Hot money controls in Russia

The Journal yesterday ran a story about how Putin wants to institute controls on capital flows in and out of Russia to stem the toing and froing of "hot money." One wonders if one-time Putin supporter Bill Browder of Hermitage Capital fell into this class before Putin locked him out of the country at that time, before Browder's lawyer Sergei Magnitsky died at the age of 37 of pancreatitis acquired in prison, one week before being released from prison because the state had failed to bring him to trial within a year. I kind of doubt it. Putin, though popular, remains the kleptocrat par excellence.

This talk by Browder is pretty amazing.

Econoblog notes

Somewhere in the Journal today -- in the article about the federal government's promise of unlimited backstopping of Fannie and Freddy despite the fact that they haven't maxed out the $200 billion of support promised them as of yet-- there was mention of the fact that lots of bond market folx are concerned that mortgage rates may go as high as 6% by the end of 2010. Hmmm. I seem to recall that when we locked our rate at 5.75% for our house purchase in 2003 that was a record low rate at the time, or going back to 1961 or something like that. 6% is, historically speaking, very cheap money. Our first mortgage back in 2000 was at 8.625%. The country remains addicted to cheap money as if it were the proverbial glass pipe. Why deleverage under those conditions? The dollar carry trade will live for some time. Until it dies.

Anecdotally, based on what I'm hearing in AA, the job market is improving. People are bitching more and more about their jobs and less about not having them.

Calm

One almost forgets the preternatural calm of a real (as opposed to pseudo- or semi-) university town during the depths of winter break. I pulled right up to the student union, parked, and returned books to the library without seeing a single soul, the same place where not two months ago students were practically tripping all over themselves trying to get to the next ATM or burrito.

Then, just for kicks, I went to the nearly empty Whole Foods and pulled up right by the door to the cafe area. In and out in three minutes with dinner. Got to love it.

LGA-RDU

Flying home from LaGuardia this afternoon. Will report on how bad the airport security is for domestic flights. Maybe is nothing.

Yesterday made copious use of the traffic feature in Google maps. Where once Traffic.com seemed to have a lock on this market, I now predict its imminent demise if it hasn't gone away yet. Traffic.com is slow and clunky to the nth. Google maps is, well, Google. I got the kids from Princeton to 42nd and Broadway in 2 hours on zero notice (via Pulaski, Holland, and 1/9. Thanks also due to 1010 WINS). Then we made it home from Tribeca to Larchmont in no time via FDR when Manhattan and the West Side Highway were painted the deepest red for gridlock. Once more Sergei and Larry win.

1982

In keeping with the holiday spirit, I took it upon myself to relieve my mother-in-law of some of the many stacks of aging and dusty magazines she archives around the old homestead. While she was busy in the kitchen getting ready for dinner, I decided to go through some of the stacks underneath the coffee table in the sunroom. And what should I find there -- not, mind you, in some far off corner of the attic, but in a room used by the family every day, looking out at the beloved Long Island Sound and before that Manor Park, apocryphally rumored to have been designed by Frederick Law Olmsted. What should I find indeed, but an issue of Smithsonian magazine from 1982. 1982!

And the amazing thing about is that every advertisement in the magazine is chock full of text. On page 3, and ad for Land's End Corduroy pants had probably 200 words of text. I know 1982 was also hard-assed recession time, but was stagflation really so bad that people were sitting around taking 2 hard-earned minutes to read about cords, even ones with lovely elastic wastebands? I guess so.

Best for the holidays

Pathetically enough, the Grouse is still grinding it out at his desk this late on Christmas Eve, evidence of his general conscientiousness as a footsoldier in the great game of capitalism. Or just demonstrating that he appreciates his paycheck and other benefits.

Tooled around Westchester today in Susan's Mini convertible. Sweet handling, crappy visibility. Got some pizza cuz hey, I'm in the Northeast, what else are you gonna do?

A hearty Grouse-style fart-out to the boneheads at Hearthsong.com, who discovered that one of the items Mary had ordered for Natalie was out of stock, did not even send an email to let us know, and then the "customer service" person who answered the phone didn't even begin to apologize. I know where we'll never be spending another nickel of our hard-earned cash.

Now back to the grindstone for another hour or so.

Hooves on the rooftop

So I read Graham a version of The Night Before Christmas tonight, and afterwards I asked if he had ever heard the sound of reindeer hooves up on the roof. And he said no. And so I said, "you probably sleep through it. I sleep through it to." And he looked at me and said "but one time, you heard them, and you ran out in the yard and saw the sleigh as it was flying away."

And I realized that I must have made up a story of a Santa sighting, perhaps sometime when the ever precocious Natalie had been trying to disabuse him of his Santa belief at an all-too-tender age. So I quickly reassured him that, of course, I had heard and seen the reindeer that one time.

Instead of a card

We have been too slack to get together a card this year. It may happen later, it may not. We are still settling in here in the south, adjusting and whatnot. In any case, here are a couple of pix to give you the flavor of good things that are going on to tide the curious over.

Natalie with cousin Caroline at the Life and Science Museum in Durham



And below is Graham throwing a balsa wood plane down by the lake.



More later.

Great comfort

In these intermittently troubling times, we here at the Grouse are comforted to read today at Bloomberg that the Tiger Woods Dubai golf course will be built to completion. “The Tiger Woods Dubai does not comment on the personal lives of our valued partners,” said a spokesperson in an email. The Grouse continues to have the utmost faith in the utter probity of both Tiger Woods and Dubai, and consider them an integral part of the cultural legacy of the 21st Century.

None too excessive protection

The Times yesterday ran a story about Madoff victims seeking compensation for their losses from the SIPC (Securities Investors Protection Corporation), a government-chartered non-profit that offers limited account protection to brokerage customers against default by participating brokerages. The agency has $1.2 billion in reserves now, with a lifeline of $1 billion from Congress. Madoff claims at present exceed $20 billion. If you want to understand the intricacies of this specific dispute, read the article. SIPC’s position is undoubtedly correct.

The article brings to mind, however, the outstanding issue of CAPCO Insurance, nestled up in the verdant hills of Vermont. Astute readers will recall the July story in the Times about CAPCO, a captive insurer owned by nine large broker-dealers, including Lehman Brothers, Goldman Sachs, Fidelity, Edward Jones, get whole list) to provide excess protection for brokerage accounts, including those at Lehman, where claims may run to $11 billion dollars. CAPCO was stripped of its ratings in February and is no longer writing coverage.
With bonus season upon us and broker-dealers having enjoyed much better 2009s than 2008s, one would think it would be a fine time for participating firms to recapitalize CAPCO, or at least to earmark reserves for that purpose in anticipation of Lehman-related claims. It would be nice to hear commentary on this issue from David Viniar and his counterparts.

Another delicacy in the SIPC article in the Times came from the mouth of former SEC Commissioner Harvey Pitt, who argues that the SIPC “is missing an opportunity to stand up by those who have been defrauded by a master swindler.” My gentle reader may recall that the SEC under Pitt was utterly deaf to repeated and well-documented entreaties by whistle-blower Harry Markopolis to shut Madoff’s master-swindler ass down. She may also recall that, in the Spring of 2007, after the initial statute mandating hedge fund registration with the SEC had been beaten in court and after well-publicized but now laughably puny scandals at hedge funds Amaranth and Bayou, Pitt – already at the helm of his own hedge fund -- vigorously opposed further efforts to bring hedge funds into the SEC umbrella or to raise the asset and income thresholds for investments in hedge funds. Our hirsute erstwhile “regulator” argued at the time that middle-class investors should not be denied the opportunities to enrich themselves in alternative investment vehicles just like their richer counterparts. Hedge funds in aggregate did not do their jobs well during the credit crunch and considerably aggravated market volatility as a whole. Bu it is good to know that Harvey is ever and always on the side of the common man.

24 at lunch time

On the way across the railroad tracks to Harris Teeter at lunchtime I passed a 50ish caucasian male, wearing aviator glasses and something resembling cowboy boots (jeans, obviously), sitting on the little railroad tie bridge over the ditch next to the tracks, smoking a Marlboro Light, drinking a 24 ounce can of some Budweiser varietal. Still in its little plastic bag from the store. On the way out saw a black guy covering up a 40 of Old English(?) with his jacket, for some reason.

TARP extension

Geithner has informed Congress he's extending TARP till October of 2010, utilizing the authority granted Treasury in the initial TARP statute or whatever it was. Fine. They want to put the money they've gotten back to work for small businesses, small banks, what have you.

How's about kicking a little of it over the transom to Sheila Bair at the FDIC? Banks keep going bust, and the FDIC is tapped out. Which means it's raised the rates its assessing on banks (mostly in Georgia) to pay into its reserve pool for making account holders whole when banks go bust. Which means banks will soon be charging us for checking accounts, online bill payments, etc.

Admittedly, I'm happy to pay for online bill payments, for now, no biggie. And I do find it a little bit objectionable to be continually bailing out morons in the gated communities and McMansions of Alpharetta. But the FDIC have been troopers throughout it all.

However tight-fisted banks have been about making loans, somehow I doubt the ability of Treasury to build up alternate programs and infrastructure to get credit out to small businesses. And bailing out specific banks that have underserved their clientele, even if it's cute little ones, serves little purpose.

A less modest proposal

The Fed is test-driving a reverse repo scheme with primary bond dealers to drain liquidity from the banking system. Frankly, I don't entirely get it: the Fed sells securities to the dealers, taking money out of the system for a spell, and then buys them back at the end of a set period. They're practicing now, did $180 mln in volume in recent days. I guess it would work if they did it once and kept doing it, so that cash stayed out of the system. But that would get expensive just from a process standpoint.

My proposal is: sell treasury and agency (Fannie and Freddy) debt back into the market via the Fed Open Markets desk. When the Fed receives cash, it hits the delete button and "poof", it's gone. Like Kaiser Soze.

Right now is not the time to do this. The housing markets are still too unstable. Shit, I'm too unstable. But there will come a time when it makes sense to, gradually, in a pre-announced fashion, sell down it's portfolio. Yes, it will have the effect of gradually raising interest rates, but to the extent that it excites confidence in our fixed income markets and, more importantly, the somewhat wilted greenback, it might attract capital. Remember how all those fed funds hikes from 2003ff didn't really cause mortgage rates to skyrocket? Emerging market treasuries liked the dollar. They still want to, they're just confused is all.

History lesson

Yesterday Graham wanted to see some African warriors, so I broke out YouTube and watched Maasai warriors throat-singing and leap and then Zulu warriors doing a dance for some tourists while drums were pounded. I don't know why I couldn't leave it at that, but lest he get the impression that they really still lived like that, I went into a little discursus on tradition and culture, and we watched Scottish highland dancers and Ukrainian Cossacks to get the point about folk dancing and drums generally, and then went on. I showed him some Brazilian stuff, including Carnival, as well as some killer African-American high school step bands, to talk about the transmission of culture and African heritage specifically. We watched a little Capoeira (awesome!), and then some Lakota dance.

By this time I had to talk about slavery, the difference between Northern and Southern economies and why slavery was more prevalent in the South than in the North, and the Civil War. Somehow, I also let slip that the Europeans weren't all nicey-nice with the Indians, and that we pushed them back over the Appalachians and fought wars with them too.

I didn't go into all the gorey details, but I did mention wars and killing and such, and that was enough to fire the imagination of the 6-year old boy. He was talking about it rather animatedly later in the afternoon, including how karate was the best method of fighting.

Luckily he was also interested in seeing some whale song videos, so he was a little distracted.

Insurance nerds

With my new job and all, I keep getting calls back from people I left voicemails for earlier in the day. These calls inevitably come at 5:30 in the afternoon, typically issue from New Jersey, and are inevitably from people (OK, guys) who are extremely knowledgeable and enthusiastic about the insurance industry and eager to share this knowledge. This is a toxic combination in terms of letting me get home to participate in the dinner to toothbrushing to story reading slope.

But I do learn a lot. In fact, I typically learn more than I had bargained for, and it gets downright confusing. Oh well.

Late as fuck

That's what it is. Work kept flowing over the transom today, once I got there after being at the dentist and getting an NC plate for Mary's car (mine will come in due time). Barely had time to stuff food into my yawning maw.

And now it sounds like it's pouring down rain outside when, in fact, it's just water rushing over the damn way down at the bottom of the hill.

Connecticut unemployment fund goes broke

Worth reading. It ain't over till it's over. Remember, Connecticut is the nation's 2nd richest state. According to the article, it is now one of 25 states where the unemployment fund is insolvent, and states are borrowing from the US Dept of Labor.

So yeah, we need to keep paying taxes, and anticipate rising tax rates.

The other morning, in fact, I was musing over coffee that what the Obama administration really needs to do is communicate a plan for raising taxes over the next few years, probably starting in 2011, so that businesses could plan for it. And then I read the Economist, which advocated the same thing. Which means that either I'm deucedly clever, or that my thinking has been too swayed by years of subscribing to one publication.