William Greider writes: President Obama … and his
lieutenants, much like the Bush administration before them, are
convinced that the nation’s crisis can essentially be reversed by
restoring “confidence” among investors, producers and buyers. So they
talk up every budding blossom as proof. So did Hoover.

Reality is unlikely to cooperate, because the core of this crisis is not
psychological. It is about real breakdown and real loss–trillions of
dollars lost to the collapsing financial values, thousands of businesses
and banks deeply damaged by collapsing balance sheets and markets.
Wishing does not necessarily make it so. Talking up the economy
prematurely may actually yield an opposite result–deepening cynicism
and mistrust, a sense that the authorities do not know what they are
talking about or, even worse, are concealing the truth.

More bearish analysts look beyond the good talk and they see deepening
troubles for the banking system. While Obama’s technocrats captured the
big headlines with their encouraging “stress test” results, a private
firm produced its own “stress test” on the very same day and it told an
opposite story. The Institutional Risk Analytics Bank Monitor produces
quarterly reports for investors on the health of individual banks and
the system as a whole. IRA has gained enormous prestige in financial
markets during the last few years because it has consistently been far
ahead of government regulators and economists in warning about big
trouble ahead.

Contrary to the government’s claims, IRA’s analysis is not brightening.
IRA crunches the internal numbers that all banks report to the FDIC. It
finds “a dramatic climb in the stress in the US banking industry.” More
and more financial institutions, large and small, are losing stability
or capital cushions as net incomes turned turned negative for 1,575 of
them. IRA’s Bank Stress Index jumped from 1.8 at the end of 2008 to 5.57
in the first quarter of 2009.

“Our overall observation is that US policy makers may very well have
been distracted by focusing on 19 large stress test banks designed to
save Wall Street and the world’s central bank bondholders, this while a
trend is emerging of going concern viability crash taking shape under
the radar,” IRA explained. That is a polite way of saying Treasury
Secretary Tim Geithner and Obama’s economic guru, Larry Summers, are so
fixated on trying to save their old Wall Street colleagues they do not
seem to recognize the deterioration underway broadly in banking. The
trend, as IRA has noted in the past, is that “US banks have been
migrating down the quality slope taking an average of nine months to
complete the journey from A to F on the stress scale.” That trend
accelerated in the first quarter, the Bank Monitor said.

What happens typically to some healthy banks, IRA explained, is they
encounter business failures and loan losses, then move to curtain their
lending and reduce risks. But that step perforce reduces their incomes
too. “This is a rare diet to try to live on in these times,” IRA
observed. “The bank, which makes its living wage from interest it
collects from its lending engine, slowly starves.” When operating costs
exceed declining earnings, banks typically try to pump up their income
from service fees–”a move that only serves to increase customer
reluctance and mistrust.” This retracting credit system is the classic
pattern in recession and has now reached a more threatening stage. Sick
banks stop lending. Where is the government intervention to reverse
that? This president rejected the activist approach.

“We may have wasted valuable time trying to save Wall Street at the cost
of Main Street,” IRA’s Christopher Whalen warns. “…Has the time come
to shift the policy focus away from the things that we love, namely big
zombie banks, to tackle those things that are truly hurting us?”

I am not a banking expert. I cannot say if IRA is right or not. What I
do know is that, up until now, this private firm of bank analysts has
been way more right than the government in Washington. (05/09/09)
more…

Science Codex — When you’re on a diet, deciding to skip your favorite calorie-laden
foods and eat something healthier takes a whole lot of self-control–an
ability that seems to come easier to some of us than others. Now,
scientists from the California Institute of Technology (Caltech) have
uncovered differences in the brains of people who are able to exercise
self-control versus those who find it almost impossible.

The key? While everyone uses the same single area of the brain to
make these sorts of value-laden decisions, a second brain region
modulates the activity of the first region in people with good
self-control, allowing them to weigh more abstract
factors–healthiness, for example–in addition to basic desires such as
taste to make a better overall choice.

These findings, which are being published in the May 1 issue of the
journal Science, not only provide insight into the interplay between
self-control and decisionmaking in dieters, but may explain how we make
any number of decisions that require some degree of willpower.

“A very basic question in economics, psychology, and even religion,
is why some people can exercise self-control but others cannot,” notes
Antonio Rangel, a Caltech associate professor of economics and the
paper’s principal investigator. “From the perspective of modern
neuroscience, the question becomes, ‘What is special about the
circuitry of brains that can exercise good behavioral self-control?’
This paper studies this question in the context of dieting decisions
and provides an important insight.”

That insight was the result of an innovative experiment: A group of
volunteers–all self-reported dieters–were shown photos of 50 foods,
including everything from Snickers bars to Jello to cauliflower. The
participants were asked to rate each of the foods based on how good
they thought that food would taste. Afterwards, they were shown the
same slides again and asked to rate each of the foods based on its
supposed health benefits.

From those ratings, the researchers selected an “index food” for
each volunteer–a food that fell about in the middle of the pack in
terms of tastiness and supposed health benefits.

The participant was then shown the 50 items one final time and was
asked to choose between it and the index item. (To keep the choosers
“honest” without forcing them to eat 50 different foods in one sitting,
the researchers would randomly select a number corresponding to one of
the slides, and the participant would have to eat whichever food had
been chosen at that point.)

All three viewings of the slides were done with the participant
inside an MRI scanner, so that the blood-oxygen level dependent signal
(a proxy for neuronal activity) in specific areas of the brain could be
measured.

After all the choices had been made, the researchers were able to
pick out 19 volunteers who showed a significant amount of dietary
self-control in their choices, picking mostly healthy foods, regardless
of taste. They were also able to identify 18 additional volunteers who
showed very little self-control, picking what they believed to be the
tastier food most of the time, regardless of its nutritional value.

When they looked at the brain scans of the participants, they found
significant differences in the brain activity of the self-control group
as compared to the non-self-controllers. (05/09/09)
more…