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May 22, 2013

John Thorne: They launched the 'Arab Spring' but now yearn for the good old days of a strongman

John Rosemond: 'Disciplinary math' adds up to parental successl

Warren Richey: Are prayers before public meetings OK? Supreme Court to decide
Rick Montgomery: Use of ADHD drugs as study aid raises concern on campuses

Brierley Wright, M.S., R.D.: 6 convincing reasons you should keep carbs in your diet

Eoin O'Carroll: Scientists examine nothing, find something

The Kosher Gourmet by Carole Kotkin: This soup is made from one of the great pleasures of spring: A wonderful pairing of rosy color and earthy tang

May 20, 2013

Richard A. Serrano: Is Meir Kahane's assassin now a changed man?

Hannan Adely: Town raises Palestinian flag at City Hall

Melissa Healy: Genetic copies of living people from embryos no longer science fiction
Morgan Housel: When smart investors do stupid things

Sharon Saloman, M.S., R.D.: Hunger games: Eat more, weigh less, without starving

Jewz in the Newz by Nate Bloom : Jews Inducted into Rock Hall of Fame; Anton Yelchin co-stars in New "Trek" film; Kutcher (but not Kunis) visits Israel; Jewish TV Star Praises Jewish Rap Star

The Kosher Gourmet by Cathy Pollak: WARNING: This WALNUT CAKE WITH PRALINE FROSTING, perfect for afternoon coffee, is addicting

May 13, 2013

Rabbi Nathan Lopes Cardozo: Why the giving of the document that would permanently change the world could only be done in desolation

David G. Savage: Church-state, literally? Supreme Court weighing public school graduation in a church

Emily Alpert: Recession dragged down birth rates for less-educated women
Morgan Housel: The deep downside of home ownership

Peter Teffer: Will Dutch police soon be stalking cybercriminals on your computer?

Heidi McIndoo, M.S., R.D.: Meatless 'meat' can have its own set of problems

The Kosher Gourmet by Diane Rossen Worthington: Celebrate! This must-try appetizer is delicate yet has depth of flavor: Corn-Leek Cakes with Caviar, Smoked Salmon and Creme Fraiche

May 10, 2013

Rabbi Berel Wein: Be all that you should be

Caroline B. Glick: The dirty little secret about Israel's Arabs

Mona Charen: Hawking's Moral Calculus: The man and the movement he embraces
Morgan Housel: The biggest retirement myth ever told

Sandi Doughton: Eyes may provide new insight into brain problems

Jewz in the Newz by Nate Bloom : The Great Gatsby's Jewish Ties; Jews in the "Time 100 list" List; People's Most Beautiful Women

The Kosher Gourmet by Linda Gassenheimer: A sweet-hot meal: Pear salsa spices up salmon

May 8, 2013

Peter Ford: Why China is welcoming both Israel's Netanyahu and Palestinians' Abbas

Warren Richey: Obama administration quietly backs out of appeal over new contraceptive mandate

Fred Weir: At Kerry-Putin meeting, US-Russia relations thaw --- a tad
Amanda Paulson: Study reveals sad truths about community colleges

Harvard Health Letters: Evidence weak that zinc, echinacea are beneficial

The Kosher Gourmet by Leela Cyd Ross : Almost too pretty to eat, this colorful salad with Sicilian inspiration will tickle the taste buds and delight your visual sensibility

May 6, 2013

Edmund Sanders and Patrick J. McDonnell: Think Israel's objective in Syria is to weaken Assad or embolden the rebels? Think again

Brian Bennett: Israeli airstrikes may show weakness in Syrian defense

Michael Ollove: Millions of ex-felons, parolees and those on probation are about to be entitled to tax-payer paid health coverage
Karen Kaplan: Most men can skip PSA test for prostate cancer, urologists say

Kimberly Lankford: How to track down a lost life insurance policy

Dream of Mars exploration achievable, experts say

The Kosher Gourmet by Susan M. Selasky: EGGPLANT WRAPS are an easy, sumptuous and scrumptious meal

May 3, 2013

Rabbi Nathan Lopes Cardozo: Human Courage and the Unavoidable, Disturbing Text

Steven Emerson: Attorney General Fights CAIR in Court, Lauds it in Public

Mediterranean diet helps beat dementia: study
Harvard Health Letters: When to be screened for a hearing problem

Jewz in the Newz by Nate Bloom : Iron Man's Jewish Connections; Marc Maron's New TV Show; Martin Landau Grows Up with Israel; Shalom, Allan Arbus

The Kosher Gourmet by Diane Rossen Worthington: A sweet surprise for Mother's Day dessert

May 1, 2013

Jonathan Rosenblum: An Improbable Journey to Orthodoxy

Jonathan Tobin: Blame Obama, Not Israel for Syria Push

Kids, kittens the Same? With employee perks at struggling Internet pioneer Yahoo! it's hard to tell
Halena M. Gazelka, M.D.: Mayo Clinic Medical Edge: What you need to know about implanted pain relief devices

Sandy Kleffman: Artificial kidney offers hope to patients tethered to a dialysis machine

Jessica Shugart: When it comes to math, MRIs may be better than IQs

The Kosher Gourmet by Mario Batali: The celebrated chef on how high-maintenance ASPARAGUS RISOTTO need not be

April 29, 2013

Roy Gutman: Poland's new Jewish museum celebrates life, doesn't revisit Holocaust

Mark Clayton: Terrorism in America: Is US missing a chance to learn from failed plots?

Kim Murphy: Boston Bomber's 'Svengali' Revealed
Morgan Housel: He's rich, smart and old: Listen to him

Thomas Salinas, D.D.S.: Mayo Clinic Medical Edge: The safety of amalgam fillings

Harvard Health Letters: Tomatoes and stroke protection

Pete Spotts: Tiny satellites + cellphones = cheaper 'eyes in the sky' for NASA

The Kosher Gourmet by Diane Rossen Worthington: Swing into spring with lemon cream pie

April 26, 2013

Rabbi Abraham J. Twerski: The world is a mirror

Caroline B. Glick: Time to confront Obama

Clifford D. May: Defense in the Age of Jihadist Terrorism
Kimberly Lankford: New strategies ease pain of paying for long-term care insurance

Howard LeWine, M.D.: Ask the Harvard Experts: Too much ibuprofen?

Sharon Palmer, R.D.: How to feel your best -- with plenty of energy, a healthy weight and optimal mental and physical function -- without driving yourself batty

Jewz in the Newz by Nate Bloom: Jewish Major Leaguers, 2013; New Movies and Comedy Show; Shalom, 'Lumpy' (Leave it to Beaver)

The Kosher Gourmet by Emily Ho : A bright and cheerful salad to herald the warmer months ahead

April 24, 2013

Steven Emerson: Boston Bomber Exposes Islamist Secret

Morgan Housel Admit it: No one has any idea what's going on
Harvard Health Letters: Can you get headaches from headache medication?

Kerri-Ann Jennings, M.S., R.D.: How to easily get more Omega-3s in your diet

Melissa Healy: Pot in a pill: All the pain relief without the smoke

The Kosher Gourmet by Susan Russo: Chipotle Chili Butternut Squash Soup is bold, zesty, hot

April 22, 2013

Ken Dilanian: Counterterrorism's future is unclear

US man departing country arrested on terror charges
Barbara Williams: An unorthodox but growing treatment in a 9-year-old's battle against cancer

P.J. Skerrett, M.D.: How to recognize a good whole grain product

Jewz in the Newz by Nate Bloom: Teen actor Jonah Bobo in New Flick: Hunky James Wolk on Mad Men; Erich Segal's Daughter Writes Prize-Winning Jewish Novel


Jewish World Review Feb. 4, 2008 / 28 Shevat 5768

Preventing a Panic

By Mort Zuckerman

Mort Zuckerman
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http://www.JewishWorldReview.com | The fireworks of the primary season, climaxing on February 5, are like having a carnival on a beach while a tsunami gathers force offshore. "Hope" and "Change" as slogans may make people feel good, but they have the same relevance to the financial complexities threatening us as the clueless castaways on Lost, the quirky ABC melodrama.


The castaways are truly lost because they don't understand their new world. Understanding our new world should be the first requirement of all the White House hopefuls because what we are facing is a credit crisis so severe that it threatens the working of the economy. And so deep that it may take as long as two years to unwind — even assuming the top policymakers understand how the new world works. The problem is so complex that nobody can give the right answers before knowing the right questions and gathering the right information. This is a much tougher task than Congress applying band-aids of tax and investment relief. The financial community itself is bewildered, unsure of its risks and liabilities and taken by surprise almost daily. The story of the 31-year-old trader at Société Générale, one of France's largest banks, reads like the script of a movie thriller. He bet $73 billion of the bank's money that European and German stock indexes would go up. When they turned down, the bank discovered the unauthorized trades and unraveled them — at the stupefying cost of $7.2 billion.


Questions: How could one junior trader have bet so much without senior management knowing? How could the bank fail to monitor properly the sophisticated trading techniques and the computerized analyses that underscored the bets? How could it not be aware of the risks inherent in the incredible leverage by which banks borrow 80 to 90 percent of every $1 they invest?


Oversight failure. These failures are shared by many American investment and commercial banks. Merrill Lynch held subprime mortgages exceeding the net worth of the firm. Citigroup had $80 billion of sub-prime mortgages held off its balance sheet in so-called structured investment vehicles. In effect, this meant Citibank had guaranteed the financing to support a massive investment literally unknown to the financial community and much of its management. This at the same time it was holding an additional $50 billion of subprime paper on its balance sheet.


These and other banks invested heavily in all this paper because big profits come from borrowing inexpensively in the short term and reaping higher returns from longer-term securities (many of which earned AAA and AA from the rating agencies). Nice, but just as profits are magnified by leverage, the 1-to-9 ratio of cash equity to borrowing, so are the losses. If the price of the longer-term securities grew by 5 percent when the security had been financed to the tune of 90 percent credit, the result was a 50 percent return on the equity. But if the prices fell by 5 percent, there was a loss 10 times greater in the value of the equity. Your original dollar was worth 50 cents. In many cases, the equity was wiped out. The way up is also the way down.


The markets provided easy, almost unlimited financing to buy securities. But this bubble depended primarily on another bubble — the one in housing. The assumption had been that house prices would continue to rise, enabling overextended borrowers to refinance the growing equity value in their homes. But when prices began to fall in 2007, mortgagees went into default. Bad enough — it was the first time house prices had fallen year over year since the Great Depression. But worse, the defaulters, like falling dominoes, took down with them the institutions that had invested in subprime mortgages bundled into bondlike securities (collateralized debt obligations or CDOs).


The risk in these securities was supposed to be reduced and dispersed by a variety of bond insurance mechanisms (credit default swaps or CDS) — but the rising tide of defaults in CDOs and corporate bonds has imposed heavy burdens on the insurers. The insurers can get the bond they guaranteed, but it is now worth much less than its face value. If the insurer can't afford these losses or goes bust, the bond bounces back to the "original" holders of the CDOs, who bear the losses they thought were guaranteed not to happen. The result can be a fire sale of billions of dollars or securities.


It is now clear that the assumptions underlying the pricing of CDOs and the like were based on over-optimistic computer-based evaluation models or on untested historical patterns — especially during periods of acute market distress. Computers can make fast, accurate mistakes: garbage in, garbage out. The rating agencies too often relied on the information provided by the companies issuing these new securities. Now it is clear that this was a blunder, even by the rating companies themselves, a top official at Moody's rating service acknowledged.


The net effect is that instead of transforming risks and disbursing them widely, the derivatives have turned out to be a liability. Banks have had to take back tens of billions of dollars of lending onto their balance sheets — bonds that are declining in value, either because the credit of the guarantor has declined or in response to market expectations of more defaults as equities continue to evaporate in home prices. Quite simply, a lot of smart people took a lot of foolish risks. The result has been a bursting of the credit bubble and a dramatic tightening of credit in the financial system.


Nobody runs faster than a sophisticated banker who gets scared. Banks are calling in loans or boosting the amount of collateral required to secure financing. Even interbank lending, the core of the financial system, was hobbled because banks had to preserve their liquidity and had lost confidence in the finances of other banks. So, today, the credit system has been virtually frozen. Lending across the economy is plummeting as banks undergo a huge deleveraging, with central banks almost powerless to control this contraction. This poses a grave risk to our financial system since few people even know where the liabilities and losses are concentrated, and they may not know until it is too late. Everybody fears more skeletons will be coming out of the banks' closets.


Fed limits. Lower interest rates promoted by the Federal Reserve Bank cannot fully counter the forces of credit and liquidity contraction created by these large losses, which in the case of banks may require them to reduce their loan portfolios by a multiple of 10 times those losses. Further, lenders are disinclined to lend when credit markets are in turmoil. Many companies, especially small and midsize companies, will now find it much harder to get the money they need to fuel their businesses as banks seek higher rates and more collateral. This freeze will not be corrected until the bad debts and losses work themselves through the financial system.


In other countries where a banking crisis was transmitted through to the economy, it took an average of at least two years for growth to return to normal trend lines, and sometimes even longer. It is hard to see how the U.S. economy will bounce back more quickly.


The crisis has prompted the president and the House of Representatives to agree to a package of stimulants. By no means will it be adequate to the hour. The depreciation allowances will help only at the margins since lack of demand is the issue, not lack of capacity. Businesses won't develop more capacity until they know their customers are capable of purchasing their products. The tax rebates won't have effect until the summer, and then are most likely to be used to pay off debt rather than be spent in the marketplace. Many older people, having lost substantial equity in their homes, and who will lose more as home values continue to shrink, will now begin to save out of income and thus reduce their consumer spending. The December unemployment rate hit 5 percent, the clearest harbinger of the future. Other labor market indicators are similarly negative, including initial and continuing job layoffs and the assessment of job availability. Now some 23 states are estimated to be in a recession, and seven more are verging on a recession.


Quite simply, this financial crisis is the worst since the panic that led to the Great Depression. As a result, the recession may well be deeper and/or longer than any since the end of WWII. No one knows where the bottom is. That is why the level of confidence in both consumers and producers has declined — and must be restored if the financial fiasco is not to turn into a crisis for the broader economy.


The first pressing issue — and there is no time to lose — is to get more equity into the bond insurers before the rating agencies downgrade them, or they go bust, and create a devastating financial panic. As former Secretary of the Treasury Lawrence Summers pointed out in the Financial Times, "Their failure or loss of an AAA rating is a potential source of systemic risk."


The prime official responsibility for getting the repairs started swiftly falls on state insurance regulators. The New York state insurance superintendent, Eric Dinallo, has led the way in asking banks and big investors like Warren Buffett to inject fresh equity. But clearly there should be a national policy with the Fed involved.


The second pressing issue is to see what more can be done to rebuild confidence in the financial system. There is one imperative that should drive these reviews. The amount of bank borrowing and leveraging and its inevitable deleveraging must never be allowed again to convert a banking crisis into an economic crisis. The Federal Reserve and the Congress will have to improve, directly or indirectly, scrutiny of the activities of the financial industry that migrated outside normal review. New financial instruments, including default swaps, will have to be regulated and so, too, will the rating agencies that almost literally took the place of the Federal Reserve in controlling lending capacity through securitized obligations.


We have yet to see the problems emerging from the securitization of credit card debt, auto loans, and consumer debt, which will also have to be reviewed and incorporated into a reasonable regulatory system.


It would be revealing to see — before February 5 — how the candidates in either party respond to the knotty issues. Our perilous times require expert knowledge and managerial abilities, in addition to uplifting rhetoric.

Every weekday JewishWorldReview.com publishes what many in in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.

JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.

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