Argh, Gasp, Rheuh, Arghhh

Il existe une frange de l'élite américaine qui a abandonné toute conscience sociale et toute notion de responsabilité collective. Tantôt elle subventionne de pseudo-études sur la négation du réchauffement climatique, tantôt elle corrompt les administrations (surtout républicaines) pour affaiblir la protection des citoyens, tantôt elle tend la sébille quand la situation devient difficile (bailout anyone ?). Mais tout cela se fait dans une parfaite bone conscience, que l'anecdote racontée ci-dessous illustre admirablement.
Comment peut on oser ériger cette salope raciste et amorale de Ayn Rand, avec ses surhommes, ses victimes consentantes, son apologie de la l'égoïsme et de la domination en modèle du capitalisme ? il faut avoir atteint des tréfonds de dégénérescence morale... Noter au passage l'absence totale de recul du journaliste sur l'oeuvre elle même.

April 11 (Bloomberg) -- Ayn Rand's novels of headstrong entrepreneurs' battles against convention enjoy a devoted following in business circles. While academia has failed to embrace Rand, calling her philosophy simplistic, schools have agreed to teach her works in exchange for a donation.
The charitable arm of BB&T Corp., a banking company, pledged $1 million to the University of North Carolina Charlotte in 2005 and obtained an agreement that Rand's novel ``Atlas Shrugged'' would become required reading for students. Marshall University in Huntington, West Virginia, and Johnson C. Smith University in Charlotte, North Carolina, say they also took grants and agreed to teach Rand.
The author, who died in 1982, used her self-righteous heroes to promote objectivism, a philosophy that embraces reason and individualism, while rejecting religion. While Rand, an advocate of free markets, would support a university's getting paid to teach her works, the idea riles academic ethicists.
``A corporation crosses a line and a university is complicit in crossing the line if it accepts money'' and accedes to a request to assign specific books, said Jonathan Knight, director of the program on academic freedom, tenure and governance for the American Association of University Professors, in Washington. ``It's unique in my experience.'' Knight has worked in the field for 31 years.
As universities seek ways to bolster finances, such as with top level sports teams, donations to dictate curricula are still rare. Yaron Brook, the executive director of the Ayn Rand Institute, a nonprofit organization in Irvine, California, that promotes objectivism, said some professors are re-evaluating Rand.
``We're definitely seeing more of an interest in the academic world,'' Brook said. He said he senses a softening of opposition from academics and sees more conferences and articles about Rand.
`Absolutist Ethics'
``Ayn Rand has a kind of absolutist ethics,'' Brook said. ``She believes in right or wrong, good and evil, but based on secular principles, not religious principles, and I think there's an appeal for that now.''
Alan Greenspan, later the U.S. Federal Reserve chairman, was among Rand's early disciples, in the 1950s. Mark Cuban, the billionaire owner of the National Basketball Association's Dallas Mavericks, calls Rand's ``The Fountainhead'' one of his favorite business books. John Allison, chief executive officer of BB&T, deems ``Atlas Shrugged'' the best defense of capitalism ever written, and requires managers to read it.
Rand believed American universities had been taken over in the 20th century by thinkers who rejected her notion that many of life's questions have one right answer, said Judith Wilt, an English professor at Boston College.
`Places for Discourse'
``Universities as places for discourse and argument and a kind of searching tend to be more interested in what Rand would call vagueness,'' said Wilt, 66, who is teaching a seminar on Rand and contemporaries such as John Steinbeck and Arthur Miller. ``Universities tend to be interested not in closing the argument, but in keeping it open.''
Rand was born in Russia in 1905 and emigrated to the U.S. in 1926. Businessmen who were guided by their own consciences or self-interest were the heroes of her novels. ``The Fountainhead,'' published in 1943, tells the story of architect Howard Roark, who blows up a housing project he designed rather than compromise his vision.
`I Love It'
``I love it because it's so motivating,'' Cuban, 49, said in an e-mail. ``It's about an individual standing up for and believing in himself, ignoring what others think.''
In ``Atlas Shrugged,'' Rand describes the collapse of the U.S. economy when the most productive industrialists, led by John Galt, withdraw from society.
``Atlas Shrugged'' has sold 6 million copies since its first printing in 1957. After sales sagged to an average of 77,000 a year in the 1980s, they climbed steadily and topped 185,000 last year, the Rand institute said, citing publishers' data.
Allison's BB&T, based in Winston-Salem, North Carolina, in March pledged $2 million to establish the first U.S. chair in the study of objectivism, at the University of Texas at Austin.
That school and 27 others have accepted an aggregate $30 million from the bank's foundation in the last decade.
``These gifts are really about the study of capitalism from a moral perspective and all we want is to make Rand part of the dialogue,'' said Bob Denham, a spokesman for BB&T, the parent of Branch Banking & Trust Co.
The BB&T Charitable Foundation made a five-year, $1 million commitment to the University of North Carolina Charlotte in January 2005 after a dinner meeting between Allison and Claude Lilly, then dean of UNC Charlotte's business school.
`Required Reading'
The grant agreement described ``Atlas Shrugged'' as ``required reading'' in a course about the fundamentals of capitalism.
BB&T donated $500,000 last year to Johnson C. Smith University to help endow a professorship on capitalism and free markets, with lessons including ``Atlas Shrugged.'' It's the fourth endowed chair at the historically black college in Charlotte.
`` I don't believe I have to advocate that people accept Ayn Rand's philosophy,'' said Patricia Roberson-Saunders, who holds the chair. Roberson-Saunders, who will present Rand with other texts, said students will benefit from reading about a world view held by ``people with whom they will have to work and for whom they will have to work.''
Marshall announced in January that it received $1 million to establish the BB&T Center for the Advancement of American Capitalism. As part of the curriculum, an upper-level course will focus on ``Atlas Shrugged'' and Adam Smith's ``The Wealth of Nations.''
Marshall spokesman Dave Wellman wasn't immediately available for comment.
`Crossing the Line'
After BB&T mandated that some schools teach ``Atlas Shrugged,'' grant seekers became aware of Allison's interest and now tailor their applications by stating up front their interest in Rand, Denham said.
Scholars scoff at the Rand bounty, saying her ideas are too shallow to build courses around her.
``Rand could not write her way out of a paper bag,'' said Harold Bloom, a professor of the humanities and English at Yale University in New Haven, Connecticut. Bloom, 77, is the author of ``The Western Canon: The Books and School of the Ages'' (Harcourt, 1994), an examination of the most important works in Western literature. Rand isn't on the list.
To contact the reporter on this story: Matthew Keenan in Boston at mkeenan6@bloomberg.net. Last Updated: April 11, 2008 00:01 EDT

Où l'on reparle de régulation

Et pas n'importe où. Une des principales surprises du credit crunch aura été de voir le FT, bastion du capitalisme s'il en est, embrasser tôt la cause d'une meilleure (et plus abondante) régulation, jusques et y compris de certaines pratiques à effets pervers relevant normalement de la sphère privée (pratiques de compensation des banques, notamment). Via Yves Smith.

From Wolf:
Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

Mine is not a judgment on whether the Fed was right to rescue Bear Stearns from bankruptcy. I do not know whether the risks justified the decisions not only to act as lender of last resort to an investment bank but to take credit risk on the Fed’s books. But the officials involved are serious people. They must have had reasons for their decisions. They can surely point to the dangers of the times – a crisis that Alan Greenspan, former chairman of the Federal Reserve, calls “the most wrenching since the end of the second world war” – and the role of Bear Stearns in these fragile markets.Mine is more a judgment on the implications of the Fed’s decision. Put simply, Bear Stearns was deemed too systemically important to fail. This view was, it is true, reached in haste, at a time of crisis. But times of crisis are when new functions emerge, notably the practices associated with the lender-of-last-resort function of central banks, in the 19th century.The implications of this decision are evident: there will have to be far greater regulation of such institutions. The Fed has provided a valuable form of insurance to the investment banks. Indeed, that is already evident from what has happened in the stock market since the rescue: the other big investment banks have enjoyed sizeable jumps in their share prices (see chart below). This is moral hazard made visible. The Fed decided that a money market “strike” against investment banks is the equivalent of a run on deposits in a commercial bank. It concluded that it must, for this reason, open the monetary spigots in favour of such institutions. Greater regulation must be on the way.The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable. Systemically important institutions must pay for any official protection they receive. Their ability to enjoy the upside on the risks they run, while shifting parts of the downside on to society at large, must be restricted. This is not just a matter of simple justice (although it is that, too). It is also a matter of efficiency. An unregulated, but subsidised, casino will not allocate resources well. Moreover, that subsidisation does not now apply only to shareholders, but to all creditors. Its effect is to make the costs of funds unreasonably cheap. These grossly misaligned incentives must be tackled.I greatly regret the fact that the Fed thought it necessary to take this step. Once upon a time, I had hoped that securitisation would shift a substantial part of the risk-bearing outside the regulated banking system, where governments would no longer need to intervene. That has proved a delusion. A vast amount of risky, if not downright fraudulent, lending, promoted by equally risky finance, has made securitised markets highly risky. This has damaged institutions, notably Bear Stearns, that operated intensively in these markets.Yet the extension of the Fed’s safety net to investment banks is not the only reason this crisis must mark a turning-point in attitudes to financial liberalisation. So, too, is the mess in the US (and perhaps quite soon several other developed countries’) housing markets. Ben Bernanke, Fed chairman, famously understated, described much of the subprime mortgage lending of recent years as “neither responsible nor prudent” in a speech whose details make one’s hair stand on end.* This is Fed-speak for “criminal and crazy”. Again, this must not happen again, particularly since the losses imposed on the financial system by such lending could yet prove enormous. The collapse in house prices, rising defaults and foreclosures will affect millions of voters. Politicians will not ignore their plight, even if the result is a costly bail-out of the imprudent. But the aftermath will surely be much more regulation than today’s.If the US itself has passed the high water mark of financial deregulation, this will have wide global implications. Until recently, it was possible to tell the Chinese, the Indians or those who suffered significant financial crises in the past two decades that there existed a financial system both free and robust. That is the case no longer. It will be hard, indeed, to persuade such countries that the market failures revealed in the US and other high-income countries are not a dire warning. If the US, with its vast experience and resources, was unable to avoid these traps, why, they will ask, should we expect to do better?These longer-term implications for attitudes to deregulated financial markets are far from the only reason the present turmoil is so significant. We still have to get through the immediate crisis. A collapse in financial profits (so significant in the US economy), a house-price crash and a big rise in commodity prices are a combination likely to generate a long and deep recession. To tackle this danger the Fed has already slashed short-term rates to 2.25 per cent. Meanwhile, the Fed also clearly risks a global flight from dollar- denominated liabilities and a resurgence in inflation. It is hard to see a reason for yields on long-term Treasuries being so low, other than a desire to hold the liabilities of the US Treasury, safest issuer of dollar- denominated securities.“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.

25 mars...

... et après deux semaines de folie qui ont vu la réserve fédérale inventer quotidiennement de nouveaux moyens d'intervention, jusqu'au chèque en blanc pour reprise à prix cassé de courtier en faillite (Bear Stearns), la situation semble se calmer un peu... JPM a même dû relever son offre sur BSC à 10$, ce qui ressemble moins à une liquidation mais n'est quand même pas glorieux. Si les choses semblent aller légèrement mieux dans la sphère purement financière (par aller mieux on entend des taux positifs sur les BdT US, un rythme non horaire de rumeurs de faillite de banques, et quelques bonnes surprises sur les Q1 de certains brokers), les nouvelles de l'économie réelle sont moroses: indice de confiance des consommateurs US à son plus bas depuis 73, case shiller encore en baisse pour une année consécutive. Martin Feldstein (président du NBER) a annoncé qu'il s'attendait à la pire récession depuis la guerre, ce qui n'est pas rien.
Une des questions intéressantes sera de voir l'étendue de l'impact de cette récession sur le système bancaire et financier : en gros, après avoir mis l'économie en faillite, parviendra-t-il à s'en sortir indemne (au prix s'il le faut de multiples sauvetages gouvernementaux) ou coulera-t-il avec ses victimes ?

7 mars 2008

Une du FT, 7 mars

Aujourd'hui la crise semble avoir pris un tour nouveau, avec un certain nombre d'annonces concomittantes qui laissent présager un bain de sang conforme aux prédictions des pessimistes :

• Le fonds Carlyle se plante, et entraîne avec lui le marché du crédit (moins par son importance intrinsèque que par les doutes qu'il génère sur la liquidité générale de ses congénères)


• La Fed se lance dans un nouvel exercice d'injection de liquidités dans le système


• Les chiffres de l'emploi US sont tombés il y a deux heures et sont abominables

Surprise fall in jobs fuels US recession fears
By Chris Bryant
Published: March 7 2008 14:07 Last updated: March 7 2008 14:30
US employers cut the most jobs in almost five years last month, increasing the odds that the economy could fall into a recession.
Non-farm payrolls fell 63,000 in February, the most since June 2003, marking a second consecutive monthly decline. Economists had expected an unchanged reading.
Adding to the headache for investors, January’s loss of 17,000 jobs was revised lower to a decline of 22,000 while an initial estimate of a gain of 82,000 jobs in December was cut to 41,000.
Manufacturers (down 52,000), construction firms (down 39,000) and retailers (down 34,000) all slashed jobs last month, the Department of Labor said, although food services and health care continued to defy the trend.
Another slight consolation was a fractional downtick in the unemployment rate, which fell a tenth of a percentage point to 4.8 per cent.
After the jobs report, stock futures fell sharply while treasuries rallied amid expectations that the Federal Reserve will be forced to keep cutting interest rates . Meanwhile, the dollar plunged to a fresh record low against the euro.
The futures market fully priced in a 75 basis point rate cut when the Fed meets later this month, with a 22 per cent likelihood of a more aggressive 100bp cut.
John Ryding, chief US economist at Bear Stearns, said back-to-back nonfarm payroll declines were “a strong indication that the economy has fallen into recession” which raised the likelihood of an inter-meeting 50bp rate cut.
Traders were alert to a bad number as immediately before the data the Fed increased to $100bn the total size of its March term auctions - whereby banks can borrow funds more cheaply from the Fed - to help ease liquidity pressures.
The Fed also announce a series of new term repo operations which will allow banks to borrow another $100bn against collateral, including agency-backed mortgages.
A report on private sector employment had indicated weakness in the jobs market earlier this week, registering an unexpected decline of 23,000 jobs
Although initial jobless claims dipped in the latest week, they too have been trending higher. Data on US manufacturers have also been particularly weak while the ISM non-manufacturing index has contracted for two consecutive months.

Un petit résumé de la crise

Un article de John Dizard qui présente la situation actuelle dans une intéressante perspective manichéenne, sauf que dans ce cas on ne sait plius vraiment qui sont les bons et les mauvais. Noter l'apparition du term "debasement" pour le dollar, qui est en général utilisé pour des monnaies plus exotiques.
Disquiet on the western front of the credit world
By John Dizard

Published: March 4 2008 02:00 Last updated: March 4 2008 02:00
The credit world is aligning itself into political factions, divided over the right approach to untangling the present mess. On one side are the trader-fundamentalists, with one hand on the Bloomberg keyboard, the other hand on a dog-eared copy of Atlas Shrugged . They believe in the literal interpretation of scripture, which in this case means that an asset is only worth what the bid side says it is. As far as they are concerned, the only way to deal with the excesses of the credit markets is to take the write-offs and start over, having accepted the revealed truth of what bankruptcy sale buyers are willing to pay.
Opposed to them are the would-be managers of systemic risk. They believe that the aggressive application of the mark-to-market rule would result in another Great Depression, only bigger. Their Qum is Washington DC, where the differences between the Republicans and the Democrats are small relative to their agreement that a deep recession, let alone a depression, must be avoided at all costs. One of those costs could be years of stagnation and low growth. You could call them Keynesians, except that Keynes was strongly opposed to currency debasement. As far as this group is concerned, currency debasement to the point of depravity is a good starting point. (Strangely, they still publicly proclaim adherence to a "strong dollar policy", even at $1.50 to the euro. What would a "weak dollar policy" be?)
However, the anti-fundamentalists are not just a Washington group. They also have strong representation at the top of the major dealers and banks. While the dealers' and banks' trading desks are mostly populated by fundamentalists, management people and board members on the upper floors realise that any thorough "liquidation" would include them.
This political fight is most evident in the US. That's because the US markets and institutions are further along in recognising the extent of the problems, on balance sheets and in business practices, that built up in the past decade. Up to now, European finance has appeared to be a happier place than its counterpart across the Atlantic. However, both the credit trading fundamentalists in New York and the systemic risk managers in Washington have done their own analyses of European balance sheets, and agree that it's a matter of time until the storm moves to the east.
As one credit strategist for a major New York dealer says, "I was over doing client calls in Europe last week, and they told me that they believed the US financial system will recover faster because the loss recognition is swifter." A mark-to-market fundamentalist, he believes that it follows that "Any move to retard loss recognition is, categorically, a mistake." At the end of the day, the liquidations would win the argument on the integrity of their market economics, while the systemic risk managers, aka Keynesians, would have the politics right. Being politicians at heart, however, the systemic risk managers are going to try to split the difference. That is to say the regulators will try to have as much recognition of losses as possible without any contraction of credit availability for the real economy.
That means that while the central bank people and regulators may be willing to have "flexibility" in the mark-to-market accounting of structured credit product on the books of the financial sector, what they want is to accelerate the recapitalisation of the banks and dealers. Banks and dealers with bigger equity bases could afford to take mark-to-market losses while continuing to lend money and maintain liquid securities markets. Simple, right?
As one official told me: "The easiest way to solve for lack of capital is to go get capital. We are in the early stages of capital raising." The first stage was that series of calls on the sovereign wealth funds in recent months. Unfortunately, the limit on that source of equity has probably been reached, both for the banks and the SWFs. Most of the new equity for the banks and dealers will have to come from their home markets.
As that official continued, "We have been encouraging institutions to get going and do road shows. There is no shortage of capital on the sidelines." At some price that is true. Undoubtedly that new equity will have dividends and seniority superior to the old equity. Which is why the bank and dealer management may be hesitant to book those road shows. It's easy for officialdom to say that the equity holders will be diluted, because it's true. However, if you're a C-suite executive or board member, you are supposed to be working to protect the interests of those existing equity holders. We could be talking career death here. So why not put off any decision until we see what the marks will be at the end of the quarter?
Even before the lowest marks-to-market are taken, there are probably some real values to be had in the credit markets. They are not, I believe, to be found in the junk market, which probably does not yet reflect the prospective hits to cash flow from the sinking. But the high-grade credit indexes should see some more tradable rallies.
johndizard@hotmail.com

un petit résumé de la crise actuelle

Un article de John Dizard qui présente la situation actuelle dans une intéressante perspective manichéenne, sauf que dans ce cas on ne sait plius vraiment qui sont les bons et les mauvais. Noter l'apparition du term "debasement" pour le dollar, qui est en général utilisé pour des monnaies plus exotiques

Le rôle des institutions dans le développement des inégalités

Via Mark Thoma, un papier de Frank Levy sur le rôle des institutions (par opposition aux mécanismes normaux du marché et du progrès technologique) dans le développement marqué des inegalités de revenu aux USA sur les deux dernières décennies.
Intéressant dans la mesure où il apporte de l'eau au moulin de ceux qui, comme Krugman ou une partie de la gaucha américaine, pensent qu'il existe une dimension institutionnelle (et donc réversible) au phénomène. Certains des arguments avancés dans le papier sont assez convaincants (voir le graphe comparé des répartitions de revenu entre les USA et le Japon, c'est édifiant).

Meyerson sur la middle class américaine

Un témoignage de Meyerson sur la situation de la classe moyenne américaine

Meyerson sur la middle class américaine

Un témoignage de Meyerson sur la situation de la classe moyenne américaine

Pigouvian Taxes and Equity

Mark Thoma introduit la notion d'équité dans le débat sur la taxation des biens à externalités négatives. Je n'avais jamais pensé à cet aspect des choses, qui rejoint cependant mon interrogation plus générale sur les points où le politique et l'économique se confrontent dans la définition de ce qui est acceptable :

Pigouvian Taxes and Equity
In the debate over global warming and what to do about it, we often hear arguments such as:
In particular, we could go to Greg Mankiw, founder of the Pigou Club. He would no doubt argue that the proper way to handle the negative externalities ... would be to tax them. Then, there's no need to stamp out industry... Rather, we simply give the market an incentive to reduce the bad effects.. The idea is that larger social goals are perfectly compatible with the preservation of individual choice...
But yet, despite the economic superiority of taxes over mandates in terms of the efficiency properties, there is substantial public support for mandates such as CAFE standards over taxes, and mandates continue to garner enough votes in the legislature to pass and be signed into law.
Why might that be? In thinking about efficiency as the primary reason for promoting one policy over the other, I think we might be missing something important: equity. More choice is best most of the time, but when it's a matter of being constrained, of not being able to do something you want or need to do, people want that constraint on behavior to be shared equally - especially when it involves something as essential to daily life as energy. If we impose an energy tax (carbon tax), the wealthy will pay more for their fuel, but the jets will still fly. We know that if the price of gas goes up a dollar or two due to a carbon tax, many people at the upper end of the income distribution will hardly notice, they won't be constrained in the same way the average or poor household will be. They can still drive their cars, heat their pools and houses, and so on. Their savings might not accumulate quite as fast, but to what extent are they really paying the same cost as a poor person?
Progressive carbon taxes anyone?
That might work, but even with a progressive carbon tax many people toward the upper end of the income distribution would not be very constrained in what they can do. With CAFE standards at least there's a chance that the cost of the policy action will be shared more equally. I realize that people have found a way to evade the CAFE standards (e.g. classify an SUV as a truck and make trucks subject to different standards), and evasion is always a problem, but that's largely a matter of will and closing loopholes. With mandates, at least the perception that we are trying to distribute the costs more equally is there.
I don't think policies that allow certain segment of the population to "buy out" of the constraint will find much popular support. If the poor are passed by roaring, gas guzzling, sports cars on the freeway as they drive their gas saving, small hybrid, they won't feel that is fair, not unless our transportation infrastructure changes dramatically. We can promise that with a carbon tax the proceeds will be redistributed to the poor so they are left harmless, but credibility over the long-run is a problem (what if the next administration cuts the government transfers to the poor?), people won't necessarily believe it will be fair to them individually, and there remains the problem of certain groups buying their way around the constraint and the public perception that comes along with that.
Maybe I'm wrong about this, but I do think we should spend more time thinking about the equity of these proposals and how fairly the (utility) cost is distributed across the population. A mandate, done properly, may have poor economic properties, but I think people support them because at least there's a chance that a mandate will force the luxury cars to abide by the same mpg restrictions as the lower price cars driven by the typical household. If we are going to go the carbon tax route, touting the efficiency properties won't be enough, I think we will need to find a way to convince people that everyone will share the costs (approximately) equally before it will find popular support.
Posted by Mark Thoma on Monday, February 11, 2008 at 03:16 PM in

Recession watch

Le mot récession revient de plus en plus dans le discours général. A ce stade, même si les économistes de Wall St persistent à ne lui donner qu'une probabilité de 50%, les voix sérieuses (ie non irrémédiablement contaminées par les conflits d'intérêts de leurs employeurs) s'accordent à rejoindre Nouriel Roubini dans un diagnostic plutôt pessimiste. Ce dernier est évidemment le plus pessimiste des pessimistes, mais on aurait tendance à le luis pardonner dans la mesure où il a eu systématiquement raison depuis 2 ans (au moins, je ne suivais pas son blog avant 2006).

En France, le discours est en retard d'une guerre et se focalise encore sur les illusions d'une crise contenue, comme le nuage de Tchernobyl, à nos frontières. On nous explique que l'immobilier atterrit en douceur, les chiffres catastrophiques de la balance commerciale passent inaperçus (ou alors sont commentés en passant des habituelles excuses sur le méchant euro et les méchants vendeurs de pétrole) et, surtout, le gouvernement s'abstient soigneusement de traiter le sujet, ou s'accroche à des délires ayant trait, pour l'essentiel, à l'accession à la propriété.

A ce stade, où la profondeur de la crise qui nous attend est encore incertaine, il faut admettre que les arguments des pessimistes sont beaucoup plus convaincants que ceux des optimistes. C'est en particulier le cas de celui selon lequel il faudra bien que l'excès de crédit accumulé sur ces dernières années se résorbe. Je n'ai pas encore vu de description crédible d'un mécanisme de résorbption qui n'entraîne pas d'ajustements douloureux.

update : via Thoma, W. Poole, gouverneur de la Fed de Saint Louis et optimiste, a un argument intéressant : selon lui, ce qu'il voit aujourd'hui est une inquiétude des entreprises face à leur profitabilité, pas face à leur survie. Se pourrait il que l'amélioration récente de la profitabilité des entreprises, sur le dos d'un crédit pas cher et de la globalisation, ait un effet positif en agissant comme un amortisseur des effets récessionnistes ? C'est en tout cas une interrogation valable, à suivre...

the kuznets curve

Brad sur la courbe de kuznets.
On voit de plus en plus d'articles de ce genre, ou en tout cas les arguments des économistes de l'école de pensée de Brad sont de plus en plus visibles (et si le FT s'y met...). Les débats d'écnonomie politique de la décennie qui vient promettent d'être passionnants (via mark thoma).

Brad says that "over the past generation, confidence in the 'Kuznets curve' has faded":
Would Marx say rising tide today lifts all boats?, by J. Bradford DeLong, Project Syndicate: A century and a half ago, Karl Marx both gloomily and exuberantly predicted that the modern capitalism he saw evolving would prove incapable of producing an acceptable distribution of income.
Wealth would grow, Marx argued, but would benefit the few, not the many: the forest of upraised arms looking for work would grow thicker and thicker, while the arms themselves would grow thinner and thinner.
Ever since, mainstream economists (in the West) have earned their bread and butter patiently explaining why Marx was wrong. Yes, the initial disequilibrium shock of the industrial revolution was and is associated with rapidly rising inequality as opportunities are opened to aggressiveness and enterprise, and as the market prices commanded by key scarce skills rise sky-high. But this was - or was supposed to be - transient.
A technologically stagnant agricultural society is bound to be an extremely unequal one: by force and fraud, the upper class pushes the peasants' standards of living down to subsistence and takes the surplus as the rent on the land they control.
By contrast, mainstream economists argued, a technologically advancing industrial society was bound to be different.
First, the key resources that command high prices and thus produce wealth are not fixed, like land, but are variable: the skills of craft workers and engineers, the energy and experience of entrepreneurs, and machines and buildings are all things that can be multiplied.
As a result, high prices for scarce resources lead not to zero- or negative-sum political games of transfer but to positive-sum economic games of training more craft workers and engineers, mentoring more entrepreneurs and managers, and investing in more machines and buildings.
Second, democratic politics balances the market. Government educates and invests. It also provides social insurance by taxing the prosperous and redistributing benefits to the less fortunate.
Economist Simon Kuznets proposed the existence of a sharp rise in inequality upon industrialization, followed by a decline to social-democratic levels.
But, over the past generation, confidence in the "Kuznets curve" has faded. Social-democratic governments have been on the defensive against those who claim that redistributing wealth exacts too high a cost on economic growth.
The consequence has been a loss of morale among those of us who trusted market forces and social-democratic governments to prove Marx wrong about income distribution in the long run - and a search for new and different tools of economic management.
Increasingly, pillars of the establishment are sounding like shrill critics. Consider Martin Wolf, a columnist at The Financial Times.
Wolf recently excoriated the world's big banks as an industry with an extraordinary "talent for privatizing gains and socializing losses ... (and) get(ting) ... self-righteously angry when public officials ... fail to come at once to their rescue when they get into (well-deserved) trouble ... (T)he conflicts of interest created by large financial institutions are far harder to manage than in any other industry."
For Wolf, the solution is to require that such bankers receive their pay in installments over the decade after which they have done their work. But Wolf's solution is not enough, for the problem is not confined to high finance.
The problem is a broader failure of market competition to give rise to alternative providers and underbid the fortunes demanded for their work by our current generation of mercantile princes. [Cartoon with article]Brad says that "over the past generation, confidence in the 'Kuznets curve' has faded":
Would Marx say rising tide today lifts all boats?, by J. Bradford DeLong, Project Syndicate: A century and a half ago, Karl Marx both gloomily and exuberantly predicted that the modern capitalism he saw evolving would prove incapable of producing an acceptable distribution of income.
Wealth would grow, Marx argued, but would benefit the few, not the many: the forest of upraised arms looking for work would grow thicker and thicker, while the arms themselves would grow thinner and thinner.
Ever since, mainstream economists (in the West) have earned their bread and butter patiently explaining why Marx was wrong. Yes, the initial disequilibrium shock of the industrial revolution was and is associated with rapidly rising inequality as opportunities are opened to aggressiveness and enterprise, and as the market prices commanded by key scarce skills rise sky-high. But this was - or was supposed to be - transient.
A technologically stagnant agricultural society is bound to be an extremely unequal one: by force and fraud, the upper class pushes the peasants' standards of living down to subsistence and takes the surplus as the rent on the land they control.
By contrast, mainstream economists argued, a technologically advancing industrial society was bound to be different.
First, the key resources that command high prices and thus produce wealth are not fixed, like land, but are variable: the skills of craft workers and engineers, the energy and experience of entrepreneurs, and machines and buildings are all things that can be multiplied.
As a result, high prices for scarce resources lead not to zero- or negative-sum political games of transfer but to positive-sum economic games of training more craft workers and engineers, mentoring more entrepreneurs and managers, and investing in more machines and buildings.
Second, democratic politics balances the market. Government educates and invests. It also provides social insurance by taxing the prosperous and redistributing benefits to the less fortunate.
Economist Simon Kuznets proposed the existence of a sharp rise in inequality upon industrialization, followed by a decline to social-democratic levels.
But, over the past generation, confidence in the "Kuznets curve" has faded. Social-democratic governments have been on the defensive against those who claim that redistributing wealth exacts too high a cost on economic growth.
The consequence has been a loss of morale among those of us who trusted market forces and social-democratic governments to prove Marx wrong about income distribution in the long run - and a search for new and different tools of economic management.
Increasingly, pillars of the establishment are sounding like shrill critics. Consider Martin Wolf, a columnist at The Financial Times.
Wolf recently excoriated the world's big banks as an industry with an extraordinary "talent for privatizing gains and socializing losses ... (and) get(ting) ... self-righteously angry when public officials ... fail to come at once to their rescue when they get into (well-deserved) trouble ... (T)he conflicts of interest created by large financial institutions are far harder to manage than in any other industry."
For Wolf, the solution is to require that such bankers receive their pay in installments over the decade after which they have done their work. But Wolf's solution is not enough, for the problem is not confined to high finance.
The problem is a broader failure of market competition to give rise to alternative providers and underbid the fortunes demanded for their work by our current generation of mercantile princes. [Cartoon with article]

Stiglitz sur le credit crunch

Stiglitz résume la situation actuelle. Noter le paragraphe sur la question de la corrélation, principe de base du risk management qui semble avoir été largement oublié ces dernières années (ha, les articles expliquant sentencieusement que la diversification et la distribution du risque avaient mis un terme à la volatilité...)

Central banks need to act pre-emptively, not reactively, by Joseph E Stiglitz, Project Syndicate: Not surprisingly, the atmosphere at this year’s World Economic Forum was grim. Those who think that globalisation, technology, and the market economy will solve the world’s problems seemed subdued. Most chastened of all were the bankers. ... And it was not just the bankers who were in the Davos doghouse this year, but also their regulators – the central bankers.
Anyone who goes to international conferences is used to hearing Americans lecture everyone else about transparency. There was still some of that... I heard the usual suspects – including a former treasury secretary who had been particularly vociferous in such admonishments during the East Asia crisis -– bang on about the need for transparency at sovereign wealth funds (though not at American or European hedge funds).
But this time, developing countries could not resist commenting on the hypocrisy of it all. ... Had America really told others to bring in American banks to teach them about how to run their business? Had America really boasted about its superior risk management systems, going so far as to develop a new regulatory system (called Basle II)? Basle II is dead...
Bankers – and the rating agencies – believed in financial alchemy. They thought that financial innovations could somehow turn bad mortgages into good securities, meriting AAA ratings. But one lesson of modern finance theory is that, in well functioning financial markets, repackaging risks should not make much difference. ...
There might be some money in repackaging, but not the billions that banks made by slicing and dicing sub-prime mortgages into packages whose value was much greater than their contents. It seemed too good to be true – and it was.
Worse, banks failed to understand the first principle of risk management: diversification only works when risks are not correlated, and macro-shocks (such as those that affect housing prices or borrowers’ ability to repay) affect the probability of default for all mortgages.
I argued at Davos that central bankers also got it wrong by misjudging the threat of a downturn and failing to provide sufficient regulation. They waited too long to take action. Because it normally takes a year or more for the full effects of monetary policy to be felt, central banks need to act preemptively, not reactively.
Worse, the US Federal Reserve and its previous chairman, Alan Greenspan, may have helped create the problem, encouraging households to take on risky variable-rate mortgages by reassuring those who worried ... that there was at most a little “froth” in the market.
Normally, a Davos audience would rally to the support of the central bankers. This time, a vote ... supported my view by a margin of three to one. ...
It was interesting to see the different cultural attitudes to the crisis on display. In Japan, the CEO of a major bank would have apologised..., and would have refused his pension and bonus so that those who suffered as a result of corporate failures could share the money. He would have resigned.
In America, the only questions are whether a board will force a CEO to leave and, if so, how big his severance package will be. ...
This is the third US crisis in the past 20 years, after the Savings & Loan crisis of 1989 and the Enron/WorldCom crisis in 2002.
Deregulation has not worked. Unfettered markets may produce big bonuses for CEOs, but they do not lead, as if by an invisible hand, to societal well-being. Until we achieve a better balance between markets and government, the world will continue to pay a high price.

Keynes, par Krugman

Dans une actualité où le terme "stimulus" semble revenir constamment, il est intéressant de retourner aux bases, et en particulier à celles posées par Keynes. Paul Krugman a écrit une excellente introduction à la Théorie Générale.

Obama vs. Clinton

Les primaires démocrates sont très excitantes. Outre l'opposition de style entre les deux candidats, on commence à voir des différences assez nettes de substance. Ces différences de substance ne sont toutefois pas forcément bien appréhendées par le public, et la récente polémique sur les propos tenus par Obama sur Reagan a permis de les clarifier. PK, comme toujours, trouve la bonne présentation (sur son blog).
Les propos de HRC sont d'une justesse de ton étonnante. Elle est vraiment plus que la simple femme de son mari.

January 21, 2008, 9:13 am
Hearing and believing
So, Candidate A says things like this:

"I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not. He put us on a fundamentally different path because the country was ready for it. I think they felt like with all the excesses of the 1960s and 1970s and government had grown and grown but there wasn’t much sense of accountability in terms of how it was operating. I think people, he just tapped into what people were already feeling, which was we want clarity we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing." (BO, ndlr)

And Candidate B says things like this:

"If you go back and look at our history, we were most successful when we had that balance between an effective, vigorous government and a dynamic, appropriately regulated market. And we have systematically diminished the role and the responsibility of our government, and we have watched our market become imbalanced. I want to get back to the appropriate balance of power between government and the market … Inequality is growing. The middle class is stalled. The American dream is premised on a growing economy where people are in a meritocracy and, if they’re willing to work hard, they will realize the fruits of their labor." (HRC, ndlr)

And somehow many people believe that Candidate A is the true progressive — he wasn’t really saying that Reagan was right — and that Candidate B, despite the progressive talk, is just Bush the third.
These people could be right; politicians have been known to say things they don’t believe. But where does their certainty come from?

la "grande modération", suite et (probablement) fin

Via YS, un article du NYT qui résume bien la particularité des temps que nous vivons.
Pendant ce temps là, ces crétins de la Fed continuent à pomper de l'essence sur l'incendie, et ont abandonné toute prétention à l'indépendance. 75bp de réduction de taux en urgence, sans raison et uniquement pour rassurer le marché boursier : si il fallait une illustration de ce qu'est devenu le capitalisme ploutocratique à l'américaine, je n'en connais pas de meilleure.

David Leonhardt: Was the "Great Moderation" An Illusion?
A very good article by David Leonhardt in today's New York Times raises a question that would have been regarded with considerable skepticism as recently as, say, even August, when the perturbations in the debt markets seemed to be the largely the result of the subprime meltdown. That question is whether the Great Moderation, the period regarded as an economic golden age which featured solid growth rates for advanced economies, tame inflation, and even relatively mild crises, was built on tidal sands.Leonhardt says what some who have formerly been portrayed as alarmists have said for a while: a boom, or even merely good growth, that relies heavily on excessive debt creation, particularly when the proceeds of borrowing are either consumed or simply invested poorly, is bound to come to a bad end as the overhang has to be worked off. Either you have a contraction as consumption is redirected to debt reduction, or inflation which will have the effect of reducing the debt, but also erodes the real value of other financial assets.Leonhardt describes stimuli and risks that we now recognize were not well understood at the time, and led them to take actions that with the fullness of time, now appear to have significant, unanticipated costs. With perhaps a morbid turn of mind, I am reminded of the case of a steel magnate of the 1920s, Eben Byers, who was overly fond of a stimulant of a very different sort, a popular tonic known as Radithor which contained radium. His daily dose, which initially gave the sportsman the illusion of health and plenty of energy, led to a miserable death at age 51, having lost his teeth, nearly half his body weight, and suffering holes in his jaw.Let's hope our recent elixir isn't remotely as toxic. However, Leonhardt argues that there are good reasons to believe that the slowdown we are entering won't be as mild as those of 1990-1991 and the beginning of this century.

From the New York Times:
Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: “the great moderation.”These days, though, the great moderation isn’t looking quite so great — or so moderate.The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.".....But a recession is now more likely than not. It may well have started already....The bigger question is how severe the recession will be if it does come to pass. The last two, in 1990-1 and 2001, have been rather mild, which is a crucial part of the great moderation mystique. There are three reasons, though, to think the next recession may not be.First, Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s Economy.com. They’re not being dishonest; they just haven’t untangled all of their complex investments.“Part of the big uncertainty,” Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, “is where the bodies are buried.”As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms’ holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.Cheaper stocks and houses will benefit many people — namely those who don’t yet own a home and still have most of their 401(k) investing in front of them. But the price declines will also lead directly to the third big economic problem.Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — “is not likely to be repeated.” So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.“What people have done is make an assumption that these prices could continue rising at the rate they had been,” said Ed McKelvey, an economist at Goldman Sachs. “And that does seem to have been an unreasonable assumption.”Certainly, there are some forces to push in the other direction. Outside of Wall Street, corporate balance sheets remain remarkably strong, while the recent fall in the dollar will help American companies to sell more goods overseas.But it’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk.Welcome to the new moderation.

More on greenspan

The Greenspan method

Five Simple Steps to Becoming a Billionaire: The Greenspan Method by Johnny Debacle
1 Become Fed Chairman
2 Lower interest rates until you create an asset bubble. Hold them low until stagflation is in the air and a real estate bubble is floating
3 Stop being Fed Chairman and release a book on how you didn’t do anything wrong and have no regrets. If possible, time it perfectly with the worst real estate market in generations
4 Join the hedge fund which has profited more in % and dollar terms than anyone else has from your mess (which you didn’t create)
5 Build a platinum statue of your muse, Ayn Rand, and sleep with it every night
It also helps if you are mostly unethical.

Addendum: Look at this quote from Greenspan from the WSJ’s Real Time Economics:
“Q: All three of your clients — Pimco, Deutsche Bank and now Paulson — were bearish early on housing and mortgages. Is there a connection?A: I hadn’t [noticed] until you just raised the issue.”
Greenspanspeak is code for self-serving disingenuousness.

Alan Greenspan

Yves Smith tire à vue sur Alan Greenspan, et résume en peu de mots les volumes que justifieraient les actions de l'ex-idole du capitalisme de casino.

Galbraith sur le conservatisme

Via Brad et Dsquare

(...) Contrast with rightwing politics. As I've posted earlier, the single most sensible thing said in political philosophy in the twentieth century was JK Galbraith's aphorism that the quest of conservative thought throughout the ages has been "the search for a higher moral justification for selfishness". Some rightwingers are not hypocrites because they admit that their basic moral principle is "what I have, I keep". Some rightwingers are hypocrites because they pretend that "what I have, I keep" is always and everywhere the best way to express a general unparticularised love for all sentient things. Then there are the tricky cases where the rightwingers happen to be on the right side because we haven't yet discovered a better form of social organisation than private property for solving several important classes of optimisation problem. But at base, the test of someone's politics is simple; if their political aim is to advance all of humanity, they're on our side, while if they have an overriding constraint that the current owners of property must always be satisfied first, they're playing for the opposition. Hypocrisy doesn't really enter into the equation with rightwing politics; you don't (or shouldn't) get any extra points for being sincere about being selfish.

Baisser ou ne pas baisser ?

Wolfgang Munchau donne quelques éléments de contexte historique intéressants en appui de la conception, malheureusement peu répandue ces derniers temps, qu'une baisse des taux d'intérêt ne nous sortira pas de la ratatouille (ou alors provisoirement, et au risque de déséquilibres pires à moyen terme). La citation en exergue résume bien l'argument.

“If stupidity got us into this mess, then why can’t it get us out?”– Will Rogers, late US writer and actor

We are certainly trying very hard.The stupidity that got us into our financial mess was low, and occasionally negative, real interest rates over long periods of time. Now that the bubble has burst, central banks are responding by cutting interest rates yet again.By the end of this year, if market expectations prove correct, the US Federal Reserve will have cut short-term rates by a full percentage point from their peak. It has become the policy orthodoxy of the early 21st century that central banks must overreact to asset-price induced economic downturns.This orthodoxy has its intellectual roots in past recessions. Burst asset price bubbles triggered the Great Depression in the 1930s and more recently cost Japan a decade of economic growth. What turned these crises into calamities was a string of policy mistakes. In both cases, central banks failed to respond to a sharp fall in inflation.Once deflation descended on the US and Europe in the 1930s and on Japan in the 1990s, the zero nominal interest rate rendered monetary policy toothless: since nominal rates cannot go below zero, negative inflation implies positive real interest rates. In such an environment, central banks lose their ability to provide sufficient stimulus. The lesson the current generation of policymakers has drawn is that the monetary policy has to react fast and decisively when an asset-price bubble bursts and threatens a recession.But that conclusion does not follow logically from historical observation. The mistake central banks made during those periods was to disregard a strong fall in inflation. It is our consensus today – and rightly so – that the ultimate purpose of monetary policy is to keep consumer price expectations anchored at some mildly positive inflation rate. Should those expectations fall dramatically, history has taught us that a central bank must act decisively to bring inflation back into target.But we are living in a very different environment. On the contrary, inflation expectations are rising everywhere, and this is not a statistical argument about the price of oil and food. US core inflation has been above the central bank’s comfort level for some time. And in the eurozone, even a strong euro has not stopped inflation from rising to 3 per cent in November. This year’s price increases may fall out of next year’s inflation indices, but what about next year’s price increases? We are already seeing evidence of those dreaded second-round effects. Whether it is Finnish nurses or German train drivers, Europeans are asking for wage increases to compensate for a loss of purchasing power. Some of these negotiated wage increases are no longer consistent with the inflation target and productivity developments.Just witness the furious debate on purchasing power that is raging in the French media. A perceived loss of purchasing power is often a first step towards a persistent increase in inflationary expectations. Long-term inflation expectations in the eurozone, as measured by interest rate futures, are running at nearly 2.5 per cent, which is not consistent with an official target of “close to but below 2 per cent”. While some forecasters expect eurozone inflation to slow next year, nobody predicts that it will fall below target, let alone turn negative.So the inflation outlook would justify a neutral policy stance at best. I agree that there is a non-trivial risk of a substantial slowdown in the US economy and maybe even a recession. But it is not clear to me that monetary policy is the right tool to deal with a slowdown that is not accompanied or caused by a decline in inflationary expectations.This is not a moral point. It is about what a central banker’s toolkit can realistically achieve. If a financial market generates a bubble, one would expect that asset prices would eventually fall back after the bubble has burst. Over long periods asset prices are self-correcting. If a central bank does not care about asset prices on the way up, but starts to target them on the way down, it risks stoking up inflationary expectations.Look at it in terms of insurance. Lower interest rates insure us against the risk of a slowdown, but we are paying a price by accepting new risks. Among the biggest are moral hazard and higher inflation in the future.The moral hazard argument is well known: banks reap the profits in the good times and beg for central bank support during bad times.Higher inflation is a more immediate concern. If it is tolerated, expect serious convulsions in global bond markets and serious disruption to the global flows of funds. If it is not tolerated, expect a policy shift in the opposite direction and at greater magnitude. Neither scenario is appealing.On balance, the benefits of a loose monetary policy are not nearly as one-sided as its advocates claim. A bias towards low interest rates got us into this mess. Low interest rates will not get us out of it. Central banks should keep their cool.