Link Banana

Blake Hounshell points to a handful of images of the DAX — Germany’s stock exchange — in decline that all feature the same woman. The Independent even interviewed her.

Some people of some repute — Chris Bowers, David Cay Johnston, Congresswoman Marcy Kaptur — think that there’s really no need for Hank Paulson’s $700 billion dollar proposal (or anything like it). I don’t know nearly enough to have anything intelligent to say, but i thought I’d note it.

(via @gruber)

UPDATE (20 minutes later): Also:

• An open letter from economists doubtful of Paulson’s plan.
• Felix Salmon and Ryan Avent answer David Cay Johnston (linked above). (via Yglesias)
• A chart to put the massive size of the proposal in historical context. (via Kevin Drum)

Marginal Revolution points to a peculiar fact: you can buy “futures” of almost anything, except onions.

The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders (and not the new farms sprouting up in Wisconsin) were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings.

Over the last few months, I’ve seen a lot of articles that claim they’ll explain the origins of the recent financial turmoil to you in a way you can understand. I’ve never seen one succeed so well as Roger Lowenstein’s piece in the forthcoming New York Times Magazine does. A snippet:

The magic consisted of turning risky mortgages into investments that would be suitable for investors who would know nothing about the underlying loans. To get why this is impressive, you have to think about all that determines whether a mortgage is safe. Who owns the property? What is his or her income? Bundle hundreds of mortgages into a single security and the questions multiply; no investor could begin to answer them. But suppose the security had a rating. If it were rated triple-A by a firm like Moody’s, then the investor could forget about the underlying mortgages. He wouldn’t need to know what properties were in the pool, only that the pool was triple-A — it was just as safe, in theory, as other triple-A securities.

I won’t attest to the veracity of the information in this chart, but I do think it’s interesting none the less.

In the last three months of 2007, 70% of e-mails offered sexual enhancers, 16 percentage points more than during the first three months of that year. Financial offers accounted for 5%, down from 23%, possibly reflecting the gloomier economic climate. Around 10% tempted holiday-season shoppers with counterfeit goods.

The Economist argues that Mr. Bernanke and the Fed are doing their best to satisfy Wall Street. Sound like a “Greenspan put” to anyone else?

But not all indicators point to disaster. Orders for durable goods and a private payroll report were surprisingly good. That suggests the Fed’s boldness is driven more by policymakers’ second rationale, that of reducing the risk of a negative spiral from financial markets to the economy. Hence the decision to slash rates on January 22nd, in response to a global sell-off. Strikingly, the Fed statement on January 30th mentioned “stress” in financial markets before discussing the economy. In a dovish text, the central bankers left no doubt that they were most worried about the downside risks and would act in a “timely manner” to address them.

Judging by the price of Fed fund futures, investors expect the federal funds rate to be as low as 2.25% by the end of the year. That highlights the danger in Mr Bernanke’s new strategy. In trying to prevent financial-market calamity, the Fed may find itself pushed by Wall Street to leave interest rates too low for too long.

The Economist does an admirable job highlighting the complicated issues of bankers’ bonuses. Many bloggers (and others) have taken issue with the big bonuses that departing CEOs are getting even as their banks are floundering.

The system is not perfect, of course. A debate about how compensation policies might encourage bankers to think more about the long term and the overall health of the business is welcome. Greater use of stock options is one possibility: banks that fared worst in the subprime saga, such as Merrill, UBS and Citigroup, have all been forced to increase the equity component of compensation packages. But options have their own flaws, as examples in other industries readily show; and in any case the chances of an industry-wide overhaul of compensation practices (the only way that meaningful change will happen) are slim. The bloggers will be raging for a while yet.