Felix Salmon

If you’re going to have a sluggish growth figure, this is the best sort of sluggish growth to have:

Growth in the last quarter was stifled by a 32.4 percent surge in imports, the largest since the first quarter of 1984, dwarfing a 9.1 percent rise in exports. That created a trade deficit, which sliced off 3.37 percentage points from GDP, the largest subtraction since the fourth quarter of 1947.

Obviously, a trade surplus would be better than a trade deficit, especially in terms of generating employment growth domestically rather than abroad. But exports did rise, at quite a healthy clip. They were just eclipsed by this whopping rise in imports — which are a sign that there’s still a lot of demand in the economy.

This is a subject which came up at the Treasury blogger meeting last week: while no one at Treasury is exactly overjoyed at seeing imports rising so much faster than exports, any sign of increased economic activity is being taken as a good sign. Certainly this kind of thing is preferable to seeing the opposite happen, where exports fall and imports fall faster. Even if that would have a better effect on GDP.

El-Erian: Stimulus isn’t enough — WaPo

Suing your servicer for not allowing you to modify your mortgage under HAMP: It works! — ML-implode

The story of round rectangles — Folklore.org

Which countries’ citizens have the most freedom to travel without a visa? — Economist

Matt Goldstein on Harbinger’s metamorphosis from a distressed debt fund into a mobile telecom incubator — Reuters

It’s impossible not to love any story about the insanity of high finance during the bubble years which not only goes into hugely geeky detail but also comes with a cool cartoon and which includes the phrase “cheerfully feckless”. So, go read ProPublica’s latest CDO piece right now.

It’s long, of course — and for good reason: it’s full of juicy details. For instance, did you know that Wing Chau, the CDO manager who was one of the prime villains in The Big Short, ran one CDO called “888 Tactical Fund”?

More substantially:

ProPublica found 85 instances during 2006 and 2007 in which two CDOs bought pieces of each other’s unsold inventory. These trades, which involved $107 billion worth of CDOs, underscore the extent to which the market lacked real buyers. Often the CDOs that swapped purchases closed within days of each other, the analysis shows.

That $107 billion — an enormous number — was more than enough, at 20% of the total market, to provide the marginal demand that the market needed to keep prices frothy and bonuses high.

Essentially, the CDO business, in 2006 and 2007, became a con game. Ostensibly, independent managers were picking bonds with the aim of maximizing risk-adjusted returns for their investors. In reality, they existed only to provide a veneer of independence for bankers desperately trying to offload toxic waste that nobody wanted:

“I would go to Merrill and tell them that I wanted to buy, say, a Citi bond,” recalls a CDO manager. “They would say ‘no.’ I would suggest a UBS bond, they would say ‘no.’ Eventually, you got the joke.” Managers could choose assets to put into their CDOs but they had to come from Merrill CDOs. One rival investment banker says Merrill treated CDO managers the way Henry Ford treated his Model T customers: You can have any color you want, as long as it’s black.

It wasn’t just Merrill, either. Goldman was in on the game too:

The firm wrote a November 2006 internal memorandum about a CDO called Timberwolf, managed by Greywolf, a small manager headed by ex-Goldman bankers. In a section headed “Reasons To Pursue,” the authors touted that “Goldman is approving every asset” that will end up in the CDO. What the bank intended to do with that approval power is clear from the memo: “We expect that a significant portion of the portfolio by closing will come from Goldman’s offerings.”

The whole thing is summed up quite elegantly in that cartoon and also in a damning infographic:

ProPublica isn’t the only entity looking closely at all these smelly deals. The SEC is, too:

Asked about its relationship with managers and the cross-ownership among its CDOs, Citibank responded with a one-sentence statement:

“It has been widely reported that there are ongoing industry-wide investigations into CDO-related matters and we do not comment on pending investigations.”

None of ProPublica’s questions had mentioned the SEC or pending investigations.

One can only assume that Citi has received Wells notices about all this — and has decided that they’re not material enough to disclose, even though they’ve clearly had the effect of making Citi go very quiet indeed on the subject.

So go read this story, and all its sidebars: it’s great stuff. If I had to quibble, it would be only over this:

But the strategy of speeding up the assembly line had devastating consequences for homeowners, the banks themselves and, ultimately, the global economy. Because of Wall Street’s machinations, more mortgages had been granted to ever-shakier borrowers. The results can now be seen in foreclosed houses across America.

That is a slightly separate issue from the CDO Shuffle. Insofar as new CDOs were buying tranches of old CDOs, they weren’t buying new mortgages which would ultimately end in foreclosure. But ProPublica gets the big picture spot-on:

Nearly half of the nearly trillion dollars in losses to the global banking system came from CDOs, losses ultimately absorbed by taxpayers and investors around the world. The banks’ troubles sent the world’s economies into a tailspin from which they have yet to recover.

Well done to ProPublica for holding the perpetrators’ feet to the fire.

Eddy Elfenbein thinks the time is right for the U.S. government to issue perpetual bonds:

I say let’s float some Treasury perpetuities… say that these perpetuities aren’t callable for the next, say, 50 years. We could even call them “Obama Bonds.” I wouldn’t be surprised if we could lock-in 4%.

I wouldn’t be surprised either. Perpetual bonds are extremely convex, and investors like that. And of course there’s no reinvestment risk.

But the really valuable new instrument, I think, would be perpetual TIPS. Each one would pay a coupon of, say, $10 a month, indexed to inflation. If that 4% yield on nominal perpetual bonds is split into 2% time value of money and 2% expected inflation, then you’d expect one of these bonds, paying $120 per year in 2010 dollars forever, to cost about $6,000.

In other words, if you wanted to lock in an annual income of $60,000 which was guaranteed to rise with inflation, you’d need to pay $3 million up front. At any point, of course, you could sell your bonds to someone else: they’d fluctuate in value, to be sure, but chances are that they wouldn’t fluctuate that much. Long-duration bonds rise and fall a lot in value according to prevailing interest rates, but the main reason why long-term interest rates change is changes in long-term inflation expectations. Once those are stripped out, as they would be in perpetual TIPS, what’s left is relatively stable, in terms of its market value. To a first approximation, the value of the bond would rise in line with inflation.

Better yet, to a second approximation, the bonds would be countercyclical. They would become less attractive, and cheaper, when stocks are booming and interest rates are relatively high — just when the rest of your portfolio is likely to be doing very well. And their value would rise in times of bearishness, when most other markets were falling.

The bonds would be a great way of providing a reliable lifetime income — although of course since they would rise with inflation rather than with wages, the quality of life they buy would probably fall slowly over time. They could also provide a very handy benchmark against which to judge annuity products. On the other hand, they could worry a lot of people saving for retirement. I need $3 million to buy myself an income of $5,000 a month? That’s a scary prospect, to be sure.

How to get drivers to help pay for the direct costs and negative externalities they cause? A congestion charge is one obvious way, but it’s expensive and complicated to implement. A driveway tax isn’t quite as elegant, but it’s much simpler, and it seems to be catching on even outside Oregon: it’s just been implemented by Mission, Kansas.

It’s quite simple, in theory: a set of formulas is used to work out how much traffic any given property generates. A single-family home, for example, generates about 9.5 trips per day, and will pay a $72 tax; Target generates 8,500 trips per day, and will pay $64,750. All of which works out to a tax of 2 cents per trip.

There are two problems with this scheme, beyond the entirely predictable pushback it’s getting from people who will end up paying new taxes. A tax of 2 cents per trip isn’t remotely enough to change behavior; and the tax doesn’t actually encourage people to change their behavior in any case: if you sell all your cars and go everywhere by bike or foot or public transport, you still pay the same amount of tax as the five-car family next door.

But anything which moves us away from the costly world of free parking has got to be a good thing, especially if some of the proceeds are used to pay for an express bus service. And even drivers might eventually come around to liking these taxes, if and when they start reducing traffic jams and congestion.

Paul Amery grabs this chart from a recent Deutsche Bank report:

The different lines are various ETFs, all of which seek to replicate the Euro Stoxx 50, which is the black line in the chart. Nearly all of them managed to outperform the index over the 20-month period in question, although if I were an investor in UBS’s ETF I’d certainly be asking questions. And it’s pretty clear that the degree of outperformance in many cases is a much larger component of total returns than is the headline expense ratio on the funds.

The chart shows post-fee performance, but it’s clear at a glance that it’s not lower fees which account for outperformance. Instead, explains Amery, a lot of it is dividend-tax jurisdiction shopping: funds will domicile themselves in countries with low dividend taxes, and/or lend out stocks over the dividend date to other funds in low-tax countries. For a fund like the Euro Stoxx 50 which comprises stocks from many different countries, the effects can be substantial.

None of which helps, particularly, in working out which fund to buy going forwards. Amery concludes:

It’s difficult to ascertain how the increased performance is actually being generated, why certain funds are doing better than others and what risks might be being incurred by the funds’ investors. In order to answer these questions in greater detail, investors would need to look more closely at securities lending activities, collateral policies and (for swap-based funds) the terms and conditions of the contracts between their ETF and the swap counterparty or counterparties. However, ETF managers’ disclosure of information in these areas is typically very limited indeed.

So, if you owned the iShares Euro Stoxx ETF, congratulations. If you owned the UBS version, commiserations. Going forwards, one can try to guess that iShares will continue to outperform. But that’s all it would be — a guess. We have no good reason to know why that might be the case.

Paul Singer’s Elliott Associates hedge fund navigated the crisis well, and kept on going strongly through 2009. In 2010, it’s had modestly positive returns: +5.3% in the first half, but just +0.4% in the second quarter.

Nothing too shocking there — unless you’re Paul Singer, learning that Absolute Return + Alpha has got a hold of the information. In which case, you decide to sue:

Elliott, a 33-year-old Fifth Avenue firm, which focuses on distressed debt, said in court papers that publication of the data will “give other market participants a competitive advantage.” …

Elliott filed a petition with the court demanding AR disclose the source of the information, saying it wants to locate, pursue and punish the leaker.

The magazine has said little about the case, beyond stating that it will respond formally on September 2. I’m sure that the magazine will prevail: it clearly can’t disclose its sources, and it equally clearly has no legal obligation to do so.

But the lawsuit is a shot across the magazine’s bows from a billionaire hedge fund manager who has made a very large chunk of his fortune from using aggressive legal strategies. It’s a great way of getting to the holy grail of uncorrelated returns: the chances of winning a court case bear no relation to what the broader market is doing. But it also means that no one wants to be on the receiving end of an Elliott Associates lawsuit: they have the best counsel in the world, and they have bottomless pockets. Even if you win, you’ll be tied up in expensive litigation for an indefinite amount of time.

Weirdly, all of this news is coming out at exactly the same time as Ken Mehlman, the former campaign manager for President George W. Bush in 2004 and chair of the Republican National Committee. Mehlman has been organizing a fundraiser for the American Foundation for Equal Rights — the entity funding the legal challenge against California’s Proposition 8. And the biggest fish that Mehlman has reeled in to support his cause is none other than Paul Singer:

“A lot of different people have come together to make this a success, but the one who has been the most generous and who is hosting it is Paul Singer,” said Mehlman, referring to the wealthy GOP donor and hedge fund executive.

The common thread here is that no matter what Singer does — run hedge funds, bully magazines, work for equal marriage rights — he does it through his lawyers. Indeed, Singer first started managing money in his spare time, while he was working as a lawyer at Donaldson Lufkin & Jenrette Real Estate; he might now be considered the best-paid lawyer in the world.

So if I was the person who leaked Elliott’s returns to AR, I’d definitely be wondering to myself whether my actions were really worth it. No one wants to be hunted down by Singer, who is surely working on many other means of identifying the leaker. The lawsuit is really just a way of announcing, in a very public manner, that leaking quarterly-return numbers is something Elliott will not tolerate. We’ll see next quarter, I guess, whether it has worked. But I suspect that Elliott Associates is no so large — it’s managing roughly $17 billion — that leaks are at this point inevitable. No matter how much Singer hates them.

It’s a bit too wet to schlep into the office today, but I did manage to make it in there yesterday, and shot this reaction to the housing numbers. Warning, lots of hand-waving ahead:

The backstory here is basically the big secular shift that Richard Florida talks about a lot, especially in his latest book. In order to have more renters we’ll need more landlords, and they don’t seem to be buying, record-low mortgage rates notwithstanding. What’s going to entice them into the market? Lower prices, is my guess, along with some confidence that the market isn’t going to plunge the minute the government stops backstopping everything. Right now, there’s a massive inventory of unsold homes, along with an even bigger shadow inventory of homes which probably would be sold, either by their owners or by the banks which essentially control their fate, if only the market were healthier.

What can make the market move again? Not cheaper money and lots of liquidity, clearly: we’ve tried that. The only other option, as far as I can see, is lower prices. But the government has a vested interest in any price declines happening slowly rather than quickly. So don’t hold your breath.

One of the key tools used by fixed-income analysts during the Great Moderation was their beloved Monte Carlo simulation. They would take an instrument like a CPDO or a subprime-backed CDO, and they would run it through tens of thousands of possible future worlds. If it held up in all or nearly all of those worlds, then, presto, it got a triple-A credit rating.

But Welton Investment Corporation has a great little paper out showing just how unhelpful Monte Carlo simulations can be. They applied a Monte Carlo simulation to the S&P 500 over the past 50 years, plugging in its known return and variance. Using that, they compared the predicted number of large down quarters with the actual number of large down quarters. And got this:

Over the past 50 years, someone wielding a Monte Carlo simulation would expect 32 large down quarters, of more than 20%. In fact, there were 169. And they would expect no quarters at all with losses of 30% or more, when in fact there were 23. As for a loss of 40%, that simply never happens in a bell-shaped world. But it does — and did — in real life.

There’s nothing new here, as Welton notes:

It is worth establishing that the equity market’s tail risk signature is both well-known and persistent over time. Our analysis is not anomalous, and is easily replicated using any reasonably long period of historical market data. Second, it is also worth noting that this “tail risk” effect is not just confined to the S&P 500, nor is it confined to equities exclusively. Rather, this phenomenon is seen widely across capital markets and real assets.

But it’s also undeniable that a preponderance of stock-market investors don’t really grok how much risk they’re taking: they concentrate on the positive average returns, and tend to ignore the massive downside. Given enough time, some if not all of these losses can be made back. But just how much time do most investors have? And how much do they need, before investing “for the long run” starts to be a remotely safe thing to do?

(HT: Harris)

Update: My sharp-eyed readers had their coffee this morning; I clearly hadn’t. There’s something very, very odd with the numbers above: they seem to be cumulative, rather than additive. So while it might be true that there were 42 quarters with a loss of more than 20%, compared to a predicted 17, that’s a multiplier of 2.5x, not 5.3x. And it seems improbable, to say the least, that there can have been 169 quarters in the past 50 years with a loss of more than 20%, when 50 years is only 200 quarters in total. There must be a fair amount of mulitple-counting going on somewhere. On top of that, not all Monte Carlo simulations assume a normal distribution. So I have a call in to Welton, I’ll try and clear all this up.

Update 2: OK, I’ve now talked to Welton’s Chris Keenan, and have a much better idea of what’s going on here. First of all, these are rolling compound 65-day returns: the quarterly performance is calculated every day, not every quarter. So there aren’t 200 quarters in 50 years, there are about 11,000. Why would you do that? After all, who calculates their quarter-to-date performance on a daily basis? Very few people. But institutional clients, especially, pay serious attention to quarterly returns, which is one reason why they demand those numbers from money managers. And if you’re looking at stock market performance as a whole, it makes sense to get as many datapoints as possible, rather than cherry-picking 200 datapoints on the grounds of where they fall on the calendar.

In any case, Welton came up with this chart:

The basic idea is to measure how fat the real-world tail is, compared to the normal distribution. The real tail is the area under the light-blue line, left of a 20% cutoff. And that tail is 5.3x fatter — its area is 5.3x larger — than the area under the dark-blue line, which represents the normal distribution assumed in much of Modern Portfolio Theory, and which in turn is used to make a lot of asset allocation decisions. I hope that helps clear things up a little.

Update 3: I’m still getting pushback on my headline, and the way that I’m blaming Monte Carlo simulations rather than just normal distributions. That’s fair: the real underlying problem with the normal distribution is the normal distribution, and if you run a Monte Carlo simulation with normally-distributed garbage in, then you’re going to get garbage out. This paper didn’t need to use Monte Carlo simulations, but it did:

We created an “Expected” return distribution for the S&P 500 Index using standard Monte Carlo simulation methods based on a normal distribution assumption with inputs derived from actual S&P 500 data for the previous 50-years.

The inputs, here, were the return and the variance of the stock market over the long term. And using those inputs, along with a silly assumption that returns were normally distributed, ended up with a very bad model when it came to predicting the fatness of the left-hand tail.

It’s entirely possible to run Monte Carlo simulations which don’t assume a normal distribution. But the fact is that most people, when they look at the results of Monte Carlo tests, don’t critically examine the assumptions behind them. And it’s very easy to get blinded by Monte Carlo science: I, for one, took a lot of the CPDO fanboys at face value because I trusted them to be using good models, when in fact they were using flawed models.

So the lesson here, I think, is mostly that stock-market tails are fat. But there is a sub-lesson, too, which is that Monte Carlo simulations can be very dangerous, if they’re implemented by people who don’t know what they’re doing. Including the quants at Moody’s.

Randall Forsyth reports on the magical math of corporate defined-benefit pension plans:

Fitch’s analysts find the mean assumed return for corporate pension plans in 2008 and 2009 was 8%. That’s with an allocation to fixed-income assets of 34% of the total.

Obviously, there’s no way that fixed-income assets can return 8% going forwards from here. There’s also little sign that pension plans are reducing their fixed-income exposure. And I can’t imagine that fund managers genuinely believe that long-term stock returns are going to be somewhere in the teens.

As a result, any intellectually honest plan is going to have to start cutting the interest rate it’s using to calculate the net present value of its future defined liabilities. And every percentage point by which they cut that discount rate means that the present value of their liabilities soars by between 10% and 20%. Cut by two or three percentage points, and suddenly all those cash-heavy corporate balance sheets start looking a lot lighter:

That’s the thing about deflation; it’s like a neutron bomb for corporate, public-sector and consumer balance sheets. Asset values and returns get decimated while liabilities remain standing.

There’s no news here, of course. Inflation is painful for the poor, but much easier for the rich, whose wealth is tied up in things like stocks and houses which tend to retain their real value. Deflation makes goods more affordable for the poor, but is horrible for anybody counting the days until their future liabilities come due.

Still, for the time being, I’m going to place my faith in the continued ability of corporations and pension-plan trustees to delude themselves about future returns and prudent current discount rates. The 8% return assumption didn’t make much sense in 2008 or 2009 either, and so the fact that it makes even less sense in 2010 is hardly a reason to think it’ll be reduced. It’s much easier for the current tranche of executives to leave this problem to their hapless successors.

It’s barely credible, but it seems to be true:

On August 12,13, and 16, 2010, Defendant Juan Jose Fernandez Garcia (“Garcia”), a Madrid, Spain resident and the Head of European Equity Derivatives at Banco Santander, S.A., an advisor to BHP in connection with its tender offer, purchased a total of 282 call options for approximately $13,669, all of which he sold on August 17, 2010 for a profit of approximately $576,000.

That’s a 4,000% profit in the space of three business days. What on earth did he think he was doing? It’s all pretty obvious stuff: on August 12, for instance, Garcia bought 32 call options on POT with a strike of $130 and which were going to expire on August 21. On that day, POT was trading between $106.56 and $112.88 per share, and the call options cost him the grand sum of 2 cents apiece.

When POT opened on August 17 at $143.11 per share, Garcia sold his options. I’m not sure what the price was on the $130 calls, but it was probably somewhere in the region of $13 each. A nice return.

Santander has yet to comment on this case, but it’s crazy that a senior member of their equity-derivatives team would engage in something as obvious as this, using his own personal account in his own name. I suspect there’s another shoe to drop here. But there’s no doubt that this is a massive egg on Santander’s face, not least because the Chinese walls there clearly failed in the worse possible way. I’ll be fascinated to see how this case plays out: I’m quite sure there’s a very juicy story behind the scenes somewhere.

Great clip from Inside Job, putting Ric Mishkin on the spot about why he didn’t disclose a $124,000 conflict — Yahoo

Love on the subway — Reuters

“I’ve never seen an executive lose the support of an organization then regain it” — Horowitz

Non-profits aren’t – or shouldn’t be – brands. Watch Livestrong and Demand drag each other down — Gimein

Locklin vs nanotechnology — Locklin

Matt Cooper to National Journal. Who will write the FCIC report? — Fishbowl NY

Wherein Marty Peretz apologizes to Liza Minelli, and praises her “exemplary private life” — TNR

Julian Dibbell delivers a spectacularly smart and grown-up profile of 4chan. It’ll change the way you think about it — Technology Review

Brad DeLong places himself squarely in the camp of the Cycs rather than the Strucs when it comes to Jim Ledbetter’s distinction between economic unemployment theorists. The Cycs think that unemployment is cyclical and will fall as demand grows; the Strucs think it’s structural, and the result of a mismatch between the jobs available and the unemployed workers looking for employment.

DeLong reckons that there can’t be much of a mismatch, because there’s precious little evidence of excess demand for labor in any industry. But this ignores, I think, globalization: companies which can’t fill jobs domestically simply outsource them, or set up shop abroad. Rather than looking just at U.S. employment figures, it would be helpful to look also at the total number of people employed by U.S. companies, and see whether that’s showing a different trend.

I also think it makes sense to break the Struc argument down into its component parts: the inability of the unemployed to find work, on the one hand, and the inability of employers to find good employees, on the other. The first part seems to be undeniable, and it’s surely getting worse as the length of time that people have been looking for work rises inexorably. The longer you’ve been without a job, the harder it becomes to get one, until you become unemployable.

Meanwhile, just because it’s hard to find good employees doesn’t mean that your business is booming and that there are lots of incentives for the unemployed to join your industry. The Cycs could well have a point here — if we get an uptick in total demand, then that might help increase employment in the parts of the economy with tight labor markets. But for the time being, employers who can’t find the employees they want seem to be resigned to simply keeping on going with the employees they’ve got: dreams of expansion have given way to grim survival and a refusal to take on extra debt or risk. And they certainly don’t want to risk raising their prices in this economy, even if they suspect they could get away with doing so.

And then there are all the stickinesses in the labor market: people like to stay where they are, rather than moving to where the jobs are. (This fact is only exacerbated by high homeownership rates.) They tend, certainly in the first instance, not to even look for jobs which pay much less than they were last earning: if you used to be a high-producing subprime mortgage originator, it’ll take a while before you consider training to be a yoga instructor. And then, by the time that you capitulate to the new economic reality, you’ve been unemployed for so long that your chances of getting any job at all have dissipated significantly.

Empirically, there’s no doubt that the Cycs have been proved wrong in their forecasts: unemployment now is significantly worse than the Obama administration forecast even without the benefit of the stimulus package.

Yes, at the margin, government stimulus can create jobs. Especially if its carefully targeted towards things like small-business lending and arts subsidies. But job creation is more of an art than a science, and there’s always a chance it’ll fail. Especially if you attempt it in the face of full-bore Republican obstructionism in Congress. So the political reality is that high unemployment is going to be with us for the foreseeable future. Which is something that I’d guess both the Cycs and the Strucs would agree with.

(Via, and for, Heidi)

Stephen Gandel finds an interesting theory for why home sales plunged so much last month, even as prices remained steady:

What’s going on here? I called Celia Chen who covers housing at Moody’s Economy.com and she had this interesting take: It might not be the housing credit that is wreacking havoc on the housing market. Another government program might be doing the trick: HAMP. For the past year or so, the government’s program to help people refinance their mortgages into affordable loans has been slowing the pace of foreclosures. But the key word is slowing. Most of the those foreclosures are likely to happen anyway, because statistics from HAMP show that most people who get trial modifications end up dropping out of the program or not getting approved for the actual loan modifications. So for the past few months the number of distressed sales, or sales of homes by banks that are just trying to unload properties as fast as possible, has dropped or remained stable. That has hurt sales, but helped prices. And the result is what we saw today.

It’s a cute theory, but I don’t buy it. There are more than enough seriously delinquent homeowners who aren’t in HAMP for the banks to be foreclosing on — and selling — as many homes as they like. The rate of bank repossessions is limited not by HAMP, but rather by banks’ appetite for repossessions and the capacity of their foreclosure pipeline.

On the other hand, Gandel is absolutely right that the drop in home sales presages a coming fall in house prices. With mortgage rates at record lows already, and unemployment remaining high for the foreseeable future, it’s hard to see what could possibly drive home prices higher. This market isn’t clearing at present levels, even with vast amounts of artificial support from the government in the form of Frannie guarantees. That support can’t last forever, and neither can current mortgage rates. So if and when we see an uptick in home sales, it’s pretty reasonable to assume they’ll be at lower prices.

Beijing has a 62-mile traffic jam which is currently moving at one third of a mile per hour, and which is likely to last until mid-September. And that’s not even the really scary bit:

The mega-jam on the city outskirts comes as officials warn that downtown traffic in Beijing is steadily worsening. State media on Tuesday reported that average driving speeds in the capital could drop below nine miles an hour if residents keep buying at current rates of 2,000 new cars a day.

Here in New York, we literally haven’t seen rush-hour driving speeds of nine miles an hour in living memory. The average speed during the morning rush between 6am and 9am is 7.03mph; in the six-hour-long afternoon rush between 2pm and 8pm, it’s just 6.78mph.

The answer in both cities, of course, is the combination of better public transport with congestion charging. In Beijing, that’s going to happen. In New York, I’m not holding my breath.