When banks refuse to lend, the government should create banks that do

One of the more distasteful occurrences over the past few years has been the sight of banks and financial institutions wallowing in the mess they created. Yet this has not been as distasteful as the sight of these same banks and financial institutions being propped up by the US Federal Government, either in the form of bailouts or in increasingly radical monetary policy.

On the one hand I heartily approve of the "creative destruction" that oftentimes besets capitalism, namely that companies and corporations should suffer the consequence of their actions. To watch a stupid company wallow in the mess that it has created is a sober reminder of the perils of too much risky behaviour, especially if such behaviour is endemic. Schadenfreude aside, one of the major advantages of this "creative destruction" occurs when new entrepreneurs with different ideas begin to take control. Recessions and economic downturns are excellent ways of restructuring and improving the system that failed.

But on the other hand, banks and financial institutions are not just like any other company or corporation. Lending money for the purposes of profit is one of the most important practices of a market economy. The collapse of financial institutions can be far more damaging to an economy because, without them, it becomes harder for investors to invest, and harder for borrowers to borrow. This is called a Credit Crisis, and it is what caused both the Great Depression of the 1930s and the Global Financical Crisis that we are experiencing today.

Many economists have pointed out since 2008 that the United States economy is not in a liquidity crisis, but a solvency crisis. This doesn't just mean that it is harder and harder to borrow and lend (as per a liquidity crisis), but that the very financial institutions themselves have become insolvent and close to bankruptcy. This means that money "pumped into" the economy through monetary policy is unlikely to have much effect, since it takes time for bad debts to disappear from the books of these financial institutions (a process that could take years). This in turn leads to "Zombie Banks", whereby the net worth of these institutions is less than zero.

So what we have now is a series of zombie banks and other financial institutions. We're trying to resuscitate them in the hope that they will come alive again, and the process by which we are resuscitating them involves conventional monetary policy (raising and lowering interest rates) and unconventional monetary policy (quantitative easing).

Yet I think that there is an alternative to the current situation. If banks and other financial institutions have encountered a solvency crisis and have been "zombified", then perhaps it would be better to simply put them out of their misery, while simultaneously creating "new life" - creating new banks and financial institutions that do not have the same limitations of the undead ones.

The process would be rather simple. A bank is brought into existence by way of congressional legislation and capitalised with quite a few billion dollars of tax payer's money. A board of directors is set up, also by congressional fiat. This board should consist not of industry insiders but experienced businessmen and women who are not just cognizant of the circumstances that led to the recent financial collapse but also willing to avoid the mistakes that were made by the industry leading up to it. The bank will thus become a profit making government enterprise, governed by the congressionally appointed board, and will begin setting up offices throughout the United States to begin operations. As time goes by - say a few years - the bank will be privatized and an IPO will be made on the share market. The money raised in the sale will then be deducted against the tax-payer's money invested in the first place, with the debt remaining becoming a corporate bond owed to the government that will eventually be repaid over time. Moreover, laws would exist to prevent the bank from being merged or acquired by single entities wich would keep the bank owned by a plurality of shareholders for at least the first 10 years of its privatised life (or however many years congress decides upon).

If all goes well, the new bank will generate enough income and profit from its activities to not just pay back money owed to taxpayers, but paid back with interest. This would not just be revenue neutral but revenue positive, allowing a net reduction of government debt over the lifetime of the operation (from creation and capitalisation to IPO and then debt retirement).

And what happens to the Zombie banks while this new bank is created? Hopefully as the new bank grows and develops, so will the zombie banks shrink and eventually disappear.

It needs to be pointed out that the best solution would not be the creation of a single bank, but of multiple ones. Instead of one bank being created and capitalised with tax payer's money, a whole number of banks can be created. This whole process of bank creation could also span many years, with multiple banks being created annually. The process would only stop once congress decides that enough is enough and that the market no longer needs any direct government support.

The creation of multiple banks will help prevent any unsavoury relationships between the banks and the government that created them - once privatized, the government will treat the bank the same as any other, without fear nor favour. Moreover, the creation of multiple banks is essential for a more competitive banking environment.

The advantage that these new banks will have is that they will be solvent, which means that they will be able to respond more effectively to conventional or unconventional monetary policy without being burdened by debts. These banks will also be governed and run by wiser individuals than those who created the crisis, leading to a change of thinking within the credit market hierarchy - a process that is less likely to occur if zombie banks with their flawed management keep being propped up. It also allows "creative destruction" by allowing failing banks to (eventually) go under without compromising the credit market as a whole.

Of course Minarchists would point out that the creation of such financial entities would result in the government intruding into an important part of the marketplace and should not be undertaken, considering, you know, that the government will abuse its position and yada yada yada Nazi tyranny founding fathers blah blah blah. But for those who take stock of what the Founding Fathers of the United States said and did should not be too concerned since congress often created public companies by legislation. In fact the First Bank of the United States was created by the 1st congress which, despite functioning as a proto-central bank, was also partially privatized for the purposes of open market, profit making operations. In short, the government creating a bank by legislation to function in the open market is not just something the Founding Fathers would approve of, but is something they actually did.

Moreover, the creation of new, solvent banks is a better alternative than trying to resuscitate the zombies through increased inflationary policy. Increasing inflation deliberately (which appears to be Krugman's solution) would naturally reduce the debt burden of the zombies and may even result in a more solvent environment. Nevertheless, this would be at the cost of debasing the currency, which may create a pre-2008 environment of negative real interest rates and another bubble economy developing. Additionally, this would ensure that the same financial hierarchy who created the crisis in the first place would retain their power without suffering the consequences of their actions.

The current crop of banks and financial institutions killed the credit industry and helped create the current economic crisis - it stands to reason that they deserve to die and suffer the consequences of their actions. Instead, we have chosen to keep them on life support, feeding them money via bailouts and loose monetary policy in the hope that they will live again, and in the hope that they won't make the same mistakes again. We should abandon this strategy. Instead, we should create new banks capitalised with tax payers money - new banks who will eventually take over the market and allow the zombie banks to die off peacefully.

Nazism and book burning

One way to check on the various beliefs of German Nazism is to look at the books they banned and/or burned. Thanks to someone at Reddit, a link has been provided to a site which translates the original German book-banning guidelines into English. What we find is interesting:

1. "The literature of Marxism, Communism and Bolshevism." Well I guess that pretty much confirms the idea that Nazism and Communism are NOT the same thing.
2. "Pacifist literature", which means that anyone morally against war cannot be described as a Nazi.
3. "Literature with liberal, democratic tendencies and attitudes", so anyone slightly interested in, say, progressive policies cannot be described as a Nazi.
4. " Writings of a philosophical and social nature whose content deals with the false scientific enlightenment of primitive Darwinism and Monism", which means that Nazis were not Darwinists or Evolutionists when it came to Eugenics, and which pretty much proves that Darwinists are not Nazis.
5. "All writings that ridicule, belittle or besmirch the Christian religion and its institution, faith in God, or other things that are holy to the healthy sentiments of the Volk." which means that atheism was certainly not a Nazi ideal and that atheism is not associated with Nazism (BTW, Hitler was not an atheist).
   

So what can we conclude?

• Nazis hated Marxism and Communism.
• Nazis hated Pacifism.
• Nazis hated Democracy and progressive politics.
• Nazis hated Darwinism and Evolutionary Theory.
• Nazis hated Atheists.
  

Jonah Goldberg and Ben Stein need to check their sources.

---

Australia's unemployment rate is still dropping

Despite the deterioration of the US economy, Australia's economy still seems to be going along well. Today the Bureau of Statistics released the unemployment report for August (link, pdf, 945.1kb) which showed that the unemployment rate dropped to 4.1% seasonally adjusted. This is 2 percentage points below the US (6.1%). I don't know when Australia's unemployment rate was so low in comparison to the US.

All feelings of national pride and schadenfreude aside, I am reasonably certain that unemployment will begin to rise within the next 3 months. Australia is still a small player in the world economy and always will be, and our economic strength is linked with the economic strength of the rest of the world.

With the US in recession and the GDP in the EU dropping in 2008 Q2, it is only a matter of time before Australia's economy gets hit. I think that our slowdown will begin in 2008 Q4. Nevertheless, I would point out that, on a one to one comparison, Australia's economy is structurally better than the US. Australia will certainly undergo a recession but it will not be as deep or as painful as that which America is going to go through.

Bloomberg report here.

Things are progessing swimmingly

For me, that is... in terms of my economical prognostication.

So I'll beat my own drum yet again - I know you're all sick of someone saying "I told you so" but I still can't understand why high priced financial analysts can make a living out of getting it wrong while little old me has to sit here and remember that I first heard the word "Schadenfreude" explained on The Simpsons.

So, anyway. Here's what I said back in January 2008:

What I am therefore predicting in 2008 is a period of painful stagflation for America - a combination of economic contraction and inflation which will only be solved when the Fed raises rates and plunges the economy into a double-dip recession.

And here's the latest:

U.S. consumer prices rose more than forecast in July, indicating Federal Reserve policy makers have reason to be concerned over a pickup in inflation.

The consumer price index climbed 0.8 percent, twice as much as anticipated, the Labor Department said today in Washington. The cost of living was up 5.6 percent in the year ended in July, the biggest jump in 17 years. So-called core prices, which exclude food and energy, also rose more than projected.

The report may intensify the debate between those Fed policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel, including gains in clothing, airline fares and education, make it less likely that central bankers will be able to keep interest rates unchanged for long.

According to the Misery Index, inflation of 5.6% plus unemployment of 5.7% equals a misery rate of 11.3. The last time it was this high was in June 1991 when it hit 11.60. The highest in 17 years. The Misery Index is a hard and fast index that is useful at measuring stagflation (but is not without its faults).

So anyway, I'll just continue to sit here laughing maniacally and feeling good about all the emotional and economic suffering in the US while millionaire financial analysts continue to get it wrong.

Update:
The latest inflation release can be downloaded directly here (pdf, 108.3kb)

AAAAAAAAA

A blog post with every single category marked (I'm doing this for scribefire)

Delighting in my predictions of doom

Okay, here are some quotes of mine:

I don't think we're looking at a recession here - we're looking at a long term economic downturn, maybe the equivalent of an economic depression if some oil experts are to be believed. One thing is for sure - while this perfect storm will hit America hard, it will have knock on effects for the rest of the world. We won't survive unscathed. - A Perfect Storm Approaches America, August 16 2005.

As a Peaknik I am convinced that the coming scarcity of oil will lead to a major economic readjustment - and that one of the results of this adjustment will be major unemployment levels. No one can ever accurately predict what these levels may be, but it is obvious from my point of view that the readjustment will be at least as bad as the 1930s depression - at least. Therefore I would argue that unemployment levels during this readjustment will reach levels never before experienced by anyone living in this current generation. - Peakniks Must Embrace Conventional Economics, December 10 2005.

Now today we have this:

Let’s not mince words, here - (things are) bad. Our take is that this is the worst financial crisis since the Great Depression. Folks should not be the least bit surprised by last week’s horrendous drop-off, nor should they be surprised to learn that the Dow Jones Industrial Average has endured its worst June since 1930.

The sad thing is that it didn’t have to be this way.

For nearly 20 years, the U.S. Federal Reserve under former Chairman Alan Greenspan flooded the markets with cheap money and easy credit that encouraged individuals and institutions alike to take hugely imprudent risks with their money. The Fed should have opted to “stand pat” and allowed the greenback to strengthen; instead, it created all that cheap money and allowed the dollar to sink to Third World debtor status.

Unfortunately, it doesn’t look like current Fed Chairman Ben S. Bernanke is going to “get with the program” and see the light anytime soon. - Keith Fitz-Gerald, Market Analyst. July 1 2008.

Of course the only time when I'll be in full-on Cassandra mode is during the Great Economic Downturn^TM that is approaching. Then I'll be wringing my hands with joy and gladness at the suffering of the world (not).

We're Number 2! We're Number 2!

From the department of hubris and schadenfreude:

The U.S. economy lost the title of "world's biggest" to the euro zone this week as the value of the dollar slumped in currency markets.

Taking the gross domestic product of both economies in 2007, the combined GDP of the 15 countries which use the euro overtook that of the United States when the European currency surged to a record high of more than $1.56 per euro.

"The curious outcome of breaching this latest milestone is that the size of the euro zone's annual output has now exceeded that of the U.S.," the economics department of Goldman Sachs, the Wall Street investment bank, said in a note to clients.

Taking official estimates of 2007 GDP -- $13,843,800 billion for the United States and 8,847,889.1 billion euros for the euro zone -- the economy of the latter passed the United States once converted into dollars, shortly after the euro topped $1.56.

The dollar sank to $1.5688 per euro late in European trading hours on Friday, at which rate the euro zone's 2007 GDP equates to $13,880,568.4 billion.

The 2007 GDP estimates are as published by the U.S. Commerce Department's Bureau of Economic Analysis and provided to Reuters on request for the euro zone by Eurostat, the European Union's statistics office.

Of course this is not the whole story - GDP per capita and median income are important measurements as well and both of these would be superior in the US than in the Eurozone at the moment. The Eurozone has a lot more people - 320 million compared to 303 million - and plans to increase the size of the zone will bring a number of poorer nations into the EU, thus lowering average GDP per capita even more.

What this report does highlight, however, is the way in which the US dollar's fall has affected America's standing throughout the world. The Dollar has been so high for so long that an entire generation of Americans are unaware of the impact of the Dollar's fall. This comparison of GDP is not simply a mathematical quirk, it will affect the standard of living of every American. This will be felt either through the stubborn presence of inflation (which reduces everyone's ability to purchase goods and services) or through higher-than-average interest rates which will act to dampen any economic recovery that occurs.

Foot in mouth

Republican Jack Kingston is angry I tells ya:

During Friday night’s Real Time, Republican Congressman Jack Kingston took to the airwaves to echo the right wing talking points of Obama being “not patriotic enough”. One of the memes that Kingston brought up was about Obama not wearing his lapel pin.

Yep. You read that right. Obama is the worst thing to happen to America since 9/11 because he dares to not wear a lapel pin.

Here's a picture of Jack Kingston complaining about the lack of lapel pin.

Notice anything missing?

h/t Crooks and Liars for this one.

Why the US needs a recession

From the department of radical surgery:

(Copied and pasted from naked capitalism) A while ago I argued in this blog that the US might benefit from a recession, because it was highly unlikely that the fundamental adjustment required in the US economy – a substantial increase in the national saving rate – is achievable without a period of growth below potential. Others have made similar points, and not just the usual European suspects, with post-colonial chips on their shoulders and an excess of Schadenfreude whenever the US trips over a banana peel. In recent contributions to the FT, Chrystia Freeland (Canadian, I believe)and Ricardo Hausmann (Venezuelan, when last I met him) have also made the point that the US needs, or would benefit from, an early serious slowdown in economic activity/recession. As the proud owner of both a US and a UK passport (and the former owner of a Dutch passport), my motives are, of course, beyond suspicion.

No US economist working in the US whose views I have read or heard supports the idea that a recession might be what the US needs right now. I think part of the difference in perspective comes from the fact that Europeans and other non-Americans view the US as an open economy that for decades has been saving too little and has been living beyond its means by borrowing abroad. They believe that the external constraint on the US addiction to current consumption is likely to become binding soon and certain to become binding in due course. Americans still tend to do much of their thinking about the US economy as if it were either the entire world economy, or at any rate a closed economy with just a couple of large holes in it: one through which oil imports pour in and another through which US Treasury bills and bonds disappear, never to be seen again.

...

In the financial field, the speed with which the euro is bridging the gap with the US dollar, once considered unassailable as an international reserve currency, has surprised even the greatest euro optimists. With the US now the world's largest external debtor nation, monetary policy in the US is increasingly constrained by international financial markets. The (to my mind) reckless interest rate cuts by the Fed risk spooking domestic and international holders of US dollar-denominated securities who have many alternative investment opportunities, both low risk sovereign debt instruments and higher-risk/higher-return investments in non-US equities, including those issued by emerging markets. The risk of a sharp sell-off of US dollar -denominated securities and an associated increase in long-term US dollar interest rates could easily turn the US slowdown into a recession, even a prolonged one. A US recession that would be mild with 10-year US Treasury bonds yielding 3.6 percent could become deep with 10-year US Treasury bonds at 6.6 percent.

But even if the US were a closed economy, I would still believe that the kind of sustained increase in the national saving rate - by at least six percent of GDP to give US citizens hope of a dignified retirement (rather more than the three percent of GDP increase in the national saving rate required to restore external sustainability for the US) - cannot in practice be achieved without passing through a material slowdown, and possibly a recession.

Higher saving means lower consumption or higher income without a commensurate increase in consumption. I am sufficiently Keynesian to believe that a planned reduction in consumption will cause a temporary slowdown in activity. The kind of supply-side miracle that would produce an increase in income without a matching increase in private and public consumption is hard to visualise for the US. China has managed just that during the past decade, but the US is hardly China.

For the past couple of decades, the US consumer has been saved from the consequences of his under-saving by wallet-expanding painless capital gains. Unfortunately these capital gains were to a significant extent bubble-born and these bubbles have imploded one after the other. After the tech bubble and bust and the housing boom and bust, I cannot see another asset bubble coming along in time to rescue the improvident US consumer.

...

To get to a higher saving and wealth trajectory, the US economy will first have to pass through the valley of the shadow of deficient effective demand, rising excess capacity and growing unemployment. Postponing the necessary adjustment will just make the pain of the eventual unavoidable correction that much greater.

There are two ways to achieve a traverse to a higher saving and financial wealth trajectory without passing through a slump. The first would be for US investment demand to rise by the same amount as consumption demand falls. This, however, would mean that the external imbalance would not be corrected. An increase in domestic capital formation that matches the increase in planned national saving is therefore not part of a sustainable adjustment programme. In addition, it is not easy to see what would motivate such an increase in investment.

...

A major boost to infrastructure investment would be more than welcome to boost the supply-side of the economy. For external balance reasons it would, however, have to be financed by a further increase in public saving. Any US politician running on a programme of higher taxes or lower current spending to pay for better infrastructure would in all likelihood not get elected.

The second way for the US economy to achieve a lasting increase in the saving rate without a temporary slump, would be for net exports to rise by the same amount as planned saving. That’s possible but not likely. The decline in the nominal external value of the US dollar is certainly helping, but the shift of domestic resources from the non-traded sectors (including construction) to the traded sectors (both exporting and import-competing) is unlikely to be accomplished solely through relative price signals. Painful quantity adjustment, including idle labour and capital in the over-expanded non-traded sectors is likely to be necessary.

...

But the ostriches in the Fed, the White House and the Capitol are unmoved by such concepts as unsustainability. The prevailing ethos is myopic at best: let’s just put out this immediate fire, because it threatens today’s comfort level. Postponing adjustment raises the expected cost of the eventual adjustment, but that is then and this is now. Also, something may turn up. Santa Claus could exist after all. We may learn to harness as a source of renewable energy the hot air put out by the Congress.

It is hard to have a rational discussion with those who embody and express the views of a nation that is in denial. The US establishment and political class, and quite possibly much of its electorate, are indeed in denial, and not just about the need for an early traverse to a higher national saving rate. The economic, social and political model of the US has developed serious albeit remediable flaws and needs major surgery. Unfortunately none of those running for office today are likely to be willing or able to wield the scalpel as required.

In short, the only ways America can solve the problem without going into a slump are, essentially, out of the question. Increasing personal saving is the key to solving this problem, but the only way this can be achieved is through higher interest rates which, if applied, will result in a lasting recession. Lowering interest rates puts off the problem until later, and makes it worse. The sooner the better.

$100bn Lost

From the department of if-you-find- it-please-return-it-to-the-ASX:

It has been a day of carnage on the Australian share market, with investors wiping nearly $100 billion off the value of local stocks.

The market has closed down 7.3 per cent - its worst one-day fall since 1989.

Today, investors took their cue from Asia and Europe, where the FTSE fell more than 5.5 per cent.

Wall Street was closed for a public holiday, and there are fears about what is to come when it reopens tonight.

The plunges comes on the back of new fears the US economic slowdown is spreading across the world.

The All Ordinaries dived 409 points to 5,222 and the ASX 200 slumped 394 points to 5,187.

No sectors have been secure from the hammering.

The miners have been deeply in the red on lower base metals prices. Rio Tinto shed 11.6 per cent to $101.

BHP Billiton dropped 6.9 per cent to $31.

As for the financial sector, the ANZ suffered a 7.1 per cent loss to $24.35.

It has been such a volatile day that the website of Australia's largest online sharebroker CommSec crashed after being overloaded with an unprecedented number of trades on the site as the market opened.

I am looking forward in all my supervillain glee to the response from Wall Street. A 7% drop? Not likely. Somewhere between 3-4% is my guess. And that's not a prediction.

Talking head receives poetic justice

I don't know much about Jeremy Clarkson except that he is involved in Top Gear, a TV program that is quite popular and which I do not watch.

In a newspaper column recently, Clarkson wrote about the recent furore over 25 million people's personal data being lost. He said that the furore was about nothing since, his logic went, that when people get access to your bank account details they can't do much with it anyway. And to prove his argument, he even published his own bank account details in his column.

Well, Jeremy just got Pwned, big time. Some time after he published his column someone removed 500 pounds from Clarkson's bank account and deposited it in a British charity. Clarkson has since admitted that he was wrong.

Details here.

US House prices continue to plummet

From the Department of even-faster-this-time:

Dec. 26 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, a private survey showed today.

Property values fell 6.1 percent from October 2006, more than forecast, after dropping 4.9 percent in September, according to the S&P/Case-Shiller home-price index. The decrease was the biggest since the group started keeping year-over-year records in 2001. The index has fallen every month this year.

The really bad thing about this report is not the 4.9% drop, but the fact that prices have been dropping every month this year. It all adds up.

Put simply, rising house prices in the US increased domestic consumption while also increasing debt. A long term decline leads to less consumption and more people paying back debt (those who can afford it). Thus we have a recipe for a recession.

But then again you already knew that.

And, in related news, the US Dollar is down again, Oil Prices are up again and US Oil inventories have declined for the sixth straight week.

Insufferable smugness

From the department of I-told-you-so-two-years-ago:

Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a "perfect storm" for consumers as the housing slump spreads.

In a report "Recession Coming" released today, the bank's US team said the credit crunch had started to inflict serious damage on US companies.

"Slipping sales and tightening credit are pushing companies into liquidation mode, especially in motor vehicles," it said.

"Three-month dollar Libor spreads have jumped by 60 to 80 basis points over the last month. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June."

"As delinquencies and defaults soar, lenders are tightening credit for commercial, credit card and auto lending, as well as for all mortgage borrowers," said the report, written by the bank's chief US economist Dick Berner. He said the foreclosure rate on residential mortgages had reached a 19-year high of 5.59pc in the third quarter while the glut of unsold properties would lead to a 40pc crash in housing construction.

"We think overall housing starts will run below one million units in each of the next two years -- a level not seen in the history of the modern data since 1959," he said.

Although the US job market has apparently held up well, an average monthly fall of 138,000 in the number of self-employed workers over the last quarter suggests it may now be buckling. "Consumers face what could be a perfect storm," said Mr Berner.

He even uses the phrase "perfect storm". Have you been reading my blog Dick?

If only I could make money from getting predictions like this right.

The Fed's latest rate cut

The US Federal Reserve has cut interest rates again, from 4.5% to 4.25%. Not unexpected, but obviously the market wanted more.

Ah yes, but which market wanted more?

The response to the cut by the sharemarket was swift. The good 'ol Wilshire 5000 dropped 2.53%, wiping out about US$387 billion in the process, which is a pretty big drop for the day.

The response by the foreign exchange market was similar - the US Dollar dropped like a rock but then bounced up like a very bouncy rock and finished the day higher than what it was.

So what do we learn from this?

Well, we learn that two markets wanted two different things. The sharemarket - essentially American investors - often see rate cuts as being good things. The last time the rate was cut, to 4.5%, the market responded in its usual euphoric and utopian way, indicating that such a rate cut was a sign that heaven on earth was possible. So why was their reaction to this rate cut, from 4.5% to 4.25%, accompanied by the market's usual pessimistic, dystopian attitude that indicates that the world will end?

Well it seems as though the sharemarket was factoring in a greater cut. And when they didn't get it, they went gaga and people were yelling "SELL!!! SELL!!" into their phones while simultaneously ripping out hair from their already balding scalps.

The Forex market - basically those people who buy and sell currencies around the world and who represent the international market - seemed, after getting a fright, to be reasonably pleased with the outcome. In other words, the Forex market had expected this rate cut and had already factored it in - which is why the US Dollar went nowhere - while the sharemarket expected more and was sad that it was disappointed.

But, had the Fed reduced rates by 50 basis points - from 4.5% to 4.0% - what would have happened? Well, the sharemarket would have been quite happy and share prices would have gone up - not as much as 2.53% but probably between a 1% and 2% gain. The Forex market would have gone gaga and people all over the world would be yelling "SELL!! SELL!!" into their phones while simultaneously ripping out hair from their already balding scalps.

But let's suppose the Fed did something different. Rather than dropping rates by 50 basis points, what would've happened had they reduced them by 75 basis points - from 4.5% to 3.75%?

Well, of course, the Forex traders would be yelling sell sell sell sell and ripping out twice as much hair from their heads and maybe even creating negative amounts of body hair on their person.

But would the sharemarket react happily? No. They probably would've said "OH NO! THE PROBLEM MUST BE WORSE THAN WE THOUGHT! ARGGH!!!", accompanied by loud selling on the phone and negative levels of body hair.

But now let's suppose that the Fed increased rates, from 4.5% back to 4.75%. Obviously the Forex traders would be floating on cloud nine, looking forward to utopia and heaven on earth, while the Sharemarket would've been saying "OH NO! INFLATION MUST BE A HUGE PROBLEM! ARGGGHH!!", accompanied by overuse of the sell word and a bunch of Patrick Stewart lookalikes.

Lesson - lots of people with lots of money can go crazy.

Hillsong investors defrauded

From the department of you-gotta-have-faith:

A failed Sydney property developer has been jailed for a year-and-a-half for defrauding members of the Hillsong Church.

Robert Orehek raised $4.6 million for property developments between 2001 and 2002.

He promised unrealistic returns to the investors, many of whom were fellow members of the Hillsong Church.

Almost all of them lost their money when the project failed, partly because of Orehek's extravagant lifestyle.

He had used some of their funds to buy a luxury apartment at Balmoral, on Sydney's North Shore, for his own use.

The 45-year-old pleaded guilty to charges, including fraudulent misappropriation.

In sentencing, the judge said Orehek began on the road to disaster when he was introduced to investors within the church.

He ordered Orehek's release on a good-behaviour bond after he serves 18 months in jail.

From the SMH:

Sentencing him in the District Court in Sydney today, Judge Bennett said Orehek had been driven by greed and an inability to say no when he accepted offers of investment money which well exceeded his management ability.

"Orehek felt that he was invincible and other people in the church thought they were invincible," Judge Bennett said.

"With the power of God they were able to trust each other implicitly."

Aussie Power Stations not the best

From the department of choking-on-it:

A US-commissioned study of the world's power stations ranks Australia as the world's worst greenhouse gas emitter on a per capita basis.

The Washington-based Centre for Global Development has surveyed the emissions of 50,000 power stations around the world.

It finds that Australia's power sector is the world's worst in per capita carbon dioxide emissions.

Two power stations, the Bayswater and Eraring plants in the New South Wales Hunter Valley, are among the top 100 greenhouse gas emitters in the world.

Study author David Wheeler hopes the survey will help force change.

"I think if there's going to be an international corporate discussion among CEOs about taking a cleaner path in this sphere, then certainly those two Australian companies would be part of that dialogue," he said.

The study shows the world's power stations emit nearly 10 billion tonnes of carbon dioxide each year.

Not good news for Australia. It's not good news to me, either, since my dad helped design and build both Bayswater and Eraring.

My dumb computer

If you've been visiting this blog lately you would have noticed that I haven't been posting often enough, and that things like nice images seem to be missing from my posts.

Well, the problem is that I have been attempting to upgrade my computer. Everything was going well until I was unable to restart my operating system - Kubuntu. Finally I decided on reinstalling the whole thing but, since bad luck seems to follow bad luck, this was impossible.

Why? Because my brand new 320gb Western Digital Hard Drive decided to die on me.

Primary Master Hard Disk Fail says the message during POST. So, until I get a new one delivered to me under warranty, I have to use one of my old hard drives.

Dreamliner construction turns into nightmare for Boeing

From the department of I-thought-of-that-headline-by-myself-too:

Deliveries of US planemaker Boeing's new 787 Dreamliner aircraft will fall six months behind schedule, the company has announced.

The delay - to late November or December 2008 - was caused by manufacturing problems, Boeing said.

Half the materials used to build the Dreamliner are carbon fibre composites, making the process more complex.

The A380 superjumbo, the flagship of Boeing's arch-rival Airbus, has itself been hit by repeated delays.

The news had an impact on Boeing's share price, which fell 2.7% on Wall Street.

I love how everyone (Boeing and Americans generally) was crowing about production delays for the Airbus A380 and how inefficient Europe was and how it will be a white elephant... only for the 787 to be delayed. Hubris? Yes. Not to mention Schadenfreude.

Conservative split is a warning to the left

As anyone who is attuned to American politics knows, the nomination of Harriet Miers to the Supreme Court has caused a major split in American Conservatives.

From what I can gather, a significant minority of Conservatives - mainly Evangelical Christians - support the Miers nomination. Nevertheless, a majority of conservatives are opposed to the nomination and "feel betrayed".

Indulging in as much schadenfreude as possible, the leftists are goggling on the sidelines, watching their political opponents weaken themselves at the very moment when polls show a serious decline in support for George W. Bush.

Lately I've been visiting the website of Hugh Hewitt, a conservative evangelical blogger. The guy is quite influential and has access to high-up members in the administration. This includes having phone calls from Karl Rove.

While I don't share in Hewitt's conservative ideology, I find his site to be informative and mercifully free from the "cheap shots" that can sometimes typify political blogs from both sides of the ideological fence. Besides, the guy is an Evangelical like me, so it's good to get to know the thoughts of someone who I will be in heaven with for the rest of eternity.

What is interesting in this split is the ease by which the two conservative camps have begun to attack and label one another. Hewitt has labeled the anti-Miers crowd as "Cornerites", after the right-wing website The Corner. I have yet to examine the other side of the conservative fence, but it is obvious that this split is quite serious.

So, given an external stressor (the nomination of Harriet Miers), conservative pundits have broken into two separate, opposing groups, and are using the same language and tactics they have used against their traditional leftist enemies upon one another.

Instead of trying to debate the issue peacefully, instead of trying to understand the other person's point of view, the split has simply led to enmity. It is as though the only solution to a problem is to fight against your enemy until you have secured victory.

This is a very sad state of affairs. I say this not because I have sympathy with the conservative side of politics, but because it reflects upon society generally, including leftists.

The language and tactics used by both sides of the ideological fence can, at times, be repugnant. I am not so blind as to believe that the leftist bloggers I read and enjoy are innocent of such activities. Take the recent photograph of George Bush writing a note about a bathroom break, or the "fanmail" that Harriet Miers and George Bush sent each other since they first met. To me these are irrelevant to the debate, but many leftists will use them as cheap shots against Bush. Not me - I don't care about them. They're not important. There are far more important things that I have against George W.

So what will happen if a hypothetical split occurred within the leftist punditry? Will both sides begin to label and attack each other with the same ease that the conservatives are doing at the moment? You'd have to be incredibly naive to believe that the left is somehow above such things.

So what should the left do? May I suggest that there needs to be a change in tactics against conservatives:

First of all, stop making cheap shots against your political enemies. It does more damage to you in the end, and no real damage to your enemies.

Secondly, occasionally speak in support of the good things that your enemies do. This may stick in your craw, but I have always believed that credit must be given where credit is due. Targeting moderate Republicans like John McCain for praise on a regular basis is a good idea.

Thirdly, stop referring to all Republicans/Conservatives as "the enemy". Some are worthy of criticism, but one person a whole party does not make.

Fourthly, give explicit kudos to conservatives who obviously take their beliefs seriously and who articulate them well - they may be diametrically opposed to you, but at least you can respect them for their stance. Conversely, savagely criticise any conservative who is not ideologically pure - they are obviously hypocrites who hold to conservative beliefs only for political purposes (Eg the very religious and ethical Tom DeLay).

Fifthly, stop saying "F*** Bush!!" on comments threads. It is incredibly boring and achieves absolutely nothing.

Sixthly, refer to George Bush in non-pejorative ways. Call him George, Dubya, the prez and so on. Calling him "The Chimp" and other epithets should be avoided. Name calling is juvenile.

But why do all this? Why should the left take a good hard look at itself and the way that it attacks their political opponents? Surely now is the time to stick the knife in good?

It may seem so - but remember, I am also concerned about the hypothetical split in the left that may occur in the future. If the left is restrained and intelligent in its criticisms of the conservatives, then any split that occurs is more likely to be dealt with in an objective and restrained manner. It will also show conservatives that the left is too proud to stoop to their levels.


From the One Salient Overlord Department

© 2005 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/


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Schadenfreude

I believe God has a plan for people's lives, and I believe he has a plan for me.
- Bernard Ebbers pre-2001

There is something immensely satisfying when hypocrites who claim to be evangelical Christians are exposed for what they are.

Bernard Ebbers was the founder of WorldCom, one of those high flying internet companies that collapsed in 2001. Investigations proved that he was guilty of fraud and the covering up of accounting irregularities. Despite all the evidence to the contrary, he claimed innocence in front of his church. Now he's been given 25 years -which, for a 63 year old, is essentially life.

I hope he finds true faith before he goes...

From the Department of "Wha' Happnin?"