Wednesday, July 30, 2014

Some Interesting Articles on the Web (July 30, 2014)

Middle East:
“Israel’s Operation in Gaza Spreads Beyond Just Tunnels.” Article at Time website.

“Zionism and Its Discontents.” Roger Cohen writing for The New York Times.
“Israel Goes It Alone.” John Cassidy for The New Yorker.

“Collective Punishment in Gaza.” Rashid Khalidi writing for The New Yorker.
“Israelis support Netanyahu and Gaza war, despite rising deaths on both sides.” Washington Post article.

“Loss of Shelter and Electricity Worsens a Crisis for Fleeing Gazans.” New York Times article.

“Israel Is Making It Hard To Be Pro-Israel.” Jonathan Chait writing for New York website.

“The Explosive, Inside Story of How John Kerry Built an Israel-Palestine Peace Plan—and Watched It Crumble.” Long and interesting article in the New Republic by Ben Birnbaum and Amir Tibon.


“How Argentina’s Default May Trigger $29 Billion in Claims.” Bloomberg Businessweek article.

“If Argentina Defaults, Then What?” Wall Street Journal website article.
“Argentine Banker Said to Propose Accord to Avert Default.” Bloomberg article.

“Argentina CDS Holders Face Likely Wait.” Wall Street Journal website article. Note that Elliott Management Corp is a member of ISDA’s Americas committee.
“It Depends, Argentina Edition.” Anna Gelpern post at Credit Slips.

“The Federal Marijuana Ban Is Rooted in Myth and Xenophobia.” New York Times editorial page.


“Russia’s Argentine Debt Tango.” Mohamed El-Erian writing for Bloomberg View.
“Cruz whipping tonight against Boehner border bill.” Washington Post article by Robert Costa.

Tuesday, July 29, 2014

Some Interesting Articles on the Web (July 29, 2014)

Middle East:
“Obsessing About Gaza, Ignoring Syria (and Most Everything Else): Trying to understand why Syrian deaths no longer seem to matter.” Jeffrey Goldberg article on The Atlantic website.

“Life in a Jihadist Capital: Order With a Darker Side: In a Syrian City, ISIS Puts Its Vision Into Practice.” New York Times article.

“Iraq’s Imperiled Minorities.” New York Times editorial.
“How guns and oil net ISIS $1 million a day.” Fortune article.

“This Is Your Brain on War: A Dispatch From Jerusalem.” Article for The American Prospect website by Gershom Gorenberg.
“American aid to Israel doesn’t seem to buy any leverage. Why?” Zack Beauchamp writing for Vox.

“The Muddled Case of Argentine Bonds.” Floyd Norris writing for The New York Times.

“Argentine Bond Standoff Puts U.S. Judge in Focus.” Wall Street Journal article.

“Argentina: The RUFO Crazy.” Anna Gelpern post at Credit Slips.

“The Incredible, Magical, Shrinking Injunction?” Mark Weidemaier post at Credit Slips.

“A Stay Would Not Affect the Plaintiffs... Except by Eviscerating the Injunction.” Mark Weidemaier post at Credit Slips.

“Repeal Prohibition, Again.” New York Times editorial.

“Let States Decide on Marijuana.” New York Times.

“The Injustice of Marijuana Arrests.” New York Times.

“The Trauma of France’s Jews.” Dominique Moisi article at the Project Syndicate website.

“Congress had lots of Obamacare fights. Ending some subsidies wasn't one of them.” Sarah Kliff writing for the Vox website.

“Arizona’s Botched Execution.” Dahlia Lithwick writing for Slate.

“Down Under, a Carbon Tax Goes Down.” Hendrik Hertzberg writing for The New Yorker.

Wednesday, July 23, 2014

Some Interesting Articles on the Web (July 23, 2014)

The Affordable Care Act:
“New Questions on Health Law as Rulings on Subsidies Differ.” New York Times article.

“What today’s Obamacare ruling reveals about the GOP.” Paul Waldman blog post at The Washington Post website.
“This Shamefully Dishonest Obamacare Ruling Could Blow Up in the GOP's Face.” Brian Beutler article at the New Republic website.

“The Ruling That Would Gut Obamacare Is an Amazing Advertisement for Obamacare.” Slate article by Jordan Weissmann. The article quotes from the D.C. Circuit Court on how a plaintiff established standing:

“The district court determined that at least one of the appellants, David Klemencic, has standing. Klemencic resides in West Virginia, a state that did not establish its own Exchange, and expects to earn approximately $20,000 this year. He avers that he does not wish to purchase health insurance and that, but for federal credits, he would be exempt from the individual mandate because the unsubsidized cost of coverage would exceed eight percent of his income. The availability of credits on West Virginia’s federal Exchange therefore confronts Klemencic with a choice he’d rather avoid: purchase health insurance at a subsidized cost of less than $21 per year or pay a somewhat greater tax penalty.”
“No, the Halbig case isn't going to destroy Obamacare.” Ezra Klein at Vox.

“What Happens If Obama Loses the Halbig Case?” Kevin Drum at the Mother Jones website.
“Halbig Decision Puts Obamacare Back on the Front Burner and Will Give Republicans a Huge Political Headache.” Blog post by Bob Laszewski.

Israel, Palestinians, Gaza:

“Hundreds riot in Nazareth as pro-Gaza rally turns violent: Arab Israelis shutter shops in protest at IDF operation, drawing boycott call from Avigdor Liberman.” Article in The Times of Israel.

“Wave of anti-Semitic rallies hits cities across Germany.” Article in The Times of Israel.

“France slams ‘anti-Semitic’ violence at pro-Palestinian rally.” Article at the France 24 website.

“Fear Returns to Israel.” Interesting article by Ari Shavit in The Australian. (Googling this article may work if you hit a paywall.) Ari Shavit is the author of My Promised Land: The Triumph and Tragedy of Israel.
“Al Jazeera Holds Israel Responsible For Shots Fired At Gaza Office.” Huffington Post article.

“‘Telegenically Dead Palestinians’: Why Israel Is Losing the American Media War.” Article by Benjamin Wallace-Wells at the New York magazine website.
“Are the Media Reporting the Gaza War Fairly?” Article by Paul Waldman at The American Prospect website.

“For Israelis on Edge of Battle, Rockets Put On a Show.” Article in The New York Times. I think the Israelis in the picture accompanying this article are clueless about how bad this looks.

“U.S. judge orders Argentina, creditors to meet until deal reached.” Reuters article.

Malaysia Airliner Flight 17:
“Of Planes and Proxies.” Jon Lee Anderson at The New Yorker website.

“Putin’s Fingerprints.” Fred Kaplan writing for Slate.
U.S. Border:

“Crossing Borders.” Article in The New Yorker by Amy Davidson.


“Fighting in Libya: Getting worse.” Economist blog post by C.S.

Saturday, July 19, 2014

Some Interesting Articles on the Web (July 19, 2014)

Israel, Palestinians, Gaza:
“Gaza and Israel: The Road to War, Paved by the West.” New York Times op-ed by Nathan Thrall.


“Argentina and the holdouts: Tick tock.” Article by H.C. on The Economist website.
“Sovereign Debt at Square One.” Article by Jeffrey Frankel posted at the Project Syndicate website.

“Addicted to Inflation.” Paul Krugman makes good points about those who have been warning that Fed policy would lead to higher inflation. However, he does not discuss his own advocacy that the Fed raise its target inflation rate of two percent to perhaps four percent. As I understand it, one reason he thinks a higher inflation target is justified is that it is a way around the zero lower bound, i.e., it is a way to lower real interest rates below zero. In his view, this is necessary in order to reach full employment. I think he underestimates the potential for inflation to get out of control and underestimates the psychological and political effects of higher inflation. That is one reason that I think a better policy response in the current situation to unemployment is fiscal policy, not higher inflation rate targeting. Of course, in the current political situation, that is not going to happen. Nevertheless, Krugman is right that the inflation fear mongers have been wrong, and that many of them won't admit it.

“Understanding the Crank Epidemic.” Paul Krugman blog post.

“Why Amity Shlaes is dead wrong about inflation.” James Pethokoukis writing for the AEI website.
“Inflation Cranks Keep Cranking.” Article by Ramesh Ponnuru for Bloomberg View.

“The Trouble With Shadowstats” Blog post by John Aziz.
Malaysia Airliner Flight 17:
“The Crash of Malaysia Airlines Flight 17 Is a Game Changer.” Article by Julia Ioffe for the New Republic website.

“Whoever Shot Down the Malaysia Airlines Plane Probably Didn't Know What They Were Aiming At.” Article by Linda Kinstler for the New Republic website.

Australia Carbon Tax Repeal:
“The Repeal of Australia’s Carbon Tax Could Have Worldwide Ramifications.” Article in Slate by Ariel Bogle.

“Australia Becomes First Developed Nation to Repeal Carbon Tax.” Article by Rob Taylor and  Rhiannon Hoyle posted at The Wall Street Journal website.


“D.C. Decriminalizes Marijuana: Pot Politics Buds Along the Potomac.” Francis X. Clines writing for “Taking Note,” The New York Times editorial page editor’s blog.
“America’s Long History of Immigrant Scaremongering: Conservatives claim that the young immigrants crossing the border are diseased and pose a dangerous public health risk. It’s a sad American tradition.” Slate article by Jamelle Bouie.

Wednesday, July 16, 2014

Some Interesting Articles on the Web (July 16, 2014)

Israel, Palestinians, Gaza:
“Jewish Groups Mostly Silent on Israeli Beating of American Teen Tariq Khdeir: J Street Calls It 'Brutal' — ADL Has No Comment.” Article in Jewish Daily Forward.

“US blocked Qatari funds intended for Hamas employees.” This article in The Times of Israel says that funds from Qatar to pay civil servants in the Gaza Strip were blocked by the U.S. That is not entirely clear. See next article.
“Hamas is looking for a way out: The organization’s financial straits far outweigh the image boost provided by Operation Protective Edge.” This article in Haaretz highlights divisions in the Arab world with respect to Hamas and suggests that the blocking of Qatari funds to pay civil servants in Gaza was due to Israeli pressure.

“What Hamas hopes to gain from the crisis in Gaza.” Article by Ishaan Tharoor in The Washington Post.
“Israel can't win this or any future conflicts by bombing Gaza.” Article by Ibrahim Sharqieh in the Los Angeles Times.

“Iron Dome—Savior, or Sales Job? When the fighting is over in Gaza, one of these stories is going to look strange.” James Fallows discusses the controversy over the effectiveness of Israel’s Iron Dome rocket shield in a post at The Atlantic website.
“Iron Dome: the public relations weapon.” John Mecklin writes a rather critical article about the Iron Dome in a post on the Bulletin of the Atomic Scientists website.

“How Israel's ‘Iron Dome’ works.” Blog post by N.P. on The Economist website. This post is more positive about the effectiveness of the Iron Dome than the previous articles.

“Stopping a repeat of Argentine debt war” by Elaine Moore in the Financial Times.
“If Argentina Settles Debt Dispute, More Claims Could Come: Economists Figure Country Could Be on Hook for About $13 Billion, Far Less Than $120 Billion Some Politicians Have Suggested” by Shane Romig in The Wall Street Journal.


 “Elizabeth Warren Splits Progressives On Mortgage Reform” by Zach Carter writing for The Huffington Post. Among other things, this article indicates why the Congress will have difficulty deciding what to do about Fannie Mae and Freddie Mac.
“Punish the Executives, Not Just the Banks.” Blog post on The New Yorker website by James Surowiecki.

“Expected Health Spending Declines (Again).” Blog post by Margot Sanger-Katz on The New York Times’ “The Upshot.”

“Opinion: the Brics bank is more about geopolitics than investment.” Opinion piece by Joe Leahy on the Financial Times website.

Monday, July 14, 2014

Some Interesting Articles on the Web (July 14, 2014)

Israel, Palestinians, Gaza:
“A Damaging Distance: For Israelis and Palestinians, Separation Is Dehumanizing” by Ethan Browner in The New York Times.

“John Kerry's First Peace Effort in Israel and Palestine Failed, But Now He Needs to Try Again”  by John P. Judis in the New Republic. This is a pessimistic article about Israel and the Palestinians.It also has an interesting discussion of the events that precipitated the current violence.
“Asymmetric Warfare in Gaza” by Paul Pillar. A former CIA official blames Israel: “…before all this started Hamas was giving no indication that it was looking for an armed conflict. Besides reaching the unity deal under which it would support Mahmoud Abbas's negotiating approach toward resolving the conflict with Israel, Hamas was observing a cease-fire. Until the Israeli government's forceful moves after the kidnapping/murders last month, Hamas had not fired any rockets into Israel since that cease-fire was reached in November 2012, despite several earlier Israeli provocations that Hamas considered to be violations of the cease-fire. Hamas even tried to restrain other groups from firing rockets after Israel had begun its wholesale incarcerations in the West Bank.”

“Gaza war seen rather differently in US, UK newspapers” by Ilan Ben Zion in The Times of  Israel.
“Netanyahu finally speaks his mind” by David Horowitz in The Times of Israel. The author writes that Israeli Prime Minister Netanyahu indicated at a press conference that he is not for full sovereignty of the Palestinians in their own state.

Spying and the Press:
“NSA Given Advance Notice Of UK Attack On The Guardian.” AP article by Jack Gillum.

The Affordable Care Act:
“Fox Falsely Blames Administration's Tweaks For Ending CBO's Obamacare Scoring” at the Media Matters website. Media Matters criticizes a report on Fox News which says that CBO’s failure to update its estimates of the total costs of the Affordable Care Act is due to actions the Administration has taken in its implementation of the law. Fox News is not alone in making this claim, which, as this article demonstrates, is easily debunked. However, as far as I can tell, the claim is made in websites, publications, and radio and television shows that are paid attention to mainly by those who already oppose the ACA. Their arguments on this point, after an initial flurry in the press when a CBO report came out, are not getting much traction.

Friday, July 11, 2014

Some Interesting Articles on the Web (July 11, 2014)

The Washington Post has an article on their website (posted July 3) by Ali Khedery, a former U.S. diplomat who served in Iraq. He argues that the U.S. should not have supported Maliki for as long as it has. The article has been gaining some attention, including a report on NPR this morning. “Why we stuck with Maliki — and lost Iraq”

James Jeffrey, a former U.S. ambassador to Iraq, disagrees with some of what Khedery wrote in his article. “It’s not Washington’s job to tell Iraq who its leaders should be”
Global Warming/Climate Change:

“Climate sceptics are losing their grip” by Martin Wolf, writing in the Financial Times.
“Miami, the great world city, is drowning while the powers that be look away” by Robin McKie, writing for The Observer.

“The Climate Optimists” by Will Oremus writing for Slate. This article is about the Heartland Institute’s conference in Las Vegas.

“Downfall: Obama's Reckless German Spy Scandal” by Jacob Heilbrunn, writing for The National Interest website.

Monday, July 7, 2014

Argentina and BNY Mellon – An Update

According to this Reuters report, Argentina credited BNY Mellon’s account at the Central Bank of Argentina with $539 million on June 26 in order to make payment to bondholders. Judge Thomas Griesa wants BNY Mellon to return the money to Argentina, but BNY Mellon cannot because Argentina will not agree to the transfer. Argentina’s position is that the funds no longer belong to it but to the bondholders. BNY Mellon is caught in the middle, since it cannot forward the funds to the bondholders without being held in contempt by the U.S. court. BNY Mellon is seeking guidance from Judge Griesa about what to do.

It is possible that some holders of the restructured bonds will sue BNY Mellon for the funds. In its defense, I assume BNY Mellon will point to the judge’s order.
In addition, if this is not resolved by the end of the month, a committee that ISDA appoints will have to determine whether Argentina has defaulted on the bonds, thus setting up a complex auction process to settle credit default swaps on Argentinian debt. Observers assume that it is likely that Elliot Management’s hedge funds hold to an  unknown extent some CDS on Argentinian debt so that they will get some sort of payout even it Argentina does not do what Judge Griesa wants.

As for Judge Griesa, he appears to have done as much as he can, which is quite a bit, to pressure Argentina to settle with the holdouts. He can hold Argentina in contempt, but that would seem to be mostly symbolic, since he would find it difficult to enforce a fine or jail a sovereign country.
All in all, this is a total mess. After the financial crisis of 2008, it seems that a better system to resolve this sort of problem would be in place and a better system for making determinations of default and settlement of CDS would have been set up.

As for derivatives, whatever the merits of imposing more regulation on interest rate swaps, it was not this type of derivative that played a large role in the financial crisis. It was CDS, which I have argued elsewhere are inherently flawed contracts.      

Tuesday, July 1, 2014

The Argentina Debt/Default Situation, Discharging Payment Obligations, and U.S. Treasury Securities

The Argentinian debt situation after the U.S. Supreme Court declined to hear an appeal, is the sleeper financial story of the summer. It has gotten some press coverage, but not a lot. This is the sort of story that could either become a front page story when and if Argentina defaults or it could fizzle if Argentina reaches a deal with its holdout creditors and the other creditors who previously accepted a restructuring of Argentinian debt do not object.
The situation is unusual, since the judge in this case, Thomas P. Griesa, is creating the possibility of default on the restructured debt through his orders, even though Argentina has the means and the desire to meet its obligations on these bonds. The last payment was due yesterday. There is now a 30-day grace period before default is declared.
While I am not an expert about the legal and practical fallout of this unfortunate situation, one aspect of this case I found interesting is the role of the trustee bank, BNY Mellon. The judge has said that, if BNY Mellon facilitates any payment on the bonds contrary to his prohibition of Argentina making any payments on the bonds without also paying the holdout creditors, then BNY Mellon would be in contempt. On this point, a Georgetown University law professor, Adam Levitan, writing for the blog Credit Slips, argues that if Argentina tenders payment to BNY Mellon, then it has not defaulted:
“… [I]f the Republic tenders payment to Bank of New York Mellon as the indenture trustee, then the Republic has fulfilled its obligation, and there's no event of default possible under the indenture (the EOD [event of default] only occurs 30 days after failure to pay anyhow). At this point, I think the problem becomes Bank of New York Mellon's. Because of Judge Griesa's injunction, Bank of New York Mellon might refuse to accept payment from Argentina. Or BNYM might accept payment, but refuse to distribute it (more likely the former). Either course of action raises potential liability for Bank of New York Mellon to the exchange bondholders.”
Argentina has in fact transferred the funds it owes to BNY Mellon, and I assume it is prepared to make an argument similar to the one Levitan makes concerning its obligations on these bonds. However, even if the argument is correct, which is by no means certain, the beneficial owners of the bonds will still be mighty unhappy, since they will not have received payment. (I do not think BNY Mellon will defy the judge.)

This discussion reminds me of a similar issue that came up when I was at Treasury. As a result of the Salomon bidding scandal in 1990, the Treasury Department decided it needed to consolidate the auction procedures and terms and conditions of its securities in the Code of Federal Regulations. This forced more precision than had heretofore been manifest for Treasury securities. One of the questions that we felt needed to be addressed was at what point has Treasury discharged its payment obligation on its securities.
By way of background, the bulk of marketable Treasury securities are held in what is called the commercial book-entry system, which is operated by the Federal Reserve Banks as Treasury’s fiscal agents. Depository institutions can have accounts at Federal Reserve Banks, through which they can hold Treasury securities for their customers, which may be other financial institutions, which in turn may be holding the securities for their customers. The question for Treasury in connection with the commercial book-entry system was whether Treasury is ultimately responsible to the beneficial owners of its securities or just to the depository institution with accounts at the Fed.

The current version of the Uniform Offering Circular, which has been rendered into “plain English,” which is supposedly easier to understand than the more legalistic version, says the following on this point:
(c) Discharge of payment obligations—
“(1) The commercial book-entry system. We [the U.S. Treasury Department] discharge our payment obligations when we credit payment to the account maintained at a Federal Reserve Bank for a depository institution or other authorized entity, or when we make payment according to the instructions of the person or entity maintaining the account. Further, we do not have any obligations to any person or entity that does not have an account with a Federal Reserve Bank. We also will not recognize the claims of any person or entity:
“(i) That does not have an account at a Federal Reserve Bank, or
“(ii) With respect to any accounts not maintained at a Federal Reserve Bank.”
What happens as a practical matter is that the Treasury’s account at the Fed is deducted and the depository institutions’ accounts are simultaneously credited for the payment of interest or principal on Treasury securities on a payment date. The reason for the language limiting Treasury’s obligation to the depository institutions with Federal Reserve security accounts is that Treasury is not in a position to ensure that all the financial intermediaries which are holding Treasury securities for customers are maintaining accurate books and records and are passing on payments on Treasury securities in a timely manner. (Customers at most broker-dealers, though, do benefit from SIPC insurance of up to $500,000 if a broker-dealer uses customer securities improperly and cannot make customers whole.)

While the Treasury situation is not analogous to the Argentinian one, and the institutional arrangements and legal agreements are different, the question of what action a debt issuer needs to take to meet its payment obligation is the same. The U.S. Treasury’s answer is clear; the answer with respect to Argentinian bonds is currently murky.