i.want.world

From Robert Peston:

Perhaps more importantly, and at the risk of repeating myself, the downgrades increase the dependence of the big banks on finance from the European Central Bank – and for the economic recovery of the eurozone, that’s a very bad thing.

The less that banks are able to raise funds in a normal commercial way, the more they’re dependent on a central bank, the more reluctant they are to lend to the wider economy – and given the massive dependence of the eurozone economy on finance provided by banks, that leads to a reduction of economic activity, a reinforcement of recessionary conditions…

..the downgraded Italian and French governments would be seen to be less financially capable of bailing out Italian and French banks in a crisis, so other creditors would be shouldering more risk…

So even if the downgrades don’t lead to default by a nation or a bank, they make it much harder for the banks – and in a way the whole eurozone – to get off life support.

…That creates a damaging negative feedback loop (less lending means asset price falls, more bankruptcies, bigger losses for banks, and even less lending by capital-constrained banks) which makes it all the harder for the eurozone to break free of its cycle of decline.

And, as I said in my earlier note, the downgrades also make it harder for the eurozone to establish a proper circuit breaker – in the form of a giant bailout fund – to protect other sovereign creditors in the event that today’s impasse in Greek debt talks lead to a Greek default.

Here is a useful and only slightly overstated summary of where things stand:

The entire eurozone banking system can be seen to have been nationalised – or at least the funding of banks has been nationalised, even if their ownership hasn’t been transferred to taxpayers.

some comments from RBS.

Suppose our minds have a hot state and a cool state. In the cool state we are rational and make calculated tradeoffs between immediate rewards and payoffs that require investment of time and effort. But when the hot state takes over we abandon deliberation and just react on instinct.

The hot state is there because there are circumstances where the stakes are too high and our calculations too slow or imperfect. You are being attacked by a hungry lion, the food in front of you smells funky, that bridge looks unstable. No matter how confident your cool head might be, the hot state grabs the wheel and forces you to do the safe thing.

Suppose all of that is true. What does that mean when a situation looks borderline and you see that instincts haven't taken over? Your cool, calculating head rationally infers that this must be a safer situation than it would otherwise appear. And you are therefore inclined to take more risks.

But then the hot state better step in on those borderline situations to stop you from taking those excessive risks. Except that now the borderline has moved a little bit toward the safe end. Now when the hot state doesn't take over it means its even more safe, etc.

And of course there is the mirror image of this problem where the hot state takes over to make sure you take an urgent risk. A potential mate is in front of you but the encounter has questionable implications for the future and the potential consequences are incomputable as so far as within the current situation. Physical attraction receives a multiplier. If it is not overwhelming then all of the warning signs are magnified.

Happy new year.

With.. Spalt, Hungary will have the most capable risk manager anyone can hope for. His experience and persistence are a guarantee that our subsidiary in Hungary will soon be seeing less risky times.

Can someone please ask this guy what in the world does he mean?

Can he really claim that one person - one person alone - with his stupendous skills at tackling risk, his immense foresight for intelligently deciphering future economic outcomes can lessen risks? I implore you to please see the bogus narrative in that quote above. Where are the watchdogs of critical thinking? Laughable.

Hope you did by now take this logical shortcut in concluding that weather forecasting is a crapshoot. Case in point: two hurricane forecasters admit that while their models fit beautifully in hindsight, they were incapable of predicting the future.

Two top U.S. hurricane forecasters, revered like rock stars in Deep South hurricane country, are quitting the practice because it doesn’t work.

William Gray and Phil Klotzbach say a look back shows their past 20 years of forecasts had no value.

The two scientists from Colorado State University will still discuss different probabilities as hurricane seasons approach — a much more cautious approach. But the shift signals how far humans are, even with supercomputers, from truly knowing what our weather will do next.

Gray, recently joined by Klotzbach, has been known for decades for an annual forecast of how many hurricanes can be expected each official hurricane season (which runs from June to November.) Southerners hang on his words, as even a mid-sized hurricane can cause billions in damage.

Last week, the pair dropped this announcement out of a clear, blue sky:

“We are discontinuing our early December quantitative hurricane forecast for the next year … Our early December Atlantic basin seasonal hurricane forecasts of the last 20 years have not shown real-time forecast skill even though the hindcast studies on which they were based had considerable skill.”

I've maintained in fact that any type of forecasting is a waste of energy. They are mere useless publishing of empty suit experts who should be storytellers. I salute Klotzbach and Gray for their integrity.

Haiti backers heralded some good news Monday for the earthquake ravaged Haiti: 44 miles of newly asphalted road, a new 605-acre industrial park in the north that will attract 65,000 jobs and a marquee hotel brand [Marriott].

“This is a very special day. It is truly a day of change,” Luis Alberto Moreno, the head of the Inter-American Development Bank said Monday.

The bank, which invests hundreds of millions of dollars in Haiti, is sponsoring a two-day investment forum in Port-au-Prince beginning Tuesday. So far, 1,000 people have registered, 500 of them business people from 29 countries.

Here is more .

Walter Russell Mead explains the difference as he notes that we are very close to breaking the record for longest period in recorded US weather history without a Category 3 hurricane hitting the mainland. An excerpt:

For those of you who are confused, let me remind you: the only meteorological phenomena that count are the ones that confirm the climate alarmist case.  It doesn’t matter what it is — drought, flood, blizzard, heat wave — if it can be made to support fear about the climate, it matters and it needs to be thoroughly analyzed and widely publicized.

Meteorological phenomena that, to the unsophisticated, might appear to undermine the case that WE ARE ALL GOING TO DIE if we don’t immediately pass a stringent carbon treaty, are meaningless and should be ignored.

A spate of hurricanes is climate; an absence of big storms isweather.  The absence of any major hurricanes for six years is a meaningless phenomenon; should a couple of big ones hit in any given year, then every editorial page in the country will fill with hand wringing, dire warning and I told you so.

or any central banking institution for that matter. Paul Krugman points to a very important, very recent paper by Hyun Song Shin (pdf), excerpt:

As we will see shortly, foreign banks’ US branches and subsdiiaries drive the gross capital outflows through the banking sector by raising wholesale funding in the US through money market funds (MMFs) and then shipping it to headquarters. Remember that foreign banks’ branches and subsidiaries in the US are treated as US banks in the balance of payments, as the balance of payments accounts are based on residence, not nationality.

The gross capital inflows to the United States represent lending by foreign (mainly European) banks via the shadow banking system through the purchase of private label mortgage-backed securities and structured products generated by the securitization of claims on US borrowers. In this way, European banks may have played a pivotal role in influencing credit conditions in the United States by providing US dollar intermediation capacity. However, since the eurozone has a roughly balanced current account while the UK is actually a deficit country, their collective net capital flows vis-a-vis the United States do not reflect the influence of their banks in setting overall credit conditions in the US. The distinction between net and gross flows is a classic theme in international finance, but deserves renewed attention given the new patterns of gross capital flows due to global banking.

What does it take to be a Victoria’s Angel?:

She sees a nutritionist, who has measured her body’s muscle mass, fat ratio and levels of water retention. He prescribes protein shakes, vitamins and supplements to keep Lima’s energy levels up during this training period. Lima drinks a gallon of water a day. For nine days before the show, she will drink only protein shakes – “no solids”. The concoctions include powdered egg. Two days before the show, she will abstain from the daily gallon of water, and “just drink normally”. Then, 12 hours before the show, she will stop drinking entirely.

“No liquids at all so you dry out, sometimes you can lose up to eight pounds just from that,” she says.