There is a great/harrowing audio track available from a PBS discussion last night with Benoit Mandelbrot and Nassim Taleb. The topics include wildness, hedge fund deleveraging, turbulence, bank insolvency, slack, global economic network effects, and why both Taleb and Mandelbrot are having trouble sleeping of late.

Speaking of sleep, I wouldn't recommend anyone listen to it just before bedtime, but that's just me. Mind you, as I was saying to a hedge fund friend tonight via email, I haven't slept well in a month or more.

More here.

Compare the recent performance of four currencies now going through economic crises. Argentina is nationalizing its pension system to bail itself out of debt obligations; Hungary has had foreign lending dry up and force it to yank rates to double-digits; the Iceland story is well known; and Pakistan is looking for $4b in IMF support to meet looming debt obligations.

[via Pacific]

The following more or less supports what some have been saying for a while -– that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over –- but it's still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks' prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won't take much to tip banks over into insolvency again.

[via Bloomberg]

I feel like Butch Cassidy and the Sundance Kid. Who are these guys that just keep coming?

       -- Treasury Secretary Henry Paulson Jr.

A great quote from a great movie opens a tough-minded NY Times piece tonight about Henry Paulson's actions (and inaction) during the current crisis. There is now ample evidence to believe that letting Lehman fail was a mistake, and nothing in this piece does anything to persuade otherwise. Meanwhile, the article adds weight in showing how the last-minute Lehman negotiations were mishandled and unclear as the government couldn't decide whether it was more worried about moral hazard or a meltdown.

More broadly, expecting that Treasury or the Fed would get every decision right in this affair is unrealistic, of course. We have been living in uncharted territory, with decisions coming fast and furious, so you will get things wrong, with the associated consequences -- which points more to the inherent instability of the system.

The again, there are things that the Feds got wrong all along. It seems clear from the piece that they initially concocted the toxic asset purchase program as an over-linear solution to the problem of messed-up bank balance sheets. By the time they took the plan to Congress the problem had mutated, however, with it being far less important to move assets than it was to recapitalize banks altogether. Trouble was, Paulson already had the former plan, and even if it was inappropriate he stuck by it until events forced him to chance directions.

More here. And I'll leave to someone else the semiotic exercise of pointing out the inappropriateness of Paulson's cowboy metaphor. Really Henry? Really?

I promised to update people on a trojan that some people said their antivirus programs had alerted them to on my site. It was allegedly contained in an International Monetary Fund image.

On being alerted to it, I took the image down, and began investigating. Yesterday I posted the results of that investigation, which essentially made me think it was highly likely what was happening was a false positive. (Read the post for more details.)

Nevertheless, I kept the image down, and I sent the offending image to Kaspersky, the firm whose trojan scanner was the sole one alerting to this supposed image trojan. Here is the email response from them this morning:

date    Thu, Oct 23, 2008 at 1:17 AM
subject    RE: False alarm? [KLAB-7085047]
hide details 1:17 AM (6 hours ago)
Reply

Hello.
Sorry, it's false alarm. It's detection will be deleted in the next update. Thank you for your help.
-----------------
Regards, Vladimir Krylov
Virus Analyst, Kaspersky Lab.

And there you have it. As I suspected, it was much ado about nothing. An over-eager scanner wrongly found a signature in a safe image. Such is life.

Today's House Oversight hearing into the credit crisis with witnesses Alan Greenspan, Chris Cox, and John Snow is grim and awful political theater. While not unexpected, it is by the most politicized hearing we have had too date, with members trying to noisily pin subprime on Barrack Obama, entirely on the GSEs, regulators, etc. There are also non-stop attempted gotchas ("Did you know? Huh? Didya?"), plus congress members putting up signs, shouting, and doing everything except throwing spitballs.

One of the few interesting moments so far has been this one with Alan Greenspan:

THE HOUSING BUBBLE BECAME CLEAR TO MEET SOMETIME IN EARLY 2006, IN RETROSPECT. I DID NOT FORECAST A SIGNIFICANT DECLINE BECAUSE WE HAVE NEVER HAD A SIGNIFICANT DECLINE IN PRICES.

Got that? Greenspan only noticed the housing bubble in 2006, as it was bursting, and his main reason for not thinking prices would not decline in the U.S. is because the U.S. has never had a significant decline. Sad stuff.

The people at Bespoke Premium have out an interesting chart today showing the collapse of what they call the "globalization bubble". In essence, the chart shows the rapid growth, and subsequent collapse of Baltic Dry Index, a measure of international trade. It's a narrow view of trade, so I'll quibble somewhat definitionally, but it is still striking stuff, especially in light of what happened to trade (admittedly for different reasons) in the 1929-1932 period.

[via Bespoke Premium]

Interesting new Minneapolis Federal Reserve paper out attempting to puncture some supposed myths about the current financial crisis. I take its points, but I also think it's being a little mischievous. Definitely worth reading though.

The financial press and policymakers have made four claims about the nature of the crisis.

1. Bank lending to non-financial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by non-financial corporations has declined sharply and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.

Here we examine these claims using data from the Federal Reserve Board. At least based on data up until October 8, 2008, we argue that all four claims are false.

More here.

Using some new data today from Fitch Ratings, here is the concentrations of high-yield debt by sector in the U.S. The chart compares the current situation with the onset of prior recessionary periods beginning in 2000 and 1989. High-side anomalies are flagged in bold red, and they include autos, banking, and energy, among others.

As Fitch points out, while we have less concentration this time around in specific at-risk sectors, like telecom, we instead have a host of sectors with significant high-yield exposure putting themselves at credit risk in the current downturn.

I did another column this week for Tina Brown's new site. This one's on the fall of Alan Greenspan, and you can find it here.