Planet Ponzi

by Mitch Feierstein

  10 ‘One non-default Greek rating enough for ECB – report,’ Reuters, July 5, 2011.

  11 Financial Stability Board, ‘Principles for reducing reliance on CRA ratings,’ Oct, 2010.

  12 Andrew Ross Sorkin, ‘Revolving door at S.E.C. is hurdle to crisis cleanup,’ New York Times, Aug. 1, 2011.

  13 George Packer, ‘A dirty business,’ New Yorker, June 27, 2011.

  14 Project on Government Oversight, ‘Revolving regulators: SEC faces ethical challenges with revolving door,’ May 2011, www.pogo.org.

  15 Arthur Levitt, Take on the Street (Random House, 2002), p. 236.

  16 Jean Eaglesham and Victoria McGrane, ‘Budget rift at CFTC pulls plug on alarm,’ Wall Street Journal, Feb. 25, 2011.

  17 Sewell Chan and Eric Dash, ‘Financial crisis inquiry wrestles with setbacks,’ New York Times, April 5, 2010.

  18 Chan and Dash, ‘Financial crisis inquiry wrestles with setbacks.’

  19 John King, ‘Starr investigation costs just shy of $30 million,’ CNN, April 1, 1998.

  20 ‘NASA puts cost of shuttle inquiry, cleanup at $400 million,’ Los Angeles Times, Sept. 12, 2003.

  21 IMF, ‘Fiscal implications of the global economic and financial crisis,’ June 2009.

  22 Andrew Haldane, ‘The $100 billion question,’ Bank of England, March 2010.

  23 See www.planetponzi.com.

  24 Transcribed from YouTube video, ‘2010-11-09 Greenspan Admission,’ or enter: www.youtube.com/watch?v=731G71Sahok&feature=player_embedded#!

  25 ‘Banks to pay victims of botched foreclosures in settlement with regulators,’ Bloomberg, April 2011.

  26 Lorraine Woellert, ‘BofA, JP Morgan among 17 banks sued by U.S. for $196 billion,’ Bloomberg, Sept. 13, 2011.

  27 ‘Securities regulators expected to reach settlement with banks,’ Wall Street Journal, April 17, 2011.

  28 ‘Nevada, U.S. regulator challenge BofA on mortgages,’ Reuters, Aug. 30, 2011.

  29 Francesco Guerrera, Henny Sender, and Justin Baer, ‘Goldman Sachs settles with SEC,’ Financial Times, July 15, 2010.

  30 Chris Dolmetsch, ‘Morgan Stanley sued by Allstate on mortgage claims,’ Bloomberg, July 6, 2011.

  31 ‘Madoff trustee defends $19 billion suit against JP Morgan,’ Bloomberg, Sept. 2, 2011.

  Chapter 12: I’m short your house

  1 Senate Committee on Homeland Security and Governmental Affairs, April 2011, Levin–Coburn Report on the Financial Crisis, hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf.

  2 To source this quote, you need to bring up the press release which announced the publication of the Levin–Coburn report (cited in n. 1 above). At the end of that release, there’s a link to pp. 5460–5901. Click that link and search for the text quoted.

  3 Simon Goodley, ‘Markets meltdown leads to surge in City addictions,’ Guardian, Sept. 9, 2011.

  4 Robert Shiller has made his data available at his website www.irrationalexuberance.com – an excellent resource. There are also some useful notes on the house price index at S&P’s website, www.standardandpoors.com.

  5 You can source data on owner’s equivalent rent (and a fuller explanation of what that term means) from the FHFA (www.fhfa.gov): search for the FHFA’s report on ‘Housing and mortgage markets in 2010’ and take a look at figure 10.

  6 You can get the most recent data release from the Bureau of Labor Statistics (www.bls.gov). Just search the site for ‘Latest releases.’

  7 Paul Davidson, ‘Construction hiring regains some vigor in September’, USA Today, 9 Oct., 2011.

  FHFA report on ‘Housing and mortgage markets in 2010,’ figure 12.

  8 FHFA report on ‘Housing and mortgage markets in 2010,’ figure 13.

  9 FHFA report on ‘Housing and mortgage markets in 2010,’ figure 14

  10 FHFA report on ‘Housing and mortgage markets in 2010,’ figure C-1.

  11 ‘New CoreLogic data reveals Q2 negative equity declines,’ CoreLogic, Sept. 2011. You can get more recent information by searching the CoreLogic site at www.corelogic.com.

  12 ‘Self harm,’ The Economist, Sept. 3, 2011.

  13 FHFA report on ‘Housing and mortgage markets in 2010,’ figure 16.

  14 Justin Fox, ‘A slow-motion wreck for commercial real estate,’ Time, Jan. 18, 2010.

  15 John Gittelsohn, ‘Shiller says U.S. home-price declines of 10% to 25% “wouldn’t surprise me”,’ Bloomberg, June 9, 2011.

  Chapter 13: A brief flash of reality

  1 Amos Tversky and Daniel Kahneman, ‘Judgment under uncertainty: heuristics and biases,’ Science, vol. 185, no. 4157, Sept. 1974, pp. 1124–31.

  2 Tali Sharot, Alison M. Riccardi, Candace M. Raio, and Elizabeth A. Phelps, ‘Neural mechanisms mediating optimism bias,’ Nature, vol. 450, Oct. 2007, pp. 102–5.

  3 Go to the UK Treasury website (www.hm-treasury.gov.uk) and search for ‘Optimism bias.’

  4 Goldman Sachs, Global Economic Outlook 2011, Dec. 2010. You can access the report via Goldman’s website, www.goldmansachs.com.

  5 I’ve sourced the data using my own (paid) feed from Thomson Reuters (thomsonreuters.com), but there are numerous free data sources available on the internet.

  6 ‘Buffett’s Bank of America warrants soar in value,’ Reuters, Aug. 25, 2011.

  Chapter 14: Planet Ponzi comes to London

  1 Andrew Haldane, Simon Brennan, and Vasileios Madouros, ‘The contribution of the financial sector: miracle or mirage?,’ in ‘The future of finance: the LSE Report,’ London School of Economics, July 14, 2010.

  2 Mary Jordan and Karla Adam, ‘For London’s new super-rich, no whim need go unfulfilled,’ Washington Post, March 8, 2007.

  3 Julia Vitullo-Martin, ‘Keeping New York competitive,’ Manhattan Institute’s Center for Rethinking Development, Jan. 2007, www.rpa-cui.org.

  4 Jordan and Adam, ‘For London’s new super-rich, no whim need go unfulfilled.’

  Chapter 15: The rise and rise of Planet Ponzi

  1 GDP data are drawn from IMF, World Economic Outlook, April 2011; British household data from ‘Household wealth grows five-fold in the last 50 years,’ BBC News, May 16, 2010.

  2 Data from Microsoft’s 2010 10-K filing, available online via www.microsoft.com/investor/SEC/default.aspx.

  3 Market cap sourced 5 Sept. 2011. Balance sheet data from 10-K filing (effectively an annual report), period ending 25 Sept. 2010. Both pieces of data easily found online via investor.apple.com.

  4 Not that I’d be a buyer at current levels. At Apple’s October 2011 price of $400.00 per share, I would argue the market has priced in perfection for years to come. The real world doesn’t work like that.

  5 Bureau of Economic Analysis, ‘U.S. net international investment position at yearend 2010,’ www.bea.gov.

  6 You can source the data from the Office for National Statistics (www.ons.gov.uk): search for ‘The UK’s international investment position.’ The statistical issue referred to in the text is that foreign direct investment (FDI) is valued at historic cost not market value. Because the UK is an enthusiastic direct investor overseas, its true holdings of FDI are likely to be understated, by as much as 50%.

  7 There’s good economic theory behind the remarks in this paragraph. You can get a layman’s discussion of these themes from George Monbiot, ‘It’s in all our interests to understand how to stop another Great Depression,’ Guardian, Oct. 10, 2011.

  8 Data available from HM Treasury (www.hm-treasury.gov.uk), ‘Whole of Government Accounts: unaudited summary report for the year ended 31 March 2010,’ July 2011. GDP data from IMF, World Economic Outlook, April 2011.

  9 I am particularly grateful to Stéphenie Peyet and Spencer Wilson, both of the OECD, for resolving these points for me. I wouldn’t have got there without them. Obviously the personal opinions expressed are mine not theirs.

  10 Data available from the OECD (go to www.oecd-ilibrary.org). Search for data on ‘Household wealth and indebtedness as a percentage of nomi
nal disposable income.’

  11 This illustration isn’t quite fair – GDP per capita is different from salary, and of course that 90% of GDP figure applies at a national level, not just to those about to enter retirement. But still: 90% is too low. The Netherlands has pension assets equal to around 135% of GDP, which is roughly where all other countries ought to be.

  12 Irving Fisher Committee of the Bank for International Settlements (www.bis.org), ‘General government pension obligations in Europe, 2007.’

  13 As discussed, the first 100% would just about cover the court-enforceable obligations relating to the retirement of public servants, nuclear decommissioning, and the like. The second 100% would just about cover the general state pension available to all retirees on retirement.

  14 To be clear about my arithmetic: I showed in chapter 4, ‘A hole as big as the world,’ that, on government data, there was a total public liability of around $75 trillion. About $15 trillion of that is financial debt, which is already accounted for in the data on gross debt. That leaves a liability of around $60 trillion or, very approximately, four times US GDP.

  15 ‘Debt and deleveraging: the global credit bubble and its economic consequences,’ McKinsey Global Institute, Jan. 2010.

  Chapter 16: Giants unicycling on clifftops

  1 David Oakley and Peter Spiegel, ‘Greek rating now the worst in the world,’ Financial Times, June 13, 2011.

  2 S&P release, available from www.standardandpoors.com. You may need to register to access the release, but registration is free. Enron recovery data available from Enron Creditors Recovery Corp. (www.enron.com). Visit ‘Press Room’ and search ‘Recent releases.’

  3 Michael Leister, quoted by Bloomberg, ‘Greek Bonds Fall to Record Lows on Concern Bailout Redundant; Italy Slides,’ Sept. 6, 2011.

  4 Stephen Fidler, ‘What future for Greek bond swap?,’ Wall Street Journal, Sept. 23, 2011. For a bulletin from the November 2011 death-spiral, see Paul Dobson and Lucy Meakin, ‘Italian 10-year yield surges to record on debt, growth concern,’ Bloomberg, Nov. 7, 2011.

  5 Data from IMF, World Economic Outlook, April 2011. Data include estimates for 2011/12.

  6 IMF, World Economic Outlook, April 2011.

  7 For the identities of Portuguese bondholders, visit www.epp.eurostat.ec.europa.eu (even the website address is bureaucratic). Search for ‘Structure of government debt breakdown by bondholder.’

  8 GDP data from IMF, World Economic Outlook, April 2011. Comparative size of Italian bond market from ‘Pub skittles, the Italian version,’ The Economist, ‘Schumpeter’ blog, July 8, 2011.

  9 Shiyin Chen, ‘Stocks decline, euro weakens on Italian vote concern; Swiss franc slides,’ Bloomberg, Nov. 7, 2011.

  10 IMF, World Economic Outlook, April 2011. Also John Prideaux, ‘Oh for a new Risorgimento,’ The Economist, June 9, 2011; OECD, OECD Economic Surveys: Italy, May 2011.

  11 For this paragraph and the preceding one, see ‘Berlusconi’s bung,’ The Economist, July 7, 2011.

  12 America has twenty-nine. Britain has eight. Germany and Japan eleven. Italy just the four. Adjusted for the sizes of their relative populations, France is significantly better than the US at creating world-beating companies, which challenges a few hoary old stereotypes, non?

  13 Global Fortune 500, available at www.money.cnn.com. Data correct as of Sept. 27, 2011.

  14 ‘Among the dinosaurs,’ The Economist, Aug. 27, 2011.

  15 Kim Willsher, ‘France’s socialists have a candidate,’ Los Angeles Times, Oct. 16, 2011.

  16 Lisa Abend, ‘Protests: has the revolution come to Spain?,’ Time, May 23, 2011.

  17 ‘Chest pains,’ The Economist, Aug. 27, 2011.

  18 There’s a good (English language) interview with Ms Lagarde in the international edition of Spiegel Online (Sept. 4, 2011). Go to www.Spiegel.de/international and search for ‘Interview with IMF chief Christine Lagarde.’

  19 Susan Pulliam and Liz Rappaport, ‘Goldman takes a dark view,’ Wall Street Journal, Sept. 1, 2011.

  20 For the numbers, see Bloomberg (www.bloomberg.com/data-visualization/federal-reserve-emergency-lending). For the boasting and the influence, see Alex Brummer’s fine, angry piece in the Daily Mail, July 18, 2009, ‘As Goldman Sachs posts huge profits from the economic crisis, the question is: Did it cause the problems in the first place?’

  21 Elena Logutenkova and Aaron Kirchfeld, ‘Deutsche Bank’s Ackermann bets investors will choose returns over capital,’ Bloomberg, Dec. 21, 2010.

  22 ‘Banks would not survive sovereign debt devaluations,’ BBC News, Sept. 5, 2011.

  23 ‘Ackermann spurns Lagarde call for mandatory European bank recapitalization,’ Bloomberg, Sept. 2011.

  24 ‘Lloyds warns of £10bn loss at HBOS after hefty write-offs,’ Independent, Feb. 14, 2009. See also ‘Lloyds HBOS merger gets go-ahead.’ BBC News, Jan. 12, 2009.

  Chapter 17: The aureus and the as

  1 Catherine Rampell, ‘Fearing (another) US default,’ New York Times, Jan. 4, 2011.

  2 Greg Lucas, ‘So you think the California budget deficit is dire?,’ Capitol Weekly, March 24, 2011.

  3 David Skeel, ‘Give states a way to go bankrupt,’ Weekly Standard, Nov. 29, 2010.

  4 ‘State bankruptcy bill imminent, Gingrich says,’ Reuters, Jan. 2011.

  5 Public Policy Institute of California, ‘When government fails: the Orange County bankruptcy,’ March 1998, www.ppic.org.

  6 Sam Roberts, ‘When the City’s bankruptcy was just a few words away,’ New York Times, Dec. 31, 2006.

  7 The EU has put together a useful FAQ paper on the EFSF, available at www.efsf.europa.eu.

  8 Even as it is, that fundraising ability is utterly untested, at a time when investors are facing some of the lowest interest rates in history. Would you lend, at a minimal interest rate, to an acronym created in panic by the Brussels Eurocracy? I doubt you would, and most investors are likely to feel the same.

  9 ‘After the fall,’ The Economist, Sept. 17, 2011.

  10 Keith Richburg, ‘Worldwide financial crisis largely bypasses Canada,’ Washington Post, Oct. 16, 2008.

  11 Energy Information Administration, ‘World proved reserves of oil and natural gas, most recent estimates,’ March 2009, 38.96.246.204/international/reserves.html.

  12 ‘Moody’s reassesses German Landesbanks’ ratings,’ Reuters, May 10, 2011.

  13 Gavin Finch, Elisa Martinuzzi, and Charles Penty, ‘EU bank stress tests missing sovereign defaults fail to convince analysts,’ Bloomberg, July 18, 2011.

  Chapter 18: Choosing second

  1 The CIA World Factbook (available at www.cia.gov) has an easy to use ranking. Just search for ‘country comparison: exports.’ The data refer you to merchandise exports at current exchange rates.

  2 Department for Business Innovation and Skills (www.bis.gov.uk), ‘UK trade performance over the past years,’ 2011 (month of publication not clear from the document).

  3 www.weforum.org/news/us-competitiveness-ranking-continues-fall-emerging-markets-are-closing-gap.

  4 Bond yields from Financial Times, Dec. 2, 2011.

  5 IMF, World Economic Outlook, April 2011.

  6 ‘Darling reveals Labour crisis row,’ Guardian, Sept. 4, 2011.

  7 Data here and in the next paragraph are is drawn from HM Treasury, Spending Review 2010, Oct. 2010. See also BBC News, ‘Spending Review in graphics,’ Oct. 20, 2010.

  8 Office for Budget Responsibility, Economic and Fiscal Outlook, March 2011, budgetresponsibility.independent.gov.uk.

  9 Independent Commission on Banking, Final Report, Sept. 2011, bankingcommission.s3.amazonaws.com.

  10 Department for Communities and Local Government, ‘Dramatic simplification of planning guidance to encourage sustainable growth,’ July 2011, www.communities.gov.uk.

  11 See www.redtapechallenge.cabinetoffice.gov.uk.

  12 The leading advocate of such quantitative easing in the UK has been the MPC’s sole American member, Adam Posen. He’s acti
ng like Ben Bernanke’s Mini-Me in the United Kingdom.

  13 You can get a transcript of the relevant moment at blogs.Channel4.com. Search for ‘Fact check: ask the Chancellors.’ The debate itself can be viewed on www.Channel4.com – search for ‘Ask the Chancellors.’

  14 Alan Travis and James Ball, ‘Three-quarters charged over riots had previous criminal convictions,’ Guardian, Sept. 15, 2011.15 Sentencing also has a little way to go. Two men were jailed for four years for inciting riots via Facebook, though the riots in question never materialized. Sir Fred Goodwin, the ‘world’s worst banker,’ whose bank, RBS, reported pretax losses of almost £41 billion for 2008, enjoys a tasty pension and has quietly returned to business. [See ‘Facebook cases trigger criticism of “disproportionate” riot sentences,’ Guardian, Aug. 17, 2011; ‘Who’s the world’s worst banker,’ Slate, Dec. 2008; RBS losses from restated annual accounts ending Dec. 2008; ‘Sir Fred Goodwin given job by Scottish parliament architects RMJM,’ Guardian, Jan. 16, 2010.]

  Chapter 19: A van for Fukushima

  1 Debt and GDP data from IMF, World Economic Outlook, April 2011. For the government’s champions, see JP Morgan, ‘Japan’s debt trap: who’s in the trap?,’ June 2011, www.jpmorgan.com.

  2 IMF, World Economic Outlook, April 2011.

  3 ‘Rebuilding Japan – or ruining it,’ The Economist, April 28, 2011.

  4 ‘The domino that never falls,’ The Economist, July 21, 2011.

  5 Data from the Financial Times, collected Sept. 18, 2011.

  6 ‘Don’t sit on your hands,’ The Economist, May 12, 2011.

  7 ‘Moody’s uncertain about Japan’s growth, likely to downgrade outlook,’ www.Firstpost.com, May 2011.

  8 ‘The good bureaucrat,’ The Economist, Sept. 14, 2011.

  9 ‘Game on,’ The Economist, March 5, 2009.

  10 ‘Stepping Out,’ The Economist, ‘Banyan’ blog, June 23, 2011.

  11 ‘Spain’s indignados summon spirit of 1968,’ www.Channel4.com, May 2011.

  Chapter 20: The man who ate a supermarket

  1 Aditya Chakrabortty, ‘Athens protests: Syntagma Square on frontline of European austerity protests,’ Guardian, June 19, 2011.