Hamilton interprets Bernanke

James Hamilton explains how to interpret the Treasury's $20 bn in supplementary loss protection mentioned by Bernanke in his 13 January 2009 speech about the recent blowing up of the Fed's balance sheet. Full interpretation today would require foreknowledge of how much the Fed will end up lending through its latest facility, TALF:

Bernanke also discussed some of the Fed's new plans:

In addition, the Federal Reserve and the Treasury have jointly announced a facility that will lend against AAA-rated asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration. The Federal Reserve's credit risk exposure in the latter facility will be minimal, because the collateral will be subject to a "haircut" and the Treasury is providing $20 billion of capital as supplementary loss protection. We expect this facility to be operational next month.

Here at least we have a number-- $20 billion-- that will give us some idea of what Bernanke assesses the ballpark risks to be. If, for example, we see that the Fed lends $100 billion in this program, I'd take that to mean he's thinking the underlying assets are really worth at least 80 cents on the dollar; if $200 billion, we're talking about 90 cents on the dollar. If this gets into the hundreds of billions, it's hard to see how $20 billion would be regarded as a significant equity cushion.

Thanks, James Hamilton.

Martin Wolf on Obama plan

Read this and everything else that Martin Wolf writes.

Or your name is mud.

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Lean esto y todo lo demás que escribe Martin Wolf.

¡Socorro! No sé traducir "Or your name is mud". (¿"O te doy nalgadas"?)

Sullivan on Israel and Gaza

I agree with my brother Tom, who says that Andrew Sullivan probably got it right in his January 2 post:

From the perspective of intent, there does seem to me to be moral clarity between Israel and Hamas. Hamas refuses to recognize Israel's right to exist in peace; Israel refuses to recognize Hamas' right to exist as a legitimate polity in Gaza because Hamas does not recognize Israel's right to exist. Hamas also was the first to break a barely-held ceasefire recently. There seems to me to be no question that Israel has the higher moral ground from the perspective of recent events.

At the same time, Israel's actual resources of military and economic power far exceed Hamas's; and its pulverization of Gaza has led to a huge imbalance between the victims of Hamas's war on Israel and Israel's war on Hamas. The Palestinians are suffering something like ten times the trauma and deaths of Israelis. What they have endured in Gaza for the past couple of years must also be taken into account. It is not a function of appeasement or wimpiness or fondness for Jihadism that makes this conclusion inescapable. It is simply being human.

And so you have an excruciating confluence of the questions of proportionality in a just war and asymmetry in the war against terrorism. What renders the current awfulness particularly wrenching is that the immoral means Hamas uses are logical from the point of view of an entity that is committed to Israel's destruction but not powerful enough to achieve it. And the response of Israel is logical from the point of view of a Western country enduring constant terrorist bombardment. Hence the never-ending argument in which both extremes reinforce themselves. This is not, one remembers, a Likud government. This is what the center left needs to do in Israel to stay in power at this point. And it has the backing of Egypt.

The nature of the conflict therefore ensures that Israel will kill and injure and traumatize far more human beings than Hamas can, even though Israel's intentions may be more honorable (and the relative lack of civilian deaths, given the pounding that has been going on in Gaza, is striking evidence for Israel's relative scrupulousness). This means that Israel will continue to lose the war of ideas and that Hamas will benefit from the impasse. Meanwhile, Jewish Israelis face a demographic reckoning and the forces of Jihadism gain a new recruiting tool. Abbas is temporarily weakened; and Iran's ideological strength temporarily waxes. Democracy, pace the neocons, is not a panacea: Hamas has more democratic legitimacy, it seems to me, than Mubarak.

This is all horrible news for the Jewish people; and deeply disturbing for the rest of us. America's president and president-elect must ensure that the US is not drawn into this battle on one side or the other any more than is absolutely necessary. The West's interests in the Middle East are not exhausted by a defense of Israel's existence and security, especially when such a position comes allied with Arab autocracy and repression.

The one silver lining I can see is that Sunni Arab fear and loathing of Iran is still very real, and can be exploited. (If Arab powers are now reduced to acquiescing in the deaths of Palestinian children from Israeli bombs, you can see how vulnerable they feel toward the wave of religious extremism sweeping the region.) The best you can hope for in the Middle East is that one axis of hatred will temporarily eclipse another. Generally speaking, adherents of one religion hate each other more than they do adherents of another sect altogether, so the prospects for some advancement of Israeli and American self-interest in a broader Muslim civil war are real. With Muslim anti-Semitism, of course, we might have stumbled onto a rare exception.

I would appreciate a translation to Spanish of the quotation from Sullivan. Any volunteers?

How about a thoughtful blog post on the topic in Spanish that I should know about? (Perhaps Enrique Krauze has written something. I must venture over to the Letras Libres blogs ...)

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Concuerdo con mi hermano Tom quién en una carta expresó que probablemente tiene razón Andrew Sullivan en su artículo citado arriba sobre las cuestiones éticas relacionadas con Gaza hoy en día.

Agradecería una traducción del texto citado de Sullivan al español. ¿Algún voluntario?

¿Y, alguien me puede dirigir a un artículo de blog bien meditado sobre este mismo tema pero en español? (Tal vez Enrique Krauze haya escrito algo. Habría que dar una vuelta a los blogs de Letras Libres ...)

Brazil's monetary policy decision: the story continues

Guillermo Parra-Bernal has answered me:

1. ''The experience of Brazil during the 2002 crisis is valid for the time being. When Brazil had this speculative attack ahead of the 2002 election (you probably remember that the currency dropped 50 percent in three months) the issue of trade financing and credit problems couldn´t be dealt with properly becasue international reserves were falling dramatically and the economy was undergoing a hike in inflation.´´
2. ''The bank raised the Selic by 300 bps on Oct. 14 (forgive if I am wrong, using my memory here) and kept borrowing costs high for a few months until price pressures subsided. Trade lines remained shuttered for as many as seven months, until markets realised the Lula administration was willing to honour the national debt. The situation here is the opposite, except for the credit crunch. Inflation is down dramatically -- and it will keep falling, -- and the government is quite concerned with jobs and activity in certain key industries (commodities, foods, mining and energy.) The country has plenty of reserves at this moment, and Brazil didn´t suffer the currency tumble that other EM nations (especially EE countries) did. Reserves are at similar levels to those before the crisis!!!´´
3. ''Having said that, the same way Arminio Fraga´s BCB overreacted by raising the Selic by 300 bps in an extraordinary meeting in a mid-October afternoon, Henrique Meirelles´s BCB will be a bit more measured, to show market participants his board is both agressive and prudent. People in the markets expect a half-point cut, but at this juncture I think that 75 bps is the most likely size. It´s a balanced cut (big for Brazilian standards, although small if you see the gravity of the crisis that is coming.)

I am mulling his arguments. Stay tuned.

China GDP growth and social unrest

Li Yanping and Philip Lagerkranser of Bloomberg News report that Liu Mingkang, China's banking supervisor, and Zhou Xiaochuan, governor of the central bank, both see the risks tilted to the downside for the government's 2009 growth forecast of 8%.

More tidbits:

Liu said last month that an expansion of 7 percent or less could trigger social instability.

(...)

The regulatory commission will drop its target of reducing the balance and ratio of bad loans after five years of declines, and instead aim to prevent a “massive and rapid rebound” in soured debts, Liu Mingkang said.

I could go on, but it's so packed, you're better off reading the whole article.

I also recommend Victor Shih's persuasive rebuttal of a UBS research report claiming that Chinese inmigrant workers are incompetent at organizing revolts.

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Li Yanping y Philip Lagerkranser de Bloomberg reportan que el supervisor bancario de China, Liu Mingkang, y el gobernador del banco central, Zhou Xiaochuan, ven los riesgos sesgados a la baja del pronóstico oficial de crecimiento en el PIB en China para el 2009 de 8%.

Más detalles del mismo artículo:

Liu said last month that an expansion of 7 percent or less could trigger social instability.

(...)

The regulatory commission will drop its target of reducing the balance and ratio of bad loans after five years of declines, and instead aim to prevent a “massive and rapid rebound” in soured debts, Liu Mingkang said.

Podría continuar, pero está tan repleto, mejor recomiendo que lo lean todo.

También recomiendo la réplica persuasiva de Victor Shih a una nota de investigación de UBS que cuestiona la competencia de los campesinos chinos para rebelarse.

Does BCB plan change Brazil's interest rate outlook

Guillermo Parra-Bernal believes that the new $20 billion Banco Central Brasil plan to help Brazilian producers refinance maturing foreign debt raises the odds that BCB will lower the monetary policy rate on 21 January by 75bp to 13.00%:

A plan outlined last night by Banco Central Brasil President Henrique Meirelles to ready $20 billion in funds to help local companies refinance maturing debt overseas indicates that corporate liquidity problems will probably persist for another quarter or two. Meirelles, the former Bank Boston executive, reaffirmed a commitment made in November that the government will use any sources of money at hand (even international reserves) to help about 4,000 companies roll over maturing obligations. Brazil had $205 billion in reserves at the start of this year.

We discussed in this a few days ago the problems facing Arantes, Cosan and other commodity, food and cellulose producers. Access to credit will normalise in a few months, but the problem is time and availability of funds. According to ING Bank, Brazilian companies face more than $60 billion in bond and loan maturities throughout the year. Trade loans were cut off at the height of the crisis in early October -- the central bank had to intervene and commit more than $9 billion in reserves money for that purpose.

If there is a consequence to this announcement -- apart from the sigh of relief that some corporate managers might have made following Meirelles remarks, -- is that the BCB will engage with a more aggressive interest rate-cut than initially planned for next week. My bet is a 75 basis-point cut, what is yours?

but he doesn't explain why.

I shall ask him.

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Guillermo Parra-Bernal considera que el nuevo plan de $20 mil millones anunciado por el Banco Central de Brasil para ayudar a productores brasileños a refinanciar deuda extranjera que vencerá en el corto plazo aumenta la probabilidad de que el BCB reducirá su tasa de política monetaria el 21 de enero en 75pb a 13,00%, pero no explica por qué.

Se lo preguntaré.

Portal sobre mercados de energéticos y carbono

Mi involucramiento con la organización de un simposium de IMEF Grupo Querétaro sobre el cambio climático me está impulsando a cumplir mi resolución de año nuevo de reactivar este blog.

Encontré este portal sobre mercados de energéticos, incluyendo el carbono: PointCarbon.

Tiene información interesante, pero la mayoría parece estar a la venta.

¿Algún lector conoce portales similares pero con contenido gratuito?

(El simposium es un joint venture con el Club de Industriales de Querétaro y tendrá lugar el 25 de marzo 2009 en Querétaro. Para mayores detalles, envíe un correo a IMEF Grupo Querétaro.)

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My involvement in organizing a climate change conference with IMEF Grupo Querétaro (25 March 2009, Club de Industriales, Querétaro) is building a fire under me to fulfill my new year's resolution to reactivate this blog.

I found this Web site on energy (including carbon) markets: PointCarbon.

It has interesting stuff, but most of it seems to require a paid subscription.

Perhaps some read knows of similar sites but with all-free content?

(Our symposium, a joint venture with Club de Industriales de Querétaro, will take place on 25 March 2009 in Querétaro, Mexico. For further details, please send an e-mail to IMEF Grupo Grupo Querétaro.)