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- Site Presented By - Salon
- Manufacturing in Philadelphia expands. Housing starts, building ... - MSN Money
- EXCLUSIVE: UAE kept tight lid on disrupted terror plot - The Washington Times
- UPDATE 1-Court to hear witnesses about Fortis breakup-group - Reuters
- Niche Banks Fight Back at Tighter Regulation - CNBC
| Posted: 17 Sep 2009 07:34 AM PDT If you are inclined to believe that government should steer clear of any intervention in the economy, or stand with partisans who lean to the right-wing side of political economy debates, then you will likely agree with Donald Luskin that John Cochrane's riposte to Paul Krugman's "How Did Economists Get It So Wrong?" is "devastating." John Cochrane, an economist at the University of Chicago, is spitting mad. He is also a forceful writer, and he makes a compelling case that in the course of his argument explaining why conservative (and liberal) economists missed the boat on the financial crisis, Krugman oversimplified the state of macroeconomic affairs over the past several decades. As FreeExchange observes, however, Cochrane makes the same mistake he accuses Krugman of, by caricaturing and oversimplifying Krugman's argument, and, even worse, complaining that Krugman is only interested in making personal attacks on an ever-growing "enemies list," while engaging in his own litany of vicious slander. Cochrane's assertion that Krugman "wants to be Rush Limbaugh of the Left," betrays a bizarre disconnection with reality. And he proves, over and over again, that one of Krugman's central accusations -- that Chicago School economists have nothing but scorn and sneers to pile on John Maynard Keynes -- is absolutely correct.
I find it hard to read that paragraph in any other way than to assert that believing that Keynes had something insightful to offer as to how government should respond to a recession or depression is equivalent to disbelieving in global warming or plate tectonics. Krugman's initial response to Cochrane et al. is even less satisfying. From what I can tell -- "I gather, though, that the usual suspects are utterly outraged at my suggestion that freshwater macro has spent several decades heading down the wrong path" -- he hasn't read Cochrane's attack, although I guess we can excuse him for being on vacation with sporadic Internet access. Once he returns, however, it would be educational to see him respond to some of Cochrane's more substantive assertions as to how economists are continuing to extend the state of the art. But to a certain extent the real dispute is over something so fundamental that no amount of parrying with the nitty-gritty of how well the latest macroeconomic model captures reality will resolve it. Cochrane is straightforward: Here, he says, is "the main point."
Of course Krugman has never argued in favor of government "control" of markets. But that's a side issue. Cochrane and his brethren believe the less government the better -- Krugman believes there's a clear role for government, not just in properly regulating markets, but also in intervening when markets fail. Which brings us to Cochrane's key point, aptly seized upon by Nick Rowe at Worthwhile Canadian Initiative. Cochrane's central critique of Keynesianism is summed up in one declaration.
Cochrane states this formulation as if it is an outright absurdity, and at first glance, maybe it does look crazy. But from a Keynesian point of view, Cochrane is totally misunderstanding how economies work. If people consume less, companies sell fewer goods and services, requiring them to lay off people, who in turn spend even less. This is the famous "paradox of thrift." This is exactly what we are living through right now. The total money supply doesn't change, but the economy goes into recession because that money is not circulating. The opposite also holds true. If people consume more, companies aiming to meet that demand hire more workers who then have the income to spend on more products. As Keynes wrote in "The Great Slump of 1930":
Government -- there, when you need it, to unjam the machine. When two sides are in disagreement over such a foundational issue, it's hard to see how any amount of slash-and-burn Internet argument will ever reach resolution. |
| Manufacturing in Philadelphia expands. Housing starts, building ... - MSN Money Posted: 17 Sep 2009 07:27 AM PDT
Reports on manufacturing in the Philadelphia region, housing starts and initial jobless claims offered bulls a chance to continue their buying spree this morning.
The Federal Reserve Bank of Philadelphia's index on manufacturing jumped to a reading of 14.1 in September, up from 4.2 in August. It was the best headline number since the end of 2007.
The August report was the first positive reading in nearly a year. Readings above zero indicate expansion in the sector.
Stocks were moving higher this morning. At 10:15 a.m. ET, the Dow Jones Industrial Average ($INDU) was up 38 points to 9,830. The Nasdaq Composite Index ($COMPX) had gained 6 points to 2,139, and the Standard & Poor's 500 Index ($INX) had added 4 points to 1,073.  This posting includes an audio/video/photo media file: Download Now |
| EXCLUSIVE: UAE kept tight lid on disrupted terror plot - The Washington Times Posted: 17 Sep 2009 07:34 AM PDT Authorities in the United Arab Emirates earlier this year quietly broke up a major terrorist ring affiliated with al Qaeda that had plotted to blow up targets in Dubai - a banking hub that has long seemed immune to attacks by the terrorist group. The disruption in May of the previously undisclosed plot came at a sensitive time for the UAE, which months earlier concluded an agreement with the United States that would allow the U.S. to sell it nuclear reactor technology and nuclear fuel. Congress has until Oct. 17 to block the agreement, which has been viewed with concern by some nonproliferation groups. Three U.S. intelligence officials and one former senior U.S. government official confirmed that the terrorist scheme originated in Ras Al Khaimah (RAK), a relatively poor member of the seven-emirate country. According to these officials, who spoke on the condition of anonymity because of the sensitive nature of the incident, UAE authorities found evidence that the terrorists had conducted video surveillance of targets in Dubai including Dubai Towers, which will be the tallest building in the world when it is completed in December. The officials also said the plotters had designated suicide bombers for the operations, but had not yet made so-called martyrdom videos. Juan Zarate, a former deputy national security adviser in the George W. Bush administration, called the arrests a "significant ... disruption. It demonstrates al Qaeda's presence and perhaps even ill intent in the Emirates, but also signals strong cooperation from the Emirati authorities." In the past, al Qaeda has not targeted Dubai in part because wealthy Arabs there have been a source of funding for the organization. Two of the 19 hijackers who carried out the Sept. 11, 2001, attacks in the United States were from the UAE. A spokeswoman for the UAE Embassy in Washington said the embassy "doesn't comment on internal security matters." But the disclosure threatens to embarrass the UAE as it seeks Congressional approval for a nuclear cooperation agreement with the United States. The crown prince of Abu Dhabi, Mohammed bin Zayed, was in Washington earlier this month to lobby for legislative approval of the deal, which is expected to come before Congress in mid-October. Several lawmakers are expressing concerns about the UAEs export laws and the fear of weapons proliferation to Iran. The deal, which was signed at the end of President Bushs second term, will go ahead if Congress decides to do nothing. It will allow U.S. firms to sell nuclear fuel and technologies to the UAE. The Emirates has agreed to buy nuclear fuel from the world market - possibly including the U.S. - but has promised not to develop its own uranium enrichment capability or reprocess spent nuclear fuel. The UAE Embassy spokeswoman, who asked not to be named because only the ambassador is permitted to be quoted on the record, pointed out that the chief of police in Dubai denied a story this week in the Israeli press alleging that the Iranian government was behind the latest plot. The intelligence officials who spoke to The Washington Times said a former minister of public lands for RAK, Muhammad Ali al-Mansuri, was arrested in connection with the investigation. An Irish-based human rights group, Frontline Protection of Human Rights Defenders, confirmed on its Web site the arrest of Mr. al-Mansuri, whom it described as a human rights lawyer. It said he was arrested June 7 at 5 a.m. by RAK authorities and handed over to authorities in Abu Dhabi. Mr. al-Mansuri, who is a member of the RAK royal family by marriage, was released on bail at 2:30 p.m. the same day, the group said, but has had his travel limited and is thought to have been rearrested. An e-mail to Mr. al-Mansuri was not returned. "Frontline believes that Dr. Mohammed al-Mansuri is being targeted because of his peaceful and legitimate activities in defense of human rights, in particular his work in relation to civil and political rights, including freedom of the press," said an appeal from the group, whose board of trustees includes U2 lead singer Bono. Present and former U.S. officials described the plan to target the towers and several other high profile locations in the country as a significant shift in how al Qaeda operates in the Emirates. "Dubai, given where it is, has generally been more open as a society [than other Middle Eastern countries]," Mr. Zarate said. "Some would argue that Dubai has been more lax and in terms of travel and banking, they are stuck with dealing with more bad actors than their neighbors might be. Nonetheless, cooperation [on counterterrorism] has been very good." Mr. Zarate added, "I also would not downplay the reality that for the sake of tourism and reputation, there is no desire on the part of any country to signal they are worried about a threat unnecessarily and that they are a target-rich environment." Kenneth Katzman, a senior Middle East analyst at the Congressional Research Service, said: "It is widely believed that the UAE government was turning a blind eye to the presence of some al Qaeda activity in the UAE, with the implicit promise that no terrorist attacks would take place there. This [arrest] is significant because it shows the UAE's belief that it could prevent terrorist attacks this way was naive." Nonetheless, Emiratis have also been helpful to the U.S. in the battle against al Qaeda. In November 2002, UAE authorities handed over to the U.S. Abd Rahim al-Nashiri, a senior al Qaeda leader who is regarded as the mastermind of the bombing in Yemen in 2000 of the USS Cole. Al-Nashiri is one of three al Qaeda leaders the CIA has acknowledged to have waterboarded during questioning. According to a May 2002 letter from al Qaeda leaders that was declassified in 2006 by the Combatting Terrorism Center at West Point, N.Y., the royal families in Dubai and Abu Dhabi were explicitly threatened with attacks if their cooperation with the United States against al Qaeda continued.  This posting includes an audio/video/photo media file: Download Now |
| UPDATE 1-Court to hear witnesses about Fortis breakup-group - Reuters Posted: 17 Sep 2009 07:20 AM PDT * Court does not specify names * Shareholders want to hear Dutch PM, former Belgian PM * Shareholders seek compensation for losses
AMSTERDAM, Sept 17 (Reuters) - A Dutch court will hear witnesses about the nationalisation of Fortis (FOR.BR) in a ruling that might lead to Belgian and Dutch prime ministers and banking authorities giving testimony, a shareholder group said on Thursday. A Fortis shareholder group, FortisEffect, asked for a hearing of witnesses, saying some shareholders lost money due to the breakup of the Belgian-Dutch bank and insurance group along national lines last year. In a court document, which FortisEffect made public, the court granted a request for a witnesses hearing against the Dutch state and Fortis NV. The court will issue a statement around 1400 GMT. The court did not name any witnesses to be heard, but FortisEffect wants to call former Belgian Prime Minister Yves Leterme, Dutch Prime Minister Jan Peter Balkenende, Dutch central bank president Nout Wellink and others to give testimony. (Reporting by Gilbert Kreijger; Editing by Jon Loades-Carter) © Thomson Reuters 2009 All rights reserved  This posting includes an audio/video/photo media file: Download Now |
| Niche Banks Fight Back at Tighter Regulation - CNBC Posted: 17 Sep 2009 07:34 AM PDT Generations ago, industrialists and financiers extracted fortunes from the copper and gold mines dug into the canyons near here. Now, their modern-day counterparts are resisting a government proposal that could shut down what has become another gold mine of sorts. Utah is the nation's unlikely capital of industrial banks — niche institutions that primarily make loans to businesses. Corporations like Goldman Sachs [ Loading... () The Obama administration argues that the banks pose a threat to the economy because their parent companies can engage in risky practices but are often exempt from routine scrutiny by the Federal Reserve. Treasury officials want to require the corporate owners of the nation's 41 industrial banks to accept more rigorous regulation or be forced to sell or shut them down. "The president's regulatory reform plan is not about fighting the last crisis, but trying to avoid the next one," said Michael S. Barr, assistant Treasury secretary for financial institutions. "If we preserve known loopholes in consolidated oversight, then we will just be inviting the next Bear Stearns or A.I.G." But the banks are fighting back. "We are talking about survival here," said Louise P. Kelly, president of EnerBankUSA in Salt Lake City. Defending the institutions as safe and profitable, she and others have mounted a campaign to not only block the administration's plan, but to expand the number of such banks. The industry is deploying lobbyists, jawboning lawmakers, doling out campaign contributions and trying to persuade Treasury and banking officials. So far, they appear to be winning some concessions. Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, and Barney Frank, the chairman of the House Financial Services Committee, have both said they would favor allowing owners of existing industrial banks to maintain their banking operations. "They told me that divestiture would be very disruptive, and I agreed," Mr. Frank, Democrat of Massachusetts, said in an interview, referring to Jeffrey R. Immelt, the chief executive at General Electric, and other G.E. executives who met with him in July. "It is not a matter of them wreaking havoc." Treasury Secretary Timothy F. Geithner and other officials are pressing ahead with their proposal to require the institutions to submit to Federal Reserve oversight, part of a sweeping package of regulatory reforms. But the battle over the banks, expected to intensify now that Congress is back in session, demonstrates how difficult enacting tougher regulation can be. The nation's industrial banks hold $130 billion, only about 1 percent of federally insured bank deposits. They trace their history to the early 1900s when small lending houses sprang up to offer loans to factory workers who otherwise could not get credit. Today, the banks — almost all are in Utah, Nevada and California — do all manner of lending. Unlike commercial banks, though, all but the smallest industrial banks are barred from offering checking accounts, so most have no retail branches. And they are not supervised by the Federal Reserve nor are their parent companies required to set aside capital reserves that could be used if a bank gets into trouble. While no industrial bank has failed in the last year, Capmark Bank and Marlin Business Bank sustained losses that are forcing them to curtail operations. The F.D.I.C. recently ordered another, Advanta Bank Corporation, to stop taking new customers because it was in peril. Utah became a haven for industrial banks in the last decade, relaxing laws to lure them there after Congress prohibited them in states that did not already have them. Companies like BMW and Pitney Bowes [ Loading... () In Salt Lake City, the banks have been a welcome presence. They created an estimated 15,000 jobs at the banks and related service companies, and their executives have sprinkled money around to everything from the Utah Symphony Orchestra to housing for the poor. The Obama administration plan, though, presents a double threat to the state. If the Treasury department prevails in insisting on Federal Reserve oversight for industrial banks, there is no reason for those owned by national financial services companies to be headquartered in Utah. And terminating the industrial bank charter, along with other new requirements, could force manufacturing giants like G.E. to sell their financial arms because of federal prohibitions against commercial companies operating banks. Indeed, perhaps no company has more at stake in the debate than G.E., which operates its $10 billion industrial bank, GE Capital Financial, at the foot of the Wasatch Mountains, 15 miles south of downtown Salt Lake City. Located in a new office complex, it hardly seems like a bank at all: it has no branches, no A.T.M.'s and hardly any walk-in customers. But it lends to businesses across the nation. It has financed loans to more than 5,000 fast-food restaurants, helped equip about 4,000 dentists' offices and allowed small businesses to buy tens of thousands of forklifts, delivery vans and other equipment. "This is boring — forklifts, grills at Burger King," said Russell Wilkerson, a G.E. executive who was visiting his company's Utah offices last month. "It is middle-market America." Those loans may be boring, but they have proven to be lucrative. G.E.'s industrial bank ranked as the nation's 46th most profitable bank earlier this year. If General Electric had to sell off GE Capital — the large financial unit of which the industrial bank is a subsidiary — it would cost shareholders $40 billion in lost market capitalization, or 22 percent of current market capitalization, according to an estimate by a Goldman Sachs analyst, because of higher taxes, lower net income and higher capital overall requirements. "It is first unnecessary because it did not contribute to the crisis, and second it would be disruptive to the economy and lending," Brackett B. Denniston, G.E.'s general counsel, said in an interview. Like other industrial banks here, G.E.'s is regulated by Utah's Department of Financial Institutions, as well as the F.D.I.C. State officials resent any suggestion that they are lax in their oversight. "We have proven there is a way to manage these institutions," said Darryle P. Rude, Utah's chief industrial bank supervisor. "So why would you want to eliminate a system that has not been a threat?" But critics tick off a list of complaints about the banks, including assertions that owning them gives their corporate parents an unfair advantage and encourages risky practices. Companies that own industrial banks can finance lending operations more cheaply than their competitors by relying on federally insured deposits at their banks, instead of going to the more costly bond market, said Matthew Anderson, a consultant who studies bank industry earnings. In addition, he and others point out, state regulators and the F.D.I.C. do not have the same powers as the Federal Reserve to demand changes in risky business practices by parent companies that might indirectly threaten their industrial banks. Treasury officials have not blamed industrial banks for a role in the financial crisis, but they do argue that the regulatory loophole permitted abusive actions by some of their parent companies that fed the problems. "This is not about picking on anyone, but they contributed to risk in the system," said a Treasury official, who spoke on condition of anonymity because he was not authorized to comment on the issue. A few industry observers go further in their complaints. Some companies intentionally chose an industrial bank charter — where they could raise money through brokered C.D.'s, investor funds in cash accounts and funds from business clients — so that they could take riskier bets and have higher leverage in their other business units, argued Raj Date, who leads a nonprofit industry research group, Cambridge Winter. He said that parent companies of eight of what had been the top 12 Utah industrial banks filed for bankruptcy protection or received large allotments of federal bailout funds or other federal financial support in the last year. Those companies — including Merrill Lynch, GMAC, Morgan Stanley and CIT [ Loading... () Executives at industrial banks, including those operated by Harley Davidson [ Loading... () The bankers said that many financial institutions without industrial banks also turned to the federal government for a bailout. They added that industrial banks have nearly twice the capital reserves of a typical commercial bank. "For the last ten years the industrial banks have been the strongest, best capitalized, most profitable, least likely to fail banks in the country," said George Sutton, a former Utah bank regulator who has helped set up several industrial banks. The de facto headquarters for the industry's lobbyists is a small office building a few blocks from the Utah capitol, where Douglas S. Foxley and Frank R. Pignanelli are based. The partners, one a Democrat and the other a Republican, have tried to persuade skeptics in Washington that the industrial banks are part of the solution to the economic crisis, not a cause. They have appealed to Utah's Congressional delegation, the home state delegations of the banks' parent companies, and Congressional and committee leaders. The banks' parent companies have made campaign contributions to some lawmakers. For example, G.E., which has a variety of issues before Congress having to do with its role as a defense contractor, manufacturer and financial powerhouse, made $500,000 in donations to legislators since January, including the Senate majority leader, Harry Reid, Democrat of Nevada; Senator Christopher Dodd, Democrat of Connecticut, the chairman of the Senate Banking committee, and Senator Bob Bennett, Republican of Utah. "What it comes down to is a lot of blocking and tackling," said Mr. Foxley, the lobbyist. "We have to stop this."  This posting includes an audio/video/photo media file: Download Now |
Updated at 10:15 a.m. ET
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