Irish bailout talks continue

The Irish government is still trying to negotiate terms for a bailout, having become overextended in bailing out the country's banks (among other things) while trying to keep taxes low (sound familiar?) The thing is, once they get a deal, they still have to get it through their minority parliament (Irish MPs are elected by multi-member single transferable vote, so majorities are virtually unknown there). And needless to say, a vote on this issue would be a vote of confidence. The government has already agreed to call an election immediately after the necessary legislation is passed, but when huge numbers of people are demanding that the government not agree to the austerity measures the EU and other backers demand in return for a €85 billion loan, one has to wonder if the government's coalition partners are going to be in the mood to co-operate. Several of them are independents, and following a by-election this past week (which was won by Sinn Fein, incidentally) the government has a majority of two seats assuming no defections.

One thing is clear - if Ireland defaults instead of accepting the bailout, things will get very interesting very fast. A lot of bondholders will lose a lot of money, of course, and unless the sky falls on the country quite a few other countries will follow their lead, compounding the situation. My money's on the sky not falling, by the way, though times will get a bit hairy for a while.

And even if Ireland doesn't default, Thomas Walkom in the Star reports that the markets aren't optimistic about two other troubled European economies:

The markets are also betting that two other euro nations, Spain and Portugal, will drop out of the common currency, default on their debts or do both.

Walkom, incidentally, thinks default is only a tiny part of the risks ensuing from this crisis:

Yet perhaps the most distressing element of the Irish crisis is the sense of déjà vu it creates.

In the ‘30s, nations faced with angry bondholders did exactly as Ireland’s government is doing now — raised taxes and cut spending in an effort to persuade financial markets of their fiscal rectitude.

Ireland is even lowering its minimum wage.

As in the 1930s, the Irish government is portraying its actions as inevitable.

As in the ‘30s, its cutbacks — by squeezing even more spending power from the economy — will only make matters worse.

And, as in the ‘30s, governments in Ireland and elsewhere will eventually find that their voters can put up with only so much.

The Great Depression boosted the fortunes of European fascism. We don’t know yet where the politics of this slump will take us.

But unless democratic governments show some imagination, the future doesn’t look pretty. Portuguese workers staged their largest one-day strike in 22 years Wednesday to protest government austerity plans. More troubles are on the horizon.

Now as hinted at above, the main beneficiary, politically, of the crisis in Ireland has been Sinn Fein. They certainly are not what most people would call fascist, though they do have a nationalist streak that bears watching. But as things degenerate in other countries, things could go very differently. Indeed, it already has in places (notably Austria and the Netherlands).

Seems the downturn is hurting all kinds of people...

... including drug dealers:

Sammad’s got a problem. The recent downturn in the economy means that he can’t drive his car; he’s racking up a ton of debt, and soon, he might lose his livelihood.

“Pretty soon I’ll have to get a regular job,” he says with a chuckle.

Sammad’s not the typical victim of financial turmoil; he’s not a factory worker or a car dealer; he’s a different kind of dealer.

Sammad sells cocaine from his apartment in the suburbs of Vancouver. What used to be a lucrative profession is going south for him and the economy is primarily to blame.

It might be surprising, but the saleability of Sammad’s product really does depend on how well the economy is doing, and in particular, how well males between the ages of 18–40 are doing in that economy. A lot of uneducated male workers are losing their jobs, and for Sammad, they are his prime clienteles. Compound this with police in the United States intercepting a major shipment from South America destined for BC, and you get a product with a skyrocketing price and a market that can’t afford it.

“A kilo of coke used to be 18 G’s, now it’s 42,” he complains. “I can’t even make a profit unless I sell these chinsy little bags. My half-grams used to cost $25; now they’re $40 and even then I only make, like, five bucks off each one.”

From here. Thanks to highryder in this babble thread for the link.

Berlusconi's curious reversal

One of the curious things that happened yesterday was Italian Prime Minister Silvio Berlusconi's announcement:

Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they ``rewrite the rules of international finance.''

``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global.''

But within minutes, he retracted it:

Italian Prime Minister Silvio Berlusconi reversed his comments that leaders are discussing closing the world's financial markets while they ``rewrite the rules of international finance.''

``I heard it on the radio,'' Berlusconi said about an hour after his initial comments his spokesman confirmed. ``The hypothesis wasn't put forward by any leader, including myself.''

An hour earlier, during a press conference in Naples following a Cabinet meeting, Berlusconi said, ``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed.''

So WTF is going on? Did he actually hear it on the radio, or did he hear it from other world leaders who didn't expect him to open his big mouth?

I don't know, but Bad American as well as Canadian Silver Bug are of the opinion that it might be a good idea to stock up on supplies and cash this weekend.

On the other hand, maybe Berlusconi was just speculating wildly, or offering an opinion as to what he thinks should be done, and nothing will be done about it. We'll know soon enough I guess...

The broken end of the American dream

Another story to give you a feel for how the American economy is progressing:

"You feel bad, you don't want to take their wedding rings from them, that's their memories and everything," says Michael Bruce from behind a row of thick steel bars. "But they need the money and that's what we are here for."

Bruce holds out a black velvet jewelry tray, each row holds a dozen wedding rings: big diamond, little diamond, stylish or gaudy, he has dozens. "While they take the ring off their finger, they get all choked up. It's just something you got to deal with... That's just the way the economy is, it's trash."

Bruce, whom everyone here calls Junior, is the manager at a pawnshop on the outskirts of Hollywood, Florida, itself a diamond of a city set on the perfect setting of Southern Florida's Atlantic beaches. "It is easier for them to pull a ring off their finger than to bring in a lawnmower," says Bruce, who says Americans are so desperate to pay off their mortgages that they are coming to his pawnshop to sell "everything from musical equipment to the gold teeth from their mouth.

From here, via onepence in this Kitco thread.

More comments on the financial crisis

Heather Mallick has this to say about the current crisis:

"The cost of a funeral can be more than $10,000," American International Group was telling – OK, threatening – Canadians in a TV commercial on the same day the memorial service for its U.S. parent was held courtesy of the Bush administration. The cost of the funeral for the world's biggest insurer was $85 billion. Even as they expired, the insulated Canadian branch that shares the AIG name was trying to sell low-income Canadians insurance to pay for their own coffins.

These huge, shambling gambling firms haven't caused enough trouble for their sentient customers; now even the corpses are headed for a pauper's grave.
But what does one say to a fallen giant? Shame on you? You Lehman boys go straight to your rooms and think about what you've done!?

So the Lehman lads are weathering it out upstairs because they didn't technically do anything wrong and they won't suffer. They created jewels out of old chunks of sewer brick and played them in a casino. The laws that sent Conrad Black to jail were ye olde obvious ones that anyone would have been a fool to break. What Wall Street did en masse was greedy and stupid, but there are no rules against that. Quite the contrary: everything in our modern ethos encourages it.

Some people find Mallick irritating, but she definitely has a way with words.

And as to how to pay for such a huge bailout, independent Senator Bernie Sanders (from that island of civilization, Vermont) has some ideas:

Amid one of the worst financial crises in American history, Senator Bernie Sanders (I-Vt.) today laid out a four-part plan to cope with the collapse of financial institutions and avoid future failures of businesses “too big to fail.”

First, Sanders proposed a surtax on the very wealthy to pay for bailouts of Fannie Mae, Freddie Mac and American International Group.

“The wealthiest 400 families in America saw an increase in their wealth of $670 billion since President Bush has been in office. They have seen extraordinary benefits under Bush’s reckless economic policies. The middle class, whose standard of living has declined, should not be paying for these bailouts. Rather, we need an emergency surtax on those at the very top in order to pay for any losses the federal government suffers as a result of necessary efforts to shore up the economy,” Sanders said.

He has other ideas too, notably this:

Third, he said giant businesses like Bank of America should be broken up so no company in the future could bring the American economy down with it. Said Sanders, “This country can no longer afford companies that are ‘too big to fail.’ If a company is so large that its failure would cause systemic harm to our economy, if it is too big to fail, then it is too big to exist.”

Thanks to Atomicat for the link.

A potpourri of factoids, commentaries, and anecdotes

Remember Nick Leeson? He was the rogue trader who, in 1995, ran a 233 year old company into the ground with a bit of reckless speculation on the markets. Well, he obviously knows something about financial mismanagement, so naturally the Guardian got him to comment on the current international financial crisis:

The world's financial markets remain at the eye of a perfect economic storm. The architects of this almighty financial sell-off? The banks themselves. The markets are in complete disorder, yet they remain unable to solve the situation themselves, and so go looking for a public sector bailout. Risk management, the buzz word of the financial markets since the collapse of Barings Bank in 1995, is clearly an oxymoron.

One could be forgiven for a bit of eye-rolling for that last sentence, where he conveniently omits his role in the fiasco. However, he does acknowledge his role in the collapse of Barings, and in the process highlights his point about the lack of care in who financial institutions give credit to:

Quite simply, the banks have traded recklessly over the past 10 years and have put everybody's wellbeing at risk. Anybody and everybody could get whatever credit they wanted as recently as three years ago. I returned from Singapore in 1999, responsible for £862m worth of losses that brought down Britain's oldest investment bank, personally liable through an injunction for £100m, and yet within the space of a week had been offered five different credit cards. Ridiculous! Any central bank will tell you that the system exists on the premise of "responsible lending"; but the experiences of the past few years clearly show this is utter rubbish.

Yeah, that's right. A convicted felon, convicted of financial crimes at that, who was a hundred million pounds in debt, was offered credit, apparently without asking for it. And the thing is, the crisis of credit card defaults hasn't even hit in a big way yet. When it does, watch out, because this whole mess will start to hit the fan just as they're cleaning up the subprime mess. And despite what Americans like to think, their Treasury doesn't have infinite resources -- sooner or later China, the EU, many of the OPEC countries, and others will have to wonder if it isn't time to cut their losses and get out of the US dollar as the default reserve currency. Let's just hope that Sarah Palin isn't president when it happens. Remember Martin Sheen's character in The Dead Zone? "The birds are in the air. Hallelujah! Hallelujah!"

Now Americans (at least nominally) have the opportunity to stop such a situation in November (perhaps; I'm not giving Obama a free pass either, but he's less likely to do something crazy like that than McCain, and far less likely than Palin). The question is, even if Diebold allows it, will they? This article raises an unsettling fact about how Joe and Jane Sixpack process information:

The federal Centers for Disease Control and Prevention recently issued a flier to combat myths about the flu vaccine. It recited various commonly held views and labeled them either "true" or "false." Among those identified as false were statements such as "The side effects are worse than the flu" and "Only older people need flu vaccine."

When University of Michigan social psychologist Norbert Schwarz had volunteers read the CDC flier, however, he found that within 30 minutes, older people misremembered 28 percent of the false statements as true. Three days later, they remembered 40 percent of the myths as factual.

Younger people did better at first, but three days later they made as many errors as older people did after 30 minutes. Most troubling was that people of all ages now felt that the source of their false beliefs was the respected CDC.

Unfortunately, what this means is that organizations like FactCheck.org are very double-edged in their effect when they deal with, say, the lies that the Republicans are telling about Obama. They acknowledge this themselves in this article:

A Sept. 4 article in the Post discussed several recent studies that all seemed to point to the same conclusion: Debunking myths can backfire because people tend to remember the myth but forget what the debunker said about it. As Hebrew University psychologist Ruth Mayo explained to the Post, “If you think 9/11 and Iraq, this is your association, this is what comes in your mind. Even if you say it is not true, you will eventually have this connection with Saddam Hussein and 9/11.” That leaves myth busters like us with a quandary: Could we, by exposing political malarkey, just be cementing it in voters’ minds? Are we contributing to the problem we hope to solve?

This is particularly scary. Of course, these organizations have to continue their work, but they also have to be careful how they present their findings. Fortunately, the aforementioned Post article discusses how such things might be handled:

Mayo found that rather than deny a false claim, it is better to make a completely new assertion that makes no reference to the original myth. Rather than say, as Sen. Mary Landrieu (D-La.) recently did during a marathon congressional debate, that "Saddam Hussein did not attack the United States; Osama bin Laden did," Mayo said it would be better to say something like, "Osama bin Laden was the only person responsible for the Sept. 11 attacks" -- and not mention Hussein at all.

Still, it's unsettling, because this handicaps you in trying to present the truth. Furthermore, ignoring the enemy's lies isn't an option either:

So is silence the best way to deal with myths? Unfortunately, the answer to that question also seems to be no.

Another recent study found that when accusations or assertions are met with silence, they are more likely to feel true, said Peter Kim, an organizational psychologist at the University of Southern California. He published his study in the Journal of Applied Psychology.

Myth-busters, in other words, have the odds against them.

Scary.

On a (very) distantly related note, here's another psychological study that came out recently:

People who are easily startled by loud bangs or gruesome pictures are more likely to vote for right-wing policies compared to calmer people who take a more liberal approach to life, according to a psychological study of political beliefs.

The findings support the idea that personality type influences political attitude, which could explain why voting differences appear to be entrenched. "Although political views have been thought to arise largely from individuals' experiences, recent research suggests a possible biological basis. We present evidence that variations in political attitudes correlate with psychological traits," said John Hibbing of the University of Nebraska-Lincoln.

From the Independent. This doesn't fit me very well, because I tend to be a jumpy sort, and I'm certainly not right wing. Maybe I'm an anomaly, or maybe this study is full of shit. It's always good to remember that a lot of psychological studies are garbage, or at least oversimplify their findings (and media that report those findings oversimplify them even more). So maybe, just maybe, the studies about factchecking are inaccurate or incomplete and we can find better ways of bringing out the truth. Let's hope so, anyhow.

Since when did the right like to nationalize corporations?

When they realized there was no choice, it seems:

American International Group will get an $85 billion bridge loan from the federal government in exchange for an 80 percent stake in itself, sources have told CNBC.

Sources said the loan, which will allow AIG to avoid bankruptcy, will be secured and include incentives for quick asset-sales by AIG.

Government warrants for most of AIG’s equity will severely dilute existing shareholders.

AIG has been racing the clock to avoid a bankruptcy filing on Wednesday, making efforts to work out a deal with the Federal Reserve to shore up its finances.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke met with Senate and House leadership Tuesday night to discuss how to assist AIG, sources said.

The Fed's financial aid to the troubled insurer marks a reversal of its decision on Monday to refuse a bridge loan to AIG.

The Fed met with the company's advisers throughout the day and came to a better understanding of what is needed to help the company through its current crisis, people familiar with the negotiations told CNBC.

From here, via The Outback Oracle at iTulip. Don't get me wrong; there may not have been any alternative. It's funny, though, how laissez-faire capitalists are suddenly willing to socialize losses. Of course, if and when AIG returns to profitability, the US government will probably sell it off rather than keep it as a source of revenue. After all, it wouldn't do to have an example of how continued public ownership could be good. Instead, the American taxpayers, having absorbed the enormous losses, will be spared the indignity of actually turning a profit later.

In any case, one does have to ask one thing. How long can they continue doing this? If they keep bailing out every company that's too big to fail, they'll have to do one of three things -- raise extra revenue through taxation, cut back on spending on other things (such as their military adventures overseas) or run the printing presses like crazy. The first two would be the best policy of course, but somehow I suspect the third will be the way they actually do it. Of course, such a policy is insanely inflationary, but they may be hoping that other countries will devalue their own currencies so the Yanks can keep buying what they're selling. Unfortunately for them, this won't continue indefinitely.

And, in spite of everything, the prices of gold, silver, and other traditional hedges against inflation remain fairly reasonable. If you can afford to, consider buying them while you can; things might get exciting quite soon. Like, any time after the 4th of November.