Felix Salmon

Why are banks so bad at short sales, even when such things are clearly in the banks’ interest? Cynic has a spectacularly good comment which is worth elevating to a blog entry of its own:

It’s tempting to lay the blame on servicers’ lack of incentive to process these short-sales speedily. Or to suspect that banks aren’t eager to speed the process, because they’d like to wait to recognize the losses until their balance sheets are a little more robust, even if that ends up costing them more in the long run. And those are real problems, but they’re not the whole picture.

The bigger problem here is Milton Friedman. There is an absolute refusal to recognize the possibility that, for a variety of reasons, the lenders will not act in their own best interests unless forced to do so. That runs directly contrary to the axiomatic tenets of neoclassical economics – surely sophisticated businesses will always pursue their own economic self-interests, and have the ability to discern it.

But, alas, not. Banks are also bureaucracies; Weber is as relevant as Friedman. Speeding this process would involve massive hiring. Since there aren’t enough qualified people – short-sales used to be comparatively uncommon – that means that there will be a substantial lag as staff is trained. Moreover, banks are both loath to hire staff for what they perceive to be a short-term problem, and reluctant to expand payroll at this moment in time. And it goes beyond hiring. Few banks view restructuring, short-selling, or foreclosure processing as core to their missions. These are unglamorous areas of the bank. The executives in charge rank low on the totem poll, and are poorly positioned to press for the necessary changes. Finally, there’s outright denial. Executives are never interested in recognizing their own failures. That’s painful. They’d rather avert their eyes, even if that proves costly. Every short-sale is an admission of error, and forces the bank to pay the piper. No one is going to make a performance-related bonus for completing transactions faster that cost the bank huge amounts of money – even though that’s precisely the sort of performance that the bank ought to reward, because it results in long-term relative savings.

This is precisely where regulatory pressure is most useful – in compelling businesses to do things that are in everyone’s interest that they might not otherwise be willing to do themselves. But admitting that a free market might not produce such an outcome is simply too painful for leading economic policy makers, let along Congressional Republicans. And so we watch.

Dan Ariely loves to talk about how as individuals we’re incredibly bad at doing things which involve short-term pain for long-term gain: going on a diet, or quitting smoking, or reducing carbon emissions. He even has a great first-person story about this, dating to a time when he was diagnosed with hepatitis C:

The initial protocol called for self-injections of interferon three times a week. The doctors advised me that after each injection I would experience flu-like symptoms, including fever, nausea, headaches and vomiting. But I was determined to kick the disease, so every Monday, Wednesday, and Friday evening for 18 months I plunged the needle deep into my thigh. About an hour later the nausea, shivering and headache would set in.

Every injection day was miserable. I had to face giving myself a shot followed by a 16-hour bout of sickness in the hope that the treatment would cure me in the long run. I had to endure what psychologists call a “negative immediate effect” for the sake of a “positive long-term effect”.

At the end of the 18-month trial, the doctors told me that the treatment was successful and that I was the only patient in the protocol who had always taken the interferon on schedule.

Bank executives, it’s worth remembering, are human. Every time you do a short sale, you take a substantial loss on your loan. And no one likes doing that: it’s painful. So it’s understandable, from a psychological perspective, that they will drag out the process as much as possible, putting off until tomorrow the pain they know has to come at some point. They might even prefer a foreclosure to a short sale, on the grounds that it’s theoretically possible that they’ll end up getting more money for the house in the end, even though they know that in aggregate the bank’s losses on foreclosures are always going to be bigger than its losses on short sales.

Can the government do anything to nudge banks in the right direction, here, to the benefit of all concerned? And if so, what? Intuitively I find it hard to believe that extra layers of regulation are going to be able to improve anything. And Cynic’s points about the lack of qualified staff, and the existing staff’s lack of status within the bank, are well taken. These are deeply ingrained problems, which don’t have easy solutions. Which in turn is yet another reason to be bearish on the housing market over the medium term.

Remember the Master Limited Partnership tax loophole? Well it turns out that a lot of investment companies seem to be trying to take full advantage of it. Tadas Viskanta notes that everybody and their mother seems to be trying to roll out stock-market-traded funds structured as MLPs, some with valuations north of $1 billion. Essentially, if you list a pipeline corporation directly, there’s much more tax to be paid than if you set it up as an MLP and then list the MLP in ETF form.

Tadas says that investors should be cautious here: “You should be more discerning in your approach to MLPs now that they have been discovered by the crowd”. That makes sense: there’s a very real risk, now that everybody knows about this loophole, that it will be closed. I hope it will be, anyway.

AIG FP’s Joe Cassano is coming out swinging in his testimony to the FCIC:

Often repeated are my words during an earnings call in August 2007 that I did not expect any realized, economic losses (as opposed to unrealized accounting losses) on this portfolio. I meant exactly what I said in August 2007. The underlying loans in the CDOs were diversified, and we insured only the super-senior tranche, which always had a AAA layer of loans below it. I did not expect actual, economic losses on the portfolio…

As I look at the performance of some of these same CDOs in Maiden Lane III, I think there would have been few, if any, realized losses on the CDS contracts had they not been unwound in the bailout.

This is something which should be able to be cleared up empirically quite easily, no? How many of the super-senior CDO tranches that AIG FP insured have ended up defaulting by now?

More generally, of course, the question is moot because AIG simply didn’t have the liquidity to survive as a going concern after putting up all the collateral which its insurance contracts required it to post during the crisis. It’s not enough that your credit default swap ends up suffering no losses in the end; you also have to be able to survive until the end. And no one, least of all Cassano, seemed to worry about that.

Update: In his live testimony, Cassano is reiterating that “I think the portfolios are withstanding the test of time in extremely difficult circumstances.” Chairman Angelides is not convinced, saying that projections are for very big losses. But he does seem to be conceding that there aren’t any cash losses on the AIG credit default swaps yet.

Louise Story and Gretchen Morgenson have another huge AIG/Goldman story today, which centers on one new and interesting piece of information: when AIG paid off its bank creditors in full, with the help of that monster government bailout, it also signed a waiver forfeiting its right to sue those banks, including Goldman.

The waiver is buried on page 385 of the 823 pages of documents that the NYT has, wonderfully, put online in a very easy-to-read form. (It’s also linked to the full 250,000-page document dump from the House Committee on Oversight and Government Reform, if you want to go trawling through the documents yourself.) I was rude about the NYT putting source documents online a couple of weeks ago; this is the best possible way of the NYT proving that I was wrong.

The waiver itself is interesting. Taking out some of the legal blather, it comes down to this:

Each of AIG-FP and AIG Inc, for good and valuable consideration, the sufficiency of which it hereby acknowledges, forever releases the Counterparty from any and all Claims of any nature whatsoever that AIG-FP or AIG Inc ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring from the beginning for the world to the Termination Date that arises out of or in any way relates to the CDS Transactions.

Yes, it really says “from the beginning for the world.” But more interesting to me is the bit about “good and valuable consideration.” It seems to me that AIG paid off Goldman and its other counterparties in full — it essentially gave them everything they could possibly want. So what good and valuable consideration did Goldman give to AIG in return for this waiver? Why would AIG agree to this?

The answer of course is that it was not in AIG’s interest to agree to this waiver, and it really didn’t get much if anything in the way of good and valuable consideration from Goldman or anybody else. But the waiver was forced on AIG by the government, and specifically by Treasury and the New York Fed. Treasury was full of old Goldman hands, including Hank Paulson and Dan Jester; the Fed, too, was and is much closer to Goldman than to AIG.

The whole thing is very smelly, and I’d love to see a better reason for the waiver’s existence than this:

David Moss, the Harvard professor, said the government might have been concerned that the insurer would use taxpayer money to sue banks. “The question is: was this legitimate?” he asked. “The answer depends on the motivation. If the reason was to avoid a slew of lawsuits that could have further destabilized the financial system in the short term, this may have been reasonable.”

But the fact is that wasn’t the reason: since AIG was being nationalized, if the government wanted to avoid any lawsuits in the short term it could simply tell AIG not to sue Goldman. The point of the waiver was clearly to enjoin AIG from ever suing Goldman even after it emerged from government control. And there’s no good reason for that.

How long does it take to complete a short sale? If you have a prime loan from GMAC, it takes a full six months: painful. But what’s much worse is that GMAC is by far the fastest mortgage servicer of the lot: prime loans from Countrywide take, on average, 13 months. Subprime loans from Morgan Stanley’s Saxon unit are even worse, at 17 months. And then there’s the subprime loans from Equicredit and Ocwen, which take a mind-boggling 29 months to go through, on average.

Jorge Newberry has some common-sense ideas about how to speed things up a bit, but the fact is that these servicers have demonstrated their inability to do their jobs multiple times over the past few years: they’re simply overloaded. Too few staff, with too few qualifications, are trying to do too many things at once.

The result is predictably depressing: more foreclosures, less money for servicers, more distressed sales, more empty homes, lower house prices. Treasury has done nothing to alter this situation to date, and neither has Congress. So expect more of the same going forward, for years and years to come.

There are non-trivial technical problems which would need to be overcome were anybody tempted to take Andrew Breitbart up on his offer to buy the Journolist archives for $100,000. Juli Weiner writes:

The one kink in Breitbart’s plan is that we now live in a post-6/25 world, and JournoList is no longer a functioning entity. To access the archive, members would had to have chosen a Google Groups setting that forwards discussions to their inboxes. JournoListees would also have to now be willing to relinquish control of their e-mail accounts to Andrew Breitbart, which, ew.

In fact, it’s harder than that. I think that most Journolist members had discussions forwarded to their inboxes — it was the only practicable way of keeping on top of conversations. But the only conversations they would have received were the ones which took place after they joined. Journolist didn’t spring fully formed out of Ezra Klein’s contact list with 400 members: it grew organically over time. And once you were a member, you had access to the complete archives. But those archives have now been taken down, as Weiner notes.

So in order to give the full archive to Breitbart, one of two things I think would have to be the case. Either you would have to be in the small group of founding members, who have received all of the emails since inception. Or else, while Journolist was still up, you would have to have somehow mirrored or copied the entire archives onto your own hard drive.

I don’t know how easy or difficult that would have been, but I’m quite sure that it’s beyond the technical ability of most of Journolist’s membership. It does however look as though Ezra Klein killed Journolist just in time: if it was still up today, I’m sure Breitbart would be publishing detailed instructions on how to generate a full archive from a Google Group. For the time being, though, I hold out hope that Breitbart’s fishing expedition will come up empty. Although it seems that one of Journolist’s members was malevolent enough to leak Dave Weigel’s emails, there’s also a very good chance that wasn’t smart enough to store a full local archive of the group’s history.

Update: Dsquared adds in the comments that Breitbart can’t credibly promise to keep the leaker’s identity secret:

Offering to pay $100k for someone else’s private email is not protected journalism even in the USA, as far as I’m aware, and there was at least one EU citizen on that list who might be tempted to assert his Article 8 right to privacy (cf: the News of the World phone-hacking scam). This would be the stupidest thing Breitbart or anyone else could do, given that a) $100k doesn’t necessarily go all that far in the English courts and b) the identity of the person who leaked it (and the person who leaked Weigel’s original email) would certainly come out during discovery. Breitbart really needs to get a new lawyer if he thinks he’s able to make that guarantee of “protection” to someone selling an archive of other peoples’ mail for a hundred grand.

One of the best pieces of news to come out of the financial regulatory reform bill (assuming it goes through) is that stockbrokers will finally have a fiduciary duty to their clients. It’s long overdue — but already, before the bill is even passed, brokers are trying to find ways to weaken it. Joe Giannone spoke to brokerage executive John Taft:

Taft contends that when the SEC gets to work on drafting the actual rules of the road — and Taft says there is no question a fiduciary standard is coming — it ought to take into account the different ways clients work with brokers.

“You’ve got to change” the standard, Taft said. “It’s got to be different.”

Er, no, you don’t have to change the standard at all — especially since by “change”, Taft clearly means “weaken”.

I suspect that one of the key problems here is that brokers are desperate to be able to privilege their own shop’s products over their competitors’. But if they have a fiduciary duty to their clients, and a competitor is offering an identical-yet-cheaper product, then they might well have to steer their clients to their competitors. I don’t have a problem with that. But enforcing it is going to be a nightmare — assuming that the rule even survives in its present form, and the SEC doesn’t chip away at it before it’s implemented.

It seems that financial regulatory reform is not a done deal after all: Paul Kanjorski says that the reconciliation negotiations might be reopened, Chris Dodd is looking to possibly beef up the FDIC enormously, and Democrats are wondering whether they need to remove $19 billion in new bank taxes in order to pass Republican procedural hurdles in the Senate.

It would be a fiasco of tragic proportions if the banks managed to remove these taxes from the final bill, essentially absolving themselves from cleaning up after their own mess. The arguments against the taxes are weak indeed: either you simply oppose all taxes on principle (which seems to be the Scott Brown stance, and which is fiscally disastrous), or else you’re forced into John Carney’s corner.

Carney is worried that we don’t know exactly where the tax will be applied — but that’s a feature, not a bug. Setting up the tax in great deal ex ante is essentially just asking banks to spend millions of dollars on tax consultants who can help them skirt the new levies. And as the risks in the system evolve and change, so to should the way that they’re taxed. It’s right and proper that the newly created Council for Financial Stability will be charged with taxing systemic risk, rather than having a bunch of politicians try to do so at the beginning and then watch as the banks and other financial institutions nimbly sidestep the new taxes.

An increase in the FDIC premium would be a gift on a platter to banks like Goldman Sachs and Morgan Stanley which don’t have insured deposits — not to mention non-bank players like Citadel which are systemically very important. I’m unclear on what exactly this Republican “procedural hurdle” is — I thought that after reconciliation, you just needed a simple majority to pass a bill. But I’m getting very annoyed about it.

In the olden days, drug smugglers would launder their money the old-fashioned way: by starting up a bank. Today, it seems, they have no need to do so: they just use Wachovia and Bank of America instead. Michael Smith has the story, which includes the tale of money launderer Pedro Alatorre:

In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks…

During the period in which Wachovia admitted to moving money out of Mexico for Puebla, couriers carrying clear plastic bags stuffed with cash went to the branch Alatorre ran at the Mexico City airport, according to surveillance reports by Mexican police…

Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports.

“Wachovia handled all the transfers, and they never reported any as suspicious,” says Jose Luis Marmolejo, a former head of the Mexican attorney general’s financial crimes unit who is now in private practice…

“I am sure Wachovia knew what was going on,” says Marmolejo, who oversaw the criminal investigation into Wachovia’s customers. “It went on too long and they made too much money not to have known.”

At Wachovia’s anti-money-laundering unit in London, Woods and his colleague Jim DeFazio, in Charlotte, say they suspected that drug dealers were using the bank to move funds.

Woods, a former Scotland Yard investigator, spotted illegible signatures and other suspicious markings on traveler’s checks from Mexican exchange companies, he said in a September 2008 letter to the U.K. Financial Services Authority. He sent copies of the letter to the DEA and Treasury Department in the U.S.

Woods, 45, says his bosses instructed him to keep quiet and tried to have him fired, according to his letter to the FSA. In one meeting, a bank official insisted Woods shouldn’t have filed suspicious activity reports to the government, as both U.S. and U.K. laws require.

“I was shocked by the content and outcome of the meeting and genuinely traumatized,” Woods wrote.

And that’s just one of many stories: I particularly also like the bit about how drug smuggler Oscar Oropeza’s wife and daughter would literally launder their banknotes before depositing stacks of cash at a Bank of America branch on Boca Chica Boulevard in Brownsville, Texas, where everybody knew who they were.

“I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer,” Salazar says. “They told me that when they opened the vault, the smell of Bounce just poured out.”

How do the Mexican drug smugglers persuade U.S. banks to turn a blind eye to this kind of thing? Smith implies that it all comes down to the inherent profitability of the business, but I’m not fully convinced by that: I don’t think that bank managers’ bonuses are going to be so much bigger for allowing the money to pass through their bank that they would risk their own careers and their employer’s franchise to do so. My guess is that there are direct kickbacks somewhere along the line, and that bank employees are being paid directly, or threatened, or both, by the drug smugglers. I’d certainly love to find out what Martin Woods’ bosses told the authorities when they were asked why they told him not to report the suspicious activity; let’s hope Smith continues to report this story. It’s not over yet — not by a long shot.

(HT: IKN)

What do you call a market which rises on bad news and panics — as it’s doing today — on no news at all? The 10-year Treasury is now yielding less than 3%, the Dow’s back below 10,000, the VIX is over 30, and the Nasdaq is down 2.4% in a matter of minutes; French stocks have fallen more than 3% today, and in general the global risk-aversion trade seems to be back on.

Interestingly, gold is down a little today: maybe at these levels it’s more of a risk asset than a safe haven. But more generally I think we’re seeing what happens to markets which are much more global, complex, and interconnected than they’ve ever been in the past: correlations can appear out of nowhere, and it’s silly to even attempt to explain significant intraday market movements by recourse to anything in the news.

Our brains are hard-wired to look for causality wherever we can, so if news isn’t causing this volatility then naturally we look for other explanations instead: is there something churning hard below the surface? Did a large number of hedge funds all have very similar trades, and now they’re all trying to exit their positions at the same time? It’s impossible to know for sure, but I do wonder how and whether the phenomenon of high volatility on no news correlates with the rise of hedge funds.

If you’re invested in these kind of markets, only the two extremes make any sense, it seems to me. Either you’re a buy-and-hold type who’s convinced about the existence of the equity premium over the long term and who happily ignores all intraday volatility, or else you’re a high-frequency trader who loves to make money on a tick-by-tick basis. Everybody else is liable to get stopped out, or otherwise crushed. And in many ways, the only winning move is not to play.

Find out the interchange fee on your credit card — True Cost of Credit

ESPN.com traffic is up 70% over its traditional annual peak of online mania during the NCAA basketball tourney — NYT

Lenny Dykstra sold $1 million in newsletter subscriptions at $995 a pop — Daily Beast

The NYC finance employment boost is the largest since May-August 2008. What could possibly go wrong? — WSJ

How to get off jury duty, t-shirt edition — NYP

Joint Statement From Former Chairmen Paul S. Sarbanes and Michael G. Oxley — PR Newswire

FIFA censors the Lampard non-goal from its ENG-GER highlights reel — FIFA

Long-term interest rates are tumbling further today: 10-year Treasury yields are now a hair’s breadth away from breaking the 3% barrier. And where long-term interest rates go, mortgage rates are bound to follow. So it’s easy to see why the purple line is falling on this chart, which comes from Barry Ritholtz and which is doing the rounds today:

Meanwhile, it’s equally easy to see why the red line is rising. It’s the ratio of rents to prices, and the first-order effect of falling prices is rising rent-to-price ratios.

But Paul Kasriel of Northern Trust reads a lot into this chart: it’s cheaper to buy than to rent, and therefore now is a good time to buy. Indeed, he says, “housing is about as an attractive a purchase as it has been in the past 40 years.”

Certainly housing is more attractive now than it was, say, five years ago: both prices and mortgage rates are significantly lower than they were back then. But back then we were near the top of the biggest housing bubble this country has ever seen, and finding house prices now attractive in relation to house prices then is akin to getting excited by Yahoo stock now, on the grounds that it costs so much less than it did in 2000.

The big picture, in terms of house prices and interest rates, is clear: prices go up when rates are falling, and they go down when rates are rising. That stands to reason: people buy what they can afford. When you’re selling your house you care about the headline price, but when you’re buying it you mostly care about how much money you’re going to have to spend each month in mortgage, taxes, and maintenance. If mortgage rates go up, the amount of mortgage you can get for any given monthly payment goes down, and so house prices have to come down lest they become out of reach.

In a housing bubble, this arithmetic is temporarily sidelined, as people buy houses they can’t afford. So where will prices from here, given that mortgage rates can only go up rather than down? Essentially, there are only two choices. Either buyers remain rational and only buy what they can afford, in which case prices are bound to fall sooner or later, when interest rates rise. Or else buyers stop being rational, start buying houses they can’t afford, and we have another bubble.

As for rents, they tend to lag prices: they never rose as much as prices did during the bubble, and they haven’t fallen as much as prices have during the bust. But as homeownership rates fall and America’s stock of foreclosed houses starts being rented out, the natural pressure on rents is likely to be down rather than up. Plug negative annual rent increases into the NYT’s buy vs rent calculator, and it’s really hard to make the case that buying is better than renting over any timeframe.

More generally, I simply don’t believe any chart which seems to imply that you can buy a house and rent it out for literally double what you’re paying on your mortgage. That might conceivably be possible in a few of the areas hardest hit by the housing bust, and I’ll happily advise anybody who finds such a market to go ahead and buy right now. A lot of the time, of course, it’s very hard to tell: American neighborhoods often have very few renters, and there’s really no such thing as the market rent in such places. There can also be serious local-market disconnects: it’s not uncommon to find would-be renters saying that there’s nothing available at any price, even as would-be landlords say that they can’t find a renter at any price.

If I could ask Kasriel one question, it would be this: when was the last time that historically low mortgage rates signalled a good time to buy, in any country? In pretty much every such case, I think, prices have only gone up if rates have fallen lower still. But now we’re bumping along the zero lower bound, and the only way that mortgage rates are falling significantly from these levels is if we get another monster recession. Which certainly won’t help house prices.

“NO,” shouts Joe Weisenthal today at Clusterstock, “The Supreme Court Did Not Just Strike Down Sarbanes-Oxley.” Well, of course it didn’t: it’s just an obscure auditing board which was deemed unconstitutional. So why would anybody think otherwise? Maybe because of this:

The WSJ’s Twitter feed has 326,000 followers: it’s an important news source for a very large number of highly influential people who want reliable news in fast, easily-digestible form. Twitter is a fantastic way of forcing news organizations to get straight to the point, and it’s great that the WSJ has embraced it. But at the same time, and for exactly the same reason, it’s crucial that a flagship Twitter feed like @WSJ be accurate on matters of important breaking news.

There’s also an important distinction to be made, I think, between corporate accounts like @WSJ or @Reuters, on the one hand, and personal accounts like @davidmwessel, @preetatweets, or @felixsalmon. Twitter’s personal accounts are a great equalizer, and a way for individuals to communicate with each other. Corporate accounts are different: they explicitly speak for the corporation and exemplify its standards.

A lot of companies, including Reuters, have social media policies, but I haven’t seen any of them draw this distinction. Maybe they should. To err is human, and I have gotten things wrong on my Twitter feed just as I have on my blog. That’s OK: if you’re having a conversation (and blogs, too, are conversations), you don’t have the time or the ability to fact-check everything you say, and when you find out you were wrong you can simply say so. The flagship twitter feed of a big media company, by contrast, is a different animal entirely: it’s a broadcasting mechanism more than it is an attempt to engage in conversation. The @WSJ account only ever links to WSJ.com stories: as far as it’s concerned, if something isn’t on the WSJ website, it hasn’t happened. As the Twitter face of the company, even if it has a human voice, it’s natural to hold that account to a higher standard than one would the personal account of a company employee.

I don’t want to strip the humanity from corporate Twitter accounts, which can be dry and boring if their owners second-guess themselves too much. But in the case of big media organizations’ news feeds, I think it’s probably a good idea to err on the side of excess conservatism. Especially if creating a distinction between corporate and personal accounts takes some of the pressure off employees with respect to their own personal feeds.

Update: The person behind the @WSJ account, Zach Seward, has an excellent response in the comments, and points out that the account does indeed link to non-WSJ sites, and even retweets me on occasion. Do the WSJ’s follow-up tweets constitute a correction? Not in the sense that they explicitly say that the intial tweet was wrong — but they do clarify matters. (I’m torn on whether or not the WSJ should have deleted the initial tweet when they found out it was wrong: my gut feeling is that it did the right thing by leaving it up, but it’s a very tough call to make.)

Ultimately, Seward and I agree: a corporate Twitter account should have a human voice and be held to a higher standard. The WSJ fell short of that standard in this instance, but its aspirations are in the right place.

I’ve rarely seen as much unanimity regarding an important communiqué as I have around this one — an interminable 27-page effort from the G20 which only serves to underscore the fact that when they can’t agree on what to say, bureaucrats are very good at making up for it with astonishing quantities of sheer blather:

Measures will need to be implemented at the national level and will need to be tailored to individual country circumstances. To facilitate this process, we have agreed that the second stage of our country-led and consultative mutual assessment will be conducted at the country and European level and that we will each identify additional measures, as necessary, that we will take toward achieving strong, sustainable, and balanced growth.

A “consultative mutual assessment”? What could possibly go wrong?

As Chris Giles points out, agreeing on “growth-friendly fiscal consolidation” is easy, because it’s actually meaningless. And so the G20, which is meant to play a crucial international coordinating role, is now just a shop for different heads of state to arrive at a form of words seemingly designed to constrain them as little as possible.

Mohamed El-Erian writes:

The outcome of the G20 is a confirmation of what many expected and feared-namely, and in sharp contrast to the April 2009 G20 London Summit, an inability to reconcile divergent views of the world…

The communique illustrates the extent to which we now live in a multi-polar world with no dominant economic party and with excessively weak multilateral coordination mechanisms. The result is what game theorists label a “non-cooperative game,” with a very high likelihood of sub-optimal outcomes.

In English, the U.S. is going to stay on its borrow-and-spend course, while Europe sees huge fiscal cuts. That, we could do without the G20. And it guarantees that the global imbalances the G8 and G20 have been so worried about since long before the financial crisis are going to get worse rather than better. There’s no solution in sight, which almost guarantees that the world is going to see another crisis, this time surrounding U.S. interest rates and the dollar rather than credit. The only question is when.

I review Ace Greenberg and Suzanne McGee — NYT

Scott Brown may kill Fin Reg bill — Reuters

Imagine CNBC in play — Philly

Must-read article on Reykjavik’s new mayor — NYT

Still asking: Who Smeared Dave Weigel? — VV, see also MR