Auros ([info]auros) wrote,
@ 2009-03-06 23:49:00
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Current mood: incredulous

Two extremely good articles on different aspects of the crisis.
Michael Lewis (author of Moneyball and Liar's Poker) has a piece on Iceland in Vanity Fair, and Amartya Sen (the Bengali expert on development economics and Nobelist) has a piece in the NY Review of Books on the future of capitalism.

The Iceland one is kind of mind-boggling. What's most shocking to me is the degree of stupidity among the international banks that made the loans that enabled the Icelandic banks (and bankers) to spiral out of control. It's like the NINJA loans into the subprime sector, but on the scale of corporate leveraged buyouts and the GDP of small countries (including Iceland).


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[info]dragondawn420
2009-03-07 09:34 am UTC (link)
My Vanity Fair subbie just ended, too. Dammit. Now I'm gonna have to go buy it at newsstand price. Grr. Thanks for the heads up about the article, tho!

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[info]auros
2009-03-07 08:52 pm UTC (link)
You know you can read the VF piece online through the link, yes?

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[info]dragondawn420
2009-03-08 08:22 am UTC (link)
yabbut...there's lots of good fluff, too!

or I may just read it on the web. ;)

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[info]iridium
2009-03-07 09:23 pm UTC (link)
Fascinating, thank you! I had heard something about Johanna Sigurdardottir in passing, but hadn't made the connection between "first openly gay head of state elected" and Iceland and its current collapse. (Which, while Sen was talking about health care, is maybe another facet of "A crisis [...] provides an opportunity to address long-term problems when people are willing to reconsider established conventions.")

The Sen article is full of good-sense-making, too, and I'm obviously very interested in the health care policy changes that will hopefully happen in the next 5-10 years. We are in a tangled, nasty mess there, and I wish I had a better sense of the big picture and the possible solutions.

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[info]auros
2009-03-07 10:22 pm UTC (link)
Probably the most comprehensive layman-targeted piece about healthcare policy available is the one Krugman and Wells wrote in the NY Review of Books three years ago: The Health Care Crisis and What to Do About It.

Slate's Tim Noah also did a couple pieces on the type of plan that the Dems are currently advancing: The Edwards plan included a "trojan horse" that offered a smooth path towards full nationalization; Obama's plan in the campaign was also pretty good (and is very similar, in its broad outlines, including the public/private competition aspect), but Dems in Congress may have to force him to accept the "mandate" rule that he rejected during the campaign. (Fortunately, Ted Kennedy and Max Baucus are both in favor of a mandate. If Hillary were still in the Senate she would also be a powerful voice on the right side of that issue.)

Edited at 2009-03-07 10:23 pm UTC

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[info]juniorbird
2009-03-14 07:12 am UTC (link)
The value of deposits in excess of assets held by Austrian banks may now value 120% of that nation's GDP.

Meanwhile, American banks may now hold assets worth 120% of their deposits.

Is the world about to end? Discuss.

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[info]auros
2009-03-14 08:20 am UTC (link)
I haven't followed the Austrian situation... Did the Austrian banks generate a lot of those truly worthless Icelandic loans or something, such that they vaporized the value deposited with them?

And I'm not sure I follow your comment about the American banks. Do you buy into the argument that the American banks' "toxic" assets are being so significantly undervalued that if we could reveal the "true" value, they'd actually be solvent, and sitting on assets worth significantly more than deposits? (I'm willing to believe deposits are down -- people have pulled money out, and they're not generating new deposits through money-multiplying loans.)

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[info]juniorbird
2009-03-14 05:12 pm UTC (link)
I believe that the Austrian banks are some of those institutions that counted now-worthless AIG paper as reserves. I haven't followed closely either but I came across the nugget and found it amusing.

As for my comment about American banks, I only mean that the monetary base in this:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=BASE&s[1][range]=5yrs

Appears to be well large than M1 in this:
http://www.federalreserve.gov/releases/h6/current/h6.htm

Even if that's true, it only means that the *system* is solvent, not that any given bank is solvent. It probably principally is a measure of what we the people have bought from the banks, converting worthless toxic assets into the valuable Federally-guaranteed assets that count against M1.

Mostly, struck me as odd and amusing, is all.

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[info]auros
2009-03-15 05:37 pm UTC (link)
Hmm. It looks to me like the base was briefly significantly higher than M1, but now is about equal (so we'd have a money multiplier right around 1.0 -- which means that we're not creating any money through loans)...

I guess a multiplier below 1.0 could also mean that new monetary base going to the banks is being used to retire the banks own debts to other institutions, thus destroying money...

I definitely agree that we likely have a system that is solvent (but illiquid) in aggregate, but with many individual institutions (like AIG) insolvent (in the absence of continual bailouts or an orderly intervention / bankruptcy / receivership / insert your favorite name here).

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