A man urinates on April 25, 2009 in the toilets of the Sodoma bar in central Reykjavik where photographs of the former bankers who left their country after the financial crash have been stuck on the urinals. AFP PHOTO OLIVIER MORIN.

Someday very soon, a graduate student is going to have a field day with the gender dynamics of Iceland's transfer-of-power.

Lots of big, depressing, IMF-related news this morning:

• The IMF released its biannual Global Financial Stability Report. The big news: the global economy may need $4.1 trillion in write-downs on around $58 trillion in assets before the crisis is over.  It estimates that the United States leads the world in ripping the bandaid off -- completing about half of necessary write-downs; European countries are lagging. Banks will take the brunt of that cost, around two-thirds. The report included European- and Japanese-originated assets for the first time.

• U.S. President Barack Obama sent a message to members of Congress, asking for them to approve a $100 billion loan to the IMF. The loan is part of, not in addition to, the money the United States promised the organization at the G-20 summit.

• Colombia became the third country to come forward and seek a $10 billion "flexible credit line" loan from the IMF, designed to insure the country's ability to meet its spending requirements.

• Look for the first two chapters of the IMF's World Economic Outlook  to be released within the next hour or so. We'll have an analysis up as soon as possible afterwards. 

Two out of four chapters of the IMF's major World Economic Outlook are available -- the other two are expected on April 22. 

The short of it? Bad news.

Chapter three includes a long comparison of the current Great Recession with the Great Depression of the 1920s. Ours is now a global down-turn, a "synchronized downturn," the paper argues -- that makes it worse. The only available counterballast lies in coordinated, synchronized governmental spending. Nevertheless, there are worrisome parallels.

There is continued pressure on asset prices, lending remains constrained by financial sector deleveraging and widespread lack of confidence in financial intermediaries, financial shocks have affected real activity on a global scale, and inflation is decelerating rapidly and is likely to approach values close to zero in a number of countries. Moreover, declining activity is beginning to create feedback effects...

The fourth chapter takes a look at how the crisis originated in advanced economies, and spread like wildfire to emerging economies.

As the crises in advanced economies continue to deepen, and trade and capital flows decline further, exchange rates and financial systems in emerging economies could come under more severe pressure. In turn, a broad-based economic and financial collapse in emerging economies would have a significant negative impact on the portfolios of advanced economies....

In light of such cross-country spillovers, there is a strong case for a coordinated approach to a range of policies...

 So, some predictions for chapters one and two, and for the IMF in general. 

• We hear that IMF is forecasting a one-percent shrinkage in global GDP in 2009, the first shrinkage since World War II. It expects a recovery of around 1.8 percent of GDP next year, a third of that recovery due directly to governmental stimulus.

• And we hear that the IMF intends to play a much larger "macroprudential" regulatory role in the future, possibly by creating a new board with many more members from emerging markets and new voting rules.

• We're looking for more details on the expansion of the IMF's special drawing rights, high-access precautionary arrangement, and flexible credit line programs -- the latter two will be more important than the former one, we think. The report warns strongly that simultaneous recessions require coordinated and simultaneous responses -- the IMF is playing a huge role there.

My question yesterday about which countries might be next to come forward for IMF loans has been amply answered!

Today, the IMF announced Poland would seek a $20.5 billion flexible credit line, to insure against any future problems and help it meet its financial commitments. 

Now, the New York Times has a story up about how Britain may require IMF assistance. It faces a deficit likely to reach 11 percent of its gross domestic product and rising unemployment. Worryingly, it failed to sell its full offering of government bonds at an auction last month. The NYT article reads:

...Britain’s deteriorating public finances might require the government to seek aid from the International Monetary Fund, just as it did back in 1976 when the country’s economy was on its knees.

As remote as that possibility might be, it underscores the financial bind Britain is in and represents another humbling comedown for a country that once had ambitions to overtake New York as the world’s financial capital.

The IMF has tried to alleviate the stigma attached with seeking a loan, usually provided to truly failed economies. And Poland's received plaudits for seeking aid from the IMF; the finance minister said, "This is the reflection of our cautious and responsible economic policy."

Thus, the question becomes: if the IMF offered a loan that cost less than borrowing in other ways, would once-strong and still-responsible governments still turn them down? That is, would politics stand in the way of economics? 

Preeti Aroon

"Scholars on the Sidelines," by Joseph S. Nye Jr. in the Washington Post. Referencing FP's "Inside the Ivory Tower," Nye argues that American academics are "paying less attention to questions about how their work relates to the policy world" and that more scholarship should have "real-world relevance."

Elizabeth Dickinson

David Gardner asks a provocative question in this weekend's Financial Times: Is the West's fear of political Islam condemning the Middle East to a generation of poor leadership? Political Islam is the new communism, he argues; the United States fears it so much that it prefers despots to even the most moderate Islamists. The Middle East, by implication, might be going through the same bout of poor leadership that afflicted Latin America and Africa as the Cold War contest played out in their regions.

Rebecca Frankel

"War By Any Other Name." Joe Queenan takes a look at the ripples of the Obama administration's "semi-official" move to revamp the vocabulary for "the war on terror" and the attempt to distance itself from the Bush administration's "fierce" rhetoric. Money quote: "From now on, the bad guys will be referred to as 'the ostensibly malefic.' We'll get back to you when we have a new term for 'the good guys.'"

(Bonus pick: Presidential Pets. Couldn't resist...)

Britt Peterson

Walter Benn Michaels's essay "Going Boom," in the February/March issue of Bookforum. According to Michaels, boom time for markets is bust time for literature, which turns back to unhappy but irrelevant periods of the past when there's not enough drama in the present day (the 1990s-2000s spike in popular fiction about the Holocaust), or focuses boringly inward (the memoir, anything Oprah's Book Club recommends). But, during an economic collapse, Western novelists will have enough material to deal relevantly with the present, and financial crisis fiction will blossom. (Hat tip: Paper Cuts)

Annie Lowrey

U.S. Office of Management and Budget Director Peter Orszag blogs that crime has fallen in New York City during the recession. Indeed, Orszag says economic bad-times tend to spur property crimes, but not violent crimes. "One reason may be that alcohol use tends to decline during recessions (another potentially surprising finding), and that the reduction in alcohol use reduces violent crime," he notes. (Hat tip: Tapped)

Andrew Polk

Nouriel Roubini puts a brake on all the sanguine predictions for China’s 2009 recovery prospects in a report titled "Outlook for China's Economy in 2009 and Beyond." In the analysis, Dr. Doom tells investors not to get ahead of themselves, as the Chinese economy has not seen a true rebalancing toward domestic consumption, but he also notes one major positive: The country's trade surplus might finally be shrinking.

Greg Shtraks

Today's big story on the high seas are the Somalian buccaneers, but the future of naval warfare may be developing in another part of the Indian Ocean. While India is taking measures to protect its vulnerable coast from terrorist attacks, China is preparing to make a major announcement at the 60th anniversary of the People's Liberation Army Navy (PLAN) on April 23rd. Writing in Time Magazine, Howard Chua-Eoan describes the brewing naval rivalry developing between Asia's two aspiring superpowers. 

Speaking with the New York Times, a top Chinese economist explained why China is cutting its holdings of U.S. bonds by quoting John Maynard Keynes: “If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.”

With that reasoning in mind, China sold U.S. Treasuries and other foreign bonds in the first two months of the year; it returned to buying them in March. Around two-thirds of China’s foreign reserves are held in dollars.

That bulk holding has complicated relations between the two economic super-powers during the Great Recession. Chinese Premier Wen Jiabao and the central bank governors have expressed concern about the U.S. economic situation and their exposure to it -- though the resumption of  purchases in March suggests they may believe the outlook is better.

Still, numerous economists and policy experts have suggested careful, controlled, slow draw-down would be a good thing for both countries. 

At the Boston Globe, economist Laurence Kotlikoff joins Jeffrey Sachs in indicting the Geithner bank bail-out plan on the grounds that investment banks and the like will simply game the system -- allowing a government-sanctioned and epically unfair socialization of losses and privatization of gains. Kotlikoff writes:

It's one thing for the U.S. Treasury Department to overpay banks for their toxic assets on the prayer that bank shareholders will do something besides pocket it -- something that will help the economy. It's another thing to set up a complex leveraged auction scheme to surreptitiously make the transfer. And it's yet a third thing to set up a scheme that will lead the banks to overbid for their own toxics to garner even larger windfalls and end up with the toxics still in their hands.

He outlines one way for banks to game the Geithner plan, which lets banks auction off their bad (but not totally toxic) assets to investors who earn most of the possible upside if the asset makes money, while the Treasury accepts the loss if it doesn't.

Kotlikoff notes that it's a pretty easy move for banks: they set up and fund subsidiaries to buy the mortgage-backed securities -- effectively insuring against any losses that asset might accrue. The Treasury has promised that investors won't be able to buy their own assets in this way -- officials won't let them. But there still plenty of ways to get around it.

But there's a big problem -- not with the details of Sachs' and Kotlikoff's arguments, but with their very premise.

First, there's no incentive for a bank to buy its own bad debts as opposed swapping with someone else's. Say Goldman Sachs' hedge fund, GSAM, buys J.P. Morgan's assets, and a J.P. Morgan subsidiary buys Goldman's. There's nothing wrong with that, and it's effectively the same as the banks buying their own. A recent report shows that i-banks are still major global hedge fund players -- the government needs those funds to play.  

Second, the gaming proposal presumes that the banks have cash to buy up the assets at auction at all. But most of the banks who will sell bad assets really don't have a lot of cash floating around -- anywhere. Many are in debt, and nobody will lend to them, so theorizing that they'll fund a bunch of subsidiaries to nick taxpayer money seems far-fetched. Even if they do it, the scale would be limited by their available capital. 

Finally, in a macro sense, the Geithner plan is set up precisely to recapitalize the banks, create a market for the bad assets, and to get the assets off the banks' books. Gaming the system does recapitalize the banks. It does bolster the market for the bad assets. And it does sequester the assets in spin-off companies -- a kind of good-bank/bad-bank scenario.

In short: the Geithner plan might not be fair. It, in some sense, props up and rewards companies that took massive risks and now need taxpayers and the government to bail them out. But, taking the Geithner plan as it is, gaming doesn't seem so bad. 

At VoxEU, economists Barry Eichengreen and Kevin O'Rourke compare the current global recession and the Great Depression -- or, more accurately, parse the comparisons. They note that many commentators, like Paul Krugman, include only U.S. stock and economic indicators, in which case, some evidence suggests this downturn may be shorter and milder.

But, they argue, the Great Depression was a global phenomenon; it originated with the U.S. stock crash and soon engulfed the world economy. The current recession, likewise, is one of a globalized world. The U.S. led the fall, but didn't fall alone.

So, they write: "the global picture provides a very different and, indeed, more disturbing perspective than the U.S. case...which as noted earlier shows a smaller decline in manufacturing production now than then." And they demonstrate the effect, with a series of compelling and frightening graphs. 

Here's the global stock market, the blue line representing its value during the Depression and red during the current recession: 

And here is global trade volume, another indicator. They write, "This is highly alarming given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression."

The one bright spot, they note: the policy responses have been far, far better this time around. Central banks have slashed interest rates earlier and lower, and increased the money supply more and faster. And, globally, there is heightened government deficit spending, intended to arrest decline.

Still, Eichengreen and O'Rourke's analysis demonstrates that the global recession may be worse than people think, even if the U.S. manages a recovery. 

Amid the financial crisis, U.S. media outlets have paid extra attention to the two nations worst-hit in western Europe: Iceland and Ireland. Publications from The New Yorker to the A.P., and everything in between, have parsed the deflationary risks, excess housing, and fiscal problems. They've talked about the strains on social welfare safety-nets and rising unemployment.

And they've done so with lots of bloated and condescending scrim on how Ireland and Iceland are the magically quaint fairy-lands of leprechauns, vikings, alcohol, and the in-bred!

For instance, in Vanity Fair, top financial reporter Michael Lewis came out with these brilliant insights into the denizens of Reykjavik: those "mousy-haired and lumpy" people, one of whom he calls a "bearded troll," love to "drink themselves into oblivion and wander the streets until what should be sunrise." He describes "orc shrieks" emanating from a hotel room. Zany laws mean citizens have to "write to the government and quit" to "stop being Lutherans." And Icelanders, "sincerely" believing in elves, made an industrial conglomerate "pay hard cash to declare the site" of a smelter "elf-free."

Today, in the New York Times, veteran reporter Timothy Egan makes an equally enlightened assessment of Irish culture in his article about, erm, housing stock.

"Every village that had seen nary a rock wall or a cottage window unchanged suddenly had a cul de sac of insta-homes and a half-dozen O’Mansions," he writes. "Anyone with a mortgage could get rich in little more time than it took for a head of Guinness to settle."

Needless to say, the Irish and the Icelandic are, well, unhappy. 

A online commenter on the NYT piece writes:

Yet more condescending, starry-eyed tosh from the New York Times regarding Ireland...Oh and, is it mandated by the New York Times editorial board, that every article about Ireland contain boilerplate about flowing pints of guinness and gap toothed peasantry? Perhaps the Irish media will take to writing colourpieces about New York in which the sky is compared to a swirling tankard of Budweiser.

New York magazine ran a take-down of Lewis' reportage from a more bemused resident of Iceland:

"His is a wild account of a backwards Nordic island populated by 'lumpy' and 'inbred' people who might force you to shower in scalding water or, worse, blow up a Range Rover. If you didn’t know any better, you’d think we were a sitcom waiting to happen. Unfortunately, none of this is exactly true."

At CounterPunch, Gregory Burris likewise takes Lewis down a notch:

"As I masochistically forced myself to continue reading Lewis’ article, I could not help but wonder: how did such a dimwitted diatribe ever make it through Vanity Fair’s editorial process? Did the editors really find it fit to print? Yes, unfortunately for us, they really did."

The G-20 just released its final communique, summarizing the agreements made during the one-day conference. And, it's a doozy.

The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.

It's certainly on an "unprecedented scale." Plus, it's the first global action plan to really emerge from a G-20 conference -- note the sale of gold to shore up developing economies. See more detailed analysis from FP bloggers throughout the day. 

Here's an odd paragraph from a Financial Times story on the London protests (which now seem to be getting out of hand):

Authorities hope to avoid a repeat of the June 1999 anti-capitalist demonstrations when some City workers sprayed protesters with champagne and threw photocopied £50 notes at them. That protest ended in a riot and caused up to £2m of damage.

Hmmm... let's see here. Wouldn't the first step be to not spray protesters with champage or throw fake money at them?

Photo: Matt Cardy/Getty Images News

Czech Prime Minsiter Mirek Topolanek softens his AC/DC-inspired critique of the U.S. economic stimulus a bit in a new Times column. Topolanek says he simply meant that Europe does not need the same amount of stimulus as the United States. Call it the Simon & Garfunkel version:

I expected that this strong expression would not go unnoticed. But I did not expect that this legitimate warning, which comes to me as naturally as telling a friend walking next to me on an uneven path that he may stumble, would be rejected in principle and interpreted by some as criticism of the US Administration.

I believe that I do not need to explain that my country has been a long-standing partner of the US. And I also believe that as a conservative politician I do not need to explain that the welfare states of Europe act as “automatic stabilisers”, sustaining consumer spending even in a slump. This means that Europe does not need such a large fiscal stimulus compared with the US, which does not have such a system of social support.

FREDERICK FLORIN/AFP/Getty Images

In the upcoming issue of The Atlantic, Simon Johnson -- M.I.T. professor, awesome financial-collapse blogger, and former chief economist for the I.M.F. -- has a must-read. The nutgraf(s):

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Johnson shows how financial firms became more and more profitable, and a bigger and bigger part of the U.S. economy. More capital meant more political capital, he argues, which eventually meant nobody prevented the melt-down. The same political entrenchment makes fixing the banks difficult. 

The obvious solution to the financial crisis, Johnson says -- informed by his time at the I.M.F. -- is simple. The United States should determine which banks can't survive and temporarily nationalize them, instead of simply recapitalizing them, he says. But the relationship between top financiers and the government means this won't happen -- at least not unless things get much worse.

Still, his article includes a list of the policies (or lack thereof) which most contributed to the bubble and burst. It's a great crib sheet of what Capitol Hill and the G-20 Summit will tackle, piece by piece, to reform the system. 

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

It's fascinating, scary reading. 

For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the "lost decade" in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank's massive spending policy just after German reunification. He writes:

The results were less than wonderful.  The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation.  The new demands took the West German economy only so far.  The higher taxes and debt then kept the German economy down for many years.  Few Germans were happy with the economic fallout from this "stimulus."  And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.

You can list many dissimilarities between German unification and the current U.S. situation (and in the comments I am sure you will).  Still, as historical examples go, I believe this one has some relevance.  When European leaders are skeptical about fiscal stimulus, they have some reasons, some of them quite recent.

Cowen gets to the real utility of the comparison at the end there: It helps to explain why many European leaders are hesitant to pony up billions of Euros to stimulate their economies. 

Photo: Flickr user gavinandrewstewart