Links: 2008-12-19 – ZIRP, Pain, and Fraud

Today, I want to talk a little about ZIRP, economic pain and the Madoff fraud.

First, ZIRP — that’s Zero Interest Rate Policy if you didn’t know. Japan tried it. Didn’t work. They are still suffering and they too have cut rates to 0.1%, effectively nil. So, think again if you think ZIRP is the magic bullet. Below are afew articles discussing both Japan’s experiment with zero and what’s going on today. Just for the record, my personal view is ZIRP is useless. Willem Buiter on the other hand says, it may be useless, but it can’t hurt. I’m not so sure.

US needs exit strategy to avoid Japanese disease – this one is from Bloomberg’s William Pesek. He has some good thoughts on how to avoid the Japanese disease.

Economist’s View: Fed Watch: Zero, But Not Quite Quantitative Easing – this one is interesting because Tim Duy says some Fed officials claim they are NOT easing quantitatively, they are easing qualitatively. See the next article from Willem Buiter to see what I mean.

Quantitative easing and qualitative easing: a terminological and taxonomic proposal – Willem Buiter

Then, there is economic pain. It is definitely picking up. One can see it in tax revenues from states and municipalities (I hope they don’t cut garbage collection to once every two weeks). One can see it in credit rating downgrades (it’s about time the ratings agencies started doing heir job). One can see it in bankruptcies. And one can definitely see it in oil prices.

(By the way, does anyone know why Brent Crude is trading $10 more than WTI? That’s an enormous premium. I have NEVER seen this before. Often, Brent trades at a discount. Sources tell me its associated with Glencore, who is long WTI and getting hammered. This might be one reason their CDS spreads are through the roof.)

EconomPic Data: State Revenue Down in Q3… Just Wait til Q4 Citigroup’s Debt Lowered Two Grades to A2 by Moody’s

FT Alphaville » S&P lowers GE debt rating outlook

Polaroid files for Chapter 11 bankruptcy | Reuters Crude Oil Tumbles Below $36 as Demand Drop Swells Inventories

Then, you’ve got fraud. There’s Madoff and then their is other kinds of alleged deceit. I have a great post from NPR, where we find out Eliot Spitzer was a Madoff investor! Sorry, I should NOT be laughing. Maybe that’s why his wife went back to work at a hedge fund. There are all sorts of jokes one could tell but I’ll refrain.

Yves Smith has a great post on how Fox News is suing the Treasury under the Freedom of Information Act. It reminds me of Bloomberg’s suit against the Fed. But, then there’s Paul Krugman who claims the Madoff story is a symbol of the culture of the entire finance industry of late. It’s an interesting take. But, on the other side of it we have Credit Suisse giving their executives bonuses in that crappy illiquid toxic paper that’s clogging their balance sheet. Nice! Great way to reduce moral Hazard and to get this stuff OFF the balance sheet. Whichever HR person thought this up needs to be promoted. Oh, and Jamie Dimon and Bob Rubin won’t be getting paid tens of millions in bonus this year. The optics would be very bad.

Unlikely Player Pulled Into Madoff Swirl – Mergers, Acquisitions, Venture Capital, Hedge Funds — DealBook – New York Times

NPR: Eliot Spitzer Lost, Too

naked capitalism: Mirabile Dictu! Fox News is Suing Treasury Department for Stonewalling Freedom of Information Act Requests

Paul Krugman – The Madoff Economy – Credit Suisse to Use Illiquid Assets to Pay Bonuses

JP Morgan CEO and Citi’s Rubin won’t seek bonuses: report | Reuters

I will be in transit today so posting ay be light. Check back just in case, though. Have a great weekend.


  1. Denis says

    >By the way, does anyone know why Brent Crude is trading $10 more than WTI?

    I’ve heard this explanation:
    1. WTI is the primary American oil
    2. There is currently a glut of oil in the US, more so than in Europe
    3. WTI and Brent are refined using different techniques so they can not be mixed and the imbalance can not be quickly straightened out.

    If situation persist refineries will be retuned for WTI and the difference will be back to refinement costs.

    In related news, couple of weeks back Jan 2009 oil was in a huge contango which is also qute rare It’s just crazy times for oil, is all.

  2. Denis says

    Oh yeah, and there is this theory: Paulson is selling oil to defibrilate the economy.

    This theory is consistent with both contango and the WTI plunge, so it has merit.

    1. Edward Harrison says

      @Denis, thanks for your insights. Your first point about the WTI glut at Cushing in entirely consistent with what Yves Smith has said and what Bloomberg is saying in their articles. The fact that we have such a heavy contango for the front month WTI suggests a sharp move back to $40 is expected. Any thoughts there?

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