March 26, 2012

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Ben Bernanke and Larry Summers agree! We’re in the middle of a very long slog out of a very deep recession, and it’s going to take a long time before we get to full recovery. That’s bad, if unsurprising, news, but there’s also a silver lining here, according to Bernanke: It means that the unemployment crisis is cyclical, rather than structural.

If the recent increase in long-term unemployment were being driven by structural factors rather than, say, the severity of the recession, then the job-finding rates of the long-term unemployed should have fallen sharply relative to those out of work for only a few weeks. But that’s not what we’re seeing. Rather, as figure 13 shows, the job-finding rates of the more recently unemployed and the long-term unemployed all fell over the recession in roughly the same proportion, and they remain low. This pattern is consistent with cyclical factors accounting for the bulk of the recent increase in long-term unemployment. Similarly, the fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand rather a worsening mismatch of skills and jobs.

It’s striking, though, to see Bernanke use the word “puzzle” four times in describing the labor market. Here, he’s perhaps channeling Grep Ip, who used the very same word in an excellent recent post. Both Bernanke and Ip are asking why America’s unemployment rate is (shout-out to Okun’s law) falling faster than our relatively modest GDP growth suggests it should. (U.S. unemployment has recently fallen fast enough to justify 5.1% growth, Ip notes).

This time, it’s the good news that has a hidden downside: Ip suggests that the underlying reason is that our national potential output is significantly lower than the official statistics suggest. (Felix suggested this may have been because of our pre-crisis debt addiction. There’s also some nice stuff on the “output debate” at Seeking Alpha).

Today’s links:

The Supreme Court’s healthcare decision may be the most important ruling on state powers since the 1930s – SCOTUS blog

EU Mess
Mario Monti says Spain could start the EU debt crisis all over again – Bloomberg

How the Daily Mail became the most popular news site in the world – New Yorker

The Mail presents itself as the defender of traditional British values, the voice of an overlooked majority whose opinions inconvenience the agendas of metropolitan élites. To its detractors, it is the Hate Mail, goading the worst curtain-twitching instincts of an island nation, or the Daily Fail, fuelling paranoia about everything from immigration to skin conditions. (“WITHIN A DAY OF HIS ECZEMA BEING INFECTED, MARC WAS DEAD,” a recent headline warned.) A Briton’s view of the Mail is a totemic indicator of his sociopolitical orientation, the dinner-party signal for where he stands on a host of other matters. In 2010, a bearded, guitar-strumming band called Dan & Dan had a YouTube hit with “The Daily Mail Song,” which, so far, has been viewed more than 1.3 million times. “Bring back capital punishment for pedophiles / Photo feature on schoolgirl skirt styles / Binge Britain! Single Mums! / Pensioners! Hoodie Scum!” Dan sings. “It’s absolutely true because I read it in the Daily Mail.” The Mail is less a parody of itself than a parody of the parody, its rectitudinousness cancelling out others’ ridicule to render a middlebrow juggernaut that can slay knights and sway Prime Ministers.

A list of America’s ongoing, open-ended bailouts for big banks – Ritholtz

CEO pay now marginally more related to actual CEO performance – WSJ

Despite fairly significant gains in companies’ profit and revenue, total direct compensation for 65 CEOs in place at least two years rose just 1.4% last year, according to preliminary results from a survey by The Wall Street Journal and Hay Group.

That’s down sharply from an 11% increase in 2010, according to that year’s Journal/Hay Group survey of 350 companies.

Banks are winning the war against the Volcker Rule – Bloomberg

Bernanke needs less Eyeore and more Tigger – Slate

MF Doom
Newly unearthed email may give Corzine a pretty big alibi – NYT

The e-mail suggests that Mr. Corzine, a former governor of New Jersey, was unaware that the money had been transferred from a customer account. But it is unclear whether someone at the commodities brokerage firm told Mr. Corzine the origins of the money during a phone call or in person. Congressional investigators are interviewing MF Global employees to see whether Mr. Corzine learned that the transfer of $200 million came directly from a customer segregated account, one of the people involved in the case said.

Primary Sources
Ben Bernanke is not ready to declare a full recovery yet – Fed
: Bernanke’s hysteresis fears: “long-term unemployment may ultimately reduce the productive capacity of our economy.”

The multibillion Wall Street scandal that makes the mortgage scandal look like peanuts – Fortune
Related: Why the LIBOR scandal isn’t all that scandalous – Dealbreaker

New Normal
The WSJ offers its elite readers prison survival tips – WSJ

The schooling for incoming inmates includes lingo. A “cheese eater” is an informant. A “blanket party” is throwing a blanket over an inmate then beating him. “Diesel therapy” is when troublemaking inmates are shackled and driven around in the back of a prison bus. Misbehave often, and you risk taking a trip to the “SHU”—the Special Housing Unit—also known as “the hole” or solitary confinement.

Reuters Opinion
It’s too early to return to normal policies – Lawrence Summers
Trickle-down consumption – Chrystia Freeland
After the Robin Hood Tax – Hugo Dixon
Who’s to blame when an injured soldier kills civilians? – Mac McClelland
Ryan’s budget frames election around Medicare – Christopher Papagianis

Benedict Arnolds
Steven Rattner: Income inequality is terrible and getting worse – NYT

Fab Fab
Fabrice Tourre is now living in Rwanda – NYT

Mild Rebuke
Yahoo appoints 3 new board members, disses Dan Loeb – All Things D

Barro: Paul Ryan’s budget is “vacuously vague” – Forbes

“Smart money” joins the long crowd – Bloomberg

Sounds Painful
Your handy guide to the world’s obsession with “financial repression” – VoxEU

EU Mess
The Irish house built with shredded euros – NYT

Self-Inflicted Problems
Morgan Stanley: Banks will shed $1 trillion from their balance sheets in the next 2 years – FT

Study: Financial advisers encourage exactly the bad choices individual investors should avoid – NBER
Leveraged ETFs: Frighteningly volatile and 90% owned by retail investors – Zero Hedge

Court rules in JPMorgan’s favor over $3 million typo – Bloomberg

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