Nobody reads academic papers

Sixteen years ago, two economists wrote a paper calling "Looting" that explains, and predicted, our current economic crisis. If only someone read those things BEFORE it mattered. Full NYTimes article here.

When Bad Things Happen

Good post from Slog. If you don't read the whole thing, skip to the bottom about GM declining an additional $2 billion that it no longer needs. Good for them.

Responses to Dire Warnings of Imminent Danger, posted by Jonathan Golob

1. In the best way we can, in the face of no viable alternatives beyond doom.

From NOAA:

NOAA’s National Weather Service has issued a report that analyzes forecasting performance and public response during the second deadliest tornado outbreak in U.S. history. The report, Service Assessment of the Super Tuesday Tornado Outbreak of February 5-6, 2008, also addresses a key area of concern: why some people take cover while others ride out severe weather.
....
In reviewing the public response, the team found that two-thirds of the victims were in mobile homes, and 60 percent did not have access to safe shelter (i.e., a basement or storm cellar). The majority of the survivors interviewed for the assessment sought shelter in the best location available to them, but most of them also did not have access to a safe shelter. Some indicated they thought the threat was minimal because February is not within traditional tornado season. Several of those interviewed said they spent time seeking confirmation and went to a safe location only after they saw a tornado. Many people minimized the threat of personal risk through “optimism bias,” the belief that such bad things only happen to other people.

2. Willed ignorance in the face of growing danger, in service of greed.

From the Boston Globe:

The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.

3. Manipulate and lie, to temporarily cover your ass.

From NakedCapitalism:

Readers may recall that during Lehman's demise, a pitched battle was underway between some short sellers, epitomized by David Einhorn of Greenlight Capital. Einhorn raised questions about Lehman's financial statements, specifically, inconsistencies and rosy looking valuations. The struggle became weirdly per[s]onalized, as Lehman sought to burnish the image of charmismatic CFO Erin Callen, as contrasted with the presumed to be evil company wrecking Einhorn. Of course, if the real performance (as opposed to what the reports said) was as bad as Einhorn's line of inquiry suggested, it was management that had done the company-wrecking, but that level of detail is often lost on CNBC.

And one of the regular features of the Lehman versus its detractors affair was leaks to the media, leaks of a sort that even if the firm had done it in a way that it had plausible deniability, were clearly intended to reach outside parties, particularly the media.

Now let us turn to Citi. Recall what transpired, per the Wall Street Journal:

Citigroup Inc. was profitable in the first two months of 2009 and is having its best quarter in a year and a half, Chief Executive Vikram Pandit said in an internal memo aimed at boosting employee and investor confidence in his struggling bank.

Yves here. This is simply stunning. The Journal says up front a supposed internal memo was in fact intended to reassure investors.
....
Dunno about you, but this looks to me like a bald faced attempt to manipulate the stock price, and it certainly worked.

Updated:

Well, the Citigroup thing might also be a little pump-and-dump scam! From Bloomberg:

Four Citigroup Inc. executives who bought the bank’s stock last week generated a $2.2 million paper profit within nine days, regulatory filings show.

The executives, including director Roberto Hernandez, benefited as the company’s stock climbed 47 percent from March 10 through yesterday’s close of markets, after Chief Executive Officer Vikram Pandit said in a memo that the bank is having the best quarter since 2007. Their buying spree was the first by bank insiders since Jan. 14, filings show.
...
Pandit wrote in the internal memo March 10 that the company was profitable in January and February, leaving him “encouraged with the strength of our business so far in 2009.” The comments triggered Citigroup’s biggest one-day percentage gain since Nov. 24, spurring global markets.

And, for those of you who bitched about the relatively tiny US automaker bailout:

General Motors, which has borrowed $13.4 billion from the federal government since December to keep itself out of bankruptcy, said on Thursday that it had withdrawn a request for an additional $2 billion that it thought was needed to stay alive through the end of this month.

hahahaha

Take that, Fox News.

Hahahaha

Mass. Rep. Somebody or Another rips those nasty bank CEOs a new one. It's all very enjoyable. (Except maybe for the part where he says he would put one penny in their banks...doesn't that seem like a dangerous thing for a public official to say? Like something that might set off a bank run?)

We're not just socialists! We're Communists! Coming to get you!!!

Glenn Beck is an idiot. See below where he shows how we've already gone down the socialist road straight to full-on communism, comrades. I particularly enjoy when he claims that requiring institutions WHO TAKE GOVERNMENT ASSISTANCE to make some concessions is communist and good capitalist have no business telling people what to make. I mean, I would argue that it would be MORE socialist to not give the money with strings attached. The assumption would then be that they'll do right with the money, because it's for the greater good.

Movement on Auto Bailout

It looks like an auto bailout bill of some sort is going to come to the floor. It may include an oversight board (or one person), government equity stake in the companies (the UAW is also angling for equity stake in GM), approval for business transactions over $25 million, and limits on executive pay.

Here's my question on executive pay. They are obviously making way too much, and the "golden parachute" is just ridiculous. Screw up and get millions of dollars -- not a good plan. But shouldn't there be some sort of incentive, in order to attract the very best? A limit on pay, but if the company is able to meet government demands for restructuring, and significantly improve their share of the market (without over-producing) in some given amount of time, couldn't they qualify for a really amazing bonus? Maybe that doesn't make good business sense either, but it makes sense to me.

Auto Bailout

Not everyone in Michigan supports the bailout.

Big 3 Plans

The automakers have crafted plans to make it through the credit crunch with government help. Ford -- the best off of the three -- plans to create an "opportunity" out of this mess in order to build a "global, green, high-tech company" for the future. The plans sound nice in theory. Will they carry them out if given the money? Can they? Does Congress have them competency to evaluate the viability of a business plan?

More on Detroit

New York Times covers the Auto Bailout and outlines some reasons no one is interested in helping Detroit.

More arguments against and against.

Shockingly, Detroit News is for, except that they have a strong distaste for the democrats, who want "to saddle carmakers with even more costly mandates." As my mama always says, beggars can't be choosers, kiddo.

Mitchell Bard at Huffington Post argues for...or against? I think for...some sort of change-y type thing.


Hey Nate Silver! I need help with this. What do the polls really say??

State Bailouts

So many bailouts!!

Governor Sanford (R-SC) argues against government bailouts for states with deficits in the Wall Street Journal. His solution? To release states from unfunded federal mandates (Homeland Security ID requirements, NCLB). If these unfunded mandates are costing so much money, why doesn't the federal government spend money on funding them, instead of a bailout?

Auto Bailout

Megan McCardle continues to argue against an auto bailout.

I'm swaying even more toward the against side. Let them fail.

The Auto Bailout

I need some smart people to tell me how to think on this one. On the one hand, American car companies kind of suck. On the other hand, reasonable hard-working people work for said American car companies, and they shouldn't be out on the street. Let's go to the arguments:

Arguments for: James Suroweicki of the New Yorker & Thomas Friedman of the New York Times

Arguments against: Megan McCardle of The Atlantic, The Wall Street Journal, and Paul Ingrassia (also of WSJ)


I think the arguments against have swayed me more, but there are many bad outcomes either way you go. This is what swing voters must feel like.