The long awaited

waiting with bated breath

So, as many of you are probably aware, I was planning to write something on this whole global financial crisis end of the world things, but have been roundly trounced in that department by many, many other commentators. So i'm going to a linkroll of sorts, with short summaries/extracts of each so you can make up your own mind (i.e. conform to my horribly horribly biased view. It makes me happy.) Consider this one-stop learning shop for all things financial crisis-ey.

If you're only going to read/write one article on the financial crisis, make it this one. You google readerites should have been advised on this already, but I reiterate. Strongly. This article is pretty much exactly what I was going to write; he covers all the issues that I was concerned about, between moral hazard and regulatory capture and the insanity of compensation that occurs on Wall Street, and the main conceptual issue that's been bothering me about this Geithner Plan/Bailout thing; that we need more of the same in order to fix this mess:

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change.

As Felix Salmon puts it, "[this article] captures all the different strands of thought that Simon Johnson has been talking about in various other articles and puts it all together in a coherent whole. Sobering." Indeed.

Another commentator who runs roughly the same line as Johnson: Paul Krugman. The other great critic of the current establishment plans. Not quite a must-read, but definitely worthwhile. The perfect supplement to the Simon Johnson article.

Willem Buiter, in his fantastic, smart and bitchy best about the forthcoming G20 summit, along with proposals to change everything from regulatory regimes to compensation structures and turning around the world economy.

Matt Taibbi recently published a long expose in Rolling Stone on the financial crisis, and it's been getting a bit of press and circulation. My thoughts: This is unprofessional. I mean, c'mon when you say things like:

Cassano [Head of AIGFP, the unit that brought AIG down], a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead

or

a bald-headed Frankensteinian goon named Hank Paulson

or my favourite

valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties.

I'm going to lose respect for you, because you don't seem serious. (Maybe this is meant to be satirical, and I don't get the joke. Unless it's one of those 'the joke is, we're all fucked, haha.' I don't know.)

I understand that it's a sort of hatchet job, that it's supposed to be a form of expression of the righteous anger and populist rage that a lot of people (especially young) are feeling. Character assassination and outright insults are a particular style, especially of Rolling Stone, but it seriously detracts from the story, which is remarkably well-researched and surprisingly endearing. Lots of good points made, but glibness at times and overall tone of conspiracy make it unnecessarily painful.

Brad DeLong's FAQ's the Geithner Plan. If you want the simplest, most concise and more enjoyable breakdowns (along with some boosterism) of the Geithner Plan, this is it. DeLong is far more optimistic about the Geithner Plan than many others. For one thing, I seriously do not think there is anywhere nearly enough "skin in the game" for private investors; they're putting in $30 billion, and the government kicks in, what, $1 trillion? That's what, 3%? That is not enough skin in the game. God forbid we find out that these 'legacy assets' are worthless.

Here's a specific (slightly mathematic) rebuttal of the public-private partnership that's considered one of the major prongs of the Geithner Plan, from naked capitalism. We need to let the zombie banks die:

With price discovery (or the equivalent via more realistic marking of their books), some banks would be toast and need to be put in a form of receivership. But pretending these banks are viable, keeping the incumbents in place (who have incentives to take risk with taxpayer money, if nothing else so they can try to show profits and slip the leash) is the worst of all worlds. Some of the big banks already have been nationalized from an economic perspective, yet we keep alive the dangerous and costly fiction that they are functioning, private concerns. The Japanese did a variant of this program via letting zombie banks hold dead loans at grossly overvalued prices and pretend to be solvent, and look how well it served them. Oh, and in the end, the banks had to take the losses.

Another good post to why the PPIP is a bad idea:

Of course, as cash flows evolve, PIMROCK's $10B is wiped out entirely, as is the Treasury's investment. The FDIC gets repaid in a bunch of securities worth about $50B, taking a $70B loss. But, as Calculated Risk, likes to say "Hoocoodanode?" These were real market prices, Geithner or his successor will argue. Our private partners lost everything. There was no subsidy here.

Meanwhile, taxpayers will be out around $80B.

Why would PIMROCK go along with this? Because they feel it is their patriotic duty to work with the government for the good of the financial system, even if that involves accepting some sacrifices. And because they hold $100B in J.P. Citi of America bonds, and they've received assurances that if we can get the nation out of the financial pickle it's in, there will be no haircuts on those bonds. "Shaking hands with the government" means that nothing ever has to be put in writing.

Stephanie Flanders, of the BBC, and her scepticism of the PPIP:

Like nearly every finance minister in the developed world, the US treasury secretary would like US banks to offload their toxic assets at a price that both private investors and voters are happy to accept. It can't be done. Someone is going to end up sad - probably the voters.

We have fallen into the habit of taking the term "toxic" a bit too literally. These assets aren't bits of plutonium sitting in the vaults of the banks, infecting everything that comes close. They are simply assets. What's toxic about them is the fact that they don't have a market-clearing price.

Put it another way, there isn't a price that banks are willing to accept and investors are willing to pay. This is the problem that's bedevilling governments the world over and it's worth repeating. It's not that these assets have no value, as some would suggest, it's that there's no price that the banks are willing to accept.

So, all those governments have been looking for a way to bridge the gap between the banks and the market, without the taxpayer getting a raw deal. But I'm not sure there is one.

Another article from Naked Capitalism, on why nationalisation isn't so bad, along with how Alan Blinder was being such a disingenous prick.

Clive Crook argues that regulators need to move faster to shut down undercapitalised banks and shadow banks, possibly by adapting the resolution methods of the Federal Deposit Insurance Corporation, which "in effect devises pre-packaged bankruptcies for troubled banks."

Matthew Yglesias on why breaking up the banks is a good idea:

My biggest concern about the PPIP approach to the banking system is that even if it works, what it does essentially is return us to the pre-crisis status quo—banks that are so large that they’re too politically powerful to regulate effective and too systemically important to be allowed to fail.

Glen Greenwald on the supposed sanctity of AIG bonus contracts:

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

TPM's brief history of AIGFP aka Ground Zero:

As we delve into the back-story behind the collapse of AIG, we thought it might be useful to lay out some key factual information about the firm's Financial Products unit, known as AIGFP, whose disastrous credit default swaps brought the company to its knees. How and when did AIG Financial Products get started? Who ran it, and from where? How did it get into credit default swaps, and what exactly are they, anyway? And how did this group of derivatives traders eventually wind up bringing down one of the most admired financial firms in the world?

A strangely named blog on how the innumerate quants weren't just off, but way off:

just Bayesian estimators would tell you they're off by at least a factor of 2, and realistically they were off by a factor of roughly 10

Martin Wolf on why a successful bank rescue is still far away:

"The conclusion, alas, is depressing. Nobody can be confident that the US yet has a workable solution to its banking disaster. On the contrary, with the public enraged, Congress on the war-path, the president timid and a policy that depends on the government’s ability to pour public money into undercapitalised institutions, the US is at an impasse.

And finally, the stinger:

If the bailouts Congress has been handing out so freely haven't convinced you that we aren't really in a capitalistic society any more, nothing ever will. We're running an unholy union of capitalism and socialism right now, and I really wish we'd pick one of the two and stick with it. As it is, we get the drawbacks of both, and the benefits of neither.

-Slashdot