Don Draper is no longer Mad Men's hero. That honor now belongs to Michael Ginsberg, the young Jewish copywriter whose work has already upstaged Sterling Cooper Draper Pryce's longtime brilliant creative director. More »

The good news is, Nick Stahl is no longer missing. The bad news is, he's going to rehab. More »

Marketing is a very powerful tool.  A successful marketing campaign or product segmentation can increase sales more than ten-fold.  It is not something we hear or talk about much in the motherboard arena – while a manufacturer will try and promote all the features they have on a product, advertising is usually limited to web advertisements, gaming shows, or an attempt to get as many positive reviews in the media as possible.  But certain manufacturers do enjoy branding their products – Republic of Gamers, Sniper, Big Bang, and Fatal1ty.  Today we are looking at just that – a Fatal1ty branded product, the ASRock Fatal1ty Z77 Professional. 

 

 

Comedian Fahim Anwar — member of the comedy team that brought us this response to Ashton Kutcher's racist PopChips ad — noticed a new model on the Americal Apparel website. More »

(Photo: William Alatriste/NYT)

Christine Quinn got married.

As did Mark Zuckerberg.

Robert Mittman gave money to Jeff Gottlieb back in the day.

Mayor Bloomberg's whereabouts during that big blizzard can't be figured out with FOIL requests.

The NAACP endorsed gay marriage.

FreshDirect will deliver to the Bronx.

Bill Perkins initially planned to back Adriano Espaillat.

Bill Mahoney discussed history and control of the State Senate.

Joyce Johnson discussed her congressional campaign.

Steve Levin discussed upcoming legislation in the City Council.

A federal court upheld the Constitutionality of the Voting Rights Act.

The New York Times was happy about this.

They weren't happy about Republican positions on issues relating to women, however.

While the Daily News doesn't like Michael Mulgrew.

The New York Post: "... and, lately, The New York Times ..."

A columnist in the same publication defended George Zimmerman.

The fake dog testicles issue won't go away.

There's a parking space available for $1 million.

Tom Allon: "I can guarantee you I'll be the best writer as mayor that the city has ever seen. I write for the Huffington Post twice a week. I speak well. I'm articulate. I have been in media and communications for 25 years. So everything that I've done has prepared me for this race."

On the presidential race:

The Mormon church helped shape Mitt Romney.

Cory Booker defended him.

Romney's campaign is hopeful about winning New Hampshire.

Newt Gingrich helped him out.

He has an opportunity to develop his foreign policy brand.

Marco Rubio escalated his criticism of President Obama.

Gay activists want to know what's next from the president.

Ron Paul is still around.

Today's annular eclipse — affectionally dubbed a "ring of fire" — will be the first of its kind visible from the mainland U.S. since 1994. And we won't get another until 2023. More »

BBC Interview with Nassim Taleb on JPMorgan

Hat tip Jesse’s Cafe Americain

More "fiction" says John Travolta's legal team: yet another masseur has come forward with allegations against the actor. This, of course, begs the question, how often does John Travolta get a massage? More »

Like so many of the people we went to high school with, Facebook founder Mark Zuckerberg let us know about his marriage to Priscilla Chan with a Facebook update. In a photo posted to Facebook, Zuckerberg and Chan pose as a married couple — with Zuck wearing a suit instead of his trademark hoodie, as all news reports have been keen to point out. More »

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My Sunday Washington Post Business Section column is out. This morning, we look at the JPM debacle: Has the Economy been made safe from Wall Street? The short answer is not very.

The print version had the full headline Four short years after AIG, Wall Street is back to its old tricks (The online version is merely JPMorgan’s debacle, and its parallels to AIG).

Here’s an excerpt from the column:

“Finance has become a low-margin, high-leverage business. This is not surprising in an environment in which trading volumes are exceedingly low and interest rates even lower. In any other industry, a slowdown in economic activity sends management scurrying to cut costs, develop new products, become more productive. In short, to innovate. Companies can throw money at new products, marketing campaigns or discounted pricing, but a slowing economy brings down demand. What we have today is a deleveraging economy, and that is even more challenging — limiting the options that CEOs can take to increase their company revenue.

The world of finance refuses to accept that reality. Whenever Wall Street is confronted with a decrease in profits, we see the same response: Increase leverage. We usually don’t hear about it until some market wobble causes the excessive leverage to blow up in someone’s face. This time, the novelty cigar was smoked by Dimon, and the damage was inflicted on his reputation. The losses, we learned, were a “mere” $2 billion, described as manageable.

Consider any major finance disaster of the past 30 years, and what you will invariably see is the result of trying to spin dross into gold. The magic of finance is that this can work for a while. The reality of finance is simple mathematics. Eventually, the probabilities play themselves out and the dice come up snake eyes.”

I submitted this kinda late; there was not much they could do in terms of graphics for the dead tree version of the paper.
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click for ginormous version of print edition

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Source:
JPMorgan’s debacle, and its parallels to AIG
Barry Ritholtz
Washington Post, May 20 2012
http://www.washingtonpost.com/jpmorgans-debacle-and-its-parallels-to-aig/2012/05/18/gIQAPJxLbU_story.html

Washington Post,  May 20 2012(PDF)

The Financial Times - JPMorgan unit has $100bn of risky bonds
The unit at the centre of JPMorgan Chase’s $2bn trading loss has built up positions totalling more than $100bn in asset-backed securities and structured products – the complex, risky bonds at the centre of the financial crisis in 2008. These holdings are in addition to those in credit derivatives which led to the losses and have mired the bank in regulatory investigations and criticism. The unit, the chief investment office (CIO), has been the biggest buyer of European mortgage-backed bonds and other complex debt securities such as collateralised loan obligations in all markets for three years, more than a dozen senior traders and credit experts have told the Financial Times. The bank has said its derivative activities were intended primarily to help balance risks on its overall balance sheet, but the revelation that it has built up other large, risky positions is likely to raise further questions about the CIO’s remit.

The Wall Street Journal – Inside J.P. Morgan’s Blunder 
CEO Dimon Blessed the Concept Behind Disastrous Trades; ‘Blood in the Water’
On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. “I want to see the positions!” he barked, throwing down the papers, according to attendees. “Now! I want to see everything!” When Mr. Dimon saw the numbers, these people say, he couldn’t breathe. Those trading positions have produced losses that could total as much as $5 billion, tarnishing the record of an executive who had thrived through the global financial crisis and who has long been known for paying close attention to the bank’s trading activity, its risk profile and the activities of its senior employees. J.P. Morgan, the nation’s largest financial firm by assets, is struggling to contain the damage, which already has shaved off more than $25 billion in shareholder value.

Comment

The press is finally figuring out J.P. Morgan’s position are still open and they are subject to more losses.  We noted this on Tuesday in a post titled “How Jamie Dimon Might Lose His Job This Summer“:

Four days after the announcement of the loss by J.P. Morgan and we get the sense that most still do not understand what happened.  The stories above are typical examples of this.  Until these losses are better understood, those that do not understand are going to be shocked in the months ahead by the continued “surprises” in this story and may eventually call for Dimon to be replaced.

So what exactly is being misunderstood in this story?  Namely, the positions that J.P. Morgan lost money on are still open and could grow many times over.  They are still open because they are so large J.P. Morgan cannot find counter-parties to close them.  Instead, the story above writes about these losses as if they are a one-time loss and the positions are already closed.

J.P. Morgan’s stock performed poorly again yesterday presumably because this position continues to move against them:

Zero Hedge (blog) – It’s Not Over Yet For JPM
IG9 10Y spreads re-surged today and were very choppy into the close as they broke back above 155bps (at 155.5/157.5bps now) for the first time since Mid-December with a 31% rip in the last two weeks. This fits perfectly with our ongoing thesis of this being a tail-risk hedge (not a simple ‘spread’ as other ignorant commentators presume) whose risk management has exploded in their face. While the skew (the difference between the index and its portfolio fair-value) has collapsed and arbs will be happy and likely exiting – the same correlation shifts (that we discussed earlier) that drove the big bank to sell more and more protection into a spread compressing market are now back-firing as systemic risk re-surges and the correlation shift is forcing them to buy back more and more protection into a spread decompressing market. Oh the fun of negative convexity – especially when you ARE the market and there is no-one to unwind the actual tranches to. While we among others expected the selling to slow as the skew collapsed, the secondary effect of the actual rise in systemic risk is now taking over and forces the bank to buy protection back into a rising spread market…

Source: Bianco Research

More »

Bugatti Veyron Super Sport

˜˜˜ Gumpert Apollo

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Hennessey Venom GT

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More after jump

Koenigsegg CCX

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Koenigsegg Agera R

˜˜˜

Saleen S7 Twin Turbo

˜˜˜

SSC Ultimate Aero

˜˜˜

McLaren F1

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Zenvo ST1

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Noble M600

Source: Market Watch

Good morning. Its time for some reads to start your Sunday:

• The Market Is Starting To Recognize Reality (Comstock Partners, Inc)
• Greece’s predicament: Lessons from Argentina (VOX EU)
• What Money Can’t Buy: The Moral Limits of Markets (B&N Review)
• 11 Brilliant Insights From Wall Street Legend Barton Biggs (Business Insider)
• Lessons From Trades Big and Bad (NYT)
• Dental Abuse Seen Driven by Private Equity Investments (Bloomberg)
• Sure Facebook has 900 million users, but its engagement is smoked by these other sites (Social Media)
• Bitter Frenemies (Foreign Affairs)
• An Enduring Condition: On War Time (The Nation)
• Every CNN Transcript Collection (2000-2012) (April 25, 2012) (Internet Archive)

What are you reading?

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Global business barometer

Source: The Economist

Lambert Strether (Yves being on vacation).

Rapid Climate Changes Turn North Woods into Moose Graveyard Scientific American

Supervolcano Drilling Plan Gets Go-Ahead Science. What could go wrong?

“Is Insider Trading Part of the Fabric?” Gretchen Morgenson

Sell-side research isn’t inside information Felix Salmon

“Discord at Key JPMorgan Unit Is Faulted in Loss” Times

The Need For An Independent Investigation Into JP Morgan Chase Simon Johnson

BBC Interview with Nassim Taleb on JPMorgan Jesse: “The more I look into this and think about it, the more that Barack Obama’s ‘favorite banker’ looks like Enron in their heyday.”

Obama: “Unless you run a financial institution whose business model is built on cheating consumers or making risky bets that could damage the whole economy, you have nothing to fear from Wall Street reform.” I swear I’m not making this up!

Waters Challenges Khuzami on Securitization Fraud Task Force, Gets Revealing Answers David Dayen

Syndicate: If You Can Get It, Run The Other Way Big Picture. FaceBorg post mortem.

Chicago protests on eve of NATO summit raucous, peaceful Reuters

CPD: Terror suspects had planned firebomb attacks Local ABC. Helpful undercover policeman: “Hey, I just happen to have a source of jellied gasoline! And jelly jars, too!” Timothy McVeigh these guys ain’t.

NATO Summit: 3 Protesters Arrested, Charged with Conspiracy to Commit Terrorism National ABC. Nuance: Local says arrestees to attend black bloc demo; national says arrestees “proclaimed themselves to be” black block. Going with local, sensing oncoming and ugly moral panic. Honestly, it’s like watching an elephant panic at the sight of a mouse. Man up, global oligarchs!

“Student Strike” main page Montreal Gazette

Quebec student protesters find creative ways around controversial new law Toronto Star

“PLQ + Mafia = QC” (pictures); “Monsieur Trois Pour Cent”. Ouille!

The Trade Agreement You Never Heard About – TPP (Trans-Pacific Partnership) Economic Populist

So Warren Buffett likes newspapers again? Jack Shafer

“A Little Secret Denmark Shares with Canada about Social Mobility that Americans and Brits Should Know” Economist’s View. Moral is at the end.

Housing Analysis Biased Toward Removing People From Homes By Any Means Necessary David Dayen

Inflation, Credibility, and Expectations: Again Some More Angry Bear

The Pirate Party fits the political gap Guardian

Italy deploys 20,000 to protect sensitive targets AP

Ending NATO’s double standard Reuters

A Victory for All of Us Chris Hedges

Drone filmmaker denied visa to accept his film festival award Greenwald. The Obama administration is mind-bogglingly petty and thin-skinned.

Channels and channels and channels.

It’s safer to poke fun at airlines than take on a whole country FT.  Tyler Brûlé.

Psychiatrist who championed ‘gay cure’ admits he was wrong Guardian

* * *

I’m not covering the horse-race today so I can get up early and watch the Sunday morning talk shows. Not. –lambert

* * *

Antidote du jour (hat tip SV):

By J. D. Alt. The post is a a continuation of ideas first developed in Alt’s novel, The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally posted at New Economic Perspectives.

Why does it seem like there isn’t enough money to pay for the things we really need? The headlines are filled with stories about our nation’s “debt problem” and dire warnings about our impending “bankruptcy.” As an architect who fills his waking hours thinking up all kinds of wonderful things we could be building, I’m alarmed by the idea there isn’t enough money to pay for any of them. Before wasting more time dreaming, I had to find out: Is it really true? Are we really too poor to put America back to work making and building the things we need to maintain a prosperous nation?

Searching for an answer, I discovered a small (but growing) group of economists (see here, here, here, here, here, here) who represent an emerging school of thought known as “modern monetary theory” (MMT). These men and women are valiantly trying to make us all understand a paradigm shift that occurred some forty years ago, when the world abandoned the gold standard. Their key insight shocked me: A sovereign government is never revenue constrained when it is the Monopoly issuer of its own pure fiat currency; it has all the money that’s needed to put its citizens to work building anything—and providing any service—that is desired by the public (provided the real resources are available). Even more remarkable, sovereign “deficits” in the fiat currency are just the accounting record of the surpluses that have been injected into the private economy. Eliminating the sovereign currency deficit by imposing austerity will not make the economy healthier; it will, in effect, bankrupt the citizens!

If this seems to defy logic, stay with me for just a few minutes. I’m going to propose a simple exercise that will help you “see” this reality for yourself. The exercise is simply that everyone join me in a familiar game of Monopoly. By the end of the game, I hope to convince you that MMT is correct and that we could be doing better, much better – for ourselves and future generations—if we just understood and took ad vantage of our modern monetary system.

Let’s begin.

Playing Monopolis Monopoly

We’ll play by the normal rules (I’ll suggest some added features as we go along) except this time we’ll pay special attention to certain things that are happening. For example, you’ll recall that before the game can begin, one player has to agree to be the “banker” (a tedious task, but someonehas to do it.) But now choosing this person has a special importance: it must be done democratically, with the players voting to determine who will manage the game’s money. We’ll do this little exercise because we want to pay special attention to the fact that the Monopoly “bank” is an entity created by the players themselves for their mutual benefit. In fact, we won’t refer to it as the “bank” anymore, but instead will call it our “currency issuing government” (CIG). In a real sense, we all “own” CIG together, and taking a minute to democratically choose who will manage it heightens our awareness of this key fact.

To reinforce this awareness, the next thing we’ll think about, as we set up the Monopoly board, organize the Deed Cards, shuffle the Chance Cards and choose our tokens, is that what we are really doing is setting up, and getting ready to operate, a miniature nation-state. Let’s even give it a name: Monopolis. We, the players, are the new citizens of Monopolis. We have just established, through democratic consensus, our currency issuing government, and we are now getting ready to operate our economy. That’s what the game is about.

Issuing the Currency

As we get ready to play, we immediately discover an odd dilemma: CIG has all the money! We, the players, are ready to go but we can’t start the game until we have some of CIG’s money. This is an awkward moment, which is dispensed with so quickly in regular Monopoly we hardly notice it. (The “banker” is instructed to make initial cash distributions in the amount of $1500 to each player). If we pay attention, we can see that this moment raises some interesting and crucial questions.

The first question is: are we not playing the game backwards? Isn’t it us, after all, who have to give our money to government before it has any money to spend on anything? Politicians are telling us this all the time: “Your tax dollars are going to pay for this or that.” And, as will become clear, at the state and local level, this is certainly true. But at the federal level—at the level of the sovereign state—the game of Monopoly provides us with our first clue that something is fundamentally different now from what we habitually imagine it to be.

The CIG we’ve created for our nation of Monopolis, in fact, has exactly the same purpose, and exactly the same unique and special power as any government that issues its own sovereign currency: Its purpose is to issue and manage the money we are going to play our game with, and the special power we’ve granted it is the ability to create as much money as necessary for our game to go on as long as we want it to.

Indeed, the rules of Monopoly specifically state that while players can run out of money (in which case they are bankrupt and out of the game) the Monopoly “bank” itself can NEVER run out. In the event the game unfolds in such a way that all the pink and green and blue and gold bills that come in the box are absorbed by the players, the Monopoly rule book instructs the banker to get out a pencil, paper and scissors and create new money as needed. (This is the definition of “fiat money”—money that gains its acceptance simply by decree.)

So it appears we aren’t playing the game backwards after all. The currency does flow from CIG to the players, and when we give some of that money back—in the form of taxes, or fees, or fines— by logic it cannot be because CIG needs that money. In fact, the CIG could take all the money it receives (in taxes, fees or fines) and simply shred it and throw it away: it has no need for it, because when it needs money it simply “issues” the currency. The first time I tried to wrap my thinking around this set of ideas my primordial brain-stem resonated with knee-jerk objections. (I’m not alone. See here)

Indignant as I might get, however, Monopoly forces me to realize that if I want to play the game, I have to accept the fact that the CIG gets to create the money, and I have to use the money it creates. I could insist otherwise, demanding that each player bring to the table his own private stash of gold and silver. In fact, it was just forty years ago that the real world played the game in exactly this way, and the long history associated with that experience is what implanted our brain-stems with Neanderthal beliefs about what money is and how it works. But as will become evident (if we can ever get started) the game proceeds with much greater efficiency and potential for economic growth (prosperity for more and more people) if we use our CIG’s fiat currency, which has an unlimited supply, as opposed to the player’s “gold and silver” which has a limited quantity.

Monopolis Players have Jobs

As I mentioned, “plain-game” Monopoly glosses over all these issues by directing the “banker” to simply make initial cash disbursements of $1500 to each player. In our game of Monopolis Monopoly, however, we want to emphasize that people work for a living. So we begin our game by having our government buy something it needs from each of the players.

For example, I’m a writer-architect, and the government pays me $1500 to write the Monopolis rules. You are a builder, and the government pays you $2500 to build a network of roads that will allow lumber and materials to be transported to the Monopoly board properties. Sister Sue is an administrator, and the government pays her $2000 to create the Balance Sheet we’ll use to keep track of the game’s transactions. So now we’ve each done a bit of work, have modest cash positions, and we’re ready to begin the game. Before we do, however, let’s look at the Balance Sheet sister Sue has created. Keeping this Balance Sheet up to date, and paying attention to it from time to time, is going to be important.

Finally! We’re ready to roll the dice to see who goes first. As we play, we should begin to notice the fact that there are two different kinds of transactions occurring. One set of transactions takes place among the players themselves: I land on your property and have to pay you rent. Let’s say I land on Vermont Avenue and I have to pay you $50; then you land on Baltic Avenue and have to pay Sister Sue $75; then Sister Sue lands on Charles Street and has to pay me $150. Let’s think of these transactions as happening within something we can call the “private sector”, and update our Balance Sheet to look like this:

There are two things to notice here. First, the transactions within the private sector are a zero-sum game. That is, while the net balance in the account of any one player may change, depending on the play of the game, the total of these net balances will always add up to the total amount of currency in the game.The second thing to notice (if you hadn’t already) is that the total currency assets in the private sector—no matter how they are distributed based on the play of the game—are always equal to the debit account (the “deficit”) of our currency issuing government.

 

Horizontal and Vertical Transactions

MMT economists refer to the transactions within the private sector as “horizontal” transactions. These include all transactions between households, businesses, corporations and state and local governments. What they call “vertical” transactions are those between the private sector and CIG.

Our government’s initial procurements of services from Me, You and sister Sue were vertical transactions. We can observe another vertical transaction the first time a player passes Go. When this happens, Monopoly stipulates that the “banker” will pay that player $200; it will then continue with the same payment to each player each time they pass Go throughout the game.

We can think of these “Go payments” as being analogous to many different things in the real economy—the federal government paying someone to mow the front lawn of the White House, for example, or sending out a social security check to our grandmother. At this point, it doesn’t really matter. What we do want to notice, however, is what these “vertical” transactions do to the Balance Sheet. Let’s say each player has now passed Go:

What we can clearly observe is that while the Private Sector continues to be a zero-sum game, the “vertical” transactions generated by the “Go payments” have increased the size of that sum. And, once again, the new total of currency assets in the private sector is exactly equal to the “deficit” debit account of our CIG. (Indeed, how could it be any different?)

Expanding the Economy

Now let’s add some “fiscal events” to make our game more interesting. The first “Fiscal Event” I propose is the building of an aircraft carrier. It’s a well-known fact that governments like to purchase aircraft carriers, so it is entirely reasonable to suppose that our little nation-state would like to have one as well.

We can get an aircraft carrier into our game in exactly the same way the U.S. government gets one into its fleet: It goes to the Newport News shipyard and buys one. In Monopolis Monopoly, we’ll simulate this event by pretending that one of the players is the shipyard—You, for example, since you’re the builder amongst us. You give Monopolis its aircraft carrier and CIG pays you for this good by injecting $10,000 into your currency account.

What’s worth noticing here is that this vertical transaction has injected a considerable amount of currency into our game, but that money has been used to build something that does NOT add to the inventory of things that players can buy. Since none of the players in the private sector have any need for an aircraft carrier, our choices of things to spend our money on are still limited to the properties on the Monopoly board and the houses we can build on them—only now we’ve got a lot more money to throw at those things. In one sense, then, the government’s decision to build an aircraft carrier, while it may benefit our common defense, doesn’t really expand the economy of our game. That’s something to think about.

Building Codes and Government Regulation

Politicians argue a lot about whether government regulations are good or bad for the economy. From at least one perspective, however, if we insert government regulation into our Monopolis Monopoly game, the result is a big surprise.

To see this, let’s create a regulation. Since our game involves the building of houses and hotels, let’s have our regulation be a Building Code. Not just any Building Code, but a big, thick, extremely complex and detailed one like the International Building Code adopted by virtually every city in the United States. Once in place, the rule stipulates that players cannot build a house or hotel without meeting the requirements of the Code.

How does the government create such a Code? In exactly the same way it acquires an aircraft carrier: it pays someone to figure out what should be in the Code, pays them to write it, to illustrate it, to publish it. I would venture to guess that the International Building Code likely cost almost as much as an aircraft carrier, so I volunteer myself to be the player the government pays to write it. After I deliver the hefty volume, CIG transfers $7,500 into my currency account.

What we should notice here is that, like the aircraft carrier, the writing of the Building Code has injected a major sum of currency into the game. But something else has happened as well: The Building Code gives rise to a multitude of “services” which the game players now need, and which they can buy with their money. These are the services of professional experts who are trained to understand the Building Code (which is completely incomprehensible to those of ordinary intelligence). In our game, I have volunteered sister Sue to be the provider of Code Services to the other players. As can be seen on the Balance Sheet, both Me and You have paid Sister Sue for some of these services, and will continue to do so each time we add a house to one of our properties.

Unlike the aircraft carrier, then, the Building Code injects currency into the game and creates new things for the players to spend their money on. This particular government regulation, then, actually expands the economy of our game. This also is worth thinking about.

Enabling Structures

The sun’s been down an hour now, and the room we’re playing Monopolis Monopoly in has gotten pretty dark. Sister Sue turns on a light and—to our great surprise—we find we’re not alone! While we’ve been busy rolling the dice, clomping our tokens around the Monopoly board, and counting our stashes of currency, the neighbors have come over. They’re standing around, leaning against the walls, watching us with keen interest. They’re noticing all our pretty houses and hotels and colorful money, and I can tell from the expression on their faces that they want to join in the fun.

Fine with me, except there’s a problem: You and Me and sister Sue already own all the property on the Monopoly board. If the neighbors join the game there won’t be any property for them to buy, and without property, they couldn’t work with You to build a house, or hire Me to design one, or sister Sue to interpret the Building Code. So there’s really no way they can participate in the game.

But a couple of these folks are leaning forward now in a determined way, hands pushed in their pockets in a manner that suggests they might be coming out of their pockets at any moment, and I’m starting to get worried. There are a couple of kids, hanging onto their mother’s dress, who look like they haven’t eaten in two or three days. Sister Sue is looking at them and getting tearful.

Suddenly, I’m struck by a lightning bolt idea, and I immediately share it with the other players: The government of Monopolis should build a series of structures on the Monopoly board that creates new properties that players can build more houses and hotels on. I suggest calling them “Enabling Structures” because they will enable the neighbors to participate in the game. I quickly design a prototype:

The path of play around the board will now zig-up through the Enabling Structure and zag-down to the lower board, with the players either claiming possession of or paying rent to the owners of the Enabling Structure Lots.

How will the government build the Enabling Structures? Just like it buys an aircraft carrier or a building code, and I nominate myself (it was my idea, after all) to be the Enabling Structure developer. I build them all around the monopoly board, effectively doubling the number of properties and houses and hotels players can now buy in the game. To compensate my efforts, CIG injects the tidy sum of $8,000 into my currency account.

Now the neighbors can join the game, except they still don’t have any money to begin playing with—the same dilemma, recall, we started out with ourselves. Sister Sue proposes that our currency issuing government is perfectly capable of paying each of the neighbors to build a house on the first “Enabling Lot” they land on, and this procurement by our Monopolis government will become their “start-up” cash for playing the game. The new player will then pay “rent” back to CIG each time they pass go, until those payments equal the original procurement, at which point they will own the houses outright.

Whew! Now the neighbors are in the game, and after a few rounds, they’ve acquired property and built some houses, and the game proceeds just as before, except now there are more of us playing. And while the building of the Enabling Structures—and the government’s procurement of the first Enabling Structure houses—has injected a big chunk of currency into the private sector, it’s also created a LOT more things for the players to buy and sell to each other: more properties, more houses, more building services, more design services, and more services to interpret the Building Code. That’s really something to think about.

Here’s where we need to pay close attention

As the neighbors get more deeply involved in the game, building houses, collecting rents, passing Go, our currency issuing government is going to quickly run out of the money that came in the Monopoly box. So, for our game to continue, we have to follow the Monopoly rules (already stated) which instruct the “banker” to get out pencil, paper, and scissors and begin creating more currency to keep up with the expanding needs of the game.

Now there may be some folks at the table who are genuinely alarmed by this idea. They may tell us that the government cannot just “print money” because that will inevitably lead to hyper-inflation; that the government, just like all the rest of us, must “live within its means.” Their heated arguments might persuade other players too, because, well…it’s just obvious that “printing money” and running up the sovereign “deficit” is the road to serfdom.

The question is, should we listen to them? Let’s update our Balance Sheet and see what we think. (To keep the Balance Sheet fitted on the page, I’ve combined the neighbors transactions into a single column; I’ve assumed there are three of them, that they’ve each claimed an Enabling Structure lot, that CIG has paid each of them $1500 to build a house on that property, and they’ve each made one rent payment of $100 back to CIG.)

It’s clear, looking at the Balance Sheet that our CIG continues to run a “deficit”. It is also clear (especially since the neighbors joined the game) that this deficit has been growing at an increasing rate. But in what sense does that deficit become a “debt” that we, the players, should worry about paying back? The balance sheet shows that the CIG’s deficit is not our debt at all, but simply a record of the currency that’s been issued into our game. And where did all that “deficit spending” end up? Look again at the balance sheet: it’s in the accounts and assets of the players themselves.

Maybe we should think of something else to call it

When my personal bank account is in “deficit”, that is something I worry about. When a city or state government has a “deficit”, that’s also something to worry about because we have not given our “local” governments the power to issue the currency (they are users of the currency, just like the rest of the players.) When their coffers are empty, they have to make tough choices and cutback on their spending. But when we say our sovereign government has a growing “deficit”, we are badly misleading ourselves if we use the word the way we do when we think of our own bank accounts. What Monopolis Monopoly is showing us is that our sovereign “deficit” is in fact a balance sheet accounting of our own financial wealth. And why we would want to reduce that is a mysterious thing indeed!

MMT versus Neanderthal Economics

Actually, there’s only one reason we’d want to make ourselves miserable by imposing some arbitrary budget rule or fiscal austerity on our game: because we still believe we’re operating under the rules of what might now be called “Neanderthal Economics,” which go something like this:

“We must adhere to the principles of ‘sound money’ for if we do not, our citizens will lose faith in the currency and begin converting it into gold. To prevent this from happening, the sovereign must spend only what it takes in. If it tries to spend too much, its gold reserves will be depleted and it will be forced into bankruptcy just like anyone else.”

And what if, believing this, we actually eliminated the deficit and began running surpluses? Well, in that case it’s obvious our game of Monopolis Monopoly would quickly come to an end: Our CIG would have all its money again, but the players would have nothing with which to play the game. At that point, we might just as well pack everything neatly into the Monopoly box and put it back on the pantry shelf.

The astute player will object that we’ve left out too many things for our game to really mean anything: Private banking, for example, or managing inflation, or bonds and interest rates (if the Fed doesn’t “need” money, then why does it seem to borrow so much of it?) Next time we play Monopolis we could add those in, but they won’t change the basic MMT truths that our simple version of the game has revealed:

A society with a sovereign fiat currency can build any thing or obtain any service it deems necessary or desirable, so long as the citizens of that society are willing and able to build the thing, or provide the service, in exchange for the fiat money. The sovereign deficit, no matter how large it may grow, is not like a shortfall in your own bank account: it is the balance sheet record of the

money that was transferred to our side of the ledger.

The implications of this, I believe, are simply astounding.

Indian consumer prices rose by +10.36% in April YoY, as food prices increased, and higher than the +9.38% in March. Headline WPI rose to 7.2% in April, up from 6.9% in March. However, lower oil prices (particularly if sustained) will help materially in coming months;

The Bank of Spain reported that bad loans increased by 1/3rd over the last year to E148bn (over 3 months late). In March, bad loans rose to 8.37% of banks portfolio, the highest level since the property market collapsed and the highest since August 1994, up from a restated 8.30% in February. Some analysts suggest that bad loans may increase to 15% of the banks portfolio. Bank deposits rose slightly in March from February, but fell to E1.16tr or down -4.0% in the year to March 2012;

Spanish newspapers (El Mundo) report that Spain’s 2011 budget deficit will be even higher than previously reported (increased to 8.91% of GDP), from the previous 8.5% (which itself was far in excess of the 6.0% target), as several regions, including Madrid (though also Valencia, Andalusia and Castille-Leon), reported higher deficits – according to information from the Spanish Ministry of Finance. Here we go again. Spain claims that they will meet the target of 5.3% of GDP this year and 3.0% next. However, the EU forecast that Spain’s budget deficit will amount to 6.4% this year and 6.3% in 2013;

April’s ECB data reveals that lending to Spanish banks rose by 16% or E36bn to a record E264bn, accounting for 69% of total ECB lending to EZ banks. In contrast Spanish banks deposits at the ECB declined by 40% or approximately E35bn to approximately E53bn, well lower than the record of near E89bn, following the 2nd LTRO;

LCH Clearnet has raised the margin requirements on trading Spanish bonds. The news from Spain just gets worse and worse;

Just 1 more on Spain. Mr Hollande, the recently elected French President states that Spain will be able to use the EFSF/ESM to recap its banks. The rules need to be changed to allow this. However earlier in the day, Mr Ollie Rehn denied that Spain would require financial assistance from the EFSF/ESM in respect of it’s banks. Same old confusion. However, at the end of the day, Spain will require funding from the EFSF/ESM for it’s banks and itself;

Deutsche bank state that Irish banks may need more capital to cover as much as E4bn of additional bad loans than that assumed in last years stress tests. This will involve the Irish government requiring a further bail out. The Irish government has injected some E63bbn into it’s banking sector to date. The 10 largest Irish financial institutions have lost some E118bn in bad loans in the 4 years to last December. The Irish government claims that it’s banks have adequate capital, including appropriate buffers and will not need another bail out.
Most recent polls suggest that over 60% of the Irish population will vote in favour of the fiscal compact – I agree they will vote in favour. To do otherwise would mean that the Irish get no further access to funding;

The EU trade Commissioner stated that the EU is working on contingency plans in case of an exit by Greece from the Euro. Well great, but it would be better if Mr Karel De Gaucht just shut up. One of the big problems with the EU/EZ is too many people unnecessarily opening their mouths and just making the situation worse. Other EU sources denied the comments;

The BoE’s Adam Posen has become more dovish, stating that he was premature in stating that further stimulus was unnecessary. More QE is likely in the UK, but buying more gilts is futile, as the BoE already owns over 30% of the gilt market. Targeted purchases of mortgages would be far more useful, though the governor of the BoE, Mr Mervyn King, has expressed concern that such a course of action could involve the BoE taking unacceptable credit risks. I hope he changes his mind. Having said all that Paul Fisher, the BoE’s exec director for markets and on the Monetary Policy Committee stated that the BoE had concluded that the existing £325bn programme was sufficient, unless there were any “economic storms”;

Bloomberg and the WSJ reports that JPM’s losses on its huge derivatives and other instruments may rise to US$5bn. A definite whoops. The problem however is that these positions remain open (some say it will take till the end of the year to close) given their size and, as a result, the final bill will remain unknown for quite some time. In addition, hedge funds are likely to trade against these positions as they smell “blood in the water”. Regulators are scrutinising these trades far more carefully and I fear that more bad news is likely;

Employment rose in 32 US states in April lead by Indiana and Texas, whilst unemployment declined in 37 states, suggesting that the US labour market continues to improve. In addition, housing starts increased, with mortgage delinquencies lower, retail sales data was roughly as expected, industrial production and capacity utilisation higher, jobless claims slightly weaker and divergent (though suggests a slowing) Philly and Empire State data, though generally indicating some weakness. Overall, the data suggests continuing modest growth in the US;

In spite of stimulus measures, Brazil’s economic output declined by -0.35% in March MoM as opposed to a forecast of growth of +0.4% to +0.5%, making Brazil’s growth the 2nd slowest (after Argentina) in South America. Real GDP rose by just +1.1% in the 1st Q on an YoY basis, though slightly higher than the +1.0% in the 4th Q of 2011. Remember talk of the BRIC’s growth  “decoupling” from developed markets – just wonder where that’s gone !!!. It was and remains total rubbish;

Copper prices have turned negative for the year – not a good sign, as copper is a leading global economic indicator. In addition, various bullish trades by the Chinese may reverse – the Chinese have been using copper inventories as a source of financing given difficulties in accessing financing elsewhere, whilst ignoring the impact of a potential decline in prices. This could well be a definite whoops, as prices decline further;

Facebook’s IPO seems to have been a bit of a damp squib. The shares, priced at US$38 had to be supported by underwriters and closed at US$38.23, just +0.6% above the IPO price. Sure to attract the shorts. The weak performance adversely impacted markets/sentiment on Friday;

The CFTC reported last Friday that Hedge Funds and other money managers had reduced their long positions significantly in oil – to just 3.2 to 1 from 6.2 to 1 the previous week, the lowest since October 2011 and the equivalent of 54mn barrels – the largest decline since June 2006. However, the COT also reports that a category of investor defined as “other reportables” had increased their long positions and now have larger gross long and short positions and a larger net position in the market than hedge funds, CTA’s and other money managers. Who are the mysterious “other reportables”. I have my suspicions, but need to check out first. This issue could well prove to be important – watch it carefully (Source FT);

Outlook

Declines in energy, food and commodity prices will materially lower inflation in coming months – good news. A decline in inflation will provide Central Banks (FED, BOE, BoJ, ECB) the opportunity to consider further monetary easing measures, including addition QE by the FED and the BoE – the BoJ may also step up easing. The ECB is very likely to cut interest rates in the near future, though may wait until the outcome of the Greek elections is known ie a cut (25bps minimum, though possibly 50 bps) in July?, though it may be brought forward to June, if there is more bad news from Greece, later in the event of good news from Greece. However, I for one don’t believe that that will be sufficient and a resumption of bond purchases of, inter alia, Spanish and Italian debt by the ECB is very likely, particularly if Spanish yields rise to closer to 7.0%.

Portugal will need and will get another bailout – to be announced ahead of September (being 1 year ahead of the redemption of a large sovereign bond in September 2013) ie August at the latest, but most likely in June/July, to fulfill IMF requirements that a country must be able to finance itself 1 year hence – clearly impossible for Portugal. It would be great if at that time the EZ restructures Portuguese debt to sustainable levels. There is also a growing possibility of Ireland requiring a further bail out, even though the data (ex the banks) is improving.

All of the above, together with the total mess in the EZ, should weaken the Euro further in my humble view, in spite of my expectation that the FED will introduce another (version of a) QE programme.

Markets were weaker, yet again, last week. Whilst  I expect markets to open lower on Monday, I expect some stabilisation in the early part of the coming week. However, amongst other things, HSBC flash May Chinese PMI is due on Thursday – the odds are that it will disappoint (weaker A$ likely?), which may well put pressure on markets later in the week. Then you have the EZ……

Initial comments coming out of the G8 meeting are the same old hot air wishy washy claptrap that these meetings normally generate.

ECB policy will focus more on EZ countries ex Germany and, in particular, the peripherals, especially given Schaeuble’s comments that Germany would “accept” inflation within a “corridor” of 2.0% to 3.0%, something which I believe remains hugely significant, but (amazingly) seems to have been ignored by the markets to date.

Have a great weekend.

Kiron Sarkar

19th May 2012

RNN interview with Jeff Cohen, director of the Park Center for Independent Media at Ithaca College, and founder of the media watchdog FAIR. He is the co-founder of RootsAction.org.

More at The Real News

From the transcript:

RNN: Well, Jeff, what do you make of the argument from the Green Party, from the Justice Party, some of the other third parties that are being organized, that that’s where the effort should be, the electoral strategy really needs to be about building a third progressive party, and whether it’s one of those or some alliance of those, I guess, is still to be seen, but that that’s where the effort should be?

COHEN: I am a graduate of that. I’m a recovering that. You know, I worked in Barry Commoner’s third-party campaign in 1980, the best presidential candidate no one ever heard of. You know, you can decide that your progressive electoral activity is going to be getting protest candidates 1 or 2 or 3 percent of the votes. I prefer trying to work in primaries where we have a chance of actually winning, where you can bring that same full Green Party or independent progressive agenda into a much vaster audience and you can actually win a primary.

What could go wrong?

While we were off at NVIDIA’s GTC 2012 conference seeing NVIDIA’s latest professional products, NVIDIA’s GeForce group was busy with some launches of their own. The company has quietly launched the GeForce GT 610, GT 620, and GT 630 into the retail market. Unfortunately these are not the Kepler GeForce cards you were probably looking for.

  GT 630 GDDR5 GT 630 DDR3 GT 620 GT 610 Previous Model Number GT 440 GDDR5 GT 440 DDR3 N/A GT 520 Stream Processors 96 96 96 48 Texture Units 16 16 16 8 ROPs 4 4 4 4 Core Clock 810MHz 810MHz 700MHz 810MHz Shader Clock 1620MHz 1620MHz 1400MHz 1620MHz Memory Clock 3.2GHz GDDR5 1.8GHz DDR3 1.8GHz DDR3 1.8GHz DDR3 Memory Bus Width 128-bit 128-bit 64-bit 64-bit Frame Buffer 1GB 1GB 1GB 1GB GPU GF108 GF108 GF108/GF117? GF119 TDP 65W 65W 49W 29W Manufacturing Process TSMC 40nm TSMC 40nm TSMC 40nm TSMC 40nm

As NVIDIA was already reusing Fermi GPUs for GeForce 600 series parts for the OEM laptop and desktop market, it was only a matter of time until this came over to the retail market, and that’s exactly what has happened. The GT 610, GT 620, and GT 630 are all based on Fermi GPUs, and in fact 2 of them are straight-up rebadges of existing GeForce 400 and 500 series cards. Worse, they’re not even consistent with their OEM counterparts – the OEM GT 620 and GT 630 are based off of different chips and specs entirely.

At the bottom of the 600 series retail stack is the GeForce GT 610, which is a rebadge of the GT 520. This means it’s either a GF119 GPU or cut-down GF108 GPU featuring a meager 48 CUDA Cores and a 64bit memory bus, albeit with a low 29W TDP as a result. This is truly a rock bottom card meant to be a cheap as possible upgrade for older computers, as even an Ivy Bridge HD4000 iGPU should be able to handily surpass it.

The second card is the GT 620, which is a variant of the OEM-only GT 530. With 96 CUDA cores we’re not 100% sure that this is GF108 as opposed to the 28nm GK117, but as NVIDIA currently has a 28nm capacity bottleneck we can’t see them placing valuable 28nm chips in low-end retail cards. Furthermore the 49W TDP perfectly matches the GF108 based GT 530. Compared to the OEM GT 620 the retail model has twice as many CUDA cores, so it has twice as much shader performance on paper, but because of the 64bit memory bus it’s going to be significantly memory bandwidth starved.

The final new 600 series card is the GT 630, which is a rebadge of the GT 440. Like the GT 440 this card comes in two variants, a model with DDR3 and a model with GDDR5. Both models are based on GF108 and have all 96 CUDA cores enabled, and have the same core clock of 810MHz. At the same time this is going to be the card that deviates from its OEM counterpart the most. The OEM GT 630 was a Kepler GK107 card, so this rules out getting a Kepler based GT 630 retail card any time in the near future.

As always, rebadging doesn’t suddenly make a good card bad – or vice versa – but it’s disappointing to once again see this mess transition over to the retail market. We hold to our belief that previous generation products are perfectly acceptable as they were, and that the desire to have yearly product numbers in an industry that is approaching 2 year product cycles is silly at its best, and confusing at its worst.

Here's something I accidentally just found when I was searching for something else: it's from a July 17, 2002, interview of tennis legend Martina Navratilova, who had been a naturalized U.S. citizen at that point for more than 20 years. She was interviewed by Connie Chung, then the host of a prime-time CNN program, Connie Chung Tonight, where she played the role of neutral journalist. This was the very first question-and-answer exchange; it's just remarkable:

INTRO [announcer]: Life after center court turns hot. Tennis legend Martina Navratilova, is she anti-American? Tonight, Martina sets the record straight with Connie. . . .

CHUNG [intro]:  It's not the game that's now getting Navratilova in the news again. The very personal admission to a paper that she wants to adopt a child and some very damaging quotes in German newspaper allegedly made by the tennis phenom. . . . All of this has pitted Navratilova against the country that has given her so much.

CHUNG [interview starts]: All right. I'm going to read what was said, a quote from that German newspaper. Quote: "The most absurd part of my escape from the unjust system is that I have exchanged one system that suppresses free opinion for another. The Republicans in the U.S. manipulate public opinion and sweep controversial issues under the table. It's depressing. Decisions in America are based solely on the question of how much money will come out of it and not on the questions of how much health, morals or environment suffer as a result."

So, is that accurate? . . . .

NAVRATILOVA: Well, obviously, I'm not saying this is a communist system, but I think we're having -- after 9/11, there's a big centralization of power. President Bush is having more and more power. John Ashcroft is having more and more power. Americans are losing their personal rights left and right. I mean, the ACLU is up in arms about all of the stuff that's going on right now. . . .

CHUNG: Can I be honest with you? I can tell you that when I read this, I have to tell you that I thought it was un-American, unpatriotic. I wanted to say, go back to Czechoslovakia. You know, if you don't like it here, this a country that gave you so much, gave you the freedom to do what you want.

NAVRATILOVA: And I'm giving it back. This is why I speak out. When I see something that I don't like, I'm going to speak out because you can do that here. And again, I feel there are too many things happening that are taking our rights away. 

CHUNG: But you know what? I think it is, OK, if you believe that, you know, then go ahead and think that at home. But why do you have to spill it out? You know, why do you have to talk about it as a celebrity so that people will write it down and talk about what you said?

NAVRATILOVA: I think athletes have a duty to speak out when there is something that's not right, when they feel that perhaps social issues are not being paid attention to. As a woman, as a lesbian, as a woman athlete, there is a whole bunch of barriers that I've had to jump over, and we shouldn't have to be jumping over them any more.

CHUNG: Got you. But sometimes, when you hear celebrities saying something, do you ever say to yourself, I don't care what so and so thinks, you know. Yes, go ahead and say whatever you want to say. But you're not a politician. You're not in a position of government power or whatever.

NAVRATILOVA: No. And I just might do that. I may run for office one of these days and really do make a difference. But...

CHUNG: Are you kidding me?

NAVRATILOVA: No, I'm not. One of these days, hopefully. But when you say go back to Czech Republic, why are you sending me back there? I live here. I love this country. I've lived here 27 years. I've paid taxes here for 27 years. Do I not have a right to speak out? Why is that unpatriotic?

CHUNG: Well, you know the old line, love it or leave it. 

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