Econ/Markets
SEC raised concerns over hedge fund Rokos after losing bond bets. Gary Gensler should mind his own business and not concern himself with solvent, consenting adults trading bonds with other. But for the love of God, can someone give the FT a new picture of Chris Rokos—this one makes him look like a hot tub salesman.
DB FUD—Deutsche Bank’s collapse would be a threat to the whole eurozone
It would be absolutely wild if DB withstood Boaz Weinstein’s losses in 2008, but succumbed to his tweeting.
Kyle Bass was tweeting that DB was the FIMA borrower at the Fed, but I will go with Setser.
Sumner: Did the Fed cause the banking crisis?
In theory, fast rising interest rates can be due to either the Fisher/Income effects (fast rising NGDP), or tight money (the policy rate rising relative to the natural rate.) It just so happens that in this case the rising interest rates were mostly due to fast growing NGDP, i.e. easy money. You don’t solve that problem by holding interest rates below equilibrium, just as you don’t solve the housing problem with rent ceilings.
Also: Fiscal Policy To Control Inflation?
The 1980s, a "learning experience"—No "supply side" lessons here!
Why was the recovery in real growth so robust following the 1981-82 recession, something that made the Phillips Curve crowd so “ anxious”? Despite the increase in the FF rate during that period, monetary policy was significantly expansionary, with NGDP growth climbing from less than 4% to 12%. This reflected the fact that the rise in velocity was not at all offset by a fall in money supply growth, which remained stable.
Since early 2022, the Fed is getting its act back together. The stable increase in velocity growth has been accompanied by a (so far) gentle decrease in money supply growth, which has now turned (as required) negative. NGDP growth (and inflation) has followed suit.
There´s still much work ahead. Unfortunately, the “high concentration” on interest rate targeting, doesn´t help. The recent financial woes, in large part due to the rapid rise in rates, may affect velocity, with implications for the required behavior of money supply.
To achieve 4 percent nominal GDP growth, we would likely need to see M2 growth of 6-7 percent year-on-year, given the long-term trend in M2 velocity. But given the likely shock we have seen to money demand on the back of the banking crisis, even higher M2 growth might be necessary for a period, depending on what happens to money demand/velocity in the US.
About Turn—First, do no harm (to banks) - financial stability trumps inflation
Janet Yellen has assured us regulators and the Fed will ‘ensure that depositors’ savings remain safe. Well, they may be safe, but for depositors to stay in banks the rates need to be competitive. There was ample liquidity for the overall system, but liquidity had migrated to money funds and became ‘sticky’ because the rates are so good, by design. Logic suggests the Fed moves rates down towards the deposit rates, rather than up and further away.
With an inverted yield curve, any securities held by banks (both Available-for-Sale and Hold-to-Maturity) will be subject to negative Net Interest Income, which feeds directly through to the bottom line. Banks have tried to compensate for this by keeping interest on deposits low. But surely that game is up (see above). Banks can also increase rates payable on loans. Both routes are a monetary tightening.
Stephen Kelly on David Beckworth’s podcast
Beckworth: Daniela Gabor, she wrote something in a similar vein. She said, "Forget about SBV liabilities for a second. The real bailout story is the regime change in the Fed's treatment of collateral. Par value goes against every risk management commandment of the past 30 years. It turbocharges the monetary power of collateral."
Beckworth: So I like the framing you just made, that this is effectively a capital injection, because they're paying above par. Well, they're paying par which is above market value, so it's effectively a capital injection. I also heard someone else put it this way on Twitter, "The Fed is effectively doing unsecured lending." Is that also another interpretation?
Third, as management was dealing with these issues, the competitive advantage of the group’s core private banking business eroded with the elimination of banking secrecy. In 2017, Switzerland adopted the International Convention on the Automatic Exchange of Banking Information (AEOI), agreeing to automatically release financial information to certain countries for the purpose of tax auditing. As part of this agreement, Swiss banks are obliged to send foreign tax authorities their client’s name, address, domicile, tax number, date of birth, account number, annual account balance and gross investment income. For a certain category of customer, that’s not good!
The Fed Has Overseen a Remarkable Transfer of Wealth From Bondholders to Taxpayers
Cram-downs are on everyone’s mind. This week, The Information wrote about fitness company Tonal raising money at a valuation 90% below its last round and about Benchmark-backed Good Eggs raising at a 94% cut to its valuation.
OpenAI looms large. Every few weeks, OpenAI seems to make an announcement that leapfrogs a bunch of fast-moving startups and GPT-wrappers. This week, OpenAI announced ChatGPT plugins that should bring the internet to ChatGPT and are yet another big development for the company.
The investor energy remains concentrated around seed and early-stage rounds. Everyone is trying to justify their focus on early-stage rounds and stand out in a market that’s all circling seed and Series A deals.
Why your financial conditions index sucks
Financial conditions indices, a wise economist once told me, are like dreams and assholes. Everyone has them, they’re not as unique as you’d think, and people are much more enthusiastic about studying their own than anyone else’s.
It’s an exercise in statswashing – however sophisticated the econometrics, all the financial conditions index is ever really used for is to dress up the old — and unpopular — monetary policy proverb that “if it isn’t hurting, it isn’t working(opens a new window)”. Hopefully one small silver lining from the last couple of weeks may be that it will be a while before we hear about financial conditions again.
Foreign
The Containment of George Kennan
All this doesn’t come close to exhausting the myriad ways in which Kennan’s expressed opinions run afoul of present orthodoxy. The go-to insult of today’s national security clerisy is “isolationist,” by which they mean anyone who questions the wisdom or value of even one overseas commitment or intervention. By this standard, George Kennan—patron saint of the liberal internationalists—was an isolationist. He believed that core American interests extended no further east than the Oder (if even that far), and to our west, the Sea of Japan
George Kennan shared more opinions with today’s populist Right than with the contemporary Left.
And yet despite all this, apart from a little grumbling occasioned by the publication of his diaries, our ruling class still professes reverence for George Kennan. Though not for the real Kennan—the isolationist Russophile immigration hawk—but a Kennan reinterpreted on their terms: scourge of the Boomer-hated Vietnam war, thorn in the side of Nixon, Ford, Reagan and the two Bushes, despiser of the average Joe. The real George Kennan, one may say, has been contained.
In a passage that Iran’s rulers ought to take to heart, Bibi criticizes Golda Meir for not pre-empting the Arab attacks on Israel in the Yom Kippur War, in the same way that had happened in the Six Day War seven years previously. “Pre-emptive action is always a difficult decision for political leaders because they can never probe what would have happened if they hadn’t pre-empted,” he writes. “Nevertheless, faced with a life-threatening challenge, Israel should always put its security first and when necessary—strike first. The alliance with the US will take care of itself.” He adds, I hope correctly, that “[m]ost Americans, including their presidents, understand that when push comes to shove, Israel must do what is necessary to defend itself.”
A New Order in the Middle East?—Iran and Saudi Arabia’s Rapprochement Could Transform the Region
Washington has also been slow to realize that Saudi Arabia sees itself not as a security vassal of the United States but as a regional power capable of playing an independent role in world politics. Riyadh believes that the old paradigm of “U.S. security in exchange for low oil prices”—as one Saudi official put it—is dead.
What this announcement represents is the formation of a de facto alliance that seeks to counterbalance US global dominance. It also serves to undo Richard Nixon’s famous trip to China, where the Americans and the Chinese agreed to work together, splitting the communist world in half, giving greater leverage to the USA over its main rival, the Soviet Union. Most importantly, it announces the arrival of the USA’s new global nemesis, one that is entirely a product of its own hubris.
We can now make several conclusions with the utmost of confidence.
Beijing realizes that they too are in an existential fight with the USA
China has Russia’s back in Ukraine
China’s peace overtures regarding the war in Ukraine are a follow-up to its successful Middle Eastern diplomacy, placing Beijing at the centre of any negotiated outcome to the war, a role that has for decades been the preserve of the USA on the global stage
Russia’s economic reorientation to the East means that China has secured itself a wealth of resources with which to power its economy and military and continue its modernization
Russia adopting the Chinese Yuan for payment settlements in Asia, Africa, and South America gives a shot in the arm to “de-dollarization”
US/Culture
White College Graduates Are the Democrats’ New BFF
While the Democratic party is a complex entity, it really is true that it has increasingly become a party whose positions and image are defined by the burgeoning ranks of white college-educated liberals who have made the party their political home. In the process, it has become much harder for many working-class voters, white and nonwhite, to feel comfortable in the party, given their more mixed policy views.
The Termite Years: Ideologues Eating the American Military From the Inside
The fact is the del Toro and Clark and far too many in the civilian and uniformed hierarchy are unduly focused on progressive political agendas that not only fail to contribute to America’s war fighting capability, but are positively antithetical to it. If del Toro is so intent on going to battle stations, how about doing so to fix, say, the Navy’s utterly dysfunctional procurement process? Or the serious recruiting issues the service faces? Instead he establishes as a priority something that the Navy can’t do jack shit about–except, perhaps, by devastating the world’s largest emitter of greenhouse gases. The capability to do so, alas, is eroding by the day.
The Death Of Peter Thiel’s “Kept” Romantic Partner Is Being Investigated As A Suicide.
The parties Thiel and Thomas threw could get raucous, and Thiel himself would sometimes do the recruiting. Thiel, or someone using his Facebook account, reached out to one University of California, Los Angeles grad student, despite having no friends in common, and invited him to a party at Thiel’s house, describing the poolside scene. “Hot guys at a pool sounds like pretty idyllic gay activity to me,” the student responded, according to screenshots of the conversation obtained by The Intercept. They moved to a WhatsApp conversation using Thiel’s phone number.
“Well, it doesn’t stay idyllic too long,” Thiel’s account said, “but always lots of fun,” adding later, “Yeah, we know how to have some no holds barred gay fun.”
Rich Bank Dumb Bank—Was Signature, the other bank in the Great Panic of 2023, a failure or a patsy?
The godfather of Signature Bank, its founders always said, is the late Edmond Safra, the Lebanon-born founder of Republic National Bank of New York whose family had famously helped finance the Ottoman Empire caravan trade. He built Republic from a collection of neighborhood community banks, and even then his reputation was old-school. Several branches employed pianists to soothe the waiting customers, and his ATM machines did not charge fees even to other bank clients. “Edmond always said that you build a bank for the depositors and you keep high levels of capital, then you lend to those depositors,” DePaolo recalled later in an interview with Crain’s New York Business.
What Nature and similar outlets are doing with their open embrace of progressive politics — with their insistence that The Science compels them to not just hold but declare certain political commitments — is not making progressive ideas more likely to be implemented. But it is making the broad public — which does not necessarily share the left-wing ideological views that dominate within academic institutions — less trusting of science. It’s undermining the purpose for which Nature exists; it’s a mistake.
Why I Look at Data Differently—A lesson on residual confounding
In the early 1990s, a study came out suggesting vitamin E supplements improved health. What happened as a result was that more people took vitamin E. But not just any people. The new adopters were more educated, richer, more likely to exercise, less likely to smoke, more likely to eat vegetables. In turn, over time, as these people started taking the vitamin, vitamin E started to look even better for health.
Over a period of about a decade, vitamin E went from being only mildly associated with lower mortality to being strongly associated with lower mortality. This is not because the impacts of the vitamin changed! It was because the people who took the vitamin changed. And, importantly, these patterns persisted even when I put in controls.
There has been so much successful UK pushback, on multiple fronts, that the country has come to be known as “TERF Island.” (“TERF,” short for “trans-exclusionary radical feminists,” is the pejorative term used by gender ideologues to describe women who resist). And it is women at the forefront. In the face of death threats, job losses, and ostracism, many have stood up to defend their rights and to protect children from harm. They have now won several concrete victories that have set back gender ideology to a degree that its proponents no doubt find alarming.
Victoria Smith is a British author and “old lady feminist,” according to her Twitter bio. Her feminism isn’t the fun kind that pretends that prostitution is liberation, or that men can be women. She is the author of the newly released book Hags: The Demonization of Middle-Aged Women. In it, she stands up for “Karens” everywhere, by exploring how the backlash against women and mothers has unfolded. “Hag hate,” she writes, “provides a ‘culturally approved script’ to legitimize extreme fantasies of violence against older women.”