Friday, October 31, 2008
Thursday, October 30, 2008
Wednesday, October 29, 2008
This is from Ralph Peters whom I respect greatly:
Tuesday, October 28, 2008
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.
Then, if you have the time, here is something from some poor working stiff in Massachusetts.
Monday, October 27, 2008
From my colleague Phil Rothman:
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.
Sunday, October 26, 2008
Saturday, October 25, 2008
Friday, October 24, 2008
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.
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.
Allard (Colo.) *
Enzi (Wyo.) *
Hagel (Neb.) *
Bayh (Ind.) *
Corzine (N.J.) *
Johnson, Tim (S.D.) *
Reed, J. (R.I.)
Schumer (N.Y.) *
Stabenow (Mich.) *
Thursday, October 23, 2008
Wednesday, October 22, 2008
Tuesday, October 21, 2008
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. http://www.youtube.com/watch?v=V0vZGE-HMrQ But we'll see how much the dog likes that one when I'm sleeping out in the dog house. http://www.youtube.com/watch?v=yV05IH3a4Bg
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.
Monday, October 20, 2008
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.
Sunday, October 19, 2008
We'll get back to business on Monday.
Saturday, October 18, 2008
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 http://www.youtube.com/watch?v=FKss2pBYQ6Y
These markets don't calm down soon, I'm making the call.
Friday, October 17, 2008
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?
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.
Thursday, October 16, 2008
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.
Wednesday, October 15, 2008
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
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 http://www4.ncsu.edu/~jjseater/
Anyway, just like me, he can't resist a good laugh. Watch the following video if you really want to know how markets work.
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.
Sunday, October 12, 2008
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 behold...like 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 names...in the end...always me."
And me...and you too.
Friday, October 10, 2008
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
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 ask...how 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.
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.
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?
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! http://www.funnyeconomist.com/) 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
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.
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.