Half of the finance sector guaranteed by the U.S. Government

The Federal Reserve acknowledges that more than half of all of the liabilities of firms in the U.S. financial sector are either implicitly or explicitly backed by the government:

The more we rely on government guarantees of private-sector financial liabilities as our main defense against financial market disruption, the more we must regulate private risk management to offset the adverse incentive effects of that safety net.

Government guarantees of private debt – either explicit or implicit – can have profound effects on debtors’ and creditors’ incentives to appropriately price and manage risk exposures. These effects are likely to have been particularly acute for the large institutions that were at the heart of this crisis and viewed as too big to fail. Their creditors will see their own risks as at least partially reduced by the explicit or implicit government guarantees, and will therefore require less of a risk premium and impose fewer covenant restrictions than they otherwise would. Inexpensive debt financing will encourage an institution to seek greater leverage than it otherwise would, and increased leverage, in turn, makes an institution less averse to taking large risks, other things being equal.

Measuring the effects of the safety net on incentives for risk management is difficult. But measuring the safety net itself is possible. Research by Richmond Fed economists showed that in 1999 about 27 percent of all of the liabilities of firms in the U.S. financial sector were explicitly guaranteed by the federal government. By their estimate, another 18 percent enjoyed at least some implicit support, or were likely to be perceived by markets to have such support, so a total of 45 percent of financial sector liabilities had at least implicit government backing. This was a conservative estimate of implicit guarantees, consisting basically of the government-sponsored enterprises and the uninsured deposits of the largest banks. In the course of the current crisis, explicit guarantee programs have grown, for instance through the expansion of deposit insurance. An estimate of the implicit safety net guarantees would also no doubt be larger today, as we have seen protection temporarily extended to nondeposit creditors of banks and other financial institutions. So it seems likely that a substantially larger fraction of the financial sector is now operating under the effects of the safety net.

Choices in Financial Regulation, Remarks by Jeffrey Lacker, President, Federal Reserve Bank of Richmond, September 14, 2009, http://www.richmondfed.org/press_room/speeches/president_jeff_lacker/2009/lacker_speech_20090914.cfm.

 

Interest Rates (Federal Funds Overnight Rate)

When someone talks about the Federal Reserve changing the “interest rate,” it is actually just changing the Federal Funds Overnight (FFO) rate, which indirectly impacts other market interest rates and the supply of money:

Open market operations are the Federal Reserve’s principal tool for implementing monetary policy. These purchases and sales of U.S. Treasury and federal agency securities largely determine the federal funds rate—the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The federal funds rate, in turn, affects monetary and financial conditions, which ultimately influence employment, output, and the overall level of prices.

Open Market Operations in the 1990s, Cheryl Edwards, The Federal Reserve, November 12, 1997, http://www.federalreserve.gov/pubs/bulletin/1997/199711lead.pdf.

ffo_all

ffo_from95

Federal funds effective rate, The Federal Reserve, http://www.federalreserve.gov/releases/h15/data/Business_day/H15_FF_O.txt (OOo Spreadsheet).

 

John Law, 1671-1729, and Economic Bubbles

 

Deaths and injuries related to driving in the U.S. (car accidents)

Summary: In the United States in 2008, ~37,000 people died in crashes related to cars and motorcycles. Of which, ~4,000 were pedestrians, ~700 were cyclists, ~5,000 were motorcyclists. ~11,000 or ~32% were related to drunk drivers (BAC >= .08). Relatedly, ~2.3 million people were injured in motor vehicle crashes in 2008.

Cars are one fascinating example of how society has accepted a risk where we basically give killing machines to anyone from 18 to 80 which they can drive with little mechanical restriction at an average of 50 miles per hour every day, with just a little retractable belt and a few inflatable pillows.

[The number of] people killed in motor vehicle crashes in the United States… [went from] 41,259 in 2007 to 37,261, according to NHTSA’s 2008 Fa-tality Analysis Reporting System (FARS)…Motorcyclist fatalities continued their 11-year increase, reaching 5,290 in 2008, accounting for 14 percent of the total fatalities.

4,378 pedestrians killed in traffic crashes in 2008.
716 pedalcyclists killed in traffic crashes in 2008.

In 2008, an estimated 2.35 million people were injured in motor vehicle traffic crashes.

Motorcyclist fatalities continued their 11-year increase, reaching 5,290 in 2008, accounting for 14 percent of the total fatalities.

Alcohol-impaired driving fatalities (fatalities in crashes in-volving a driver or motorcycle rider [operator] with a blood alcohol concentration [BAC] of .08 grams per deciliter [g/dL] or greater) were 11,773 in 2008, or 32% of all deaths related to driving.

2008 Traffic Safety Annual Assessment – Highlights, National Highway Traffic Safety Administration, June 2009, http://www-nrd.nhtsa.dot.gov/Pubs/811172.pdf.

Seat belt use in 2009 stood at 84 percent, a gain from 83 percent use in 2008.

Seat Belt Use in 2009-Overall Results, National Highway Traffic Safety Administration, September 2009, http://www-nrd.nhtsa.dot.gov/pubs/811100.pdf.

 

X-country.. Corgi X-ing

CIMG0002CIMG0003CIMG0006CIMG0007CIMG0009CIMG0010CIMG0011CIMG0015CIMG0025CIMG0026CIMG0028CIMG0030CIMG0046CIMG0039CIMG0053

Oh crap, there’s a moose in the tunnel!

 

Operating Lightning Thunder: Africom involvement?

 

If you’ve got nothing to hide…

Democrats and Republicans in Congress are all the same when it comes to secrecy and power. The original Constitution was about 6 pages.

As Congress lurches closer to a decision on an enormous overhaul of the American health care system, pressure is mounting on legislative leaders to make the final bill available online for citizens to read before a vote.

The [Sunlight Foundation] has begun an effort to get Congress to post bills online, for all to see, 72 hours before lawmakers vote on them.

A similar effort is under way in Congress. Reps. Brian Baird, D-Wash., and Greg Walden, R-Ore., are circulating a petition among House lawmakers that would force a vote on the 72-hour rule.

Nearly every Republican has signed on, but the Democratic leadership is unwilling to cede control over when bills are brought to the floor for votes and are discouraging their rank and file from signing the petition. Senate Democrats voted down a similar measure last week for the health care bill.

The reluctance to implement a three-day rule is not unique to the Democrats.

The Republican majority rushed through the controversial Patriot Act in the wake of the Sept. 11, 2001, terrorist attacks as well as a massive Medicare prescription drug bill in 2003 that added hundreds of billions of dollars to the deficit.

» House energy and global warming bill, passed June 26, 2009. 1,200 pages. Available online 15 hours before vote.

» $789 billion stimulus bill, passed Feb. 14, 2009. 1,100 pages. Available online 13 hours before debate.

» $700 billion financial sector rescue package, passed Oct. 3, 2008. 169 pages. Available online 29 hours before vote.

» USA Patriot domestic surveillance bill, passed Oct. 23, 2001. Unavailable to the public before debate.

Congressional leaders fight against posting bills online, Susan Ferrechio, Washington Examiner, October 6, 2009, http://www.washingtonexaminer.com/politics/Congressional-leaders-fight-against-posting-bills-online-8340658-63557217.html.

House Democratic Leader Nancy Pelosi, Senate Democratic Leader Harry Reid, Congresswoman Louise Slaughter of New York, and Senator Barack Obama of Illinois, unveiled Democrats’ “Honest Leadership, Open Government Act,” which will restore honesty, integrity, and openness to government. Below are Pelosi’s remarks as prepared.

We come here today to support those values, and to lay out an agenda for a new era of honest, open, and transparent government.

Democrats are leading the effort to turn the most closed, corrupt Congress in history into the most open and honest Congress in history.

Democrats will create the most open and honest government in history, and put power back where it belongs – in the hands of all the people.

Pelosi: ‘We Will Create the Most Open and Honest Government in History’, Congresswoman Nancy Pelosi, January 18, 2006, http://www.house.gov/pelosi/press/releases/Jan06/honest.html.

 

BBC: Straussianism, Qutb, Neo-Conservatism, and Islamic Terrorism

Narrator: Just as in America, there is no evidence yet of the terrifying and sinister network lurking under the surface of our society which both government and the media continually tell us is there.

Narrator: So there was no network?

Bill Durodie, Director International Centre for Security Analysis, Kings College: No.

Narrator: No?

Bill Durodie: Probably not.

Narrator: We invented it?

Bill Durodie: Invention’s too strong a term. I think we projected it. We projected our own worst fears and that what we see is a fantasy that’s been created … I’m not saying that an atrocity might not happen on the British mainland. What I am saying is that we have an exaggerated view of the possibility of terrorism that is quite disabling. And we only need to look at the evidence to understand that the figures simply don’t bear out the way we have responded as a society.

Narrator: What the British and American governments have done is both distort and exaggerate the real nature of the threat. There are dangerous and fanatical groups around the world who have been inspired by the extreme Islamist theories. And they are prepared to use the techniques of mass terror on civilians. The bombings in Madrid show this only too clearly. But this is not a new phenomenon. What is new is the way the American and other governments have transformed this complex and disparate threat into a simplistic fantasy of an organized web of uniquely powerful terrorists who may strike anywhere, at any moment. But no one questions this fantasy, because increasingly it was serving the interests of so many people. For the press, television, and hundreds of terror experts, the fact that it seems so like fiction made it irresistable to their audiences. And the Islamists too began to realize that by feeding this media fantasy, they could become a powerful organization again, if only in people’s imaginations.

British Broadcasting Corporation, Part III, 39:30, http://video.google.com/videosearch?q=power+of+nightmares.

This story began over 30 years ago as a dream that politics could create a better world began to fall apart. Out of that collapse came two groups: the Islamists and the Neo-Conservatives. Looking back, we can now see that these groups were the last politics ideas, who in an age of growing dissolution tried to reassert the inspirational power of political visions that would give meaning to people’s lives. But both have failed in their attempts to transform the world. Instead, together they have created today’s strange fantasy of fear which politicians have seized on. Because in an age when all the grand ideas have lost credibility, fear of a phantom enemy is all the politicians have left to maintain their power.

Ibid, 55:35.

 

Swimming on the Moon

NASA scientists have discovered water molecules in the polar regions of the moon. Instruments aboard three separate spacecraft revealed water molecules in amounts that are greater than predicted, but still relatively small. Hydroxyl, a molecule consisting of one oxygen atom and one hydrogen atom, also was found in the lunar soil. The findings were published in Thursday’s edition of the journal Science.

“When we say ‘water on the moon,’ we are not talking about lakes, oceans or even puddles. Water on the moon means molecules of water and hydroxyl that interact with molecules of rock and dust specifically in the top millimeters of the moon’s surface.”

“We see both water and hydroxyl. While the abundances are not precisely known, as much as 1,000 water molecule parts-per-million could be in the lunar soil. To put that into perspective, if you harvested one ton of the top layer of the moon’s surface, you could get as much as 32 ounces of water.”

“Our analysis unequivocally confirms the presence of these molecules on the moon’s surface and reveals that the entire surface appears to be hydrated during at least some portion of the lunar day.”

NASA Instruments Reveal Water Molecules on Lunar Surface, National Aeronautics and Space Administration, September 24, 2009, http://www.nasa.gov/topics/moonmars/features/moon20090924.html.

 

Words and Reality

Scott Horton: Now, Robert Gibbs, the mouth of [President Obama] up there in Washington D.C says that …. “we have got to get the Iranians in our so called negotiations with them (that we’re very pessimistic they will go anywhere anyway) — what’s at issue is their elicit nuclear weapons program,” which is a throwback to the propaganda line that the Bush crew [used].

Gareth Porter: Well, you have to take into account the reality that the kind of language that is used by official spokesman and spokesladies in the U.S. Government is so dishonest and so loose, that when they say elicit, it doesn’t really mean much of anything more than, “Well, we disapprove of it. We don’t accept it.” In other words elicit doesn’t really have much of a real meaning apart from the politics of U.S. policy. I think that would be the point that I would make. You can’t make too much of it simply because of the way words are used so loosely by this and every other administration. Unfortunately, that is the case. It’s sort of difficult to base too much analysis on the words, certainly of Whitehouse Spokesman more than anybody else — they are so totally politicized, they really pay no attention to the relationship between words and reality.

Antiwar Radio: Scott Horton Interviews Gareth Porter on “IAEA Conceals Evidence Iran Documents Were Forged,” September 18, 2009, 13:30, http://antiwar.com/radio/2009/09/18/gareth-porter-65/.

The Agency continues to verify the non-diversion of declared nuclear material in Iran. Iran has cooperated with the Agency in improving safeguards measures at FEP and in providing the Agency with access to the IR-40 reactor for purposes of design information verification. Iran has not, however, implemented the modified text of its Subsidiary Arrangements General Part, Code 3.1, on the early provision of design information.

Iran has not suspended its enrichment related activities or its work on heavy water related projects as required by the Security Council.

Contrary to the requests of the Board of Governors and the Security Council, Iran has neither implemented the Additional Protocol nor cooperated with the Agency in connection with the remaining issues of concern which need to be clarified to exclude the possibility of military dimensions to Iran’s nuclear programme. Regrettably, the Agency has not been able to engage Iran in any substantive discussions about these outstanding issues for over a year. The Agency believes that it has provided Iran with sufficient access to documentation in its possession to enable Iran to respond substantively to the questions raised by the Agency.

International Atomic Energy Agency (IAEA): Report by the Director General, Implementation of the NPT Safeguards Agreement and relevant provisions of Security Council resolutions 1737 (2006), 1747 (2007), 1803 (2008), and 1835 (2008) in the Islamic Republic of Iran, Mohamed ElBaradei, August 28, 2009, http://www.iaea.org/Publications/Documents/Board/2009/gov2009-55.pdf.