Saturday, February 28, 2009

Refreshing Candor

One thing that I really like about the new administration is the information they put out on the web. Peter Orszag, the director of the Office of Management and Budget, keeps a nice blog. The White House has a blog that updates multiple times a day with links to the important documents of the day.

Christina Romer, director of the President's Council of Economic Advisers, has posted a coherent and easy-to-read defense of the stimulus package. She responds to several criticisms specifically, I recommend the read (and any counter arguments if you can find them).

It's just nice to know what they're thinking. The new administration also appears to be fond of PBS NewsHour. Romer, Orszag, Larry Summers, Tim Geithner, and Obama himself have all been guests in the past week. Obama's interview yesterday had some refreshing candor. He admits he loses some sleep over the decisions he makes. "I feel overwhelming pressure to get it right," he said of Iraq and, I assume, other policies.

Conservative David Brooks commented about how he can't help but feel reassured listening to Obama, knowing that he's wrestling with the big decisions and being honest about it. I feel the same way. It's hard not to get caught up in it and just analyze the policies that are coming out.

I'm not real thrilled with everything the administration is doing, and many conservatives are pointing out some "trickery," some not-so-bipartisanship, some scary hints for the future, etc.

But, just letting me know what they're thinking and what they're up to, really helps. Probably makes me more inclined to believe what they say and root for them.

Wednesday, February 25, 2009

Great video

The Crisis of Credit Visualized. 12 minute animated clip doing a good job of explaining the origins of the crisis. Very easy to understand, I plan on showing it to my classes.

Tuesday, February 24, 2009

Recessionary Sermon

Keith posted a John Piper sermon on "What is the Recession For?" a few weeks ago and I finally got around to listening to it this past weekend. It's great. I decided to share Piper's bullet points in my Macro class today:

Now what are some of God’s purposes in this recession? I will mention five:

  1. He intends for this recession to expose hidden sin and so bring us to repentance and cleansing.
  2. He intends to wake us up to the constant and desperate condition of the developing world where there is always and only recession of the worst kind.
  3. He intends to relocate the roots of our joy in his grace rather than in our goods, in his mercy rather than our money, in his worth rather than our wealth.
  4. He intends to advance his saving mission in the world—the spread of the gospel and the growth of his church—precisely at a time when human resources are least able to support it. This is how he guards his glory.
  5. He intends for the church to care for its hurting members and to grow in the gift of love.

Sunday, February 22, 2009

Book Review (#2 of 2009)

Introducing Chaos by Ziauddin Sardar and Iwona Abrams. (Amazon)

Last year I mentioned a couple of times that I wanted to learn more about Chaos Theory. The last book I read was written by Benoit Mandelbrot, the father of fractal geometry, and fractals are a cornerstone in chaos theory.

This book is basically like a Cliffs Notes, except much weirder. Each page tries to explain some aspect of chaos theory and its evolution, and each page features a large picture--usually a manipulated photograph-- to try and bring the point home. But the picures are all pretty creepy. There are a whole series of these books if you click on the Amazon link at the top.

Much of what the book says doesn't make sense unless you know a lot about other fields that chaos theory reaches into. I enjoyed the refresher on quantum mechanics, but unless you've had an economics class you'll not understand what neoclassical economics is and why chaos theory challenges it. If you understand things like quasi-periodic stability, then you might appreciate this book.

The definition it gives for chaos is:
"the occurence of aperiodic, apparently random events in a deterministic system. In chaos there is order and in order there lies chaos. The two are more interconnected than we ever thought before."

The modern applications were interesting. It was fascinating to learn how it is shaping research in economics, physics, biology, and even architecture. Sardar shows how non-Western cultures like ancient Islam had already thought about fractals, and how Eastern religions already grappled with the role of nature and not everything being constant. Sardar kind of jumps off on the whole "truth is relative" type of mindset of a Buddhist.

But, this caused me to think about the Emergent Church movement and if, perhaps, it has its roots in thinking about chaos, and not just standard post-modernism.

Anyway, I bought this book used. If you can find it cheap and are interested, won't take you long to read. Consequently, I have another book in storage written by Sardar. Guess I'll have to move it up the reading list.

2.5 stars out of 5.

Friday, February 20, 2009

Want to read something scary?

"Gone in 60 Days: Citi and Bank of America Won't Live to See May." (HT: Across the Curve).

(It's scary because these are the largest banks in America. Over half of Americans are connected to these banks in one way shape or form).

"The US government has already committed half a trillion dollars to these two firms which is more than 10 times the amount it would cost to buy and control both companies. The market doesn’t believe that $500 billion is enough to save these companies.

All the kings horses and all the kings men can’t put humpty dumpty back together again.

Today both banks made fresh new lows with Citi closing at $2.51 and Bank of America closing at $3.93. The 1 year charts below show the short term price movements. You should understand that when a bank stock’s chart looks like this, even a HEALTHY bank would be in trouble. Nobody wants their deposits tied up in a company that trades at $2. The outflows of deposits from Bank of America and Citi must be catastrophic."

Thursday, February 19, 2009

An update on the Survivor coach

I previously posted that the women's soccer coach at my university disappeared mid-season to compete on Survivor. He had to keep his activities a secret. No one knew where he was, including his boss.

He has now been fired.

Wednesday, February 18, 2009

On Housing

So, Obama has finally unveiled the $75 billion plan to aid homeowners. Most of the reviews so far have seemed positive. This is after the Census released new data on housing starts and new home sales Monday that was quite dismal. We have an excess supply of housing that will take a while to work off.

Timely, today in my Personal Financial Planning classes we were looking at the chapter dealing with selecting and financing a home. I had a local realtor come and give wisdom, she did a great job.

Some notes. While interest rates have fallen, lending standards have tightened dramatically. The banks in town now require a credit score of 740 (out of 800) in order to qualify for the lowest rates. The cutoff used to be 620. Anything below 740 and you actually have to pay additional fees for loans you qualify for. And, of course, everyone has to put 20% down now. Only FHA & USDA qualifiers can get by with less.

There are 300 houses for sale in Bolivar city limits right now. Given that the town only has about 10,000 people, that's a lot of excess housing.

Many of these are new homes built in the past year or so that haven't sold yet. But, as prices keep falling we keep moving down the demand curve and more units start to move. But we won't be buying a house anytime soon.

Tuesday, February 17, 2009

Follow my class online...

I have finally switched to FeedDemon for my blog reading. It's much better than Google Reader. One feature I really like about it is that I can mark certain posts for storage in their own separate folder. Better yet, I can publish that folder as its own RSS feed.

So, articles or blog posts that I want my students to read, I can simply add them to that folder. Since they're required to use a feed reader for the class, they subscribe to the folder and get instant updates on those articles.

If you want to read what I'm clipping out for my Principles of Macroeconomics class, subscribe to this feed.

Sunday, February 15, 2009

Book Review (#1 of 2009)

Pretty sad that I've only downed one book so far.

The (Mis)Behavior of Markets by Benoit Mandelbrot & Richard L. Hudson.

Mandelbrot is the "father of fractal geometry." He's a mathematician who has spent much of his career looking at prices and markets. He argues pretty forcefully that any of the risk management techniques used by Wall Street are based on false assumptions and have been proven to fail time and again.

Mandelbrot is Nassim Taleb's mentor. I've gotten to the point where I wonder if, as a Christian, I can still teach economic orthodoxy (much less finance classes like risk management) with a clear conscience. The models and systems that modern finance uses to calculate risk are unrealistic and fail. Econometric modeling is guilty of the same sins.

It shakes the foundations of my learning to the core. Here's another blogger's review of the book, the comments are very insightful.

4.5 stars out of 5.

Friday, February 13, 2009

49% chance of our society collapsing

NewsHour's economics correspondent Paul Salmon interviewed Jared Diamond tonight. Diamond isn't an economist, he's a biogeographer (see: anthropologist) who has traveled all over the world looking at civilizations. He wrote the bestsellers Guns, Germs, and Steel and Collapse: How Societies Choose to Fail or Succeed. I read both of those books several years ago, Collapse is one of the best books I've ever read. (Guns, Germs, and Steel was incredibly boring, but one of my professors loved it).

Tonight Diamond said (mp3) "I would be cautiously optimistic about the United States...51% I like our chances (of not collapsing)."

So, an expert on the collapse of civilizations says there's a 49% chance our society collapses.


Decent, succinct article today

Or blog post, anyway. From Jeffery Frankel. "Is $800 billion too big or too small? Yes."

For those unwilling to read:
It's too small to rapidly bring us back to full employment. Too big because it is potentially pushing our deficits to greater than 10% of GDP, pushing the limits of those lending us money (and dramatically tying our hands in the future).

We unwisely ran deficits the past 8 years and are now piling up debt rapidly.


Wednesday, February 11, 2009

No good news anywhere

Catching up (a little) on articles and blogs tonight. I can't find a single optimist among economists out there in what's being done to tackle the financial market front of the crisis. Prognoses range from very bad to apocalyptic bad. I think everyone agrees with most of this Martin Wolf column from the Financial Times.

Even Casey Mulligan, who a few months ago was predicting this would all be over soon, seems to be changing his mind.

We're clearly hosed in the long-run, but apparently hosed in the intermediate-run as well. And it won't matter who is elected in 2012.

I'm thinking of just dumping any money I have in stocks and holding it as cash (ie: at my miracle bank), I don't think anyone is expecting equities to increase in value much for the next couple years. Roubini and Taleb are still holding cash.

This weekend I'll likely listen to a Piper sermon on the recession.

More Trouble Ahead

What good does it do if, in the rush to "do something," you shoot yourself in the foot?


While I think President Obama has been doing his best to keep the worst protectionist impulses in Congress out of his stimulus plan, the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.

Bad signal. In an age when attracting the first-round intellectual draft choices from around the world is the most important competitive advantage a knowledge economy can have, why would we add barriers against such brainpower — anywhere? That’s called “Old Europe.” That’s spelled: S-T-U-P-I-D.

and here:
"So there is short run gain from the stimulus bill, mostly in 2010, but the potential long run costs do not seem trivial. If the stimulus bill is passed and the bailout continues, it may be that large tax increases will be needed starting in late 2011 or 2012."

Tuesday, February 10, 2009

A lot of banks are gonna fail...

So, Geithner's announcement, while vague, seems to indicate the Fed and Treasury are ready to do the dirty work of saving some banks while rescuing others. And the financial market rescue could cost trillions of dollars.

Meanwhile, my own bank is still paying 4.76% APY on its checking accounts. On its CHECKING accounts! Free, no-minimum-balance, etc.

Its Tier-3 Money Market account (requiring $50,000 minimum) is only paying 1.26%.
A 60 month CD is only yielding 3.41%.

So, everyone has moved their money into the checking account. We've been getting that interest rate for several months.

Their 30-year fixed rate mortgage is only getting them 5.185%. 15-year is 4.98%. So, opportunity for profit would appear to be slim...

But, on their checking accounts, they're giving 4.76%.

OOPS, correction! I just checked the rates they updated it today. They're now only giving 4.07% APY.

Still, try finding 4.07% anywhere in the U.S.

At what point should I be concerned that my bank is running a ponzi scheme?

Still Boycotting MLB

I've been boycotting Major League Baseball for years. I don't watch the games, buy the memorabilia, or even click on links to MLB articles because I don't want my clicking to generate revenue for the sport in any way.

A friend recently sent me an article on Commissioner Bud Selig's salary and how he makes more than all but a very small number of players. I don't want him getting my money.

I got an email today from a long-time lover of MLB and apologist for the sport in general:

So, about a month ago I decided to swear off MLB baseball. The A-Rod situation reinforces that decision. The sad thing is that I still think that MLB is still the most honorable of the 3 major pro sports.

Here are my beefs:
1. The money has gotten out of hand. Crap players get paid 2-3 million per year. The 180 million/8 yr Texiera deal is just ridiculous.
2. Small market teams like Cincinnati generally can't compete. They may sneak up one year out of 20 to do something great, but, in general, being a fan of a small market team just creates frustration in your life.
3. Performance-enhancing drugs and the liars that use them. Enough said.

I personally feel that supporting baseball is morally equivalent to supporting pornography, casinos & state lottery, tobacco, and Planned Parenthood. The only way to bring about reform is to stop giving them your money.

To support MLB you have to check your brains at the door, turn a blind eye, not care about any of the true records, and the list goes on.

Feel free to jump on the boycott bandwagon.

Wednesday, February 04, 2009

Dissatisfaction- War on Two Economic Fronts

The war on the recession is primarily taking place on two fronts. Neither front is going very well.

1. The aggregate demand front. As consumer spending contracts government needs to spend more to stimulate aggregate demand.

Larry Summers, Obama's chief economic adviser, is concerned that if it isn't passed ASAP we will be in a real deflationary spiral.

Marty Feldstein, Obama supporter and current president of the NBER, decries the current legislation as-written for being too slow in doling out funds to longer-term projects and having too many provisions for tax cuts that won't stimulate the economy very quickly. He thinks we should call "time out" and get it right.

So, there is a lot of frustration.

2. The money multiplier front. Banks are still not very solvent. They still have too many bad assets on their books and do not want to write them down to zero and be cleaned out.

But, pretty much everyone from Ken Rogoff to Paul Krugman have decried the bailing out of banks without cleaning out their shareholders.
"authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership, and only then recapitalizing and reprivatizing them." (Rogoff)

Instead, the U.S. Treasury is seemingly more interested in propping them up. Discussion of the creation of a "bad bank" to buy up troubled assets so far has seemed to sidestep the issue of "nationalisation." Rogoff and (many) others see putting these banks in a receivership (as was done with the S&Ls in the late 1980s) as a necessary painful option.

So, we throw a bunch of ideas around and little gets accomplished either way. We could be in deep trouble (sooner rather than later). Or maybe not.

Monday, February 02, 2009

I was wrong---and gladly.

So, I was wrong about Pittsburgh beating the spread.

The above is the win probabilities chart on Advanced NFL Stats. I kept up with this play-by-play in the second half, it was incredible. You can see the big jump from Arizona being a slight favorite when they were 1st-and-goal just before halftime. Harrison's interception return gave Pittsburgh an 85% and made me feel pretty confident (note: I never put any money down anywhere). The probability of a Steeler win creeped up to 99% in the 4th quarter, before Arizona pulled the greatest comeback in Super Bowl history. They had an 82% chance of winning at the start of Pittsburgh's final drive.

If it weren't for the record penalties, it would have been among the greatest SB finishes of all time. Still, that was a fun 4th quarter.

Halftime show was also great, The Boss never disappoints.