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The Creative-Destruction Deficit

Any capitalist nation must embrace the process of "creative destruction". Progress is made by allowing the new to replace the old. If people lose their jobs at MySpace, then it's not a problem because people are being hired at Facebook. People who use social-networking sites now have an (apparently) better service and nobody is calling for the government to save MySpace.

Saturday Reads Around The Internets

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Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made this reader's eyes pop.

Too Big To Fail Banks Just Got Bigger

The Wall Street Journal reports those TBTF TARP recipient banks just got bigger:

The top five U.S. commercial and investment banks — Bank of America, J.P. Morgan Chase, Citigroup, Wells Fargo and Goldman Sachs — have emerged from the financial crisis larger than ever. As of the third quarter of 2010, they had a total of $8.6 trillion in assets, according to data provider Capital IQ. That’s 13.3% of all U.S. financial firms’ assets, up from 11.8% three years earlier, when the financial crisis hit.

Oil Shocks & Recessions

As we've talked about, economist James Hamilton has published new research showing a strong correlation between sudden rise in oil prices and recessions.

Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.

He also analyzes price controls and their effect. Hamilton wrote a blog piece, with graphs, which overviews his conclusions.

Understanding The Democratic Party Power Structure

Former Congressional Staffer Matt Stoller has some amazing insights into the power structure of the Democratic party:

The Story of Citigroup's Extraordinary Financial Assistance

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SIGTARP released a new audit report, Extraordinary Financial Assistance Provided to Citigroup which should shock and awe.
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Citigroup was bailed out in November 2008, with $20 billion dollars plus $301 billion in asset guarantees. Now the Special Inspector General of TARP has gone back and done an audit, a forensic accounting of what really happened.

It appears Citigroup poses systemic risk was just screamed from the roof tops like Chicken Little and the solution was to throw money at it. No one bothered to check if this was even true, that Citigroup presented a systemic collapse of the global financial system if it failed. Even worse, while systemic risk is so complex, kind of a domino theory of multi-dimensions, yet to ascertain the possibility, it was implied why bother? From the report:

First, the conclusion of the various Government actors that Citigroup had to be saved was strikingly ad hoc. While there was consensus that Citigroup was too systemically significant to be allowed to fail, that consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria. Given the urgent nature of the crisis surrounding Citigroup, the ad hoc character of the systemic risk determination is not surprising, and SIGTARP found no evidence that the determination was incorrect.

World Bank Warns It Could Happen Again

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Just when you are lulled into sleep, thinking the financial crisis is over, here comes the World Bank with different ideas. While they start with how the world has economically recovered and all is well, later in the report are some not so swell numbers for the U.S. as well as warnings that the Globe could return to the financial crisis of 2008. Below is the World Bank's latest GDP growth projections for 2011 and 2012.

The Arc of Justice - The Ibanez Case Ruling

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By Numerian posted by Michael Collins


What is beginning to unfold before our eyes is a situation which can only be comprehended with jaw-dropping incredulity.

The Too Big To Fail banks have been waiting with trepidation for a ruling from the Supreme Judicial Court of the State of Massachusetts on the case titled US Bank National Association (as trustee) vs. Antonio Ibanez. They were right to be fearful. The state supreme court has ruled against the banks and upheld a lower court order that nullified foreclosures by US Bancorp and Wells Fargo, on the grounds that neither bank had the legal right under Massachusetts law to foreclose. Today’s ruling has far-reaching consequences for the banks and the housing market in general, as it throws into serious question the legal soundness of millions of mortgages in the US if, as expected, courts in other states come to similar conclusions as the Supreme Judicial Court of Massachusetts.

Volcker Resigns and Goldman Sachs Moves In

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The Obama administration is having a shake up. Former Federal Reseve Chief Paul Volcker is quitting. His final act? Trying to get real financial reform, known as the Volcker Rule and was beaten down at every turn.

Now here comes Goldman Sachs and JPMorgan Chase, straight into the White House.

Gene Sperling, a former Goldman Sachs consultant and more infamous, architect for many of the current consequences our economy is suffering, laid down in the Clinton administration, is slated to replace the equally corporate driven Larry Summers for the top economic adviser spot.

Even Time Magazine calls Sperling Obama's corporate Ambassador and Dean Baker suspects Sperling thinks asset bubbles are cool:

The primary issue is not that Sperling got $900,000 from Goldman Sachs for part-time work, although that does look bad. The primary issue is that Sperling thought, and may still think, that the policies that laid the basis for the economic collapse were just fine.

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