Steve Chapman argues that President Obama might be well advised to call it quits after a single term as president:

If he runs for re-election, Obama may find that the only fate worse than losing is winning. But he might arrange things so it will be Clinton who has the unenviable job of reviving the economy, balancing the budget, getting out of Afghanistan and grappling with House Majority Leader Eric Cantor. Obama, meanwhile, will be on a Hawaiian beach, wrestling the cap off a Corona.

Not to put too fine a point on it but that’s crazy talk. Being president is an itch that just doesn’t go away.

However, I have a serious question arising from the column cited above. Can anyone think of a president’s second term that was more successful, more distinguished than his first term? I can’t think of one in my lifetime.

I can think of any number of less than distinguished, even disastrous second terms, however.

After explaining that the Fed’s risk in helping to provide liquidity for shaky European banks is quite low, financial advisor John Mauldin turns to the question I raised in my earlier post on the Fed’s action: why do it?

Why do it? It is not for solidarity among central bankers. The cold calculation is that a European banking crisis would leak into the US system. Further, it would throw Europe into a nasty recession, when growth is already projected (optimistically) to be less than 0.5%. That means the market that buys 20% of US exports would suffer and probably push us into recession, too (given our own low growth), making a far worse problem for monetary policy in the not-too-distant future.

Finally (and this is one I do not like), if the ECB was forced to go into the open market for dollars, the euro would plummet. As in fall off the cliff. Crash and burn. Which would make US products even less competitive worldwide against the euro. While I think we need a stronger dollar, that is not the thinking that prevails at higher levels. You and I don’t get consulted, so it pays us to contemplate the thought process of US monetary leadership and adjust accordingly.

Finally, I think that the end result of lending to the ECB will be to postpone the problem. The problem is not liquidity, it is insolvency and the use of too much leverage by banks and governments. This action only buys time. And maybe time is what they need to figure out how to go about orderly defaults, which banks and institutions to save and which to let go, which investors will lose, whether some countries must leave the euro, etc. Frankly, the world needs Europe to get its act together.

That is the critical issue and comes around to the point I was trying to make in my post. The problem of the European banks, like that of American banks, is solvency not liquidity. Providing additional liquidity merely serves to kick the can down the road and we and the Europeans are rapidly running out road. Nothing will come of nothing.

The challenge of dealing with a problem of the magnitude that faces us shouldn’t be allowed to dissuade us from dealing with it at all. You eat an elephant one bite at a time.

My problem with quietly allowing European bankers to continue to defer the necessary actions are that even small risks are not non-existent ones and that risks whose maximum effect is to allow the status quo to continue for a few days, weeks, or even months is a breach of fiduciary responsibility and a waste of the leverage that providing the support could bring. Use what leverage you’ve got.

Update

Another good commentary on Europe’s “Lehman moment” comes from international banking scholar Jeffrey Frieden:

For two years, Europe’s governments have been grappling with how to address this continuing debt crisis. But most of the public discussions have been highly misleading. In Northern Europe, and especially Germany, the tone has been one of outraged indignation. This high moral tone is misplaced. Certainly many Southern European banks and households, and the Greek government, borrowed irresponsibly; but German and other Northern European banks and investors lent just as irresponsibly. It’s not clear that there’s any real ethical distance between irresponsible borrowers and irresponsible lenders.

[…]

Eventually Europe’s creditors and its debtors will have to admit that these debts will not be serviced as contracted, and the debts will be restructured. Pretending otherwise will only prolong the agony – not just for the debtor countries imposing austerity, but also for the financial systems that are now crippled by debts that nobody believes will be repaid. When major central banks, earlier this week, threw a lifeline to the European financial markets, they undoubtedly helped avoid what appeared to be an imminent panic. However, this initiative will only postpone the final reckoning with the region’s underlying financial weaknesses.

In Europe as in America, the real question is how the costs of this devastating debt crisis will be distributed. Who will pay – creditors or debtors? Taxpayers or government employees? Germans or Greeks? More realistically, what combination of sacrifices will be politically tenable, both across countries and within countries. The aftermath of every debt crisis sinks into conflict over who will bear the burden of adjustment to the new reality. The sooner Europeans recognize the true nature of the debates they’re having, and the inevitability of working out some mutually acceptable conclusion, the better off they will be.

Read the whole thing.

The effective approach to dealing with insolvency is bankruptcy and liquidation, loss of shareholder equity, not bailout. Providing of temporary liquidity is acceptable to mitigate the risk of the crisis spreading or to provide time in which to deal with the problem. However, it is not an alternative to dealing with the problem.

Names are remarkably complicated things. From my earliest years I was aware, courtesy of my dad, that our family name, Schuler, was German in language and Swiss in national origin. My first name, David, is a family name, too. It’s my great-great-grandfathers name. Among the Swiss it used to be a commonplace for all of the sons of a family to be given the same first name and different middle names, e.g. my grandfather and his brothers were Joseph Melchior, Joseph Leonard, Joseph Louis, Joseph Anton, Joseph Jacob, and Karl. I don’t know what happened with Karl. He died as an infant so that have had something to do with his being shortchanged in the name department.

My dad also told us that German family names were adopted beginning in the Middle Ages, about the same time as they were adopted in England and France. Our Swiss Schuler family name, for example, was in use by our family as early as the 14th century. Family names were made mandatory in the Austrian Empire by Emperor Josef II in 1787 when he commanded that all Jews within his realm adopt German surnames and that place names were forbidden to them.

Most family names in Europe are patronymic in origin, that is they are derived ultimately from somebody’s father’s name. Johnson, Jansen, Johansen, Jones, MacIan (also McCain), Giovanni, Ioannidis all mean “son of John” and in most European countries half or more of all family names are patronymics. Iceland retains true patronymic family names to this day, i.e. if your father’s name was John your surname is Johannsen if you’re a man and Johansdottir if you’re a woman. I understand that the Reykjavik phone book is arranged by given name.

Other sources for family names are occupational names (Smith, Schmidt, Favre, “smith” or Taylor, Schneider, Thayer, “tailor”), place names, and even characteristics. Reid and Roth are both names for redheads.

In Europe most family names are surnames, i.e. they are placed at the end of the name although even in Europe that’s not universal: in Hungary family names are placed at the beginning of the name. In China family names are placed at the beginning, too.

Russians have three names: a given name, a patronymic, and a family name. Ivan Ivanovich Ivanov is “John son of John of the Johnses”. His friends call him “Ivan Ivanovich”. I began studying Russian when I was 13. It was my first introduction to culturally different naming conventions.

In Spain and many Spanish-speaking countries in addition to their given names people receive two surnames: one from their father’s side and one from their mother’s side. The given name occurs first followed by the father’s family name then the mother’s family name although mother/father is also used.

Arabic names consist of a given name, one or more patrynomics, and an occupational, geographic, or tribal name. Additionally, if a man has a son, his son’s name may occur before the other names. There may also be nicknames or honorifics. So, for example, Abu Kareem Muhammad al-Jameel ibn Nidaal ibn Abd al-Aziz al-Filisteeni indicates that its bearer is the father of Kareem, has a given name of Muhammad, is called “the handsome”, his father’s name was Nidaal, his grandfather’s name was Abd al-Aziz and he’s from Palestine.

I know nothing whatever of African naming conventions. My understanding is that, although family names are common they’re not universal and although they are most commonly surnames, that’s not universal, either.

Although all sorts of things can be inferred from naming conventions, some of them pretty far-fetched ideas of the deep cultural significance they bear, I think that mostly what naming conventions tell you about is history. Cultures with historic connections to one another tend to have related naming conventions, too.

Update

I just realized that I inadvertently omitted a major source of family names. In addition to patronymics, occupational names, and geographical or topographical names there are also patronage names. In peasant and slave cultures it was a commonplace for the serfs or slaves of a patron to take the patron’s family name as their own. It is believed that the surnames of most African Americans are patronage names.

There is so much new, particularly new terminology in economics since I studied it in college! (when dinosaurs ruled the earth) The term “rent-seeking” hadn’t been coined yet, John Maynard Keynes was Holy Writ, and the discussion of externalities and public goods was barely a footnote. I learn something new or, at least, new to me practically every day.

Today what I’ve learned about is Baumol’s cost disease:

Baumol’s disease can be explained simply. Only some areas of production will see strong improvements in labour productivity, typically through the substitution of capital for labour (such as in manufacturing and agriculture). Workers in these industries use their bargaining power to capture part of the increased profitability arising from productivity gains in their wages.

As a wage differential between these newly productive jobs and other existing jobs emerges, workers are faced with a choice of seeking employment in the high paying productive sectors or the lower paying unproductive sectors. Employers in the unproductive sectors still need workers and the wages need to remain competitive with the productive sectors to attract them. Bargaining between workers and businesses in each sector (including government sectors) equalises wages over time. Thus productivity growth in just one area of production is shared amongst workers across the economy.

This means the cost of labour intensive services with low productivity growth will increase relative to other goods and services in the economy over time. In addition, the amount of labour employed will shift towards service sectors with low productivity growth. Ever wondered why all developed countries seem to have relatively large service sectors? This is part of the story (the other part is displacement of tradable industries to cheaper locations).

Note that the degree to which the costs in a sector with low productivity growth can rise relative to other goods and services over time is proportional to the ability of that sector to bargain.

What struck me about this is how neatly it explains rises in the cost of healthcare and the size of the healthcare sector. What are the policy implications? The article cited draws one conclusion, i.e. that we’d (or, at least, Australians had) better get used to spending a lot more on healthcare but I don’t think that’s the best conclusion.

I think that this provides further support for the arguments that I’ve been making for some time, i.e. that the direction in which we need to go is one in which the bargaining capabilities of the sector are reduced and/or we start incentivizing productivity a lot more effectively than we have been.

The irony in healthcare spending is that very few other than some mentally ill individuals really want more healthcare. We want more health but, unfortunately, we’re subsidizing healthcare in the form of paying for specific procedures. If you subsidize something, you get more of it and we’re getting a lot more procedures without getting a lot more health.

This might be a good place to mention that outputs per input in healthcare have been declining for decades but that’s something we’ll go back to another time.

Events are forcing me, willy-nilly, to post on the ongoing euro crisis. A consortium of five central banks has taken action to shore up the euro:

Five central banks including the European Central Bank, the Bank of England and Switzerland’s central bank said they would provide three-month dollar loans to banks from October, which will cover the year-end period. The display of firepower was intended to prevent an escalation of financial market tensions and signal that authorities are prepared to take action to boost market confidence.

Within minutes of the announcement, European banking shares led a strong rebound in equity markets. BNP Paribas, one of the French banks that had suffered most on rumours of funding problems, rose as much as 22 per cent before closing up 13 per cent. Société Générale, another embattled French bank, finished up 5 per cent while Italy’s Intesa Sanpaolo and UniCredit gained 10 and 7 per cent respectively.

“Central banks are more than ever an anchor of stability and confidence,” said Jean-Claude Trichet, ECB president. The globally co-ordinated effort to provide US dollar liquidity was “a clear illustration of our very close co-operation at the global level and of the unity of purpose”, he said.

“This is good news as the stress in funding markets was starting to become self-reinforcing,” said Huw van Steenis, banking analyst at Morgan Stanley.

A number of gauges of stress in funding markets for European banks fell off from their highest levels since the 2008-09 financial crisis. The euro, which had fallen sharply against the dollar in recent weeks, rose 0.9 per cent to $1.386. US, German and UK government bond yields all moved away from multi-decade lows.

The move by the central banks, in conjunction with the US Federal Reserve, followed escalating difficulties, especially at continental European banks, in obtaining dollar funding as US investors took fright at the eurozone debt crisis. The Bank of Japan, which had already offered three-month dollar liquidity, also said it would be making additional offers to cover the year-end period.

I have a number of problems with this, the most significant of which is that the Federal Reserve is not empowered to act as it sees fit. It must act within the constraints of its empowering legislation and my reading of that legislation suggests that this action is only licit insofar as it promotes the health of U. S. banks, controls inflation, and reduces unemployment.

I think it only does any of those things quite indirectly and since, at the very best, this move only kicks the can down the road for another couple of months, it should be coupled with actions targeted at insulating U. S. banks from the effects of the collapse of vulnerable European banks, the default of Greece, or the collapse of the euro itself. Are these steps being taken?

Honestly, I think what’s going on in Europe is the foreseeable outcome of Germany’s “beggar they neighbor” mercantilist strategy (which has been receiving so much praise in the U. S. press lately). For this policy to continue German banks had to buy up euro-periphery sovereign debt and a lot of that debt was clearly bad.

Foreign policy is not the province of the Federal Reserve. It belongs exclusively to the federal government, particularly the executive branch with the advice and consent of the Senate.

Isn’t the appropriate U. S. policy under the circumstances either a) to encourage German taxpayers to shore up their own banks, b) to encourage a graceful breakup of the Eurozone, c) to protect the U. S. from collateral damage produced by the incipient explosion, d) some combination of the above? Why should we care about German banks more than the Germans do?

Barry Ritholtz proposes ten “EZ” steps for preventing the next bank crisis which although they may be “EZ” will probably not prove easy. Here are the first three:

1. Depression era Glass Steagall legislation needs to be restored (it was repealed in 1998). Separating FDIC deposit banks with much riskier Wall Street iBanks and speculators is imperative.

2. The Commodity Futures Modernization Act of 2000 needs to be repealed, (Those opposed to this repeal should be deported).

3. Rating agencies need to have their official SEC charters revoked. If they want to sell ratings, they need to do so in the marketplace, not by regulatory mandate.

Read the whole thing. At first glance I can’t tell whether these will be sufficient but they appear to me to be necessary. While #10 is probably the most obvious it will probably also produce the most pushback.

Merkel and Sarkozy on the future of Greece and the euro:

German Chancellor Angela Merkel and French President Nicolas Sarkozy attempted to calm market anxiety over a possible Greek default on Wednesday evening, affirming their commitment to Greek membership of the euro.

“The president and the chancellor are convinced that the future of Greece in the euro area,” the pair declared in a joint statement with with Greek Prime Minister George Papandreou.

The declaration followed a teleconference with the Greek leader in which he restated his commitment to putting in place the agreed cuts, privatisation and structural reforms ordered by international lenders.

“The Greek prime minister confirmed his government’s absolute determination to take all necessary measures to implement all commitments,” the statement continued.

“The implementation of the commitments of the programme is essential for the Greek economy can regain the path of a sustainable and balanced growth. The success of the recovery plan of Greece will strengthen the stability of the euro area.”

Never believe anything until it’s been officially denied.

Bruce Krasting follows the money and raises some very interesting and potentially disturbing questions about what has been going on at the now-bankrupt company that received a half billion in loans from the federal government:

I’m going to take this to a different level. The following questions are directed to my usual readers. They are also directed to the actors in the Solyndra story. The DOE, OMB, company execs (past and current), the equity owners, the lawyers and the MSM could chime in with an explanation. This blogger/taxpayer is seeking some clarity on the following.

There are questions of who did what to whom and when. There is an aspect to this that has not yet (to my knowledge) been discussed in the media.

Where is the company’s cash? Where is its retained inventory? Read the whole thing.

is forming. Matt Yglesias, criticizing a post by Duncan Black (Atrios), also a progressive Democrat, on the lack of action by the White House on unemployment complains:

This, right before our eyes, is a living, breathing example of why presidential speechmaking doesn’t do the things people say it does. It doesn’t even have the intended impact on its intended audience! Is Atrios fired up and ready to go? Prepared to stop writing sarcastic, depressed, and dismissive blog posts and instead go hard against the president’s critics, boosting the morale of the president’s audience? No, he’s sarcastic, depressed, and dismissive because the objective situation is depressing and everyone knows the jobs plan won’t pass.

Isn’t it barely possible that Dr. Black is sarcastic, depressed, and dismissive because he’s tired of hearing half-hearted proposals that he is convinced with a knowledge grounded in experience, that the president himself will give up on before he’s sold it?

Mr. Yglesias does bring up an interesting point. Who was the intended audience for the president’s speech last Thursday? I, too, assumed that it was the progressive wing of the Democratic Party but the proposals were far too lukewarm for that to be effective. Was it the Congressional Republicans? If that’s the case there was, shall we say, a messaging problem.

If it was the Congressional Democrats, it doesn’t appear to have been effective: Senate Majority Leader Harry Reid has already more or less pronounced the Pass This Bill (the American Jobs Act has already been taken) DOA.

Was the target audience the American people, generally? That appears to have misfired as well. According to overnight polls 51% of the people don’t think the proposal will be effective and 45% support it. BTW, what kind of nihilism does it take to support a bill that you don’t think will be effective?

I’m at a loss. I honestly don’t know who the target audience for the speech was. An audience of one?

Update

David Dayen adds

But in the main, this is what happens to Democrats when they have a President they perceive as weak. They distance themselves from him, running in whatever direction possible. There’s a hack gap here, as Republicans typically fall in line behind their party leader.

Or, as Bill Clinton put it, Republicans want to fall in line and Democrats want to fall in love.