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Thursday, October 30, 2008

Mash the gas and hold it to the floor baby, we be lending!

From our friends at Cumberland Advisors:
Look at all the pretty colors that new and creative lending comes in. BTW Maiden Lane is the first write off for the Fed from the AIG purchase. Any writedowns by the Fed ultimately come from Treasury revenues.

How about some Turkey?

ECU's Subprime/Foreclosure Forum Part III

Here is the last installment of the power point pdfs from our friends at the Federal Reserve of Richmond from last Monday's Forum. This is from Steve Sanderford who is a Senior Retail Lending Specialist at the Richmond Fed. The topic is the fallout, human and residential capital, from foreclosures in the Fifth Federal Reserve District. I believe I remember this gentleman saying the typical foreclosure costs in the range of $60,000.00 in Northern Virginia. Oh boy. Look and learn.

Wednesday, October 29, 2008

Hey! Have you heard the one about the three broke snot-nosed punks out looking for some trouble?

What took so long?

ECU's Subprme/Foreclosure Forum Part II

Monday was the ECU Subprime/Foreclosure Forum. Yesterday I provided the financial market fallout talk of Bob Carpenter. Today, here is the powerpoint presentation of Mike Riddle, a Team Leader and Senior Financial Analyst in the Banking Analytics and Supervisory Studies Group at the Federal Reserve of Richmond. This pdf speaks to the national real estate market in general and North Carolina in particular. Look and learn

Tuesday, October 28, 2008

ECU's Subprime/Foreclosure Forum

Monday there was a Subprime/Foreclosure Forum at ECU organized by The Department of Economics and The Federal Reserve of Richmond as part of their public outreach program.
Here is the coverage in the local paper:

I got together with long-time friend and fellow economist Bob Carpenter and put the program together. There were four speakers including me. Bob now works part time for the Fed so it was a natural connection and pretty timely. Bob spoke of the financial market fallout from the subprime explosion. Here is his power point presentation in a pdf file. I am afraid I cannot go back and give the lecture again and the Federal Reserve said "no" when I asked if I could tape it and put it on my blog. But you can sure learn something by looking at the pictures:

I will be providing the other presentations, on 1) the national real estate market and North Carolina and 2) Federal Reserve District five foreclosure activity as the week progresses. Look and learn.

It's my fault.

This is funny and clever, even if it is from

Simple and Clean Microeconomics of Health Care.

This is from Greg explains the economic science behind the plan without passing judgment in any normative way.

Then, if you have the time, here is something from some poor working stiff in Massachusetts.

Monday, October 27, 2008

Any of you who have a tiny interest in the future of the financial industry need to read this.

Short...Historical...Informative...and correct.

From my colleague Phil Rothman:

Psst! Hey Mr. Economist...wanna take a survey?

These are my answers to a recent survey sent to me by a very careful and knowledgable economist in Washington D. C. My answers are in Bold:

As you may have heard, Congress is toying with the idea of passing new stimulus legislation. I am very interested in what you think about that possibility. Could you please take a few moments to answer (on background) the following three questions? Thank you.

#1: Given current economic forecasts, do you think a new economic stimulus measure is appropriate?

Yes. By passing legislation to lock in the current marginal tax rates to eliminate any ambiguity re: marginal tax rates in the future. Temporary tax cuts we know are of little value given the empirical impact of the last one and the volumes of literature on the permanent income hypothesis.

#2: If your answer to the first question is "yes," what form should the stimulus measure take? Please check all that apply:

If you are going to do it then at least start fixing bridges so they don’t fall down over the Mississippi River and such like that. Don't build bridges to nowhere. But building side-by-side roads to nowhere like the Japanese did is stupid too. And I have zero expectation that any public spending would be other than more bridges to nowhere. And help out the poor Joe who lost his job. And one more thing...reduce corporate taxes so firms are not compelled to ship jobs overseas given the punatively high US corporate tax rate in comparison to other major industrial powers.

______ Refundable income tax rebates (e.g., another $600 check)

_X_____ Infrastructure projects

___X___ Cut in corporate tax rates

______ Aid to state and local governments

______ Incentives for new investment (e.g., accelerated depreciation)

______ Increased food stamp benefits

_X_____ Extended unemployment benefits

______ Other (please describe)

#3: If you could unilaterally rewrite U.S. economic policy, what are the one or two most important changes you would make?

I would go back to the Tax Reform Act of 1986 where we widened the base and lowered the marginal rates down to 15% and 28%. Further, I would make reform of Social Security and Medicare a national emergency focusing mostly if not completely on expenditures and not revenues. We know from the CBO that the taxes required to fund the promised actuarial obligations would choke the life out of us.

Randy Parker Hall of Fame: James D. Hamilton.

This is Jim Hamilton. He is an economist at the University of California at San Diego and has been most helpful, as always, in explaining what is going on. He is a most esteemed member of the Randy Parker Hall of Fame and the best macroeconomics scholar on the planet. Plus, you could not hope to meet a nicer guy (and that is a rare combination). Let me say it as plainly as I can. Read what he has to say and you know what to think. You can do that daily at Don't eat or drink anything while you read the link might choke.

Sunday, October 26, 2008

Sunday is meant for football...thirty years ago.

This is me in my senior year in high school. This was the homcoming game. It is the only game we won all year. I was the captain of the team and a great player on a bad football team, a bunch of dogs...but they were my dogs. We were losing at this moment in time. I played both ways on offense and defense but got hurt early in the year and stuck to offense. Right after this picture was taken, late in the game, they put me in on defense. Look at my face (go ahead and click on it). I was ready to kill someone. And I did. Four minutes left in the game I flattened a halfback in the backfield and forced a fumble. We took the ball 70 yards and won the game. You don't forget times like those.
We'll get back to business tomorrow.

Saturday, October 25, 2008

It is Breeder's Cup weekend!!!

Hi y'all. Right now the funny economist is hard at work handicapping horses for today's Super Bowl of horse racing...the Breeder's Cup. Wish me luck. That's me and my lovely wife Monica enjoying a day at the races with the legendary horse trainer D. Wayne Lucas.

Now I want all of our young itsy-bitsy econ bloggers to take a good look at the man in the upper left. See his sunken eyes and greedy little smirk he has on his face. This is what happens when you become a broken down horse player. Keep your piggy banks away from men like this kids. It will go missing and wind up at the dog track in West Memphis, Arkansas. Take a good look kids...and then call the appropriate law enforcement agency if he is in your neighborhood. You can learn more about this miscreant on the wall of the post office or at .

Friday, October 24, 2008

If you need a laugh, and I suspect you do, watch this.

A picture is worth ....

From Greg Mankiw's Blog: On the right are excess reserves of the banking system. Just below is the monetary base. Go ahead and click on them.

People always ask how today's crisis differs from what happened during the Great Depression. Ladies and Gentlemen I give you exhibits A and B (with thanks again to Phil for alerting me to these graphs). During the Depression the line for the monetary base was as flat as it could be. Now it could not be more vertical.

Randy Parker Hall of Fame: Ralph.

This is Ralph. He never told me his last name. It is not really HIM but he looked just like this guy, hat and all. Ralph lived in Lexington, Kentucky when I was in graduate school. He would hang out on the street corner and wait for me to walk to school on Wednesdays. He would stop me and chat for 5 minutes or so and then send me on my way. We always used to meet at the race track betting the ponies and he would bum bus fare from me to get back to town when he went "tap city" for the day. Ralph taught me one of the greatest lessons of life. One day he just came out and said "Listen here, if you ain't humble, then you better get humble, because one way or another life is gonna make you humble."
Read that again, and file it under words to live by. I don't know that there is a person in the Randy Parker Hall of Fame with a higher ranking than Ralph. When I was around him he was about 75 in 1984. I am sure he is no longer with us. But I will never forget him and what he taught me. Thanks Ralph and say hi to Jackie Robinson for me.

Senate bill S.190 in the 109th Congress and you.

Below is a report of S.190 back in 2005 where some members of the Senate, Elizabeth Dole Chief among them, did the right thing and tried to lasso the craziness of Fannie Mae and Freddie Mac and got slapped down for it. The bill would have really helped to not bring us to where we are today. It got gunned down like a dog in the street and never came before the Senate for a vote. All the debate was about what types of assets could be held in the portfolios of Fannie and Freddie. The folks who voted "Yea" were trying to help by limiting the whacko subprime junk the government secured enterprises could hold. The "No" votes are those culpable for the mess we have now, they wanted the party to continue on, and now you are on the hook for it. Scroll down and know their names. The worst part is it is the same people who voted "No" that are going to conduct Congressional hearings to search for the guilty...when it is them all along.
And for my friends in North Carolina, remember this tale when you go to vote November 4.
Elizabeth Dole took the lead in trying to help stop the mess we are in.

S 190
Federal Housing Enterprise Regulatory Overhaul/Vote to Report
Create a new regulator, the Federal Housing Enterprise Regulatory Agency (FHERA), to oversee the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks.
The bill would give the new regulatory agency combined oversight for the safety and soundness, as well as the housing mission, of the three housing-related government-sponsored enterprises (GSEs). The agency would have the ability to close down a failing GSE.
The bill also would create a Federal Housing Enterprise Board to advise the director of FHERA. The members of the board would include the director as well as the Treasury secretary, HUD secretary and chairman of the Securities and Exchange Commission (SEC).
It would allow the director to increase minimum capital requirements under certain conditions, including situations in which it is determined the benefits of increased capital outweigh any adverse impact to housing markets.
The director would have the authority to approve a GSE's entry into new lines of business.
Under the bill, if the FHERA determines that a GSE or one of its executives has violated the law or other regulations, the GSE or executive could receive civil penalties that would amount to a fine for each day of violation.
The bill would require a GSE to report in a timely manner to the director of FHERA if the GSE discovers that it has bought or sold a fraudulent loan. It also would allow the FHERA to require reports from the GSEs that could include information on financial statements and conditions, management, activities and operations.
The measure would require that the FHERA have an inspector general that would hire accountants, economists or other financial examiners and audit annually the affordable housing activities of Fannie Mae and Freddie Mac's affordable housing programs.
The FHERA would have the authority to prohibit or limit excessive severance packages for employees.
Under the legislation, the president would no longer appoint the board of directors for Fannie Mae and Freddie Mac.
The bill also would establish a Federal Home Loan Bank Finance Corporation to take over the duties and responsibilities held by the Office of Finance of the Federal Home Loan Bank System.
Member banks would elect the board of directors for the Federal Home Loan Bank.
Reported favorably to the full Senate (as amended) 11-9: R 11-0; D 0-9; I 0-0; July 28, 2005.
Vote Key
YEAS (11)
Republicans (11)
Allard (Colo.) *
Bennett (Utah)
Bunning (Ky.)
Crapo (Idaho)
Dole (N.C.)
Enzi (Wyo.) *
Hagel (Neb.) *
Martinez (Fla.)
Santorum (Pa.)
Shelby (Ala.)
Sununu (N.H.)

NAYS (9)
Democrats (9)
Bayh (Ind.) *
Carper (Del.)
Corzine (N.J.) *
Dodd (Conn.)
Johnson, Tim (S.D.) *
Reed, J. (R.I.)
Sarbanes (Md.)
Schumer (N.Y.) *
Stabenow (Mich.) *

Thursday, October 23, 2008

"Stick 'em up!"

Guy goes walking down the street and another guy comes to him and says "Hey Mister you got a gun?" The guy says "No." So the other guy pulls out a gun, points it at him and says "Well then stick 'em up." This is one of the many jokes Henny Youngman told that I will never forget. Ya know why? Because it is funny. OK, now Senator Obama is going to do the same thing to you. He is telling you to your face except he is gonna do it without a gun. Connect the dots if you will...he tells Joe the plumber he is going to spread the wealth around and also has said that even though low income peeps don't pay many income taxes, they still pay payroll taxes and need relief. Are you there yet? Increase payroll and income taxes on higher income workers, cut payroll taxes on low income workers, and give those who pay no income taxes at all refund checks on things that they never "funded" in the first place. George McGovern talked the same nonsense and won Massachusetts in the election of 1972.
And uncapping Social Security means YOU baby! If you make over $102,000 you are one of the stinking rich low lifes who must be brought to heel. Social Security was never intended to be a welfare program. It was something that was earned from employment history. It already is much more generous to lower income retirees given their contributions than to upper income retirees. And I don't have a problem with that as it stands right now. But a naked wealth grab is all this is, a transformation of Social Security into naked welfare, and the American people don't like it when they have a gun stuck in their face. Except there is no gun here.
Go back to work and pay up sucker!
Now, let the games begin!

Wednesday, October 22, 2008

Total nonsense. This is the one thing we can fix and very quickly.

If there is one lesson from economic history we know for sure, it is how to fix deflation. So look at the link below, but don't believe it. Housing deflation...sure. But general deflation? Never as long as Ben Bernanke draws breath.

Randy Parker Moron Hall of Fame

Let me clarify. There is: 1. The Randy Parker Hall of Fame occupied by the best of the best the human condition has put forth like Jackie Robinson, Frank Robinson, "Ralph" whom you will meet on Friday, Lee Elder, Ronald Reagan, Walter Payton and others who have made a positive impression on my life. I have indicated who these people are and will continue to do so over time. 2. The Randy Parker Schmuck Hall of Shame occupied by miscreants and other low lifes and degenerates that did something without shame and admit to nothing or act like it is no big deal. We have seen John Edwards, Mark Foley and Tim Mahoney take up residence here. 3. The Randy Parker Moron Hall of Fame occupied by me (based on general moron principles) and folks who were trying to help but did something diametrically opposed to what should have been done and yet did not realize it and steadfastly maintained their correctness even in the face of overwhelming counter evidence.
Anybody know who these Moron Hall of Fame members are directly above? That's right Senator Reed Smoot and Representative W.C. Hawley the guys who gave us trade protectionism in response to the downturn of 1929-30 and thus contributed to the Great Depression. And since we are here, that's ole Herbert Hoover on the right. The same guy who raised taxes to balance the budget and crashed the economy in 1932. What do we know from economic history? Right, you don't choke off trade nor raise taxes when you are staring into the teeth of an economic downturn. Seems I have been hearing the same Depression-era mumbo jumbo lately. Those who do not know the lessons of history are condemned to repeat the same dumb mistakes.

Tuesday, October 21, 2008

Too good not to one is safe from having fun poked at them on this blog.

Just heard a joke: Why is the stock market like divorce except that the market is much worse? Answer: You lose half your money but you still have your wife.

My wife knows I can't resist a good knee slapper. If not for her I'd be living in a van down by the river. But we'll see how much the dog likes that one when I'm sleeping out in the dog house.
Request: I have just went back to not moderating the comments left on this blog at the request of some viewers. Please be respectful and don't say naughty words or leave long rambling screeds that no one gives a flip about.

Hey, did you hear the one about Louisiana?

There is an old joke that says "did you know half of Louisiana is under water and the other half is under indictment?" Well, it is not a joke. I come from Chicago so I know political corruption. The Chicago machine is a bunch of amateurs compared to Louisiana. If Bobby Jindahl can make any positive progress in Louisiana, he should be considered a top candidate for the new face of the Republican party. It is pretty clear to me that the folks who have been running things for the Republicans the last 8 years, as Alan Greenspan said, "traded principle for power and now have neither". Some have already left...many more need to follow...time for you fellows to go home and play some golf...daily.

Colin Powell said Sunday he thinks we need a generational change in the leadership of the country. I don't know about that, but how about if we start with the Republicans in Congress first?

Monday, October 20, 2008

We are in a recession! The only questions are how deep and how long.

Once again the talking heads are at it. The folks on CNBC are saying they wonder if all of this bail out stuff has been done fast enough to avert a recession. Ah, too late there boys. James Hamilton ( is on record as saying he thinks the recession started last December. That would put us at 11 months right now if you think he is right (I am a gambler and I know where my $$$ is). The average post-WWII recession has lasted 11 months. The recession of 1981-82 lasted 16 months and was the worst downturn since the Great Depression. The recessions of July 1990 - March 19991 and March 2001 - November 2001 were both short but had the longest most drawn-out recoveries in the 20th century history of the business cycle. Now we are looking at a recession in the midst of truck loads of financial goop with credit markets doing their impersonation of a cigar store indian together with the prospect of a long stretched-out recovery.

Please don't get excited here folks looking for a quick exit from this fever swamp nor a return of the elevator to the top floor again quickly. History says you would be wrong.

Simple and Crisp from Nobel Laureate Kenneth Arrow

This is short and really packs a punch.

Sunday, October 19, 2008

Sunday is meant for fun: Charter Member of the Randy Parker Hall of Fame

Here is an icon of my youth. You don't forget a guy like this.

We'll get back to business on Monday.

Saturday, October 18, 2008

Now this is one chicken I wish would come home to roost.

No, no, no, not him. I am talking about Super Chicken. The link below is a cartoon from my childhood and it still mists my eyes up when I hear the theme song. Every week day I would run home from school to see the latest installment of Super Chicken. Go ahead and listen for :29 Pay attention to the clarinet and xylophone

These markets don't calm down soon, I'm making the call.

Friday, October 17, 2008

Hey wait a minute...riddle me this?

Since when is $102,000 = $250,00? If I heard it correctly Senator Obama is talking about uncapping social security. Well that means higher taxes for anyone making more than $102,000 not $250,00 as he claims. And a lot more taxes. But hey, taxes are the price of government services right?

Bubbles...back to the past.

I suppose it was inevitable. The Fed, after the disaster that was the Great Depression, pretty much decided they were not very good at identifying and then popping speculative bubbles like what we had in the stock market in the 1920s. Or did we? Economists to this very day, 79 years later, still argue about whether there was or was not a bubble in stocks back then. My answer is who cares? The Federal Reserve's perception was that there indeed was a bubble in stocks and that is what they acted on to send the economy into a tail spin. Messy history.

Before this current mess, many economists (like me and Chairman Bernanke) thought that the government ought not to be in the business of deciding what securities and equities should be worth, that is, being the so-called "arbiter of securities prices." Now that the Fed is going to start doing something about bubbles (see the link below), they are basically saying they know what the "correct" price is for assets, and that they are going to make it so. So be it. This is not going to be a seemless venture. There are going to be successes and failures like all parts of life.

But when the government starts deciding on prices, you might want to stock up your liquor cabinet. It may be a rough ride.

Then again, what has cold deliberate ignorance to the housing bubble gotten us?

Come on in and sit down. Let's have a drink. But Sir, I don't drink. Yea, well you do now.

The link above is HB in a classic drinking scene. The government kick started the bailout party by making the top 9 banks in the country sign on to preferred stock purchases. They did not "make" them you understand. But it was like what my dad used to tell me, "son, you don't have to do what I am suggesting. But I can sure make you wish to hell you had done it." Belly up to the bar boys. You are drinking whether you want to or not. So, if you are making me...make mine a double.

Randy Parker Hall of Fame: J. Bradford DeLong.

J. Bradford DeLong is an economist at the University of California at Berkeley. He is in the Randy Parker Hall of Fame. He is a guy that we need to listen to. Sit back, listen up and learn.

Thursday, October 16, 2008

Insolvency, Credit Freeze, Recession and Unemployment. Take 'em out.

Just think of these individuals who are no longer with us as the Four Horsemen of Insolvency, Credit Freeze, Recession and Unemployment. Hit 'em with everything you got. Oh and by the way, watch the dog on the right side of the screen. He gets away, praise Allah.

For the record, these four Joe Jihadis had just mortared a U.S. base and were casually strolling home like nothing happened. It had to be a bit of a shock don't you think? Well, for a few seconds any way.

If you have the time...Stephen Cecchetti is THE MAN.

You may want to save this for the weekend or whenever, but few, if any, know more about central banking than Stephen Cecchetti. This is an audio interview that lasts 18:05. But if you want to know what we are facing and why, this is time well spent. I am even willing to call this a MUST listen. Click on the link below and then hit the listen button.

Wednesday, October 15, 2008

This guy KNOWS what he is talking about.

The Real Problem....

There seems to be some common misunderstanding out there. What we are facing is not a liquidity crisis. In this instance a financial institution is solvent and above water. The long-run value of their assets is greater than the long-run value of their liabilities. They just, for whatever reason, have a sudden need for cash and cannot raise it quickly or without taking a bath in selling their assets at fire sale prices. Well, we are not here. The Federal Reserve has opened up their lending facilities and created many more to get financial institutions what they need. No, the problem we are facing is much more severe. We are in a financial institution solvency crisis. That is, many financial institutions are insolvent so that when you make them put a value on what they have and what they owe, their assets are less in value than their liabilities. Let me say it as plainly as I can. Many financial institutions are bankrupt. Note the first four letters in the word bankrupt. That is why the government has now stepped in to "recapitalize banks." Said differently, buy up some of their stock to inject working capital, new money, into the firm and refloat it above water. When Citicorp was under water, they called Dubai and traded stock for $7 billion in new capital injections. Same deal here now with the U.S. government. So think of Hank Paulson in the same way, just without the harem and belly dancers.....
If we could avoid a major economic downturn with these banking measures, the funny economist would do a dance like that too. Then again, maybe it would be better to take the hit and have the downturn.

Tuesday, October 14, 2008

Wednesday October 15...Randy Parker Schmuck Hall of Shame...

On the immediate right meet Congressman Tim Mahoney. This individual (this is a bash-free web site so I won't call him a weasel or a worm) is the opposite of the Great Arthur Davis. For our itsy bitsy econ bloggers let's just say he did something good married people are not supposed to do, unless you are in a certain Mormon sect. Mahoney came clean to the press and said he took full responsibility for his actions but yet never admitted that he did anything wrong. And imagine...he took the place of Congressman Mark Foley! This is what the funny economist is talking about. Mahoney doesn't have the guts to admit he was wrong and then take his lumps. And worse, much worse, like Elliot Spitzer, he humiliates his wife by having her stand next to him at his pathetic press conference where he confesses nothing. God help us.
And why not, one more schmuck for the road. That narcissistic son-of-a-sea-biscuit on the upper right could very well have cost Hillary the nomination. Stuff happens. But it all reminds me of a time I was at the five star Four Seasons hotel in Chicago visiting my brother when he came through on business. When I left the hotel a bum came up to me and asked if I was staying there. I told him yes and kept going. He grabbed me by the arm, cocked his head, squinted one eye and said "Is it really worth it kid? I mean is it really, really worth it?" Well gentlemen ... was it worth it?

Randy Parker Hall of Fame

At left is long-time member of the Randy Parker Hall of Fame, Professor John Seater. He is an economist at North Carolina State University and a friend of many years. John is a straight forward, tell-it-like-it-is kinda guy, sort of like me. He and Robert Rosanna also started a scholarly fraternity by the name of "Friends from Dumps" of which he made me a full scale member many years ago. Anyone interested in his impressive academic record can view it here
Anyway, just like me, he can't resist a good laugh. Watch the following video if you really want to know how markets work.

And the winner is....

Paul Krugman. Those of you who are economists out there know he deserved this award. You can not talk about modern trade theory and not mention Paul Krugman's name and the imprint he left on this field. For his work in economics, and after all that is what the award is for right, this was richly deserved.
For those of you who now want to go a step further and talk about his ideological screeds in the New York Times and how insufferable they can be, now you may be on to something. He got the explanation of the roles of Fannie and Freddie all wrong just a few short weeks ago basically saying they had little to do with where we are today. I am sure you blogging freaks out there know the record far better than I.
Wassily Leontief once said that the Nobel committee was running out of good people to give the award to. Well what did input-output analysis ever give us? I once heard Arnold Zellner say the best thing we could do with input-output analysis was give it to the Soviets and hope they use it. But giving the award to Krugman has none of that sentiment attached to it. He did not get it because there was just no one else they could find. He deserved this award. When he sticks to economics it shows.
But also remember, the Royal Swedish Academy of Sciences uses these awards to make political statements. It is about all the political power the Swedes have left in the world. Thus Yasir Arafat got the 1994 Nobel Peace Prize. They might as well have made Roman Polanski Child Care Provider of the Year.
Warning: This is a bash-free web site. If you can not say what you need to say in a friendly way with some adult decorum, then please do not say anything at all.

Randy Parker Hall of Fame

At left is Congressman Arthur Davis of the seventh district of Alabama. He is the newest member of the Randy Parker Hall of Fame. Why you ask? Because the guy is a stand up guy who has some guts. He said that his votes to support Fannie Mae and Freddie Mac were wrong and that he regrets them. He went on to say he wished more of his Democratic colleagues would come clean and do the same (I know, there is plenty of blame to go around). This guy is standing up and admitting his share of the blame and saying he was sorry for it. That's what a stand up guy does. So welcome to my Hall of Fame Congressman. Now go say hi to Jackie Robinson, upper right, because he is a Charter Member of the Randy Parker Hall of Fame.

And just to show you I am a stand up guy too, if I am going to let Congress have it when they do the wrong thing, I am going to praise them when they do right. Welcome Arthur Davis.

More Fundamentals from Thomas Jefferson...

With cudos to my sister-in-law Ginger who reminded me what Jefferson said : "A government big enough to give you everything you want is big enough to take everything you have."

Sunday, October 12, 2008

Monday October 13 Reality Check Part III: Lessons from Home.

The world is falling down around your ears and you are wondering what will happen next. Well me too. Just remember one thing. You are who you are today because of certain fundamental principles you have followed through time. They are what have made you what you are and they need to be remembered and repeated in times like these.

I am just back from my 30th high school reunion. I did not go to the 10th or 20th, so this was a real treat. Some things were a shock to the guys who have done way too many drugs and had their eye balls spinning in their heads while they talked to you. But others told me inspiring stories of prevailing in the face of great adversity...children with special needs, spells of severe illness, deceased spouses and carrying on with two kids and not knowing what will happen in the future. Fancy elixirs and potions or magic spells did not get them through to the other side. They stuck to what they knew would work.

As you go forward, let me ask you to ask yourself what it is that defines who you are. Find that out and then stick to it. Because that is what is going to get this economy to the other side too. People rationalized and justified the legitimacy of the tech bubble during the 1990s with the mantra "All the old rules have changed! The old fundamentals don't apply any more!" I don't have to tell you about the internet bubble eh? Folks told me on visits to Florida in the recent past that they could foresee their real estate values sustain 20% per year increases indefinitely because this was a new and different market. Arthur Burns, Chair of the Fed back in the 1970s said the same thing during the recession of 1973-75 "the old rules don't apply anymore." They said the same thing in Japan in the 1980s and in the US during the 1920s hey days. It is a lie that you have to rise above.

Patton was quoted as saying "although I have fought under many guises, many the end...always me."

And me...and you too.

Friday, October 10, 2008

Sunday OCTOBER 12 Reality Check Part II: Lessons from Horse Race Gambling

Good Morning. We go back to work tomorrow. So let's review one more time...

Horse race gambling rule #4: Scared money don't win.

When next week roles around there are going to be some great values around. Look me in the eyes and tell me this is not a full-blown financial panic like you read about in the history books. It is. The sell off has little to do with fundamental analysis and everythig to do with panic. Bank of America at $19? Sign me up. JP Morgan led by Jamie Dimon at $38? Order here! Petroleum stocks clobbered...I'll have some of those too. And I will buy with confidence because I have done my handicapping for myself (horse race gambling rule #1) and I am confident in my analysis. I don't buy equities with scared money.

And neither should you. If you don't have the guts to ride out market volatility then you should not have been here in the first place. And if you want to get back in but are going to worry about it, then you are playing with scared money and are going to lose.

But for those of you out there who want to make some plays and cash, now is looking like the time. If the market tanks to 5000 then who cares anyway.

Wednesday, October 8, 2008

Sunday OCTOBER 12th...Reality Check Part I: Lessons from Horse Race Gambling

Good morning. Rules become rules for a reason. It never hurtsw to go over and over them. So, we go back to work tomorrow and need to remember.....

Many of you have been clammoring for me to tell you all the rules of horse race gambling since I spilled #3: If you can't take the losses, don't bet.

Well now the good doctor is going to tell you the most important one by far. I can't leak them out all at once. They cost too much to learn myself. But here it is:

Horse race gambling rule #1: Do your handicapping for yourself.

That is, study the horses racing the day you are going to the track and trust your own analysis and choice making abilities. Don't rely on what you heard somebody say or the dreaded "common tout" who calls you over and says, "hey buddy, this horse is a sure winner, you got to get on it." Or they will say "your horse ain't got a chance in the world!" So you change your mind and the horse you got talked off of wins and pays $26.50. That is the surest way to be parted from your cash. Some stumble bum, broken down old horse player with a five-day beard, six teeth, and a hunch is going to determine your picks? No no! Don't fall for it.

So let me many of you are making your current investment decisions based on what you just heard on CNBC, or what Jim Cramer just said? "Ah ha! That is the piece of info I have been looking for! Sell, Sell, Sell!" Please understand I am not in the investment advice business with this blog. I am just asking you for some self-reflection. If this is how you are deciding to move your money, without any careful thoughts of your own, without doing your handicapping for yourself, then you are no better than some fool at the race track that bets the farm on the ranting of some stew bum common tout. Because that is what those talking heads on TV are. There is no difference here. And that is how you are managing your money. Like a fool.

I don't want to be too hard on anyone. But go through the above reality check to see if you fit. If you do, you are playing a very dangerous game that you are going to lose.

And if you see that broken down old horse player with a five-day old beard and six teeth at the track...tell my brother I said hi.

FRIDAY OCTOBER 10th OK, let's look at it again...

For those of you who are unaware, I have a one hour interview with Ben Bernanke in my second book (that's us on the left). We talk about the economics of the Great Depression for 60 minutes (that's all the time I had, see?). If you don't want to pop for the book it is also available free on my university web site . There is a link there that will give you the pdf file so you can read it all, if you wish. It is somewhat technical and may not be your cup of tea. I understand. So let me cut to the chase. On pp. 65-66 I have the following exchange with the Chairman (who was a Governor at the time, May 2005) :

Randall Parker: Are there any lessons from the Great Depression that need to be relearned?
Chairman Bernanke: As I said before, the two main lessons which I think have been learned to a large extent, but always can be re-emphasized, are first that a central bank’s primary responsibility is the maintenance of price stability, to provide low and stable inflation in the medium term, to avoid sharp inflations or deflations and particularly to avoid the instability of expectations associated with an unanchored price level. The second lesson is that the financial industry is a special industry in terms of its role in macroeconomic stability. Major
upheavals in the financial system can be extremely disruptive to the economy as a whole and therefore the central bank and other government institutions have a particular obligation to make sure that financial stability is preserved, that banks and other financial institutions are well capitalized and well managed and that there exists a mechanism for responding in the event of
crisis, such as the discount window or a deposit insurance system or whatever you need to make sure that the financial system will remain whole even under a great deal of stress.

That is what the man said. I am reminded that during the 50th anniversary of the founding of the State of Israel, the Knesset invited a survivor of the holocaust to come before them and tell them the one thing he has learned from his life's experiences. He told them "when someone tells you they are going to destroy you, you have to believe them!"

Read it again...."or whatever you need to make sure that the financial markets remain whole even under a great deal of stress." When Dr. Bernanke says "whatever you need" you have to believe him!

SATURDAY OCTOBER 11th Name that photo...

Hey, it is the weekend so let's have some fun. On the left is my #1 horse playing buddy Marshall Gramm. He is the Chair of the Department of Economics and Business at Rhodes College in Memphis, Tennessee. Here he is with the famous stallion Cozzene (go ahead and click on it). Cozzene recently died and that is too bad. He had a wonderful life. Cozzene won 10 times and hit the board (that is came in 1st, 2nd, or 3rd) 20 out of 24 races in his career. He will be missed. Cozzene went out on a high note being retired after he won the Breeder's Cup Mile in 1985.

As Rod Stewart instructed me when I was younger and had more hair "Every picture tells a story don't it?" That song still gets me really pumped up. Anyway, if every picture tells a story then every picture needs a name too, right? Here's my name choice for the picture in the upper about "One Horse and One Jackass". For those of you who have a mustard seed of interest in horse racing, you can visit Marshall's excellent horse racing blog at . As for his choice in friends, I keep demonstrating that it is somewhat lacking.


I am sure I don't have to tell any of you just what a critical time it is in our economic history. Where we wind up will depend crucially on what policies we pursue. Read this short piece from the Wall Street Journal written by my friend Lee Ohanian:

Dumb things got us into this. Dumb things will make it much worse. Ask yourself if higher taxes and autarky are the right paths to go down at this particular time. If your answer is "yes" then congratulations, we are now on the fast track down the road to serfdom as Hayek coined it.

And what's this business about the Fed doing too much or over stepping their bounds? Eh?
Let me disabuse you of the notion that Ben Bernanke is going to throw up his arms, give up and
quit when he still has bullets in his gun. He fired off some more rounds yesterday. It ain't happening dude. The picture on the upper left is the U.S.S. Wisconsin firing off her 16 inch guns at night. Cool huh? Think in these terms. Or alternatively, watch the video below of the poor schmuck who brought a rifle to a tank fight.

This thing is not going over the edge as long as there is anything the Fed can do about it. You can cash that ticket pard. You hit it with everything you got like that poor schmuck on the receiving end in the video.

Read this short blurb about who we have in the driver's seat (thanks Phil):

He knows what to do, and he is doing it.

Now, do you suppose that poor schmuck ever heard about camouflage?

Subprime Primer...fasten your seat belt.

Who says life has to be complicated? Fine dining is one of my main hobbies. While many of the up and coming hot new chefs are making sauces with cactus needle juice and insist on ingredients from ports unknown, for my part, it is still hard to beat the simple things like a martini to kick start the party followed by a grilled veal chop and a great bottle of California Cabernet Sauvignon or a French Bordeaux.

On today's menu we have a simple, uncomplicated offering...the subprime mess explained by...stick figures (thanks to ECU Department of Economics Alumni Hall of Fame member Derek Pszenny). When this originally came across the desk of the funny economist (Hey that's me! it was R rated. Well we can't have that. So I have made it into a G rated piece. This is a family web site. We want to make sure our itsy-bitsy econ bloggers don't need no naughty words explained by mommy and daddy.

So fasten your seat belts...with apologies to our Norwegian friends...if I must say so myself...this is funny. Click on the link below and then start the slide show from the beginning. For some reason I can't get it to just start there.

Tuesday, October 7, 2008

Barney Frank plays Claude Raines...Or...Who you got in the pick 6 at Belmont?

OK, Congress is now on the warpath and wants heads on sticks for "who did this to us". Well I think they should have what they like. If you have not done so already, read this short piece by Charlie Calomiris and Peter Wallison (Charlie Calomiris is interviewed about the economics of the Great Depression in my second book and is a majorly serious scholar).
Is there anything here that is beyond common comprehension???

There is plenty of blame to go around, but maybe Congress should start by looking in the mirror. But this is not going to happen. Just look at the behavior of a one Mr. Barney Frank. It wasn't his fault...OH NO...don't blame him.
This is the worst Claude Raines impersonation I have ever seen. Remember old Claude (that is him above next to Representative Frank)? He was the guy in Casablanca who closed down Humphrey Bogart's casino when he was "shocked, shocked to find gambling going on." Then someone handed him his winnings and he said "Thank you."
The good folks of Congress are so pathetic and nauseating because they don't even have the guts to admit they were gambling and encouraged all the too-smart-by-half derivative geeks on Wall Street to come along for the ride. You make these stupid loans...we will buy them and insure them. Heads you win, tails you win and get bailed out.
I tell you what all you broken down horse players out there, if someone said to me, "Parker, go to the horse races every all the money you got. If you win you keep it. If you lose Warren Buffet will give you all your money back and you can start again tomorrow fresh." I would only have one question, "who you got in the pick 6 tomorrow at Belmont?"

Years ago, Colin Powell indicated he thought America needed "a new sense of shame." I think that is more true now than ever. Congress is the last place you will find it.