Monday, February 16, 2015

My Amazon Review of Barry Eichengreen’s “Hall of Mirrors: The Great Depression. The Great Recession and the Uses-and Misuses-of History

Barry Eichengreen, an economics professor at UC-Berkeley, is a scholar of the first order on The Great Depression. His “Golden Fetters” on how the operation of the gold standard during the inter-war years was a significant cause of The Great Depression is a classic. He argues in the Keynesian tradition on what the crisis managers of 2008 learned, perhaps too well, the lessons of 1929-33. Thus readers who prefer the views of James Grant’s “Forgotten Depression…” will differ greatly with this history.

The analogues between the 1920’s and 30’s with the 2000’s are many. Here are only a few highlighted by Eichengreen:
·        *Bernie Madoff was the equivalent of Charles Ponzi.
·        *The Euro of today works the way the gold standard of the 20’s worked.
·        *The bailout of the Dawes Bank (Central Republic Trust) was similar to the Bear Stearns bailout.
·       * Letting Lehman fail was analogous to the moral hazard issue associated with allowing the Ford controlled Guardian Group of Banks to fail in 1933.
·        *There were real estate booms in both eras.

The lessons our modern day policy makers learned were to flood the system with liquidity, bailout the banks, engage in fiscal stimulus policies, avoid protectionism and avoid debacles like the London Economic Conference of 1933 through international cooperation. However, unlike the 1930s the problem in the system was not really in the banks, but rather in the shadow banking system that grew up in the 1990’s and reached full adulthood in the 2000’s.

Perhaps more important instead of four years of grinding lower in the 1930’s the economy began to recover after two years and most governments and central banks began to pull back on stimulus policies which in Eichengreen’s opinion is the reason for the slow growth the global economy has experienced since 2010. Further by preventing another Great Depression the impetus to fully reform the financial system waned and we ended up with a watered down version of financial reform with Dodd-Frank. Eichengreen is a reformer in the Polanyi tradition. Unfortunately as Keynes contemporaneously noted reform is the enemy of recovery. Reform took place in the 1930’s because the old order collapsed, but as many have noted the New Deal reforms delayed recovery. Even Eichengreen concedes that National Industrial Recovery Act of 1933 was an economic disaster.

In reading Eichengreen’s book one has to sympathize with the policy makers of the early Great Depression. They were operating in real time with inadequate information, much as Bernanke et al were doing in 2008. Eichengreen is sympathetic to New York Fed President George Harrison’s “direct pressure” approach to the stock market boom which he characterizes as an early version of “macro-prudential” policies. Unfortunately “macro-prudential” policies have yet to be tested and I suspect they might have failed in the 2000’s in halting the sup-prime mortgage boom. Why? The policy makers would have been accused of racism by preventing Blacks and Latinos from buying homes.

I have a few factual quibbles with the book. He understates the role of Hoover Treasury Secretary Ogden Mills in being the true author of Roosevelt’s early banking reforms; he fails to note the importance of the fiscal drag or tax on labor, depending on your point of view, of the introduction of Social Security taxes in 1936 without benefits being paid out until 1939. Remember at the time social security was not included in the federal budget. Lastly he sometimes confuses being long a credit default swap with being short the swap.

All told Eichengreen has written an excellent book, especially The Great Depression portion. However, because it is probably too long and towards the end he pontificates too much on the Europe of the past years, which is too recent for real history, I give the book four stars not five.

The Amazon Review appears at the following url:

Sunday, February 8, 2015

Putin's Ukrainian Salami

Vladimir Putin is devouring Ukraine like a salami, one slice at a time. The first slice was Crimea and the West stood idle. The next two slices were Donetsk and Luhansk and currently on the block is the port city of Mariupol. Putin uses his army with advanced weaponry cloaked in the garb of insurgents to give the veneer of deniability. But make no mistake Russian imperialism is on the march and if the current passivity of the West continues, it won't be long until the whole of Ukraine is gobbled up one slice at a time. And where is the West?

With Germany's Merkel opposed to the shipping of offensive weapons and the Obama Administration operating in their usual dazed and confused mode, the world watches as western oriented Ukrainians spill blood every day. Simply put the West is nowhere. All talk and very little action. It is high time that the Obama Administration wakes up from it stupor and start to ship advanced weaponry to the embattled Kiev government. Concurrently the West should amp up its sanctions regime to cut Russia off from the the international banking system one big slice at a time.

Monday, January 26, 2015

"Recent Evidence on the Interest Rate Sensitivity of REITs," UCLA Economic Letter, January 2015

The link below is to my article demonstrating that the 10 year U.S. Treasury yields accounted for 79% of REIT  relative performance compared to the S&P 500 between January 2, 2013 - November 7, 2014.

In a Wall Street Journal Blog on REITs and Interest Rates

I was quoted this morning in a Wall Street Journal Blog on REITs and interest rates citing a forthcoming article for the Ziman Center for Real Estate at UCLA. The URL to the article is at:

I will post the full article later today.

Saturday, January 24, 2015

My Amazon Review of "Stalin: Volume I: Paradoxes of Power, 1878 -1928"

The Rise of Joseph Stalin

Princeton professor Stephen Kotkin sure knows how to tell a story. In his nearly 1000 page (in the print edition) biography, and remember this is just Volume 1, describes and analyzes the rise to power of Joseph Stalin from his humble beginnings in the Georgian backwater town of Gori in 1878 to his full assumption of power over the Soviet Union in 1928 on the eve of the collectivization of Russian agriculture.  As any good Marxist would do he analyzes Stalin’s rise in the context of the broad historical forces shaping Europe and Asia in the late 19th and early 20th centuries. However, this is a story where the force of will of two individuals, namely Lenin and Stalin, alter the arc of history. Simply put, without them, no Soviet Union.

Because much of the story is known and is present in other reviews on Amazon, I will highlight what I found special in Kotkin’s biography. First and foremost the autodidact Stalin, who was far from the intellectual lightweight portrayed by his critics, was from the beginning a hard leftist. Nevertheless he learned from Lenin the importance of tactical flexibility. This enabled him to turn right to defeat Trotsky and then turn left to defeat, first Zinoviev and Kamenev, and then Bukharin. If anything Kotkin teaches us the Stalin was the true successor to Lenin.

He further highlights how Stalin built a dictatorship within the dictatorship. By that he means that Stalin seized control of the Communist Party which dictated over all of Russia. Through his role as general secretary Stalin seized control of the party, which was internally democratic, and bent it to his will. Thus he created a dictatorship within a dictatorship.

Here are a few interesting factoids that I learned from the book:

   *Lenin’s Testament was probably not written by Lenin. It was written by, most likely, his wife.

   *With respect to his wife, unlike other leading Bolsheviks Stalin was a sexist in the sense he did not want her to work outside the home.  For a while she was a secretary to Lenin.

   *Finance Commissar Grigory Sokolnikov broke the Russian inflation with a very orthodox monetary policy putting the country on a modified gold standard. He minted gold coins with an engraving of the deposed Czar Nicholas II on it. This was done with the backing of Stalin. Sokolnikov is later a victim of the terror.

   *Vladimir Putin’s grandfather worked as cook for Lenin.

Stalin was a true party boss. Harry Truman described him “as near like Tom Pendergast (Kansas city Democratic Party boss) as any man I know.” The difference, of course, is that Pendergast did not control the entire security apparatus of the state. This control will be wreaked with a vengeance in Kotkin’s next volume. I can’t wait for it to come out.

The full Amazon URL is: 

Wednesday, January 21, 2015

The State of the Union (Democratic Party)

Last night's State of the Union address was a reprise of President Obama's inaugural address of two years ago where he outlined his broad social democratic vision for America. His speech would have been more appropriate for a Democratic national convention rather than before a largely Republican Congress. His Santa's bag was filled with such goodies as free community college tuition, higher childcare credits, higher minimum wage and paid family leave; all to be paid for by taxes on business and the very rich. Yes. it is easy to play Santa Claus with other people's money.

With respect to foreign policy, in the words of the words of the administration's house organ, MSNBC, the president was "delusional". On what planet is he living? ISIL remains on the march in the middle east, Yemen is falling apart, a weakened Russia is advancing in the Ukraine and across much of the world, terrorist alerts have been upgraded.

To be sure President Obama held out hope for potential deals on corporate taxes and trade, but most of speech was outright hostile to the GOP majority by offering veto threats on Keystone and amendments to financial reform.

Finally he returned to his theme of 2004 calling to unite red and blue America and he called for the removal of "dark money" from political campaigns.  This was perhaps the most cynical portion of the speech. Of course the Republican leadership has played a leading role in dividing the country, but make no mistake, President Obama has been hardly willing to compromise as well. Moreover over all of President Obama's election cycles he has been "the fundraiser in chief." It was he who chose not to take public funds in 2008 and 2012.

Thursday, January 8, 2015

Ottawa, Sidney and Paris: Connect the Dots

As if we did not already know it, you don't have to be Inspector Clouseau to deduce that there is something very wrong with a strain of Islam that is out to destroy Western values. Within the past three months we witnessed terrorist attacks on the Canadian War Memorial, the heart of Sidney and yesterday's horrific slaughter at the offices of the satiric French magazine, Charlie Hebdo.

It is time to heed the words of Egyptian President al-Sisi to purge Islam from those who kill in the name of the religion and those who give aid and support to the killers. Further it is time for the western multi-culturalists to stop making excuses for very bad behaviors. It is also time to realize that the NSA surveillance state has more than a few positive attributes going for it.

I do recognize that this is a problem primarily within Islam where more than words from moderate clerics and secular leaders are needed. Nevertheless we can't just sit around and watch magazine editors being gunned down with assault rifles without acting.

Je Suis Charlie