he was met by protests and hecklers. Friedman himself couldn’t decide whether to be amused or annoyed by the obloquies; he later wryly noted that he had given communist dictatorships the same advice he gave Pinochet, without raising leftist hackles.

As for Chile, Pinochet appointed a succession of Chicago Boys to senior economic posts. By 1990, the year he ceded power, per capita GDP had risen by 40% (in 2005 dollars) even as Peru and Argentina stagnated. Pinochet’s democratic successors—all of them nominally left-of-center—only deepened the liberalization drive. Result: Chileans have become South America’s richest people. They have the continent’s lowest level of corruption, the lowest infant-mortality rate, and the lowest number of people living below the poverty line.

Chile also has some of the world’s strictest building codes. That makes sense for a country that straddles two massive tectonic plates. But having codes is one thing, enforcing them is another. The quality and consistency of enforcement is typically correlated to the wealth of nations. The poorer the country, the likelier people are to scrimp on rebar, or use poor quality concrete, or lie about compliance. In the Sichuan earthquake of 2008, thousands of children were buried under schools also built according to code.

In “The Shock Doctrine,” Ms. Klein titles one of her sub-chapters “The Myth of the Chilean Miracle.” In her reading, the only thing Friedman and the Chicago Boys accomplished was to “hoover wealth up to the top and shock much of the middle class out of existence.” Actual Chileans of all classes—living in the aftermath of an actual shock—may take a different view of Friedman, who helped give them the wherewithal first to survive the quake, and now to build their lives anew.”

My Comment:

Friedman, was, of course, from an Austrian perspective, far from being an ideal free-marketer. In a devastating piece, “Milton Friedman Unraveled,” (1971), Rothbard even questioned his claim to be called a free marketer of any kind, listing among many sins, his advocacy of withholding taxes and of an absolute dollar standard.

All true, no doubt. But the fact remains, even if it was only in a very constrained sense that he advocated more freedom in the markets, he did advocate it. And as the article above suggests, contra Rothbard, even a limited advocacy of market freedom is better than an outright assault on it.

Glenn Greenwald On Intellectual Credibility

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Glenn Greenwald never fails. I was just catching up on the infamous Leon Wieseltier-Andrew Sullivan ethno-politico-theological brouhaha of last month that I completely missed while trekking around Latin America, and I found this simple but wise paragraph:

“What one thinks of Andrew Sullivan, or how angry he’s made one over the years, ought to be about the most irrelevant factor imaginable in determining one’s reaction to this TNR attack.  Sometimes, even people you don’t like are the targets of odious and harmful accusations, and sometimes, even your Bestest Friends, fellow party members and listserv pals might do wrong things that merit criticism.  Wieseltier’s polemic is a classic example of anti-semitism accusations tossed around with no conceivable basis and for purely ignoble ends.  It’s the very tactic that has caused significant damage in the past.  So obviously unhinged is this particular assault that it actually presents a good opportunity to discredit behavior like this once and for all.  That’s all that should matter; how many grudges one nurses towards Andrew Sullivan is nice fodder for gossipy listserv chats, but no responsible or even adult commentator would allow it to influence one’s views on this matter.”

And that’s why Glenn Greenwald is one of the very few mainstream writers on politics I can read regularly without a bad case of moral indigestion.

Other good responses to Wieseltier came from Sullivan himself, and from Matthew Yglesias and  Joe Klein.

Yglesias’s post minced no words:

“For the purposes of intimidation, after all, baseless charges work better than well-grounded ones. Nikolai Krylenko, Bolshevik Minister of Justice, said “we must execute not only the guilty, execution of the innocent will impress the masses even more.” And it’s much the same here. If you call anti-semites anti-semites, then people who aren’t motivated by anti-Jewish racism will figure “hey, since my political opinions aren’t motivated by anti-Jewish racism, then I’m safe.” The idea is to put everyone on notice that mere innocence will be no defense.”

The only problem was I wasn’t actually clear from reading Yglesias (apparently a long-time sparring partner of Wieseltier’s) where exactly runs the thin red line you can’t cross. Maybe that takes years of hanging out at MSM confabs, a future I’m as likely to encounter as sequestration in a Saudi harem.

Reading Sullivan, on the other hand, I felt I was reprising some of my own intellectual history:

“As a Jew and a Catholic, we read Buddhist scriptures together. We were, in fact, somewhat painfully alike in many ways: religious traditionalists whose reverence for our faiths was also marked by our rebellion within them. We share a commitment to secularism and religion, these days a very rare combination. His mentor was Isaiah Berlin; mine Michael Oakeshott.”

But, finally, it’s Jeffrey Goldberg, taking Wieseltier’s part, who – with minor adjustments-  gets the final word on the whole sad business:

“I wish that he (Lila: all of them) would open up  that their hearts to complexity.”

Israel-Palestine Problem Exhibits Wound Of PTSD

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At Forward, Leonard Fine puts his finger on the emotional trauma underlying the intellectual and political impasse in the Middle East:

“From time to time in this space, I’ve made passing reference to the post-traumatic stress disorder that afflicts Israelis (and the Palestinians, too). It may be a bit of a stretch, but there is a growing literature that suggests that not only individuals, but social institutions, can suffer from PTSD. Thus, for example, Loren and Barbara Cobb, in an article entitled “The Persistence of War,” argue that “specific symptoms of untreated PTSD are particularly troublesome for the social institutions of a society suffering from epidemic levels of these disorders. These symptoms are: hypervigilance, emotional numbing, denial and avoidance, seeing the world in black and white, magical thinking, and apocalyptic thinking.”

They go on to quote Dr. Jonathan Shay, widely regarded as among the giants in the study of PTSD: “Democratic process entails debate, persuasion, and compromise. These presuppose the trustworthiness of words. The moral dimension of severe trauma, the betrayal of ‘what’s right,’ obliterates the capacity for trust. The customary meanings of words are exchanged for new ones; fair offers from opponents are scrutinized for traps; every smile conceals a dagger.”

In the American military experience, PTSD most often arises when a soldier has witnessed the deaths or terrible wounds of his or her comrades. That happens in Israel, too, of course.

But in Israel, whole societies are the witnesses, and the word “post” is, alas, premature. The traumas are very much ongoing, and we do not yet have the clinical vocabulary to comprehend them.

For Jews, the great trauma is, of course, the Holocaust itself, the systematic and ultimately incomprehensible slaughter of one-third of world Jewry. That left a wound that will never quite heal, but that might by now have formed a bearable scab.

But mini-traumas ever since have picked at that scab, rendered the wound ever-raw. The excruciatingly painful list of suicide attacks, the hateful rhetoric, Sderot and the entire aftermath of the withdrawal from Gaza, and now, around the corner, Iran.

And then there have been and are the politicians who whether out of conviction or for purposes of dreadful exploitation pick at the scab and refresh the trauma. For Menachem Begin, Beirut was Berlin and Yasser Arafat was Adolf Hitler; for Benjamin Netanyahu, this is 1938, Tehran is Berlin, Mahmoud Ahmadinejad is Hitler. It was ever thus, it will ever be thus, hence it is here, now: They hate us. “Never again” may be our common oath, but “always, everywhere” is our common belief. The wound will not heal.

And the Palestinians? Betrayed by the corruption of their own leadership, theirs is not only the Nakba of defeat and displacement in 1948 and again in 1967; it is daily humiliation both thoughtless and intended, new bypass highways for the Jewish settlers in their midst, still more than 500 checkpoints and barriers to clog or block their own roads and travel, a security fence that slices and snakes through their fields and their farms and their villages and their cities, reminding, reminding, insulting.

Over Gaza, a sky from which at any moment death may be launched; in the streets of the West Bank, raids and roundups. Ongoing trauma, ongoing disorder. The wounds will not heal.

The Palestinians say: Without justice, there will be no peace. The Israelis say: Without peace, there will be no justice. Both sides are stuck with their wounds and their traumas; they need not only diplomacy, they need therapy. Their empathic capacity has been battered. They cannot place themselves in the shoes of the other, nor can they see themselves as the other sees them.”