Dexia se déleste de son rehausseur de crédits pour survivre La vente de cette filiale de "rehaussement de crédit", activité méconnue qui a été l'un des accélérateurs de la crise financière, va mettre la banque à l'abri d'un risque potentiel de plus de 500 milliards de dollars, mais elle va se solder par une moins-value d'environ 1,5 milliard d'euros.		Dexia dumps its bond enhancement monoline to survive The sale of the "credit enhancement" subsidiary, involved in a poorly known activity that was at the heart of the financial crisis, will protect the bank from exposures of up to $500 billion, but will translate in a loss of about €1.5 billion.
"Dexia était à la fois un hedge fund (fonds spéculatif) et une banque classique", a commenté une source proche de la banque. "Elle va redevenir une banque", a-t-elle ajouté.		"Dexia was at the same time a bank and a hedge fund", says a source close to the bank. "It's going to become a bank again."
"Dexia a perdu de l'argent quand elle est sortie de ses coeurs de métiers en s'exposant de manière trop forte à un risque américain qu'elle ne savait pas gérer et à des activités financières qui ont pris un poids disproportionné dans les activités du groupe", a commenté M. Mariani.		"Dexia lost money by moving away from its core business and taking too much risk on US assets which it could not manage and on financial activities which took a disproportionate weight in the group's activities."
"Nous ne devons jamais oublier que les banquiers font des erreurs quand ils ne s'occupent pas de leurs clients et quand ils prétendent pouvoir conduire des activités déconnectées de leurs activités de clientèle", a déclaré M. Mariani.		"We should never forget that bankers make mistakes when they don't take care of their clients and when they think they can run deals unconnected to their clients' business."

Over the past few days, I've been collecting a few articles that have struck me as relevant in the (large) body of articles purporting to explain the current financial crisis, learn from it or otherwise propose solutions. I may have missed some as I have had limited internet access lately, but the selection below strikes me as representative of a rather wide swathe of «Serious» opinion, and indicative of the kind of narrative war being fought:

Bumped by afew

I write this from the bar downstairs, being right now locked out from home - we thought the door was okay and working, but it obviously isn't...

we spent the night at home, all huddled in one room, that furthest away from the staircase and the general area of the fire, while leaving all other rooms with open windows to clear the smell. It was probably not the best idea, but we needed to be around in the morning and when we started thinking about nearby hotels they were full.

The heartening news so far has been to see the solidarity of the neighbors - those we knew and some we didn't (a school parent from the next building brought us shoes and clothes in the middle of the night after we evacuated the building on fire) - with the major exception of those neighbors where the fire started, who never warned us, got into fights with the police and have generally confirmed their reputation for anti-social assholishness.

It has also been heartening to see the efficient work of firemen and police officers during the night (they were great with the kids, among other things), and to find workers from the power and gas utilities hard at work at 9am to repair things - and indeed we had power, hot water and heating back by 11am. Phone and cable line (private) companies are nowhere to be seen...

our closest neighbors spent more than an hour in their 6th floor bathroom before being rescued, and they are still in shock; I expect we will spend the week-end together somehow. Our kids seem to take the whole thing as a big adventure, thanks to being taken out right away and getting to play in the police car and they seem willing and able to talk about the fire.

I think I'm fine but clearly shaken; I worry about my wife who worries about and cares for everybody but herself. Don't expect me around for a bit.

A very quick diary to tell you that there was a fire in our building this night. We were woken up by our smoke detectors, saw massive smoke coming from the stairs. The real stuff. Thankfully, there was work underwat on the building, and scaffolding against the outside wall. We called the fire dept., took the kids, climbed down the scaffolding to find fire coming out of the apartment two floors below ours, lapping up the wall. Our neighbors below us were brought down the firemen's ladder, those above stayed in and were saved by the firemen after the fire was killed. Apparently it was a cigarette smoked in bed.

we're now back in our apartment, which is in surprinsingly good conditio. (we'll probably find out it's not so great in the morning light). Nobody has been hurt.

I''ll update later as I can. We have no internet or fixed line, but mobile phones and iPhones work.

Update [2008-10-24 4:51:47 by afew]: Jérôme emailed me some pics to post. The first is from outside the building:

Jérôme's comment: our building - the fire was in the now boarded up room.

In the building:

Jérôme: this is the hallway as seen from our apartment. the death mask was a Halloween decoration by the kids, which seemingly handled the smoke better than the walls...

Inside the apartment:

Jérôme: the most visible damage, amazing it was so little. the shadow is where the smoke detector was.

This is a simplified version of the presentation I'm making this morning at the ASPO 7 Conference (the full presentation should be posted on that website in a day or so). I must admit that I have been a bit nonplussed to see that the peak oil community seems to share the oil industry's dismissal of wind power's irrelevance and uselessness in the face of the currently energy challenge (maybe I am unfairly judging from a few individuals' comments, but it's definitely an existing undercurrent in the community).

So, in reaction, let me put up here a few arguments that suggest that wind could play a major role in solving our current energy woes - not a silver bullet, but rather more than a side show.

First, the "wind is too small to make a difference" argument: well, so was nuclear, until it got big enough. Wind is following the exact same growth trajectory:

Pure Power
EWEA, March 2008 (pdf)

posted with an edit by afew

With a big nod to Helen

One of the most annoying things these days is to watch our political leaders, business stars and pundits tell us that the current crisis is unprecedented, and that "nobody could have predicted" what's been going on  - and go on to use the opportunity to ask for more powers to themselves in order to enact the solutions they see to the crisis.

The fact is: that crisis WAS PREDICTED - and not just by lefty bloggers. The people that now tell us they could never have conceived such a thing just dismissed the warnings, and those bearing them, with something approaching contempt back then. And ofcourse, they are now telling us that their solutions are the only one that will work today, and that we must urgently give them more powers, and again ignore the shrill warnings of the "extremists" that were right then. Why are they taken seriously, again?

Oh - of course. Because being Serious^TM is more about fitting into the mainstream than about being correct.

Before reading the rest, here are some links to my longstanding series on Bubbles Greenspan and the Anglo Disease

The FT has published the Letter to the Editor sent last week as a commentary to Martin Wolf's article on the 'savings glut" theory, which I discussed:

Much-touted prosperity of the west was fake

Sir, The "savings glut" theory that Martin Wolf resurrects (October 9) is a dangerous attempt to find mitigating factors to what is the root cause of the financial crisis: the reckless dereliction of duty by central bankers, politicians and financial leaders.

While Asia's mercantilist policies, and its desire no longer to have capital account deficits, are very real, its savings surplus has been largely created and fed by policies in the west. Central banks, led by Alan Greenspan's Fed, maintained absurdly low interest rates for too long despite massive asset bubbles whose existence they denied against all evidence until the last possible minute. In fact, these bubbles were a desired result, as they allowed for massive profits by the financial sector, and made it possible to hide from the general population the stagnation of their incomes caused by parallel policy measures such as labour market deregulation.

Fundamentally, people in the western hemisphere lived above their means. Together, these policies created an appearance of prosperity for all (gross domestic product was up, on the back of strong income growth at the top) while effectively organising a vast transfer of wealth from the many to the few. The Asians were happy to tag along, as it allowed them to develop their infrastructure and economies, but it is unfair to blame them for the fact that the much touted - and very unequally shared - prosperity of the past years in the west was essentially fake, as the current crisis reveals the hard way.

Jérôme Guillet,
Editor, European Tribune

It looks like Martin Wolf had a hand in getting the letter published (his name is included in the byline), which is nice as he wrote back to me to say that he disagreed with the content of the letter. So thanks to Mr Wolf for letting that discussion continue in public.

So far, governments (starting in the US) have been quite imaginative in finding new ways to hand over public money to the financial sector with very little, or nothing, to show for it. I've been saying it for a while in the comments threads, but it's time to say it loudly here on the front page: there is no other endgame for the financial sector than wholesale nationalisation so that (i) lending to the real economy can restart and (ii) the cleanup (of bad assets, and badder bankers) can be started.

Instead, ad hoc pseudo-nationalisations are done on what now appears to be an almost daily basis, with seemingly as main goal to avoid the stigma of socialism (it seems that spending vast amounts of taxpayer money is better than being called a socialist):

Note: you can find the name of my employer in a few seconds of basic googling, but I never mention it explicitly in my theads and I hope you can extend the same courtesy

In 12 years of investment banking, I've already gone through 4 boom-and-bust cycles, with the same behaviors repeating themselves (that's why it's called a cycle, duh). My job hasn't changed throughout, but how it's been seen by management and markets has swung wildly, in the same predictable way. This time is a bit different, though.

The FT is (rightly) worried:

Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves.

And indeed, the most notable thing over the past year has been the general mistrust amongst banks, and their reluctance to lend to one another. This graph shows a direct indicator of the level of defiance between banks:

Via Mish

The TED spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the LIBOR rate reflects the credit risk of lending to commercial banks. As the TED spread increases, the risk of default (also known as counterparty risk) is considered to be increasing, and investors will have a preference for safe investments.

As the FT notes:

If lenders demand huge spreads for such short periods, they are either tightly constrained in their ability to lend, deeply concerned about the solvency of counterparties, or engaged in predatory behaviour. Whichever of these possibilities is true, credit to the economy will dry up.

After nationalising - sorry, putting in conservatorship - Fannie Mae and Freddie Mac, by granting them up to $200 billion (for companies worth less than $10 billion at the time), we now learn that the US Treasury has just agreed to pay up to $85 billion dollars for 80% of a company that the stockmarket valued, as of yesterday evening, at $13 billion.

What Freddie, Fannie and AIG had in common is a balance sheet in the trillion dollar range (Lehman was comparatively puny with only $600 billion). It seems that we have the definition of "too big to fail" - and we have a price: around 10 times the market value.

Talks Continue in Effort to Rescue Lehman

The fate of Lehman Brothers, the beleaguered investment bank, hung in the balance on Sunday as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings trying to complete a plan to rescue the stricken bank.

The talks took on even greater urgency on Sunday as government officials push for a deal to be completed before the markets open.

After weeks of agony, Lehman's fate appeared sealed by the end of last week, as its stock market value dropped 74% in a few days, after having lost more than 80% since the beginning of the year. That the Fed and Treasury have called an emergency meeting over the week-end ensures that things are over for the bank and it will either be bought over the week-end (with someone taking over its liabilities) or go bankrupt.

The bailout of Freddie and Fannie has just been announced by Hank Paulson, with supporting words from Bernanke. What's interesting in what's proposed, as usual, is what's unsaid. This would seem to be an incredibly ambitious gambit: a nationalisation, an attempted bailout of ALL the banks, and an open-ended commitment of taxpayer money to save the financial world.

Treasury Lays Out Fan-Fred Plan

WASHINGTON -- U.S. federal regulators outlined their bailout for Fannie Mae and Freddie Mac Sunday morning, including a takeover of the firms by their regulator and a Treasury Department purchase of the firms' senior preferred stock.

The plan, outlined jointly by the Treasury Department and Federal Housing Finance Agency, also includes a plan for the Treasury to purchase mortgage-backed securities from the firms in the open market, and a lending facility through the Treasury from its general fund held at the Federal Reserve Bank of New York.

Front-paged by afew

I don't do charity... except for L'Etoile de Martin:

L'Etoile de Martin is an association created by friends of Jerome a Paris, one of the editors of the site, who have lost their young son, Martin to a brain tumor. The association (in which Mrs a Paris is actively involved) is trying to raise some funds for two purposes: (i) improve living conditions for children staying over at the hospitals where their (and the a Paris') son was treated, and (ii) fund a research grant on pediatric tumors.

The association raises fund through direct donations and by selling handmade jewellery, clothes and other decorative objects made or donated by friendly supporters. It is run by the parents of Martin.

For more information in English on the association, see here

Today (Sunday 7 September), the association is organizing a big event, as part of La Parisienne, a 6km race for women in Paris. About 150 women will run under the colors of the association, the goal being to get it better known and to raise money to continue the actions started over the past 2 years.

The association has recently received its reconnue d'utilité publique status, so all donations are now eligible for the corresponding tax deduction (66% for French taxpayers).

So, despite my grand theoretical ideas on the topic, I am tasked to raise money from my friends for the association, and I hope that you will be able to help. The easiest is to use the Paypal page that has been set up.

For those of you that are in Paris, you can also come over in the morning to see the race and meet the association - there will be a big meeting of all runners and supporters after the race.

I realize that I still haven't run a betting thread this year, and the lower price levels offer a perfect opportunity to do so.

Like in previous years (see diaries 9, 26 and 45 in the earlier Countdown to $100 oil series), I'm offering a bottle of Champagne (the real, French kind) to whoever provides the closest bet as to what the price of oil (as set by the WTI front month on the NYMEX) will be at the end of the day on 31 December.

In 2005 and 2006, the result was very close to $60, while in 2007, we had almost reached $100 (that symbolic level would fall the following week). Now that $100 sounds like a low price, but also after we've seen the price drop by more than $40 in just a few weeks, where do you think the price will be?

Time for a flutter - afew

Neocons are people that see danger everywhere and seem to crave military solutions in all cases. They endlessly blather about how we need to stand firm against bullies or other threats (Russia being near the top of the list), and protect our brave allies on the front lines, and along with them, democracy, freedom and our honor. They mock cowardly European who think appeasement (read - any diplomacy) might have a chance. They fuel conflicts and perpetually tout military options.

And yet, whenever given the opportunity to stand up to their words (and sent other people to fight, of course, they don't do that themselves), the results are surprisingly poor.

After the catastrophic invasions and occupations of Iraq and Afghanistan, the neocons have just lost a third war, in Georgia.

Front-paged by afew

This is another diary critical of the West's position on Georgia. (Update: See also my new story: The warmongers lose another war

Just as a bit of background, let me state here for the record that I wrote my PhD on the independence of Ukraine, and have thus studied how Russia behaves with its neighbors rather intensively. Following that, I worked for several years financing oil&gas projects in Russia and the Caspian; in particular, I worked on te financing of the BTC pipeline that goes from Azerbaijan to Turkey via Georgia (I wrote about it on DailyKos 3 years ago). Oil companies don't need the money: what they want is for other parties like banks to share the political risks associated with their projects. Which means that in turn, the job of a banker working on these projects is to understand those political risks. And it is quite obvious that the relationship between Russia and the Caucasus countries, including Georgia, was at the heart of my work.

But if you think I am just a "lefty European apologist of Soviet atrocities", feel free to move on and ignore this diary.

Front-paged by afew

A few of you have gently chided me for not doing any Countdown diaries since the oil prices have gone down. While the giddiness and glee demonstrated by many in the traditional media and elsewhere invites little but ridicule, as demonstrated by this graph below, prepared for the Oil Drum, some serious questions have been asked in various threads and deserve answers.

So, beyond the semi-glib answer that nothing much has in fact happened in the oil markets in the past month (after all, the recent decline is quite smaller, in percentage terms, than several others in the past couple of years), here are a few points worth making.

An installment of the Countdown to $200 oil series

Front-paged by afew

Alan Greenspan, the man who has done more than anybody - even including the Bush administration - to impoverish the middle classes for the profit of the ultra-rich, has been given yet another tribune in a Serious Business Newspaper (in this case, the Financial Times of London) to try to provide justification for his past hackdom. That one is particularly rich in jargon, so I thought it would be worth doing a full translation and commentary.

Follow me below the fold.

In blockquotes: the actual text
In italics: the translation in normal language of his words
In normal: my comments.

Front-paged by afew

Lost in the debate about drilling is a simple truth: blaming oil companies and/or politicians that cater for them (including by supporting more drilling) is, at best, an exercize in finding scapegoats for our own unsustainable behavior.

Oil companies, and drilling politicians are providing exactly what we ask of them: cheap, plentiful oil now, no questions asked.

Even kossacks are unwilling to drop either "cheap", "plentiful", or "oil", as demonstrated many times in the diaries where I proposed to increase gas taxes. So it's no surprise that drilling resonates so much: it seems to provide an easy way to continue with cheap plentiful oil. And even people who know it's an illusion seem to cling to the outside hope that it might actually work.

Promoted by afew