Video: Stuxnet - Anatomy of a Computer Virus

Stuxnet: Anatomy of a Computer Virus from Patrick Clair on Vimeo.

Photo: Greek PM Papandreou IMF 'Employee of the Year' Banner

As seen outside the Greek parliament, some protesters roasting Greek Prime Minister George Papandreou, the Minnesota-born 'socialist convert to spartan economics'.

Bloomberg has a great history of the Eurozone debt fiasco.

Video: Jim Grant - 'We Traded the Gold Standard for the PhD Standard'

Interview with Jim Grant on Bernanke's press conference today, the coming of QE3, and why the Federal Reserve should "be run by someone with a degree in unintended consequences" after the break.

Top Holders of Greek Government Debt

European Debt Mexican Standoff: Why Greece Holds All the Cards

A no-win scenario?

Markets are signalling that tonight's vote of confidence for the government of Greek Socialist leader George Papandreou will pass.

If that happens (I don't take anything for granted in the Eurozone kabuki theatre these days) then the next step in this Greek tragedy will come next week when a package of austerity measures is put to a vote before the Greek parliament.

The new austerity measures include spending cuts, tax increases and the sale of government assets. If the Greeks don't pass these measures then the EU and IMF have threatened to not release new funds to Greece (whether they would carry through on this threat is an open question). Without these new funds Greece will run out of cash next month and default.

The Greek Bargaining Position

While a Greek default would perhaps be bad in the short-run for Greece, it would be far, far worse for the Eurozone and rest of the world. Given the risks of financial contagion and a pan-European, if not global, banking crisis that a Greek default could trigger, the Greeks find themselves in a relatively strong negotiating position. And the Greeks, the EU, the ECB, and IMF all know this.

Continue reading at Seeking Alpha here.

London's Mayor Says Greece Should Leave the Euro

(click to enlarge)

London Mayor Boris Johnson's article in The Telegraph encouraging Greece to abandon the euro:

We are all still kidding ourselves that the moment of reversal can be avoided. All the other governments of Europe, including, alas, the Coalition, are pretending that Greece can remain in the euro. If only the EU finance ministers can just have a bit more lunch in Brussels; if only Nicolas Sarkozy and Angela Merkel can hammer out another plan to reschedule the Greek debt; if only UK taxpayers can stump up a bit more for the bail-out fund - then somehow the Heath Robinson contraption is supposed to limp another few miles further on down the road with the Greeks bubblegummed to the roof. 

All we need is for Athens to sack a few thousand more public sector workers, lop a few billions more off their pensions, chop more benefits, collect more taxes, and perhaps the problem will go away. If the Greeks would only change their national character, and suddenly discover a Scandinavian faith in government combined with German habits of industry and thrift - then, or so we are told, the catastrophe could be averted. 

All it would take, say the European elites, is for the government of George Papandreou to discover a crazed Thatcherite zeal that inspires them to sell every Greek asset from the Port of Piraeus to Olympic Airways to the remaining marbles of the Parthenon. That should do it, they say. That should keep the show on the road. Will it work? I have to say I now doubt that very much indeed.For years, European governments have been saying that it would be insane and inconceivable for a country to leave the euro. But this second option is now all but inevitable, and the sooner it happens the better. 

Full editorial can be found here.

Economist Tyler Cowen writes here on the mechanics of how a Greek transition out of the euro could take place.

Video: Ray Kurzweil on Bill Mahrer

Real Time With Bill Maher: Overtime - Episode... by HBO

Video: Ray Kurzweil on Jimmy Kimmel

Counting Down the Return of Ambrose Evans-Pritchard

On sabbatical since March, the chronicler par excellence of the sovereign debt crisis returns in a few days, perhaps just in time for default chaos.

He can be a bit hyperbolic, but I confess to having missed his hyperbole and often (though not always) prescient calls.

Video: Bitcoin Flash Crash

More from Ars Technica, which claims this was due to a hacked exchange.

The Economist also has a new piece on Bitcoin looking at the economics behind the digital currency. The story leader:

MILTON FRIEDMAN famously called for the abolition of the Federal Reserve, which he thought ought to be replaced by an automated system that would increase the money supply at a predetermined rate and so keep a lid on inflation. A virtual version of this now exists.

 Here is an earlier wonkish technical description of how it works.  

Video: Mormon Bubble?

Mormon Presidential candidates Huntsman and Romney are leading contenders. The hit musical by the South Park creators titled The Book of Mormon cleaned up at the Tony Awards. The Senate Majority Leader, Harry Reid, is a rare Mormon Democrat.

Good read over at Newsweek on the 'Mormon Moment'.

Graphic: Countries Most (Directly) Exposed to Greek Debt

The below picture doesn't tell the whole story as it misses indirect exposure to Greece, which in the case of the U.S. is purportedly quite significant.

From the BBC.

Video: Alan Greenspan on Charlie Rose - 'Greek Default Almost Certain'

This is just a sample clip; full interview should be up soon here is here.


Alan Greenspan Says a Greek Default Would Hurt... by Bloomberg

Pakistan 101: Bhutto Movie Review and Trailer

Pakistan is complex, messy, and an absolutely crucial place for the world to better understand.

Pakistan is described as a military that happens to have have a country attached to it. The Economist recently argued that the Pakistani-Indian border is the world's most dangerous (although I'd argue back that the North Korean-South Korean border is perhaps equally if not more dangerous). The country has nuclear weapons and has trafficked nuclear technology to North Korea, Iran and Libya. It is also perhaps ground zero in the War on Terror.

In the U.S., many questions have arisen since Osama bin Laden was killed in Pakistan about just how reliable a friend is Pakistan? Since 2002 the U.S. has sent nearly $20 billion in military and other aid to the country, with another $3 billion slated for 2011. How is that aid being used? Is this policy helpful or harmful to not only the U.S.'s interests, but Pakistan's?

The film Bhutto, which premiered at the Sundance Film Festival last year, is well made, engaging, informative, and highly recommended. While it perhaps can justifiably be accused of painting a positively-biased picture of Benazir Bhutto, it does not shy away from interviewing her critics and pointing out at least some of the accusations of corruption made against Bhutto and her husband, Asif Ali Zardari, the current President of Pakistan.

This film is a recommended piece of edutainment for anyone interested in learning more about Pakistan and who likes learning through movies. It provides a helpful introduction to the history of Pakistan and the significant role the Bhutto clan have played.

Even more highly recommended is the book Ghost Wars by Steve Coll (who is interviewed in the film), which you can find on the right side of this blog in the Good Books and Films section.

Roubini on the Eurozone: 'Messy marriages lead to messy divorces'

Nouriel Roubini

Some of the other choice quotes:

• 'when Greece folds like a wet gyro, and it will...'
• 'the politicians at these meetings will not be the same ones at a similar meeting in two years'
• 'but if the marriage doesn’t work, even the threat of a messy divorce cannot keep couples together that are not a long-term match'
• 'Let me suggest to my fellow US citizens that you really pay attention to this. If you think that we can somehow avoid making difficult choices by kicking the can down the road, watch the European theater. And coming to a theater near you in a few years will be a real Japanese monster movie. Godzilla on steroids.'

Roubini's full analysis on why Greece and other PIIGS will ultimately be left with no choice but to exit the euro and return to their respective currencies (e.g., the Greek drachma) here.

Video: Moneyball Movie Trailer

Greek Debt Crisis Investment Strategies - A 'Credit Event' is Possibly Imminent

Here are three recent articles I penned for Seeking Alpha on the financial market topic du jour:

1. Why Greece Will Default Soon and What Happens Next (May 31)
2. How to Play the 'Reprofiling' of Greek Debt via ETFs (May 17)
3. Which Currencies Benefit on Rumors of Greece Dropping the Euro? (May 6)

There has been a lot of smoke and noise on the subject of Greece over the past 12+ months. Micheal Lewis (Sep. 9, 2010) had it right, and I stand by my May 31 call that we'll see some type of Greek credit event soon, with 'soon' being this year if not this summer.

At most the politicians may find a way to stretch this to next year, but it's very hard to imagine how this can be pushed out any further than that.

Video: Niall Ferguson - The West and the Rest (Chatham House Talk/Q&A)

Video: Niall Ferguson on Why Larry Summers is Wrong, the Germany-ECB Spat, and Fixing the U.S.

Video here.

What Iceland and Latvia Can Teach Greece (and Portugal and Ireland)

Not sure whether the below chart, like a picture, is worth 1,000 words, but it says a lot about how quickly Latvia and Iceland have turned around their respective positions in international capital markets by taking swift action.

From The Economist:

Latvia and Iceland successfully issued sovereign bonds at yields approaching Spain's last week. There are rumours that Dubai may follow suit. That the countries which started the sovereign debt crisis are returning to the market while peripheral euro-zone sovereigns continue to struggle has led to crowing from those who see austerity as a misguided strategy for Greece, Ireland and Portugal.

The lessons appear to be clear: devalue the currency and wallop foreign creditors to banks, state-owned enterprises and private citizens, honouring only the sovereign’s own obligations. Your reward will be an inversion in credit-default swaps:

More here.

Financial Repression Redux

The latest from Carmen Reinhart and Co. on the return of financial repression has been published on the IMF's website here. If you're a little turned off by academic papers then you'll find this latest short, magazine-style piece much more appealing.

For more thoughts on financial repression, including how to protect oneself from it, see here.

Fareed Zakaria Needs to Study More History

Fareed Zakaria

A good geopolitical discussion with CNN host and Time magazine editor Fareed Zakaria on Charlie Rose, although I take issue with one of Zakaria's suggestions:

Charlie asked him for his prescription for preventing conflict between the U.S. and China, and his response smacked of the same arguments and thinking which were prevalent prior to World War I.

Fareed stated that if the U.S. and China can increase their "dependencies" then this would prevent war from occurring. I was surprised to hear Fareed say this as he generally gives off the impression as someone who is well versed in history.

Fareed's thinking about what will prevent conflict is identical to what was said prior to World War I, the original era of globalization when arguably the world was even more interconnected by trade than it is today. Because everything was so interconnected, because nations like Britain and Germany traded as much as they did, war was considered impossible.

Many people are not aware of the fact that today's interconnected world is not our first experience with globalization. One of the better quotes on just how bound up the world was prior to WWI comes from John Maynard Keynes. Below he describes just how eerily similar life in early 20th century London was to today:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.

Speaking of history, if you have a little extra time there was another excellent interview on Charlie Rose with the historian David McCullough about his new book, The Greater Journey: An American in Paris.

Video: Cowen's Great Stagnation vs. Kurzweil's Singularity

Ray Kurzweil vs. Tyler Cowen. The inventor vs. the economist. Which one is right about the speed of technological change and progress? It would be interesting to see these two on stage together ala Keynes vs. Hayek.



Upon closer inspection of the specifics of their respective arguments, the initially perceived differences may prove somewhat of a false dichotomy. But in terms of which narrative, or meta idea, is better supported, at this point I'd say Kurzweil's case is more compelling.

Video: 60 Minutes on High Frequency Computerized Trading

Video: Jeff Gundlach On What's Better Than Gold if Financial Armageddon Strikes

Rogoff: Germany Must Construct a 'Firewall' Around Spanish and Italian Debt

Full post here; graphic below of what Germany and the 'troika' can afford.

Will Central Bankers Have the Same Courage On the Way Out?

Exit interview here with outgoing Fed Governor Kevin Warsh, who openly discusses his skepticism of QE2, how inflation is the cruelest tax of all, and other topics.

On the Fed's long talked about but still distant plan to 'exit', or unwind, its unprecedented monetary stimulus, he states "Central bankers must have the same courage on the way out that they had going in".

But just how likely is that? Given the current unemployment situation, and the Fed's dual mandate of stable prices and low unemployment, the Fed seems destined to remain in neutral or biased towards putting it's foot back on the money printing pedal.

The Fed has now surpassed China as the largest holder of government debt and has made it abundantly clear that its weak U.S. dollar policy, hashed in the interest of kickstarting exports, is not really open to negotiation.

Bottom line: don't expect the Fed to have the same courage when (or if) it belatedly decides to exit its massive monetary stimulus.

In Greece, Locals Rule

Harvard Professor Dani Rodrik clearly spells out the bottom line on Greece:

History suggests...when the demands of financial markets and foreign creditors clash with those of domestic workers, pensioners, and the middle class, it is usually the locals who have the last say.

Rodrik's full post here, and video you won't see on most main stream media below.

Can the U.S. Government Stop Silk Road and Bitcoin?

No sooner than a week after widespread news broke describing Silk Road, a website which some are calling the Amazon.com of online illegal drugs, we have two U.S. Senators seeking to pull-the-plug on the site and the peer-to-peer virtual currency used to pay for drugs called Bitcoin.

ArsTechnica has a nice summary of Bitcoin:

Bitcoin is a virtual currency, designed to allow people to buy and sell without centralized control by banks or governments, and it allows for pseudonymous transactions which aren't tied to a real identity. In keeping with the hacker ethos, Bitcoin has no need to trust any central authority; every aspect of the currency is confirmed and secured through the use of strong cryptography. 

Over the last few months, Bitcoin's value has risen by an order of magnitude as the sagas of Wikileaks and Anonymous (among others) have highlighted the limits of a financial system which relies on centralized intermediaries. With a current estimated market capitalization of about $100 million, Bitcoin has recently graduated from a theoretical techno-anarchic project patronized by libertarians and hackers to a full-fledged currency prompting comment from technologists and economists. At the time of this writing, one Bitcoin (BTC) is worth about US$15.

Here's the original Bitcoin white paper published by Satoshi Nakamoto.

Can the U.S. Government Stop Silk Road and Bitcoin?

Government has had success shutting down centrally managed peer-to-peer services, like Napster. However, 'pure' peer-to-peer sites like Gnutella and Tor, have proven more difficult. Data and services can simply move from a server in one country to another, and pure peer-to-peer is widely distributed by it's very nature. In short, it could prove extremely difficult for the DEA to take down Silk Road.

Bitcoin, however, does link back to actual bank accounts, which perhaps leaves more room for the government to maneuver.

I should have more to say on Bitcoin in the not too distant future.

The Flaw Movie Trailer

The Guardian reviews and compares this film to Charle's Ferguson's Academy Award winning Inside Job here.

Video: Niall Ferguson on Trichet's Call for a Centralized Eurozone Finance Ministry

Trichet's latest move smacks of "desperation" and may hint at just how perilous the ECB's balance sheet is with respect to its European periphery (aka PIIGS) debt holdings.

 Full video here.

Was putting a man-on-the-moon peculiarly un-American?

First-image of ISS docking by a soon-to-retire U.S. space shuttle

The Economist has an interesting read on the 50-year anniversary of President Kennedy's speech which set a goal of putting a man-on-the-moon within a decade.

Here's the key excerpt:

He (Kennedy) set out to make America’s achievements in space an emblem of national greatness, and the project succeeded. Yet it did not escape the notice of critics even at the time that this entailed an irony. The Apollo programme, which was summoned into being in order to demonstrate the superiority of the free-market system, succeeded by mobilising vast public resources within a centralised bureaucracy under government direction. In other words, it mimicked aspects of the very command economy it was designed to repudiate. 

That may be why subsequent efforts to transfer the same fixity of purpose to broader spheres of peacetime endeavour have fallen short. If we can send a man to the moon, people ask, why can’t we [fill in the blank]? Lyndon Johnson tried to build a “great society”, but America is better at aeronautical engineering than social engineering. Mr Obama, pointing to competition from China, invokes a new “Sputnik moment” to justify bigger public investment in technology and infrastructure. It should not be a surprise that his appeals have gone unheeded. Putting a man on the moon was a brilliant achievement. But in some ways it was peculiarly un-American—almost, you might say, an aberration born out of the unique circumstances of the cold war. It is a reason to look back with pride, but not a pointer to the future.

Barring a crisis or existential threat, are the prospects for the U.S. undertaking an ambitious, focussed transition to a sustainable energy based system, or an affordable healthcare system, extremely remote?

In short, was the U.S.'s Race to the Moon success, as The Economist puts it, a 'glorious one-off'?

Rogoff: 'Sovereignty and currency co-habitation do not mix'

Reflecting on the latest twists and turns in the Eurozone debt crisis here are some other choice quotes from Professor Rogoff's FT editorial:

• the euro is looking very much like a system that amplifies shocks rather than absorbs them
• even if the euro system was not at the heart of the crisis, it needs to be able to withstand two standard deviation shocks
• markets are more worried about the US’s lack of a plan A than Europe’s lack of plan B
• It is sometimes said that the euro is a creature of politics that would never be justified by economics. The present episode could well turn this statement on its head.

Full editorial here, and here is a recent Charlie Rose panel discussion he participated in with Paul Krugman and others.

War on Drugs, Say Hello to Silk Road: the Amazon.com of Illegal Drugs

On a day when a number of former and current leaders from around the world are calling to end the failed War on Drugs, Gawker has a story about a website where you can readily purchase illegal drugs and have them shipped right to your doorstep.

The site is called Silk Road, but finding it is not as simple as typing the name into Google and clicking:

The URL seems made to be forgotten...It's only accessible through the anonymizing network TOR, which requires a bit of technical skill to configure.

 How can you trust what you buy there?

Once you're there, it's hard to believe that Silk Road isn't simply a scam. Such brazenness is usually displayed only by those fake "online pharmacies" that dupe the dumb and flaccid. There's no sly, Craigslist-style code names here.

Silk Road cuts down on scams with a reputation-based trading system familiar to anyone who's used Amazon or eBay. The user Bloomingcolor appears to be an especially trusted vendor, specializing in psychedelics. One happy customer wrote on his profile: "Excellent quality. Packing, and communication. Arrived exactly as described." They gave the transaction five points out of five.

And here's what's available for purchase: 

Here is just a small selection of the 340 items available for purchase on Silk Road by anyone, right now: a gram of Afghani hash; 1/8th ounce of "sour 13" weed; 14 grams of ecstasy; .1 grams tar heroin. A listing for "Avatar" LSD includes a picture of blotter paper with big blue faces from the James Cameron movie on it. The sellers are located all over the world, a large portion from the U.S. and Canada.

Transactions are conducted with a semi-anonymous online currency known as Bitcoins:

Bitcoins have been called a "crypto-currency," the online equivalent of a brown paper bag of cash. Bitcoins are a peer-to-peer currency, not issued by banks or governments, but created and regulated by a network of other bitcoin holders' computers. (The name "Bitcoin" is derived from the pioneering file-sharing technology Bittorrent.) They are purportedly untraceable and have been championed by cyberpunks, libertarians and anarchists who dream of a distributed digital economy outside the law, one where money flows across borders as free as bits.

Although...

Jeff Garzik, a member of the Bitcoin core development team, says...that bitcoin is not as anonymous as the denizens of Silk Road would like to believe. He explains that because all Bitcoin transactions are recorded in a public log, though the identities of all the parties are anonymous, law enforcement could use sophisticated network analysis techniques to parse the transaction flow and track down individual Bitcoin users. 

Whether or not Silk Road succeeds in remaining in business, it does point out yet another difficulty of enforcing illegal drug laws.

In many states, like California, prison costs have overtaken funding for higher education due to the internment of people associated with the War on Drugs. We need to reverse this trend.

There must be a better policy than the one we currently have. It's time to fundamentally rethink the War on Drugs.

Bill Gross Harps on Financial Repression

Picking up right where he left off last month, the Bond King's latest letter sounds-off on how financial repression is a bad deal for U.S. treasury investors.