Paul Kedrosky's Infectious Greed

Jim Hamilton Dissects Dan Yergin
Republicans’ Letter to Bernanke
Satyajit Das on SocioFinancial Inflections
Reading the Full Tilt Poker “Ponzi” Complaint

Posted: 20 Sep 2011 10:12 PM PDT

Jim Hamilton almost forensically takes apart Dan Yergin for the latter’s nonsensical anti-peak oil column in last Saturday’s Wall Street Journal:

Yergin does not offer a statement of exactly what he means by “peak oil”, though his essay refers to it as a “fear” and a “specter”. Let me therefore begin my remarks with a clarification of exactly what I intend to discuss. I propose the following three propositions as the core claims that need to be evaluated:

1. The annual flow rate of oil production from a given reservoir eventually reaches a maximum, after which it declines.

2. The annual flow rate of total global oil production will eventually have to decrease as a necessary consequence of (1).

3. This peak in global production will be reached relatively soon.

Of these statements, I honestly don’t understand how a reasonable person could dispute (1). You could almost take it as tautological, and furthermore point to many, many examples of fields that passed their peak production long ago. I likewise see neither a conceptual nor an empirical basis for challenging (2). Thus it seems to me that the relevant debate is whether proposition (3) has any merit, and exactly what one means by “soon.” That question may or may not be what Yergin was intending to address with his essay. But since for me it is the core question, I would like to comment here on the implications of what Yergin wrote for what I perceive to be the main question of interest.

Read the rest here: More thoughts on peak oil.

Republicans’ Letter to Bernanke

Posted: 20 Sep 2011 05:23 PM PDT

Republican leadership letter to Fed chair Ben Bernanke today suggesting strongly that he not use monetary policy in service of economic growth. I’m trying to be non-partisan here, but I still this remarkable and verging on thuggish.

Dear Chairman Bernanke,

It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.

It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve's actions have likely led to more fluctuations and uncertainty in our already weak economy.

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.

Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.

We respectfully request that a copy of this letter be shared with each Member of the Board.

Sincerely,

Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor

Satyajit Das on SocioFinancial Inflections

Posted: 20 Sep 2011 12:17 PM PDT

Good multi-part interview with Satyajit Das over at Naked Capitalism wherein he opines on our sociofinancial inflection point.

Relatedly, I’m seeing Das at dinner tonight, and I’ve been reading his latest book, Extreme Money: Masters of the Universe and the Cult of Risk, and enjoying it immensely.

Reading the Full Tilt Poker “Ponzi” Complaint

Posted: 20 Sep 2011 11:27 AM PDT

From the amended complaint against online poker outfit, Full Tilt Poker, wherein the Feds call FTP a “global ponzi”. Strong stuff.

5. As described more fully below, one of the PokerCompanies, Full Tilt Poker, not only engaged in the operation ofan unlawful gambling business, bank fraud, wire fraud, and moneylaundering as alleged in the Complaint, but also defrauded itspoker players by misrepresenting to players that funds depositedinto their online player accounts were secure and segregated fromoperating funds, while at the same time using player funds to payout hundreds of millions of dollars to Full Tilt Poker owners.Full Tilt Poker was able to accomplish this massive fraud, inpart, because it illegally conducted business in the UnitedStates but maintained its personnel, operations, assets, andaccounts principally overseas.

6. As described more fully below, in or about thesummer of 2010, Full Tilt Poker's payment processing channels were so disrupted that the company faced increasing difficulty attempting to collect funds from players in the United States.Rather than disclose this fact, Full Tilt Poker simply credited players' online gambling accounts with money that had never actually been collected from the players' bank accounts. FullTilt Poker allowed players to gamble with — and lose to other players — this phantom money that Full Tilt Poker never actually collected or possessed. When other players won these phantomfunds, their accounts were credited with money that Full Tilt Poker did not actually possess, but now nevertheless owed to these players. As a result, Full Tilt Poker soon developed a massive shortfall between the money owed to United States players and the money actually collected from United States players, with Full Tilt Poker having credited approximately $130 million in phantom money to U.S. players' online accounts that was never actually collected from players' bank accounts. Full Tilt Poker never disclosed this shortfall to the public.

7. As of March 31, 2011, Full Tilt Poker owedapproximately $390 million to players around the world, includingapproximately $150 million owed to players in the United States.At that time Full Tilt Poker had only approximately $60 millionon deposit in its bank accounts. As of the filing of this Amended Complaint, Full Tilt Poker still owes players over $300million.

8. Meanwhile, from approximately April 2007 untilApril 2011, Full Tilt Poker, and its Board of Directors, Bitar,Howard Lederer ("Lederer"), Christopher Ferguson, a/k/a "Jesus"("Ferguson"), and Rafael Furst ("Furst"), all owners of Full TiltPoker, distributed approximately $443,860,529.89 to themselves and other owners of the company. Payments to the Full Tilt Pokerowners stopped only after April 15, 2011.

105. Full Tilt Poker's repeated representations that(1) player funds were held separately from operating accounts,(2) player funds were "safe" and "available," and (3) it did notallow play on credit but instead allowed play only with "cleared"funds were, in reality, lies. In truth and in fact, Full TiltPoker provided no protection whatsoever to deposits it receivedfrom players in the United States and other countries, and simplyused the funds it claimed it was holding on account for itsplayers to cover business expenses and to pay hundreds of millionsof dollars in distributions to professional poker playersaffiliated with Full Tilt Poker and others who owned interests inTiltware LLC. As a result, according to a balance sheet preparedby Full Tilt Poker, as of March 31, 2011, Full Tilt Poker owed players from around the world over approximately $390,695,788 buthad only approximately $59,579,413 in its bank accounts. FullTilt Poker relied on new deposits from players to ensure itsability to fund withdrawals to players' accounts.

106. Rather than protect player funds as promised, FullTilt Poker distributed hundreds of millions of dollars to its owners.

More here.