Daily Digest

Daily Digest 5/29 - Ritholtz On The Crisis, The Syria Dilemma, U.S. Winds Down Unemployment Benefits

Tuesday, May 29, 2012, 9:49 AM
  • Barry Ritholtz on the Crisis: Causes, Cures, Corptocracy, and Suggested Reading
  • The Syria Dilemma
  • Public Pensions Faulted for Bets on Rosy Returns
  • New York Has Some Prisons To Sell You
  • U.S. Winds Down Longer Benefits for the Unemployed
  • The War on Coal: A Lie Invented by the Coal Industry
  • A Tiny Florida Outpost Divides Over Getting on the Power Grid
  • Making a Big Stink: Is That a Landfill or a Gold Mine?

Follow our steps to prepare for a world after peak oil, such as how to store & filter water


Barry Ritholtz on the Crisis: Causes, Cures, Corptocracy, and Suggested Reading (Jaime)

The world isn’t black and white. We can’t just say, “The butler did it.” There were many causes, lots of poor judgements. If you look in the centrefold of my book, , we try to depict everything in a visual form. It’s a great infographic by Jess Bachman that shows all the different factors that came together to cause a big collapse. The Federal Reserve was a significant element. But if you want to do it chronologically, you may want to go back further into the history. The bailout of Chrysler in 1980 set the stage. The rescue of Long Term Capital Management (LTCM) in 1998 encouraged a lot of moral hazard.

The Syria Dilemma (jdargis)

The horrors in Syria are symptoms of a tangle of political crises that present no clear course of action for the United States, or its allies, or any other constellation of the international community. The Arab League and the U.N. jointly appointed former Secretary-General Kofi Annan to negotiate with Assad. The Syrian President, playing for time, agreed to a plan to establish a ceasefire; demilitarize the cities and towns; oversee the release of arbitrarily detained people; insure freedom of movement for aid groups and the press, and freedom of assembly and association for peaceful demonstrators; and foster conditions for political dialogue.

Public Pensions Faulted for Bets on Rosy Returns (jdargis)

In addition to lowering the projected rate of return, Mr. North has also recommended that the New York City trustees acknowledge that city workers are living longer and reporting more disabilities — changes that would cost the city an additional $2.8 billion in pension contributions this year. Mr. North has called for the city to soften the blow to the budget by pushing much of the increased pension cost into the future, by spreading the increased liability out over 22 years.

New York Has Some Prisons To Sell You (jdargis)

The state has a glut of vacant correctional facilities because of lower crime rates, new programs that allow early release for nonviolent offenders and the dismantling of its strict drug laws. The situation in New York reflects changing national attitudes toward criminal justice policy: the number of state prisoners nationwide declined in 2009 and 2010 for the first times in at least three decades, according to the federal Bureau of Justice Statistics.

U.S. Winds Down Longer Benefits for the Unemployed (jdargis)

The federal extension of jobless benefits has been a contentious issue in Washington. Republicans worry that it prolongs joblessness and say it has not kept the unemployment rate down, while Democrats argue that those out of work have few alternatives and that the checks are one of the most effective forms of stimulus, since most of it is spent immediately.


The War on Coal: A Lie Invented by the Coal Industry (James S.)

The Economic Policy Institute projects that the mercury standard will actually have a “positive net impact on overall employment – likely leading to the net creation of 84,500 jobs between now and 2015.” The jobs created by the standard, however, would not just be limited to certain industrial sectors. EPI’s study projects that “8,000 Jobs would be gained in the utility industry itself,” along with the over 80,500 jobs that would be created to build pollution control equipment. While dirty coal companies claim that the mercury standard will cause massive unemployment, EPI notes that “only 10,600 jobs would be displaced due to higher energy costs.” Richard Morgenstern, a former Reagan and Clinton EPA official, predicts that the new standard will have “no net impact” on employment.

A Tiny Florida Outpost Divides Over Getting on the Power Grid (jdargis)

“It’s the Hatfields and the McCoys here,” Dave Eaken, 41, a longtime resident who wants commercial power, said about the split on the island. His father, Bob, has waited decades for public electricity, which he said he was promised when he first bought land on No Name Key in the 1960s. “I don’t look at those people. I don’t talk to them, and I don’t want to talk to them.”

Making a Big Stink: Is That a Landfill or a Gold Mine? (James S.)

The United States isn't doing so well on the energy front. High oil prices raise costs on virtually every industry, while stymied efforts to access resources in North America offer little relief. Hydraulic fracking has come under considerable scrutiny due to issues with groundwater contamination, non-disclosure of the used chemicals, and even increased geological activity. With American solar companies increasingly losing ground to low-cost alternatives from China, even alternative power is feeling a pinch. But there's a great resource out there... Garbage. Mountains and mountains of garbage.

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Iranian fusion

Iranian team to collaborate with US company on nuclear fusion project - A US company and an Iranian university have agreed to collaborate on nuclear fusion, the elusive technology that promises a limitless supply of clean energy. New Jersey-based Lawrenceville Plasma Physics Inc and Tehran's Islamic Azad University will jointly design a fusion machine that "would be affordable to construct in industrializing nations", according to a contract signed last weekend and seen by The Guardian. The partnership comes amid tensions between the US and Iran over allegations that Iran is enriching uranium – a process that is different from fusion – to support a nuclear weapons programme. Sceptics doubt whether US trade sanctions will permit the collaboration. But LPP claimed in a written statement that the pact qualifies as an official US department of treasury exemption "which authorizes collaborating with academics and research institutions on the … creation and enhancement of written publications."

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Europe’s debtors must pawn their gold for Eurobond Redemption

Southern Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany.

-per the Telegraph's Ambrose Evans Pritchard, @ http://www.telegraph.co.uk/finance/financialcrisis/9298180/Europes-debtors-must-pawn-their-gold-for-Eurobond-Redemption.html .

AEP goes on to say:

The German scheme -- known as the European Redemption Pact -- offers a form of "Eurobonds Lite" that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.

The plan is drafted by the German Council of Economic Experts and inspired by Alexander Hamilton’s Sinking Fund in the United States -- created in 1790 to clean up the morass of debts left by the Revolutionary War. Flourishing Virginia was comparable to Germany today.

Chancellor Angela Merkel shot down the proposals last November as "completely impossible", but Europe’s crisis has since festered, and her Christian Democrat party has since suffered crushing defeats in regional elections.

What do some of those impacted by the proposal think?

Alessandro di Carpegna Brivio, a gold expert at Camperio Sim in Milan, said Italy should treat such proposals with care. "Everything being done at a European level is in the interests of Germany and France, to save their banks. It is not in the interest of Italy," he said.

"We should use our gold to take care of our own debt, collateralizing bonds above 100pc of GDP. That would be a far more targeted approach," he said.

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In short, they are meeting to consider making gold a Tier 1 asset for commercial banks with 100% weighting rather than a Tier 3 asset with just a 50% risk weighting as it does today. At the same time they are set to increase the amount of capital banks must set aside as well. A double win potentially. Hitherto banks have been much dis-incentivised to hold gold while being encouraged to hold arguably riskier assets such as equity capital, currencies and debt instruments, none of which have fared too well in the crisis. With this potential change in capital adequacy requirements. bank purchases of gold would drive up its value relative to other high quality qualifying assets, increasing its desirability for regulatory purposes further. This should result in gold being re-priced to bring it on a par with all other high quality assets.






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