Saturday, April 19, 2008


The Depression Chronicles – 1: Bankruptcies

As the country slides (or plunges?) into depression, happy talk continues from the Bush administration. I've tried to call your attention to a number of events I thought worthy of attention, but the volume of news reports chronicling one aspect or another of the decline is not only simply appalling but simply overwhelming.

There are a number of problems with media reports of this economic debacle—

I can't remedy these defects, but I hope to bring a little more focus on the scope of the devastation by creating a series that captures some of the highlights of the daily flow of disasters.

Today we begin with a story on bankruptcies from the point of view of those who should know—bankruptcy attorneys.

As reported by Niraj Chokshi,

The number of businesses filing for bankruptcy increased by 44 percent in 2007, according to the Administrative Office of the U.S. Courts. Last year, 28,322 businesses filed for bankruptcy, compared with 19,695 in 2006. While many speculate about how bad the economic downturn will be, bankruptcy lawyers say it's practically getting worse by the day.

"What used to really be a trickle -- one every two to three weeks -- is now closer to one a day. And it's a steady drumbeat of filings and a steady drumbeat of phone calls, of problematic situations," said Peter Gilhuly, a bankruptcy partner in Latham & Watkins' Los Angeles office. "I think we'll be in a full insolvency cycle six months from now, and it will continue for some time."

At last we're seeing a genuine trickle-down effect—but not the one the Republicans promised.

It's only the beginning—

All that work won't just keep bankruptcy attorneys busy, lawyers said. As the economy worsens, failing companies in a widening range of industries will keep several categories of lawyers busy.

Gilhuly and Engel said attorneys with derivatives experience can expect to be pulled into bankruptcy cases. Companies unable to refinance debt due at the end of the year and in 2009 will file for bankruptcy in the coming months, they said.

And do you still believe that the banking system is not under threat?—

With banks suffering as well, attorneys who specialize in banking rules are consulting more with bankruptcy lawyers at Latham, Gilhuly added.

Now why would a bank consult with a bankruptcy firm?

What began with real estate bankruptcies, then spread to retailers and now airlines will only grow, the lawyers said.

Cases will be increasingly complex, as big clients battle in court over relationships penned in more borrower-friendly times, Gilhuly said.

"It'll be fast-paced with sophisticated folks and battles over major money."

Those "borrower-friendly times" were brought to an end by a bank-friendly Republican Congress with the assistance of Hillary Clinton, an important leader of the Democratic co-conspirators.

It has been pointed out that to speak of "the economy" is misleading. In reality there are "economies." Measures of the overall economy such as Gross Domestic Product (GDP) mask winners and losers. Not all ships sink during a depression, and the bankruptcy attorneys' ship is just now sailing into port—laden with riches.

Related post
Good news about the economy (3/31/08)


Friday, April 18, 2008


Opinion of the Day

I have relied on my own experience in reaching the conclusion that the imposition of the death penalty represents “the pointless and needless extinction of life with only marginal contributions to any discernible social or public purposes. A penalty with such negligible returns to the State [is] patently excessive and cruel and unusual punishment violative of the Eighth Amendment.” —Supreme Court Justice John Paul Stevens, quoting Justice Byron White, in his concurrence with the decision to affirm Kentucky's method of lethal injection. [pdf]

Yes, it's strange that this should be written in a concurrence, but Stevens also writes that—

The conclusion that I have reached with regard to the constitutionality of the death penalty itself .... does not, however, justify a refusal to respect precedents that remain a part of our law. This Court has held that the death penalty is constitutional, and has established a framework for evaluating the constitutionality of particular methods of execution. Under those precedents, whether as interpreted by THE CHIEF JUSTICE or JUSTICE GINSBURG, I am persuaded that the evidence adduced by petitioners fails to prove that Kentucky’s lethal injection protocol violates the Eighth Amendment. Accordingly, I join the Court’s judgment.

In other words, if the matter before the Court had been the constitutionality of the death penalty itself, he would have voted against its constitutionality. This is a change of heart, since he voted with the majority in 1976 when the Court reinstated capital punishment.

Unfortunately Justice Stevens is now 88. As they say, learning is a lifetime process.


Thursday, April 17, 2008


Stereotype of the Day: The big swinging dick

Given the stereotype of the “big swinging dick” on the trading floor, it should be no surprise that a study linking trading and testosterone has attracted attention. —unattributed story in the Financial Times, "Calibrating cojones"

The wonder of it is that with a reputation like that, the traders aren't getting more attention. But truth be told, the stereotype of a trader is better summed up by "big prick."

Now we learn that everything we feared about placing women in positions of power is actually the problem we face in placing men in positions of power—

On volatile days the traders are flooded with cortisol, a stress hormone, while too much testosterone turns calculated risk-taking into recklessness.

One of the researchers, John Coates, himself once a Wall Street trader, comments that, contrary to macho stereotypes, these hormonal surges are masked by demeanours of icy calm. Alas, rational judgment is suspended nonetheless.

What we've so long admired as sang-froid turns out to be irrational behavior from a hormonal imbalance.

This is certainly not the first research to suggest that traders are sometimes irrational. It is not even the first study to investigate the physiology of traders: earlier researchers discovered that traders experienced “arousal” during moments of volatile trading. (It is with some relief that we discover that “arousal” refers to skin conductivity.)

I don't know why the author is relieved. Puritanism should have no place on the trading floor. We need a way to relieve these hormonal surges.

What may catch many people’s attention, then, is the speculation by Mr Coates that markets might be more stable if more traders were women....

The trading room that played host to this study had only four female traders out of 260, but if Mr Coates’s hunch is correct that will need to change. Managers could hire traders after holding blind trials of trading ability: it is possible that women, at lower risk of testosterone poisoning, might excel at such trials. Another bastion of masculinity, the world of professional US orchestras, unexpectedly found itself hiring women when blind auditions were introduced, so such a recruitment scheme is surely worth a try.

I would say that it is not only possible but probable that women would make the better traders.

But what if few women win such trials, or few have a taste for life on the trading floor? In that case, testosterone and cortisol must be drained from the system whenever they build to dangerous levels. Elevator music, fish tanks on desks, tai chi: all must be considered as vital tools for reducing stress.

Can we guess that the writer is male?

Castrating traders is another possibility, but it might discourage new recruits.1 In any case, these days that is a fate that most people are reserving for investment bankers.

This is why I read the Financial Times. They don't beat around the bush.

And one more point...

Concerning the study, I suspect the findings for day traders would equally apply to the majority of male politicians, not to mention Maggie Thatcher and Hillary Clinton. Of course to prove that contention we would need to draw some blood.

Related posts
Word of the Day: Greed (3/25/08)



1The possibility that castration would discourage recruits into the trading profession seems remote. After all, the castrati went under the knife merely to sing.'s encyclopedia informs us that—

In the 1720s and 1730s, at the height of the craze for these artificially-preserved voices, it has been estimated that upwards of 4000 boys were castrated annually in the service of art.

Of course aside from the service of art they did it for the money. They could be quite well paid as a chorister or opera singer, especially if they landed a position in, say, the Sistine Chapel. And surely a day trader can make a great deal more.

Listen to the voice of Alessandro Moreschi, the only castrato of whom we have recordings, singing Gounod's Ave Maria. With proper preparation, here's what today's traders might sound like—

I find it quite soothing. [back]

Wednesday, April 16, 2008


Must-View of the Day: "Who pays wins"

Yesterday I came upon a documentary produced by Alan Curtis for the BBC in 1999. The Mayfair Set, "a four part series about the rise of business and the decline of political power," is centered about the denizens of an exclusive gambling club in Mayfair—the Claremont.1 Curtis narrates that "What united all these men was a belief in decisive, reckless action. It was, they believed, what had made Britain great...."

Part I—"Who Pays Wins"—follows the antics of Claremont founder member Col. David Sterling from the end of World War II through the 60s—when Britain threw in the imperial towel and announced it would become a trading nation—and on into the late 70s.

Through much of this time Britain attempted to privatize its imperial outreach through the assistance of mercenaries and businessmen of Sterling's ilk. And at least to some it occurred that they had the power and wisdom to engage in nation-building in a way that would favor Britain.

Ah, but the silly Brits installed a Labor government, and the currency crashed just when things seemed to be going so swimmingly. Suddenly it was made evident that Britain was at the mercy of foreign capitalists who had better uses for their money than to leave it to dawdle amongst a bunch of leftists. To save cash the government decided to close overseas military bases. "We can't go on being the policemen for the whole world on our own forever," declared the Minister of Defense. So what was left but to sell arms for oil?

The footage from old BBC broadcasts is delightful, with the British aristocracy portraying themselves with their usual self-parody. And the discussion of right-wing plans to take over the country in the event of disorder has a familiar ring. As the United States may come quite soon to resemble post-war Britain, we may be watching future history.

If you missed this film in '99, it's only more relevant now.

The RealOne version is complete—about 45 minutes. The streaming version is here; the file for download here. Other formats that I've been able to locate have cut the last 15 minutes, which you won't want to miss.

Here's a clip of the first 10 minutes—

Related posts
A war we can't afford to win (1/24/07)
Good news about the economy (3/31/08)



1Mayfair was historically the hub of London's poshist society. It has been overrun of late by law offices, the U.S. Embassy and Arab billionaires, who are reviving the charming custom of liveried servants. [back]

Monday, April 14, 2008


Admonition of the Day

Years ago, the Chinese might have averted today’s pressures by choosing a slower and more balanced approach to growth. If they had it to do over again, I suspect they would in fact choose just the same path—they have gained so much, including the assets they can use to do what they have left undone, whenever the government chooses to spend them. The same is not true, I suspect, for the United States, which might have chosen a very different path: less reliance on China’s subsidies, more reliance on paying as we go. But it’s a little late for those thoughts now. What’s left is to prepare for what we find at the end of the path we have taken. —James Fallows writing in "The $1.4 Trillion Question"

Fallows gives a lucid account of the downside for the Chinese people of their government's subsidy of the United States over the past decade or so and of the issues now facing the Chinese government. It's a "must-read." But aside from Fallows' cryptic warning at the conclusion, he does little to review what was the downside for citizens of the U.S. As he says, "It's a little late for those thoughts now."

He writes,

For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. But because of political tensions in both countries, and because of the huge and growing size of the imbalance, the arrangement now shows signs of cracking apart.

The odd thing about the first sentence is that while its tone implies that these were benefits, they were in fact aspects of the downside. Ipods, along with all the other forms of mass entertainment and distraction provided by the Chinese toy machine, have in my view contributed mightily to the unprecedented levels of public ignorance and obliviousness. Certainly the lower interest rates and reduced mortgage payments were a large component of the trigger mechanism for the current financial meltdown. Yet perhaps the worst consequence was "a lighter tax burden."

The Chinese subsidy has been an incalculable boon to right-wing politicians and their corporate paymasters. Since the time of Ronald Reagan, when the flimflam of "supply-side economics" and "trickle-down theory" came into fashion, the public has bought into the illusion that cutting taxes is the greatest spur to economic growth since slavery.

If state governments don't have the money to maintain schools, roads, and bridges, the solution is simple—cut taxes, privatize and deregulate. And if the federal government needs more money to go to war or to prevent starvation during a crisis, the right-wing solution is to cut taxes, privatize and deregulate. Meanwhile the Chinese have been working behind the scenes, and to their own purposes, to maintain this grand illusion. It has had the ironic consequence that we may all become a nation of slaves.

While the American people have been by far the most gullible of the Western economies (and the most indebted to the Chinese), the apparent success of the American experiment in right-wing economics has affected the politics of Europe both in individual countries and through the European Union (EU). When the Dutch and French rejected the proposed EU constitution by popular vote—a constitution that would have enshrined neoliberal economics—their leaders simply went behind their backs to create a treaty of the same effect.

And what is the ultimate aim of that treaty? Lower taxes, privatization and deregulation. Fortunately for the Europeans, the public has put up enough resistance to at least slow the process. And with the lessons to be learned from the Americans, the moves toward a reversal may gain rapid momentum.

Related posts
Have you been trickled on yet? (7/28/04)
The best place in the world to do business (11/8/04)
The death of the Left? (11/27/04)
France votes "No" on EU Constitution (5/29/05)
Quote of the Day (6/3/05)
Another harm of globalization (12/28/06)
China shakes the dollar market (11/8/07)
Free-Market Objective of the Day (11/10/07)


Sunday, April 13, 2008


Must-Read of the Day

... filling an SUV tank once with ethanol consumes more maize [corn] than the typical African eats in a year. —Dr. Peter Hazell, agricultural economist, as attributed by Eric Reguly in "Why Food Costs Are Climbing"

Related posts
Scam of the Day (1/25/08)
Factlet of the Day: Meat and the environment (2/1/08)
Headline of the Day (4/2/08)


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