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Wednesday, October 8, 2008

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.


Andrew_Grodner said...

I think these should be the slides that Paulson used during his testimony! He may have some trouble explaining in plain English some of the professional jargon like "Liar's Loan", "financial magic", or the highly loaded term for AAA rating: "Crap is crap". But I think with some help from the "Smart Guys" of Wall Street on his side, he should be able to make his point eventually.

It reminds me of the great classic Science Fiction novel "Bill, the Galactic Hero" by Harry Harrison. At some point the main character is desperately trying to come up with various solutions to cope with the planet-wide amount of rubbish produced every day. First, he is just packing stuff up and mailing it all over the universe. But when all the packages come back (surprise, surprise!), and there is still more trash coming, he decides to teleport the rubbish to the nearby star. Just like all other strikes of genius, another Bill's plan worked great, with the exception that now the star has made it go supernova and will soon blow up the entire planetary system. Never mind that minor detail, Bill is again promoted further for his brilliance and creativity and gets a new job.

ArmChairEconomist said...

Hahahaha, that was genius, I wasn't expecting that. It seems as long as we don't "goof up" in the future we will be fine.

ArmChairEconomist said...

Dr. Parker:

You have stated many times that through these tough economic times, banks aren't lending to banks which has resulted in businesses and individuals not being able to receive loans. This all makes perfect sense.

But how does one explain the recent numbers given out by the Fed which claims commercial and industrial loans are at an alltime high?? It seems as if it hasn't affected (notice I use affect as it is a verb-haha) loans according to Fed numbers for the week ending September 24:

It doesn't seem as if this credit crunch is here - what am I missing? Help your student out.

Randall Parker said...

Hey Armie: I am just thinking out loud here as the ceiling is burning down on top of my head, but could you be confusing stocks with flows? That is, the loans are out there in stock but nothing new is coming across the desk? I dunno, will need to think more about it.

Anonymous said...

I perfect remedy to our fragile economy:

Increase maximum capital gains rate to 20 percent for those earning more than $200,000 ($250,000 for married couples)
Restore 36 and 39.6 percent statutory income tax rates in 2009
Restore phaseouts of personal exemptions and itemized deducations (PEP and Pease) for households making more than $200,000 ($250,000 for married couples), increase the PEP and Pease threshold
Social Security/payroll taxes: impose additional tax of 2-4 percent (combined employer and employee) on workers with income above $200,000 ($250,000 for married couples)
Make permanent estate tax with $3.5 million exemption and 45 percent rate
Eliminate oil and gas loopholes
Close loopholes in the corporate tax deductibility of CEO pay
Impose a windfall profits tax on oil and gas companies
Require publicly traded financial partnerships to pay corporate income tax
Create an international tax haven watch list of countries who do not share information with the U.S. and require greater financial disclosure to decrease tax shelters
Income-related federal tax subsidies for health insurance purchased through new health insurance exchange
Require employers to provide insurance or pay a percentage of payroll to support the national plan
In 2006 (National Taxpayer Union)
Top 1% of Tax Payers pay 40% of Federal Income Taxes
Top 5% pay 60%; Top 10 pay 71%; Top 25% pay 86%; Top 50% pay 97%

Sounds like Obama really knows what he's doing to stimulate this ecomony - brilliant. Tax the business owners and the productive segment of our population that invests and produces jobs and see what happens to this economy.