Monthly Archives: October 2008

Beggar (all) Thy Neighbours

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The Irish government’s extraordinary move to guarantee all investments in Irish banks has infuriated Willem Buiter. First of all, he says, it’s illegal under EU rules. And secondly,

Financial crises may not be the best time to make friends and influence people, but the Irish guarantee is the most ‘in-your-face’ beggar-thy-neighbour provocation since medieval armies catapulted bubonic-plague-ridden corpses into the cities they were besieging. Between the attempt to favour Irish shareholders at the expense of foreign shareholders and the poaching of UK sterling deposits (and indeed euro deposits anywhere else in the euro area) through subsidy-fuelled interest rate offers, Ireland should not be surprised to encounter limited support and solidarity in the EU the next time the country is up against it, for whatever issue…

Er, actually the Irish government is already ‘up against it’ in relation to Europe, because of that little local difficulty it had with ratifying the Lisbon Treaty. It will be interesting to see how this plays out. Personally, I’m not sure I’d put money into anything ‘guaranteed’ by a Fianna Fail-led government. One delicious twist in all this is that the EU Commissioner who will have to examine the latest Fianna Fail wheeze is Charlie McCreevy, a grizzled old Fianna Fail hack. How will he square this particular barbed circle? Stay tuned.

Great Firewall of China (contd.)

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Citizen Lab at the University of Toronto has just released its analysis of surveillance and security practices on China’s TOM-Skype platform. No surprises. They uncovered discovered a huge surveillance system that monitors and archives certain Internet text conversations that include politically charged words.

The system tracks text messages sent by customers of Tom-Skype, a joint venture between a Chinese wireless operator and eBay, the Web auctioneer that owns Skype, an online phone and text messaging service.

John Markoff of the NYT has a report.

PDF of the Citizen Lab report available from here.

I’ve always assumed that Skype was compromised — which is why I would never use it for confidential conversations. Wonder what eBay have to say about it all?

The perils of skunk

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Agonising article by Patrick Cockburn on his son’s schizophrenia.

I blame cannabis for what happened to Henry. He says he smoked a lot between the ages of 14 and 19, but I didn’t notice at the time.

I would have been concerned, of course, if I’d known back then, but until recently I had no idea about the explosive impact cannabis can have on some people.

I don’t think people realise 19 out of 20 people might take a small quantity of cannabis without ill effects, but for the 20th person who has a genetic predisposition to schizophrenia, the result is catastrophic.

I don’t believe those who advocate less stringent laws on the sale and consumption of cannabis realise the devastating effect it can have…

Bush’s legacy

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Timothy Egan, writing in today’s New York Times…

Among the many dispiriting things to come out of Bob Woodward’s quartet of books on George W. Bush is his observation that the president has not changed since he first started talking to Woodward in 2001.

No growth. No evolution. No regrets.

“History,” Bush replied, when asked by Woodward how he would be judged over time. “We don’t know. We’ll all be dead.” Broke, as well.

It would have been nice to let Bush’s two terms marinate a while before invoking Herbert Hoover and James Buchanan from the cellar of worst presidents. But then — over the last two weeks — he completed the trilogy of national disasters that will be with us for a generation or more…

That Esquire profile of Steve Jobs

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Hmmm… Just finished reading Tom Junod’s profile. A bit contrived and over-written. And it concludes lamely by asking what peaks remain to be scaled by Jobs now that he has transformed the mobile phone business? “Well”, Junod writes.

there is the “cloud,” as it’s known in geekspeak — the treasure trove of our disembodied data, the digitized version of ourselves that exists beyond ourselves, the next step in the virtualization of the human experience. It’s being posited as the basis of a mobile Internet, or what some people call “a new Internet,” but its lure is the lure of finding a way out of our bodies and into the invisible, and that’s the oldest of human dreams. And so, while everybody else wonders how to get there, how to gain purchase on the ether, Jobs, with his iPhone, offers the same possibility he always has, the possibility of getting there one glittering box at a time. But his soul is in those boxes; it’s never been unlocked, and the service he introduced at the June keynote — a service called MobileMe, which staked his claim on the invisible, or at least announced his readiness to compete for control of it — was deemed, upon its launch a month later, a “disaster” . . . “a failure” . . . “Apple’s worst product launch in the ten years since Jobs returned from exile.” The digital ether would seem as uncongenial to Steve Jobs as heaven itself. But still it beckons, and still he has to answer its call. What other choice does he have? He is already halfway there.

Great Depression 2.0

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Willem Buiter’s been thinking about what happens next if the US Congress balks again. Here’s his scenario:

# The US stock market tanks. Bank shares collapse, as do the valuations of all highly leveraged financial institutions. Weaker versions of this occur in Europe, in Japan and in the emerging markets.
# CDS spreads for banks explode, as will those of all highly leveraged financial institutions. Credits spreads generally take on loan-shark proportions, even for reputable borrowers. Again the rest of the world will experience a slightly milder version of this.
# No US bank will lend to any other US bank or any other highly leveraged institution. The same will happen elsewhere. Remaining sources of external finance for banks, other than the facilities created by the central banks and the Treasuries, will dry up.
# Banks and other highly leveraged institutions will try to unload assets at fire-sale prices in illiquid markets. Even assets not viewed as toxic before will become unsaleable at any price.
# The interaction of a growing lack of funding liquidity and increasing market illiquidity will destroy the banks’ business models.
# Banks will stop providing credit to households and to non-financial enterprises.
# Banks will collapse, both through balance sheet insolvency and through liquidity insolvency. No bank will be safe, not even the household names for whom the crisis has thus far brought more opportunities than disasters.
# Other highly leveraged financial institutions collapse on a large scale.
# Households and non-financial businesses revert to financial autarky, among wide-spread defaults and insolvencies.
# Consumer demand and investment demand collapse. Unemployment shoots up.
# The government suspends all trading in financial stocks until further notice.
# The government nationalises all US banks and other highly leveraged financial institutions. The shareholders get nothing up front and have to wait for an eventual re-privatisation or liquididation to find out whether they are left with anything at all. Holders of bank debt get a sizeable haircut ‘up front’ on the face value of the debt and have part of the remainder converted into equity that shares the fate of the old equity.

None of this is unavoidable, he thinks, “provided the US Congress grows up and adopts forthwith something close to the Emergency Economic Stabilization Act as a first, modest but necessary step towards re-establishing functioning securitisation markets and restoring financial health to the banking sector. Cutting off your nose to spite your face is not a sensible alternative.”

And, he adds:

PS. My remaining financial wealth is now kept in a (small) old sock in an undisclosed location.

Now, where did I put those socks?