Lower the fed funds rate now, please

November 21st, 2018

So there’s this Dillon Reed and Davis Polk fellow, Jerome Powell, who now runs the Fed. Perhaps Janet Yellen should not have been replaced.

The world keeps changing. We did an IPO of a company with that IB and Jamie Dimon’s firm, Smith Barney. FYI, Smith Barney and Dillon Reed are no longer around.

In our view Powell is screwing up by raising the fed funds rate when there is zero reason to do so, given both high GDP growth and full employment with essentially no inflation. In case you think it inappropriate to second guess him, we’ll take a trip down memory lane from a decade ago. Here’s the insanely disastrous thing that Hank Paulson, former CEO of Goldman Sachs (CEO OF GOLDMAN SACHS!) did when he was Treasury secretary, regarding the troubled investment bank Lehman Brothers, as we relive a post from 2008:

Short version: Paulson made a catastrophic mistake that almost reduced the world’s financial systems to rubble. Powell has the same degree of excellent judgment in our view. We continue in quoting our 2008 thoughts:

At this moment, in 2008, the bankers seem to have made the same mistake that brought about the Great Depression in 1929, and it has nearly brought the system down again. The Fed Chairman who is a student of the Depression and the Treasury chief who was CEO of Wall Street’s perhaps most storied name, appear to have repeated one of the critical mistakes in judgment that brought about the Great Depression – and they have been scrambling to recover from this mistake for a month. In 1930 the Fed let the Bank of United States fail, the dominoes fell, and the Great Depression was born. On September 15, 2008 the Fed let Lehman Brothers fail, and once again the US is courting financial catastrophe.

One month ago, the Fed and the Treasury let Lehman Brothers go bankrupt, and all hell broke loose, not just because of mortgages, but because of Lehman’s systemically toxic CDS’s — unregulated insurance policies without reserves with other banks — that could bring down the entire industry. This is also the view of the French finance minister. Telegraph:

Mrs Lagarde — attributed with playing a key role in brokering a bailout deal among G7 finance ministers in Washington last weekend — dubbed Mr Paulson’s decision to let the bank go under “horrendous” as it triggered panic in markets and banks to the brink of a 1929-style financial meltdown.

The entire banking system seized up; the banks were set up like dominoes to sequentially fail. Short sellers had a no risk strategy to bet on bank failures and the Treasury had created a Doomsday Machine that would take them down, one after another. Credit and stock markets crashed, and good news had become irrelevant.

In effect, the US government had created one of the conditions that turned the recession of 1929 into the Great Depression. In that earlier time, the New York Clearing House banks allowed the small bank with the big name, Bank of the United States, to fail. After that failure, which would have been so easy to avoid, another 8000 banks failed. Of course, the government at that time had to wait until 1933 for the creation of the FDIC and other tools to stem the runs on the banks.

For a month the government has been improvising various solutions to the Lehman mistake, and often it has looked like making sausages. It hasn’t been pretty, and no one knows whether it will be ultimately effective. But the actions of the Euro-zone countries, after their initial stumble, are encouraging. Likewise, the reaction to the revised Paulson plan, which has morphed from buying $700 billion in mortgages to providing a much needed $250 billion in new bank capital, also appears positive. It is possible that we have seen a version of 1929-1933 play out in a very short time (as events are often accelerated these days). But there was still a long way to go for the US economy to recover after 1933.

UPDATE 1 — Andy Kessler has a good summary in the WSJ of what US and European authorities are trying to do with their remedial measures.

UPDATE 2 — we should disclose that our firm was previously retained by the FDIC to review a number of its procedures and methods regarding bank creditworthiness, and no confidential information forms part of this analysis.

UPDATE 3 — it is perhaps ironic, given the world of today, that the one person who saw the Paulson disaster for the disaster that it was, is the French woman who currently runs the IMF, Christine Lagarde.


November 20th, 2018

We’re right about interest rates, as we discussed the other day. It is coo-coo-crazy to be raising the fed funds and other rates in an America of almost no inflation. Set the auto-destruct!

Cramer just said that the fed should stop raising rates and he’s right. 2018 stock market gains just wiped out, for no good reason.

Mo Udall was right, at least a little: break them up!!!

November 20th, 2018


Big monopolies aren’t just an economic threat: They’re a political threat. Because they’re largely free of market constraints, they don’t have to put all their energy into making a better product for less money. Instead, they put a lot of their energy into political manipulation to protect their monopoly.

An industry made up of 500 companies might want government protection, but it’s harder to get them to agree on a lobbying campaign. One made up of three companies, or one, can do so, and be sure that it will reap all the rewards of its effort.

Thus, as Wu notes, “the more concentrated the industry, the more corrupt we can expect the political process to be.” And as he points out, these fears (and the realities) of huge companies wielding unchecked political power motivated the antitrust crusaders of a century ago every bit as much as concern about prices.

these new tech monsters have a one-two punch that Standard Oil lacked: Not only do they control immense wealth and important industries, but their fields of operation — which give them enormous control over communications, including communications about politics — also give them direct political power that in many ways exceeds that of previous monopolies.

As Wu writes: “Big tech is ubiquitous, seems to know too much about us, and seems to have too much power over what we see, hear, do, and even feel. It has reignited debates over who really rules, when the decisions of just a few people have great influence over everyone.”

Facing a similar situation, Roosevelt declared, “When aggregated wealth demands what is unfair, its immense power can be met only by the still greater power of the people as a whole.”

With today’s economy dominated by the FANG companies, will Donald Trump — another brash New Yorker who found himself in the White House — follow TR’s lead? Perhaps a better question is, why wouldn’t he?

Udall was about breaking up the oil companies, but the internet situation is much more serious, as we have explored in signficant detail. Getting Ralph Nader and Instapundit (and ourselves) on the same page is a unique example of bipartisanship.

Finally, we note the really offensive political and business scumminess of the FANG companies’ executives (Apple aside for now). They make the Rockefellers look like the 12 Apostles by comparison.


November 20th, 2018


Thanks to the current imbroglio over Brexit, Britain could soon be Venezuela without the oil or the warm weather. The stunning incompetence of the last two Tory prime ministers, David Cameron and Theresa May, might result in a Labour government, one led by Jeremy Corbyn, a man who has long admired Hugo Chavez for having reminded him—though not the people of Venezuela—what governments can do for the poor and the achievement of social justice.

Corbyn’s second in command, John McDonnell, would, as Chancellor of the Exchequer, be in charge of the economy. Only five years ago, he said that the historical figures he most admired were Marx, Lenin, and Trotsky, and though he later claimed that he meant it as a joke, he is not otherwise known as an ironist.

Two days ago, speaking to the party faithful in London, he argued for the nationalization of land. He also favors nationalizing railways and public utilities, which can be done only through rates of taxation so high that they would amount to the nationalization of everything—with a resultant economic collapse—or by outright confiscation, thus destroying any faith in the rule of law for generations. It could also be done by agreeing on a price of sale and then inflating the currency afterward, so that billions will not buy you an egg.

An economic disaster, far from deterring such a government, would be of enormous advantage to it, if you assume that its purpose is the exercise of control in the name of irreversible social and political change.

Hey, we’ve got some of that too.

Troof, who needs it?

November 19th, 2018

Exhibits A-Z. Add college and grad schuul, and bye-bye USA. Sigh.

Media moments

November 19th, 2018

CA governor Jerry Brown was quiet when Darth Tweeter commented on the devastating 2018 fires in a televised tour of the northern fire area, in a media question when the two were standing together. Sad and tragic stuff, those fires. The funny part is that we know that Brown was thinking the president is an idiot for not blaming global warming. Idiot indeed. Other media thing: we thought that the Sundance 3-part program on Jim Jones and the 1978 Jonestown massacre was going to be a bad publicity stunt, but it seems to be both very good and highly disturbing. This tiny mini Hitler lunatic rose to a little bit of provenance in San Francisco. We’re very surprised but pleased at the mini-series. Say, who was governor back then, when Jones was rising, 40 years ago?

From election day to election month

November 19th, 2018

Election day was a couple of weeks ago, but there are still thousands of votes that haven’t been counted because the Broward county ballots haven’t been found. That much you know. What you didn’t know is that the Sherlock Holmes leading the effort to find the rascally things has a PhD. Yikes!

Tra la la

November 18th, 2018

Sing in a Kamala hearing, how about ice ice baby, do do do do do do do. If someone asks you if ICE is KKK. You know, “parallels.”

Dr Seuss and WWII

November 18th, 2018

Here. No comments really, just interesting in part because so little known. Speaking of little known, here’s a list of mostly enjoyable unknowns.

OK then

November 17th, 2018

“A 2017 report from the U.S. Department of Agriculture (USDA) states that 129 million trees have died in California’s forests since 2010.” OK then. Most of the remaining living trees have formed a caravan and are dragging themselves and their roots to Mexico. We understand that the administration has deputized one billion termites as ICE agents to deal with this.

Stan Lee

November 17th, 2018

As you know, Stan Lee died this week. We had dinner with him almost half a century ago. Here’s the story. We had copies of many of the first of his comics, including Fantastic Four from 1961 and quite a few others. Also things like the first Superman Annual from 1964. We’re a little surprised but relieved to see that the prices of these old comics are not too high, since ours got thrown away during our first semester away at college.

Final Jeopardy

November 16th, 2018

Teen tournament.

The old coots versus the youngsters – thank you Mister Professor

November 16th, 2018


a strong majority of Millennials (87%) are personally concerned about climate change, surpassing the national average by over 10 points. Pew’s results corroborated the report’s conclusion that Millennials are both a formidable rising electorate and also an importantly burgeoning climate constituency. “Addressing global climate change is the only issue, among 19 included in the survey, which is viewed by significantly more people under 30 (56%) than those 65 and older (37%) as a top policy priority.”

And it’s not just the leftists. More: Ocasio-Cortez earlier this week pushed for a “Green New Deal” as she backed more than 200 young protesters at House Minority Leader Nancy Pelosi’s office.

If the skulls full of mush can’t be deprogrammed quickly enough, it’s over.


November 16th, 2018

We had a post on this Spengler piece and it just disappeared, along with comments. Never happened before. Very weird.

Interest rates, etc

November 16th, 2018

Here’s a link to a recent Forbes article arguing against the Fed raising rates. We agree. Inflation is low and growth is good. There is no oil embargo, there’s no subprime mortgage issue, there’s no stagflation, etc. We’ve studied these things as a banker for a very long time, well before the fed funds rate went to nearly 20%. We see no reason to artificially hamper economic growth.

We see an additional factor supporting our position, but it doesn’t necessarily translate into GDP numbers, making its moderating influence hard to measure, and that’s personal technology. We read somewhere that the current iPhone, which product is only a decade old, has more computing power than NASA in Apollo 11. Having the Encyclopedia Britannica a second away, most of the Library of Congress and the Smithsonian as well, as well as every movie and TV show ever made, surely are anti-inflationary influences in some way. We’ll think about how to measure this.

You remember our ancient piece on the iPod. Hey, the classic was killed years ago.

Unfun bonus: Flako isn’t just a pie crust these days.

Two bads

November 15th, 2018

The good news about The Population Bomb is that 50 years have come and gone and no bomb, even though hundreds of millions were supposed to have died in the 1970’s. The author is still selling doomsday due to the “toxicity” of the planet. Anyway, that’s neither here nor there. We continue to be amazed that climate nonsense continues when ten minutes of clear thought and basic arithmetic show the nonsense to be nonsense. Two bads: climate worship is bad business and bad religion; we hope the kiddies wise up soon.

Answer and Question

November 14th, 2018

The answer to the last bit in the last post is zero. The question is: what is the probability that the protesting member of Congress knew this? Hey, most likely also zero. Such geniuses we have to rule over us.

Oh no, CO2 is good?

November 13th, 2018

Some guy:

the non-climatic effects of carbon dioxide as a sustainer of wildlife and crop plants are enormously beneficial, that the possibly harmful climatic effects of carbon dioxide have been greatly exaggerated, and that the benefits clearly outweigh the possible damage.

I consider myself an unprejudiced person and to me these facts are obvious. But the same facts are not obvious to the majority of scientists and politicians who consider carbon dioxide to be evil and dangerous. The people who are supposed to be experts and who claim to understand the science are precisely the people who are blind to the evidence. Those of my scientific colleagues who believe the prevailing dogma about carbon dioxide will not find Goklany’s evidence convincing. I hope that a few of them will make the effort to examine the evidence in detail and see how it contradicts the prevailing dogma, but I know that the majority will remain blind. That is to me the central mystery of climate science. It is not a scientific mystery but a human mystery. How does it happen that a whole generation of scientific experts is blind to obvious facts? In this foreword I offer a tentative solution of the mystery.

There are many examples in the history of science of irrational beliefs promoted by famous thinkers and adopted by loyal disciples. Sometimes, as in the use of bleeding as a treatment for various diseases, irrational belief did harm to a large number of human victims. George Washington was one of the victims. Other irrational beliefs, such as the phlogiston theory of burning or the Aristotelian cosmology of circular celestial motions, only did harm by delaying the careful examination of nature. In all these cases, we see a community of people happily united in a false belief that brought leaders and followers together. Anyone who questioned the prevailing belief would upset the peace of the community.

Real advances in science require a different cultural tradition, with individuals who invent new tools to explore nature and are not afraid to question authority. Science driven by rebels and heretics searching for truth has made great progress in the last three centuries. But the new culture of scientific scepticism is a recent growth and has not yet penetrated deeply into our thinking. The old culture of group loyalty and dogmatic belief is still alive under the surface, guiding the thoughts of scientists as well as the opinions of ordinary citizens.

To understand human behavior, I look at human evolution. About a hundred thousand years ago, our species invented a new kind of evolution. In addition to biological evolution based on genetic changes, we began a cultural evolution based on social and intellectual changes. Biological evolution did not stop, but cultural evolution was much faster and quickly became dominant. Social customs and beliefs change and spread much more rapidly than genes.

Cultural evolution was enabled by spoken languages and tribal loyalties. Tribe competed with tribe and culture with culture. The cultures that prevailed were those that promoted tribal cohesion. Humans were always social animals, and culture made us even more social. We evolved to feel at home in a group that thinks alike. It was more important for a group of humans to be united than to be right. It was always dangerous and usually undesirable to question authority. When authority was seriously threatened, heretics were burned at the stake.

I am suggesting that the thinking of politicians and scientists about controversial issues today is still tribal. Science and politics are not essentially different from other aspects of human culture. Science and politics are products of cultural evolution. Thinking about scientific questions is still presented to the public as a competitive sport with winners and losers. For players of the sport with public reputations to defend, it is more important to belong to a winning team than to examine the evidence.

Cultural evolution was centered for a hundred thousand years on tales told by elders to children sitting around the cave fire. That cave-fire evolution gave us brains that are wonderfully sensitive to fable and fantasy, but insensitive to facts and figures. To enable a tribe to prevail in the harsh world of predators and prey, it was helpful to have brains with strong emotional bonding to shared songs and stories. It was not helpful to have brains questioning whether the stories were true. Our scientists and politicians of the modern age evolved recently from the cave-children.

The geniuses among us say he lost his mind a decade ago. Speaking of geniuses, what does Jerry Brown think?

Amusing update: another genius. Excuse me Madam, to the nearest percent, how many parts of CO2 are in 100 parts of air?

The Longest Day

November 12th, 2018

On Armistice Day TCM aired The Longest Day, showing, among other things, that the armistice didn’t work out so well. It’s an incredibly ugly B&W movie, all the more effective for being that way. Lots of wounds and dying, but without all the fake blood and guts in today’s movies – the author got excellent reviews for his account of that time BTW. The movie didn’t make much of an impression on us when we saw it at a Drive-In in 1962, except that it was a very long movie. Funny bit: the movie has US pop singers in it as well as Bond and Goldfinger. Is there a lesson in the movie: yeah, don’t get yourself in a position where you have to storm beaches to reach success.

Something unprecedented is happening

November 11th, 2018

There’s always been a certain amount of (a) corruption in government and (b) election tampering. Obviously. But these have now become Really Big Issues that can’t be swept under the rug anymore. This is partly a result of the audacity of the corruption, but, very importantly today, the media have created a vacuum by being 90% or more in favor of the corrupt side.

Maybe this vacuum always existed; we don’t know. But today, and dating from November 8, 2016, the non-progressive side doesn’t just shut up and sit down as they did in the past. Examples: (a) Gaetz-Rubio on Florida fraud; (b) Strassel on the Russia fraud, and so many others. All abetted by talk radio and New Media. Examples include the Powerline guys, Roger Simon, Clarice of course, Conrad Black, and on and on. Ironically, or perhaps not, the old media’s non-reporting of crimes and outrages like Antifa attacking Tucker Carlson’s home and family have added fuel and intensity to the fire.

So things appear to have begun changing in a very significant way, with a large measure of thanks due to one man. Feel free to guess who this is.