Cardboard Spaceship

Some Good News, If Only Someone Would Listen...

Very Interesting article here about rising sea levels, or more precisely, the complete absence of experimental evidence for rising sea levels.   This comes from:

"Swedish geologist and physicist Nils-Axel Mörner, formerly chairman of the INQUA International Commission on Sea Level Change. The uncompromising verdict of Dr Mörner, who for 35 years has been using every known scientific method to study sea levels all over the globe, is that all this talk about the sea rising is nothing but a colossal scare story"

"The reason why Dr Mörner, formerly a Stockholm professor, is so certain that these claims about sea level rise are 100 per cent wrong is that they are all based on computer model predictions, whereas his findings are based on "going into the field to observe what is actually happening in the real world".

Fascinating stuff, and given what computer model used incorrectly were able to do to world finance, something that real world experience is needed to measure against.  However, given that global warming has become a money spinner, don't expect carbon traders, quangoes, government initiatives, and scientists with research grants to suddenly go home and admit they were all talking rubbish.

UK Crack-up Looming

Three surprising, or not so surprising, bits of British news. 

The rate of inflation did not fall as traditional economist would believe it should, because the weakened pound meant that things are more expensive to import.  So, we have effective zero interest rates and inflation at 3.2%. 

Why is everyone so obsessed about deflation, when all of the things that people need to buy (food, energy, transport) are getting more expensive, while things that have already been bought are worth less, like houses and cars.  Yes, this gives an overall asset deflation, but in this crisis people aren't in asset acquisition mode.  What the money is being spent on is subject to inflation, and much of this is not bought and sold in Sterling, further weakening the UK's hand. 

The City reacted by dropping bonds, as people realised that interest rates would have to go up if this continues, thus crushing any nascent recovery. 

Mervyn King, the Governor of the Bank of England, then went on record as saying that there is no money left to do any further financial stimulus without seriously endangering public finances. 

Finally, today a bond auction of UK Gilts failed.  This is almost unheard of, and the fact that people seem to be reluctant to trust the UK Government's financial position is the most worrying news that they could get.  If the plug gets pulled on the UK debt, which is burgeoning, the game is finished. 

Fred the Shred Gets a Visit from Joe Six Pack

In one of the least surprising developments of recent weeks, Sir Fred Goodwin's house in Edinburgh has been vandalised.  Whilst I cannot condone lawlessness, even for a twat like Goodwin, I think we will see rather more of this before we are done with this crisis. 

Martin Wolf in the FT Nails the Situation

Martin Wolf, the Financial Journalist writing in the FT (Financial Times) summarises the situation about as well as I have seen anyone do, with respect the recent Geithner bailout package.  This is a must read if you have an interest in the situation. 

I could repost the whole article, but one or two stand outs:

"The danger is that this scheme will, at best, achieve something not particularly important – making past loans more liquid – at the cost of making harder something that is essential – recapitalising banks."

"But will it work? That depends on what one means by “work”. This is not a true market mechanism, because the government is subsidising the risk-bearing. Prices may not prove low enough to entice buyers or high enough to satisfy sellers. Yet the scheme may improve the dire state of banks’ trading books. This cannot be a bad thing, can it? Well, yes, it can, if it gets in the way of more fundamental solutions, because almost nobody – certainly not the Treasury – thinks this scheme will end the chronic under-capitalisation of US finance. Indeed, it might make clearer how much further the assets held on longer-term banking books need to be written down."

Geithner Gets It Wrong Again.

I do feel some sympathy for Obama and his merry band.  Having finally displaced Bush from the White House, they get to the office, and the whole thing goes totally tits up, and the people who paid for them to get to the White House need baled out big style.  As Rolling Stone put it in a great Polemic the other day,

"It's over — we're officially, royally fucked."

It's worth reading just for the sheer magnificent quality of the anger. 

Which leads me to Geithner's much vaunted plan to get the banks working again, by injecting a trillion dollars to buy shitty assets, only he's totally fucked it. 

For a good description of the mechanism, and its problems, go read this by the excellent Mish Shedlock.  

Basically, the bank wants to divest the shitty asset, so the bank goes to the FDIC (Federal Deposit Insurance Corporation) and they hold an auction to the market, and the highest bidder gets the assets, but, and this is sweet, the FDIC will will lend them 93% of the value of the asset as a no-recourse, i.e. unrecoverable loan.

I can see why you might take the taxpayer money, but why would any bank want to sell in this scheme? 

If I have a $100 of notional asset, and I have it marked in the books at, say, 85 cents on the dollar, the only way I am going to risk selling this to the FDIC is if I think that I will get 85 cents on the dollar or close from the bidders.  If I get a low bid, suddenly I get some cash, but if people are only going to pay 50 cents or less on the dollar as a bid, suddenly I have to take an extra $35 as a loss on my books.  So, what bank is going to risk this kind of price discovery, unless they are so desperate for cash that they will take the loss?

So, if they sell, they get cash, but ironically, are even less able to lend because they've shrunk the balance sheet.  So, I predict that this will be a real problem, as bidders will only pay realistic prices for the best of the assets, and what we need to get out in the open are the worst, and not the best debts.

As for the buyers, sure, who wouldn't take a huge amount of money off the taxpayer if the price is right? 

Just as an aside, the reason it goes through the FDIC is to make sure that congress don't find out too much about what is going on, or have too much control over it. 

Enjoy the Show, it's an expensive ticket. 

Space Station Tours...

Back when I was a kid, I used to think that I wanted to be an astronaut, like just about every kid who grew up watching the Apollo program, and other derring-do things of the era. 

What with life being a little quiet here under house arrest, I decided to have a noodle around and see if I could find some entertainment.  The following two videos are taken inside the ISS, the International Space Station, and it is interesting what an uninviting place it must be to be for any length of time.  The host of the film does a very good job, but it still seems more like a floaty version of Das Boot than anything you would want to do as a leisure activity. 

The real eye opener though is the inside of the MIR space station.  My god, it looks like a scene from one of those nature programs where they show you corrugated fat in the arteries of middle aged men to encourage you to diet more, mixed with the sensation of being trapped in a burrow of some kind of very nasty subterranean creature.   Awesome in a funny kind of way.  Real Russian technology, if it cannot be field repaired with a hammer, then it ain't good. 

Warning for 1st April - Conficker Attack?

Reading this article in the NYT, it seems that the recent, and very persistent conficker worm is getting ready to do something, and we know not what.  The author of the piece, and the various commentators agree on at least one thing, that whoever is writing this is a state of the art IT person, following the best practices in the security world. 

The real chiller is the following however:

"An examination of the program reveals that the zombie computers are programmed to try to contact a control system for instructions on April 1. There has been a range of speculation about the nature of the threat posed by the botnet, from a wake-up call to a devastating attack."

Usual advice, have and update good anti-virus software, I personally use F-Secure from Finland, who have never let me down so far.  

Also be prepared for a potentially bouncy communication situation starting on the 1st April. 

Meme Counter Culture ;-)

Thanks and mad props to RobSog to have pointed out a counter coup to keep calm and carry on.

Get Excited and Make Things. 

Quite.  Most Excellent.

Update: And the indomitable Mr Thomas Otter sends his version:

 

Yay.  Thanks Thomas. 

Federal Reserve Hits the Hyperinflation Button

As I was saying yesterday, the Fed is busy burning down the barn of the economy while the regulators are tying down the horse of the banks, to make sure that it will never run away again. 

This morning they gave up on trying to burn down the barn, and have decided to go nuclear on it.  the Fed has decided to issue 300 billion dollars of Quantitative Easing debt, and buy another 1.5 trillion of Fannie Mae and Freddie Mac debt to put on their balance sheet.  

There were always going to be two routes out of the current difficulty, either to deflate, and let everyone have to carry the burden of unpayable debt for decades, or inflate, and decrease the value of debts by making the currency worth less, or worthless, depending on the extremes. 

This is inflationary.  There is now no doubt how they are going to "fix" the problem.   They are going to take the dollar down to the point where the debts can be paid with whatever toilet paper it becomes. 

Some reactions:

“Sell the dollar!” said Scott Ainsbury, a portfolio manager who helps manage about $12 billion in currencies at New York-based hedge fund FX Concepts Inc. “This is huge, huge. It’s equivalent to the Plaza Accord. This is the last thing they have in the closet, and they used it a bit early.”

“The Fed is basically financing our deficit by buying the debt issued by the Treasury. If the Obama administration pushes through another stimulus package, the dollar is done.”  said Jessica Hoversen, a foreign exchange analyst with MF Global Ltd. in Chicago.

More later, this is big breaking news. 

Burn Down the Stable, then Shoot the Horse.

Now, I am sure that we have all heard the cliché; "locking the stable door after the horse has bolted."

Only, we now seem to have a broader reaching solution; " Horse bolted?  Burn down the stable, and then shoot the horse."

In this case the stable is the economy, and the horse is the banking and credit market. 

To show how important the banking market is perceived to be in the UK, can be gathered from the following comment by one of the Government's "more influential" economic advisers, whom the UKNDA (UK National Defence Association) reports as having said that

"Defence, aerospace, manufacturing and engineering have no value to us". The unnamed adviser allegedly added that only high-quality professional and financial services had "any real value" and that the rest of the country could be "handed over to tourism". Since this individual was speaking under Chatham House rules, the comment can be denied; but it sounds like an authentic, if flippant, exposition of government policy."

Not wearing a good pinstripe suit?  Get baking scones and ordering Olde English Tea Towels from China to sell to tourist coming from...  ermmm...  yeah...   somewhere.

Further stable burning is taking place with the introduction of Quantitative Easing in multiple countries, including the USA, Britain, Switzerland, and many other places, basically devaluing the currency.    The public is not fooled according to a CNN poll, they know when things are going to be work, unlike the currently rather paralyzed governments. 

So, that is the stable being burned by inflating and devaluing the currency, but what of the horse, is it any better condition after its joyful canter over the last decade?  Likely not, with the well publicised insolvency of the banking system.  So, just when we need to have a light load on the horse, it seems that the shackles will be put on to punish it for running away, and making sure that the poor half dead beast nevers runs (away) again.  (Assuming that all actors world wide agree not to undermine each other.  What could possibly go wrong?)