Remember the huffing and puffing by Cheney that the American way of life was not negotiable, in the face of mammoth oil prices that proved that it certainly was?

It now seems that negotiability might be wishful thinking. The Chinese, who buy our debt, are making noises that sound awfully like they are about to try and dictate the American way of life. This is what the Chinese premier is saying about America, and it doesn’t sound like he’s ready to bargain:

“their unsustainable model of development, characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit; lack of self-discipline among financial institutions and ratings agencies and ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations, which allowed the risks of financial derivatives to build and spread”

Link

[Living in downtown Manhattan is rather like being in the Walled City of Kowloon]

The place where I live, specifically, the few blocks where I live in New York’s financial district, resembles the fabled Walled City of Kowloon having the highest population density in the world. It is known affectionately as ‘The Canyons’, on account of the combination of an 18th Century organic, narrow street pattern and 20th Century skyscrapers.

[The street where I live, in the canyons.]

During weekdays, every horizontal surface takes a beating that compares to a continuous exodus from a stadium event. Road surfaces are a patchwork quilt of tarred repairs, near indestructible travertine slabs outside corporate HQs are cracked and worn and the Fulton St. subway looks like an abandoned ruin, on account of the fact that it is the exact opposite. Even the cookie-cut design of the Starbucks on the corner next to J & R shows signs of decay in the varnish that has worn from the floorboards, rendering it unlike the sanitized Starbucks elsewhere that are stamped from exactly the same mold.

(more…)

Federal borrowing till end of 2007:

Federal borrowing till end of 2008:

This comes with the following scary statistic:

“The cost of the bailout ($4.6165 trillion) exceeds the inflation adjusted cost of the Marshall Plan, New Deal, S&L Bailout, Nasa’s Lifetime Budget, the Korean, Vietnam, and Iraq wars and also the Lousiana Purchase, combined ($3.92 trillion). “

The don’t panic argument comes from the fact that the above sentence doesn’t include the WWII spending which resulted in a similar debt as a percentage of GDP, and things worked out OK for the US.

The problem is that the US was more like China, at the end of WWII, essentially a creditor nation that made things for the rest of the world.

The bottom line is that the best we can hope for here is a period of very aggressive inflation as a global recovery starts. All the more reason to reduce dependence of oil during this respite from inflation.

Link

John Thain, head of Merrill Lynch was fired by BofA chief, Ken Lewis, last week, after the Financial Times revealed that he had accelerated several billion dollars of executive bonuses. The bonuses were made possible after a bailout. In other words, tax payer cash is ironically what prevented this from being illegal conveyance of funds in a bankrupt company.

Anyone who has worked in an American company of even modest size will know that politeness to departing executives is a result of the threat of litigation.

I worked for a company where the CEO slept with an employee and then threatened to fire the employee for not continuing to agree to do so, which resulted in a sexual harassment suit. This was actually one of the more minor infractions, but it was the one that surfaced. Publicly, this CEO was not fired, but ‘resigned’ with an agreement that the details of this would never surface, because the board felt threatened by the CEO’s history of being litigious.

Similarly, John Thain ‘was resigned’. However, over the course of the last week something interesting happened. In newspaper coverage, resigned changed to dismissed, and even to fired. This tiny flicker of rebellion suggests that the litigation shell is cracking and if it continues it will spiral. From an historical perspective, it is even possible that Thain will end up in jail.

We are in a dangerous time where similar economic problems have historically led to public unrest. There will be a lot of public anger, and there needs to be a plan to deal with it. There are arguments on both sides as to whether focusing anger augments it or channels it away.

Evans Pritchard points out that we are a long way from 1933, where public anger was destabilizing:

The New York Stock Exchange and the Chicago Board of Trade had closed. Thirty-two states had shut their banks…Illinois and much of the South had stopped paying teachers. Schools closed for months. An army of 25,000 famished war veterans squatting in view of Congress had been charged by troopers of the 3rd US cavalry with naked sabres – led by a Major George Patton… More than 100,000 New Yorkers applied to go to the Soviet Union when Moscow advertised for 6,000 skilled workers.

Will channeling public anger against Wall St. make things worse or create an outlet? Evans Pritchard suggests that in the Depression, actively punishing Wall St. helped, and that FDR channelled public “anger against Wall St., diffusing it”.

Although revenge is sweet, directing mob anger at people like Thain could make things worse. Currently, the government (and Ken Lewis) may be able to quietly purge places like Merrill and put things in order rather than publicly lynch Thain. But they can’t do nothing at all, because as Evans-Pritchard points out, we are in 1931 and 1933 is around the corner.

Link

Click for larger view.

Nothing sums up what has happened better than this. Given the bailouts, its fair to say that in 2008 the majority of the worlds best known banks were bankrupted.

Via FT Alphaville.

Ambrose Evans-Pritchard is the business editor of the Telegraph, a conservative UK broadsheet. In other words a senior figure in a serious newspaper with a sober character. What he writes today is downright alarming.

“I am seriously worried that British government is losing control…The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn…We cannot even do what Iceland did to save its skin…The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.”

“England has not defaulted since the Middle Ages. There is a real risk it may do so now.”

Link

Felix Salmon spells out the case for unavoidable nationalization of banks:

“Let’s work from an ex hypothesi assumption that a certain bank — let’s call it Citigroup — is insolvent.”

Ha.

“For a bank, Chapter 11 is pretty much impossible, since you’re not going to find anybody to provide debtor-in-possession financing to keep it going. Except the government. And if the government is in possession, then, hey, you’ve just nationalized the bank.

As for liquidation, that’s not an option, because Citigroup is too big to fail. Dumping Citi’s trillions of dollars of assets onto the market in a fire sale would depress asset prices worldwide so much that we’d enter a global depression, not just one in the US.”

It would be logical for the US to blackmail other countries for help, with the threat of letting another big one go down, impacting everyone. That blackmail is built into the system already, however, in the form of Treasuries.

As for nationalization, one way of reducing the size of forest fires is to limit the growth of trees. Limiting the growth of banks comes from regulation and all roads lead to it.

In all scenarios, and however it is dressed up, the US is looking at a period of partially socialized, loss making, non-free market banking. Meanwhile US tax payers still won’t get the benefits of the good types of social infrastructure, such as universal healthcare, which incidentally costs less than what we already pay. Its a pity.

Link

Is the announcement of fart gas on Mars, just before a new administration and NASA budget comes into play the biggest news story ever?

The web has a tendency to promote news with good headlines rather than the truth. There is no better headline than ‘life on mars’ which has spread from the UK tabloid, the Sun, to Drudge, which makes a living from picking interesting headline links.

After the disappointment of the unconvincing find of fossil bacteria in a Martian meteorite scientists are more careful these days, but this time the omens are good. Its precisely because of this caution and the general fact that science is often not as dramatic as fiction that the serious news outlets aren’t able to run front page, ‘Life on Mars’ headlines.

Carl Zimmer live blogged the NASA press conference:

Mars is active and producing plumes of methane (which amazingly were discovered from Earth based telescopes not Martian probes).

The methane comes from volcanoes or bugs.

The evidence (lack of other volcanic gases, for example) points to bugs.

For further bug evidence we would need to look at isotopes in the methane.

To look for bugs we would have to either drill wide and deep (not going to happen soon) or if we are very lucky, scratch through a layer of permafrost.

Link

Chris Nedin writes about the analogy of evolution in a fitness landscape where fitness equates to climbing a mountain, and recommends turning the fitness landscape upside down:

“Adaptation is not climbing up Mt Improbable, it’s climbing down Pit Improbable! The pits are hard to find, but once in, it’s easier to go down than it is to back out, and if you adapt too far, you are trapped in a cul-de-sac with no way out when the environment changes.”

Although this makes sense, the very fact that we can flip the landscape shows that evolution requires a proper explanation in terms of physics, where the ‘pits’ are, perhaps, energy wells determined by the relationship between evolution and entropy.

The fitness landscape is a visual tool to help us understand eco-systems, rather like the rubber sheet visualization of gravity in General Relativity. Neither the geometry of space-time or fitness landscapes are actually stretchy 2D sheets in 3D space. But like gravity, which exists in curved 4D space, there may be a real geometry of evolutionary fitness landscapes.

The equivalent of ‘matter tells Spacetime how to curve, and Spacetime tells matter how to move’, would be something like:

‘organisms tell the fitness landscape how to curve and the fitness landscape tells organisms how to adapt’.

In that phrasing the fitness pits work best.

Now if only we knew the dimensions, let alone the geometry.

Link

This years Edge question is: What game-changing scientific ideas and developments do you expect to live to see?

Biocurious has a good overview of the answers, here.

My personal favorite is Stuart Kauffman’s answer, that large parts of the universe are free of physical law. A brilliantly argued piece of true scientific heresy (although here from a biological rather than a fundamental physics perspective). This is an idea which I have a hunch may be right, placing natural selection as the creation mechanism above gods and scientific law, rather than the the artifacts which are produced by them.