Types of Government Intervention into Private Markets

There are three types of government intervention in private markets: 1) to make sure the market works correctly (ie weights and measures rules: 2) to fix market failures after they have occurred; 3) to address injustices or inequalities of perfectly functioning markets.
Economist's View: Increased Calls for Government Intervention into Private Markets

God, Children and the United States of America

Delong on Krugman on why we might avoid a recession.

Not in a nutshell

A detailed explanation of the subprime crisis by the New York Fed.

subprime.pdf (application/pdf Object)

The Credit Crunch, as told by Dr. Suess

The Big Picture | The Credit Crunch, as told by Dr. Suess

Math Magic

Math Magic - What Jamie Found

'nough said.

The World is not Flat

Charles Kenny looks at the differences between states and shows there is still a lot left to explain why development happens at different paces in different places. Buffalo County South Dakota has a per capita income of $5,213 and Marin County California has one of $44,962.

A One-Size-Fits-All Solution - New York Times

"A clean way to regulate mortgages going forward: the "opt out" solution for simple mortgages: A One-Size-Fits-All Solution - New York Times

Exporting Pollution

One of the reason Europe and the US can feel good about reduced carbon usage is that they have exported polluting industries to China. It is hardly fair that Europe now turns around and blames China for increased use of coal.


Stocking coal | Free exchange | Economist.com

The best excuse ever written

The root of the crisis.. was the fall of the Berlin Wall....

OpinionJournal - Featured Article

Greg Mankiw's Blog: How do the right and left differ?

Economics is not a hard science. Why do rational people look at the same facts in different ways? Economics cannot provide one answer. There are important normative questions.


Greg Mankiw's Blog: How do the right and left differ?

Mark Thoma responds.

Classics

A classic

blog.pmarca.com: Best software error message EVER

What is a CDO?

Business Interactive Features - Diagrams - Illustrations - Portfolio.com

naked capitalism: Why Do Subprime Investors Wind Up in Foreclosure?

naked capitalism: Why Do Subprime Investors Wind Up in Foreclosure?

The 13 Basis Point Portfolio - BLOG IU.COM

The asset allocation might not be right. But all any individual needs are 6 securities in their portfolio.

The 13 Basis Point Portfolio - BLOG IU.COM

Greg Mankiw's Blog: Principles of Economics, Rap Version

Greg Mankiw's Blog: Principles of Economics, Rap Version

Calculated Risk: Homeowners With Negative Equity

How house price declines will impact the amount of households with negative equity in their homes. A 20% decline could bring the number to 10 million.

Calculated Risk: Homeowners With Negative Equity

So that's why the mellons cost Y5,000

naked capitalism: How to Look Generous on the Cheap

The real cause of the current housing mess

Government support encouraged too many people to see housing as a risk free investment. Why is there a view that to own is much better than to rent?

EconLog, Shiller is bold?, Arnold Kling: Library of Economics and Liberty

The Bear Case: Lawrence Summers - Wake up to the dangers of a deepening crisis

Summers writes that things are much worse than three months ago. Roubini also chimes in . The question is whether the market has discounted this new information yet.

FT.com / Columnists / Lawrence Summers - Wake up to the dangers of a deepening crisis

EinhornOnCredit

The problem is not subprime, but the underpricing of all credit risk.


EinhornOnCredit.pdf (application/pdf Object)

Does hard make for happiness.

Or why I study chinese.

EconLog, A Fertile Criticism of Happiness Research?, Bryan Caplan: Library of Economics and Liberty

Not yet a problem?

A good, but bullish summary of where we are. Securitization did not fail, it proved its worth during this crisis. Risk was diversified. Housing will stabilize.
We will see.

Economist's View: "Not (Yet) a 'Minsky Moment'"

TSE Head calls for Corporate Change

FT.com / Companies / Financial services - TSE head raps governance standards

A weak dollar does not equal higher inflation

A dollar for your thoughts | Free exchange | Economist.com

Enough said

blog.pmarca.com: Nixon White House tapes: the gift that keeps on giving

The Fed on: The Rise and Fall of Subprime Mortgages - Economic Letter, Nov. 2007 - FRB Dallas

A good history of the rise and fall of mortgages.

Also can add a comment on the size of the losses.

Some estimates of the size of the sub-prime damages appear to us to be double-counting the losses. They add loan defaults to CDO and MBS write-downs and financial institution write-offs. In our view, there’s only one economic loss among these – the foreclosure minus the recovery. The rest are timing decisions in which some are realizing their losses in zero-sum financial calculations, while others will realize gains later.

• On a broader scale, the realized mortgage losses (a foreclosure minus a recovery) are a subset of unrealized losses (over the last couple of years as real estate prices declined). Those followed largely-unrealized gains (the seven-year boom from 1998-2005). From the standpoint of the economic outlook, we think the still-large net real estate gains over the last decade, by adding to household net worth, act as a cushion against a recession.

From Malpass at Bear.


The Rise and Fall of Subprime Mortgages - Economic Letter, Nov. 2007 - FRB Dallas

Sources of Inequality in the US

Long-Run Changes in the U.S. Wage Structure: Narrowing, Widening, Polarizing

Notes from Beijing

I was just about to send James Fallows a note about his air quality report. I arrived in Beijing on Nov 5. Nasty.

James Fallows (November 05, 2007) - Maybe Nov 3 is out too?

What are meetings for?

Not always for the efficient exchange of information...

Marginal Revolution: George Bush knows how to keep a meeting short

Global Warming

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

The case against war with Iran

Obvious but well stated.

Stratfor - Geopolitical Intelligence Report

How to cut the cost of Healthcare

Doctors and patients must end expensive treatments. That means an end to try "everything" approach that Americans love.


EconLog, Another One of My Health Care Debate Peeves, Arnold Kling: Library of Economics and Liberty

Gene Expression: James Watson Tells the Inconvenient Truth: Faces the Consequences

File this in the sad but true file. The problem must be understood in order to be addressed.

Gene Expression: James Watson Tells the Inconvenient Truth: Faces the Consequences

What is wrong with the Media

Why can't we have a better media: How bad is Tim Russert.

Tim Russert: Stop the Inanity | The American Prospect

The Weakness of Quant Funds - Portfolio.com

Quant funds are just about systematic investing using clearly identifiable factors. Why do people think that this type of investing should go away and people should return to throwing darts.


Finance Blog - Market Movers by Felix Salmon: The Weakness of Quant Funds - Portfolio.com

Why do we have mercenaries?

Killing is not something that should be subcontracted.


Economist's View: "Should We Use Mercenaries at All?"

The middle is moving on up | Free exchange | Economist.com

Does the absolute level or is it inequality that matters?

The middle is moving on up | Free exchange | Economist.com

Accrued Interest: The Future of CDOs Episode I: Turn her around!

Accrued Interest: The Future of CDOs Episode I: Turn her around!

Risk dispersion did not work.

naked capitalism: Securitization Ain't What It Used to Be

Dancer

The Right Brain vs Left Brain test | PerthNow

On Watson

Angry Bear

Fryer and Levitt on Testing for Racial Differences in Mental Ability

No different at one year, but dramatic at three years. Why?

fryer_levittbabiesrevision.pdf (application/pdf Object)

Mechanism Design

Why You Should Care About the 2007 Economic Nobel | The American Prospect

A visual representation of Oil Usage.

The Oil Drum | Getting a Grasp on Oil Production Volumes

Genial Old Elf?

Not the Vikram I know.

The Epicurean Dealmaker: Oxymoron

Role of Securitization in Mortgage Lending

The Chicago Fed writes:

cflnovember2007_244.pdf (application/pdf Object)

What is VAR

There surely are a lot of people trying to figure it out.

Finance Blog - Market Movers by Felix Salmon: VaR Question of the Day - Portfolio.com

Another good idea that will never happen.

Why do cities and states continue to pay outrageous sums to keep sports franchises and walmarts.

Economist's View: "Congress Should End the Economic War Among the States"

Wiiliam Poole of St. Louis Fed: Real Estate in the U.S. Economy - Poole Speech - St. Louis Fed

Some key take aways:
Construction is only 5.5% of employment and 4.8 % of profits( less than in 1998)





Real Estate in the U.S. Economy - Poole Speech - St. Louis Fed

The Nature versus Nuture Debate on Development: Farewell to Alms

A review of speech by Gregory Clark on Farewell to Alms.
Clark comes down on cultural explanation. A little more optimistic because cultures can change.



Goodbye Lusaka, Farewell to Alms | Free exchange | Economist.com

A "Minsky Moment"

Why stability is destabilizing.
Three types of borrowers:
Hedge Financing: Can pay both principal and interest out of cash flows.
Speculative Financing: Can pay interest but must cover principal by new financing.
Ponzi Financing: Cash flow covers neither interest nor principal. Must sell assets or borrow more to cover interest payments.

When the crash comes

The Mentally Ill, Behind Bars - New York Times

The rate of institutionalization has not changed much. But the rate of incarceration has changed.
The law of unintended consequences for closing large institutions for the mentally impaired.


The Mentally Ill, Behind Bars - New York Times

Where is the Wealth of Nations?

A review of a not so recent World Bank Paper on the source of growth and wealth.

Angry Bear

Race, IQ and Acheivement

Megan McArdle (October 05, 2007) - I am my own lodestar

Why does Rush Limbaugh still have a job?

Army of Dude: Rushing Deeper Into The Hole

Review of "The Israel Lobby"

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

What happened in August and Sept

This is one Fed governor's view of what happened in August and why the Fed cut by 50 bps.
Higher than anticipated draws on bank credit lines made banks less likely to led to new borrowers.

Kohn is still worried about inflation.


FRB: Speech--Kohn, Economic Outlook--October 5, 2007

A better way to organise securities markets

This will not happen because in normal markets it is in Wall Street's favor when there is less transparency. And normal times are more common than times of crisis.

FT.com / Comment & analysis / Comment - A better way to organise securities markets

Paul Volker at the Japan Society

Paul Volker and Alan Blinder spoke yesterday at the Japan Society.

Role of the Fed.
The Fed must protect the economy. Even if the market brought a problem upon itself the Fed must protect the market to save the economy.

There is not always a clear policy. There is only one clear instrument - interest rates.

New markets and regulation

The myth: Derivatives and securitization diversifies risk so that individual firms will not be harmed.

Proved untrue: see Merrill Lynch 5.4 billion writedown, DB 4 billion writedown etc.

Tradeoff between supervision & regulation. and protection.

Banks want want protection but not regulation.

Securitization's problem is that if banks immediately resell loans they will not care about credit.

At the second or third derivative nobody knows who the originator is.

No regulator was aware how big the problem was.

Did not know how big subprime mortgage business was 1.25 trillion.

Thought it was 100 200 billion.

Lessons

Big institutions provide stabillity

Small institutions at risk

What happens if problem comes when economy is not strong.

Need more regulation bt not clear what.

On Japan

Growth is not as bad as top line numbers might suggest.

Since population is not growing and is aging growth should not be as fast

But real damage occurred: Real estate, stock down 75 percent. US real estate at this point is only down a couple of percent.

Price Deflation did not harm spending.

Cpi at -1. 1 does not change how Ms Watanabe buys and sells.

Asset deflation harmed spending

Asset deflation is a big worry.

What to do about bubbles.

Inflation
Why is it not a worry

India
Disinflation from services still to come from India

Inertia
Inflation low everywhere

Inflation targeting

All central banks are targeting inflation.

Anyting that can be imported from china has not gone up in 10 years Other half of cpi is made up.

Milton Friedman on externalities

Angry Bear

Does tax exemption for large institutions make sense?

Harvard endowment earned 7 billion tax free last year.

Gifts that keep on giving | Free exchange | Economist.com

Gotta love corporate America

Skype owners, like CEO's, still get paid..

Finance Blog - Market Movers by Felix Salmon: Cognitive Dissonance at Skype - Portfolio.com

More on the Core CPI

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

blog.pmarca.com: The Pmarca Guide to Career Planning, part 2: Skills and education

blog.pmarca.com: The Pmarca Guide to Career Planning, part 2: Skills and education

Careers

blog.pmarca.com: The Pmarca Guide to Career Planning, part 1: Opportunity

Google Reader (1000+)

Google Reader (1000+)

Shocking Data on prisons

More young blacks in prison than in college etc.

Life sentence - The Boston Globe

Why the Fed uses the concept of Core Inflation

It does not want "to hit the economy over the head with a brick."


Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

How does a CDO work?

Accrued Interest: How does a CDO work?

What happened - Cheney on Invading Iraq - 9/14/1992

1992 Cheney.

YouTube - Cheney on Invading Iraq - 9/14/1992

Reason Magazine - The 4 Boneheaded Biases of Stupid Voters

A good review of common economic fallacies.


Reason Magazine - The 4 Boneheaded Biases of Stupid Voters

How big a problem is lack of health insurance?

You are entitled to your own opinions but you are not entitled to your own facts. To solve the health insurance problem there needs to be an agreement about the facts.

Greg Mankiw's Blog: How big a problem is lack of health insurance?

Why We Need More Historians

Why are we scared of Iran?

Ezra Klein: Why We Need More Historians

On Securitization

Recent market turmoil has some people rethinking securitization. Leaving aside the fact that the genie cannot be put back in the bottle, it is also true that no large institution has suffered major losses and the losses were spread out.

The Independent differs. And the Economist is cynical as well.

More schadenfreude

Hedge Funds | HedgeWorld | The Definitive Hedge Fund Community

If four is better than five, then three is better than four and....

The Oil Drum | The Four Day Work Week: Sixteen Reasons Why This Might Be an Idea Whose Time Has Come

Calculated Risk: Late Mortgage Payments Continue to Climb

Calculated Risk: Late Mortgage Payments Continue to Climb

Does Inequality equal injustice?

Welcome Paul Krugman! | Free exchange | Economist.com

The Fed is not independent? Alan Greenspan says Fed not independent

blog.pmarca.com: Quote of the week: Alan Greenspan says Fed not independent

Another one bites the dust

The guys who wrote the paper coorelating SAT scores with hedge fund performance might have to redo their study.


Absolute Capital freezes investor redemptions after founder quits - MarketWatch

Work versus Leisure

So this is what I am thinking about...

YouNotSneaky!: Do Americans work more because of status concerns? Maybe, but in all honesty, it's hard to tell

China's Pollution is a problem

I lived in Pittsburgh in the early sixties. I have seen the cycle that Becker refers to.
The current chapter in my chinese textbook, which is printed in China, discusses the issues of
保护环境 (protecting the environment). The Chinese domestically care very much about this.


The Becker-Posner Blog: China's Air Pollution-Becker

'The Age of Turbulence' by Alan Greenspan - Los Angeles Times

Brad DeLong Review

'The Age of Turbulence' by Alan Greenspan - Los Angeles Times

New Investment Vehicles

Answer to "what is a spac?"

allaboutalpha.com: Welcome to AllAboutAlpha.com

Brzezinski on Mearsheimer & Walt

A Dangerous Exemption | Harowo.com Ha Baqan, Ana ii Bishaaree

An interesting new paper on Consumption Patterns

The Borjas Blog: Conspicuous Consumption Among Minorities

Bernanke

Every Breath He takes

Sentiment Signals from Blogs

Thoughts on using blog sentiment as a signal.

The Big Picture | Yahoo! Finance introduces Community Sentiment

Is the market a Long Term "Sell"

This article argues that the world's total energy supply will dramatically decline.


The Oil Drum | When Is "Global Peak Energy?" According to Publicly Available Data, Probably Sooner Than You Think

Timeless Money Rules

The Big Picture | 20 Timeless Money Rules

Measuring Worth - Purchasing Power of US Dollar

This is a great tool to compare dollar values across time. Did that house go up in price enough to cover the cost of inflation?


Measuring Worth - Purchasing Power of US Dollar

I could have told them that

A paper to back my anecdotal evidence.

There's finally proof that boys do ruin schools for girls. - By Tim Harford - Slate Magazine

Zhang Huan - Altered States

Zhang Huan Comes to the Asia Society next week. More here. Meanwhile the Asia society is putting together a collection.

A Good Primer on Hedge funds by the Dallas Fed.

Hedge Fund Investors More Rational Than Rash - Economic Letter, August 2007 - FRB Dallas

Never a good thing to be in the WSJ

Kind of a light weight article and dated.. but on the front page of the Journal.

How Market Turmoil Waylaid the 'Quants' - WSJ.com

On Moral Hazard

Economist's View: Fed Intervention and Moral Hazard

It is far from over

Calculated Risk: ARM Reset Charts

No bailout for home buyers

naked capitalism: Extreme Measures I: Bill Gross at Pimco

Gomen Nasai letters to Clients

Its not just a Japanese thing.
The Big Picture | "Dear Investor" -- Quant Letters to Clients

The real yen carry trade is not done by hedge funds.

but by Ms. Watanabe..

FT Alphaville » Blog Archive » That yen-carry trade and Mrs Watanabe’s ‘new gig’

Subprime

The problem is at this point still quite isolated. Default rates are increasing only in the variable part of sub prime. And even there 85 percent of the loans are paid on time. What will this chart look like in 6 months?


Ezra Klein: Today's Housing Chart

Luck, Defined

A general definition of luck and chance.

blog.pmarca.com: Luck and the entrepreneur, part 1: The four kinds of luck

The difficulty of hedge fund replication

Kat on the difficulty of hedge fund replication.

allaboutalpha.com: Welcome to AllAboutAlpha.com

Republicans Cry 9/11 Giuliani Version

9/11 seems to be the answer to any question.

village voice > news > Rudy's Five Big Lies About 9/11 by Wayne Barrett
with special research assistance by Alexandra Kahan

Who Are Americans To Think That Freedom Is Theirs To Spread ? - New York Times

Ignatieff, of the Kennedy School of Government on American Exceptionalism.


Who Are Americans To Think That Freedom Is Theirs To Spread ? - New York Times

Free market or Not

The Fed says a free market is a good thing "regulation is a tradeoff between preventing harm to some and allowing innovation, gains from trade and free choice for others".

Calculated Risk: Fed's Stern: "Painful and Belated Learning"

History of Subprime

Is it really such a bad thing that more, poorer people got to buy houses that most of them will keep?

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

Over the Hill?

A summary of Dean Simonton's work on creativity and productivity across a career.

blog.pmarca.com: Age and the entrepreneur, part 1: Some data

The downside of diversity -

Robert Putnam, the author of Bowling Alone, finds that diversity in a neighborhood makes weaker ties. My visit to Altoona last weekend confirmed that.


The downside of diversity - The Boston Globe

BLOG IU.COM - Fifteen Basis Points

BLOG IU.COM - Fifteen Basis Points

BLOG IU.COM - Fifteen Basis Points

BLOG IU.COM - Fifteen Basis Points

A Week in the Death of Iraq

A Week in the Death of Iraq - washingtonpost.com
Daily life for an Iraqi dentist.

Voting map without those ugly state boundaries

A more realistic way of looking at the country. It is not red blue states; its urban rural and some sane people in between.

Voting map without those ugly state boundaries

A pretty good summary of why China has succeeded.

By Brad DeLong. China since 1955.

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal

Roland Fryer

Roland Fryer profile.
No Hesitations — AMERICAN.COM: A Magazine of Ideas, Online

American Movies

Which summer movie best defines Hollywood: Die Hard.

Myths of the War on Terrorism

Economist's View: "Myths of the War on Terrorism"

Sequoia Capital's Guide to Venture Businesses

Elements of sustainable companies.

Marc Anderson's Guid to Startups

In four parts

1. Why not do a startup

2. Funding

3. Funding part II.


4. The most important thing is product/market fit

5. Dealing with large companies/customers

Turnaround Clues

blog.pmarca.com: The Pmarca Guide to Big Companies, part 1: Turnaround!

Television tells president: get lost | Democracy in America | Economist.com

Television tells president: get lost | Democracy in America | Economist.com

Is Voting Rational ?

And does it matter? Louis Menand reviews "The Myth of the Rational Voter" by Byran Caplan.

Negotiating the tension between “rational” policy choices and “irrational” preferences and anxieties—between the desirability of more productivity and the desire to preserve a way of life—is what democratic politics is all about. It is a messy negotiation. Having the franchise be universal makes it even messier. If all policy decisions were straightforward economic calculations, it might be simpler and better for everyone if only people who had a grasp of economics participated in the political process. But many policy decisions don’t have an optimal answer. They involve values that are deeply contested: when life begins, whether liberty is more important than equality, how racial integration is best achieved (and what would count as genuine integration).

In the end, the group that loses these contests must abide by the outcome, must regard the wishes of the majority as legitimate. The only way it can be expected to do so is if it has been made to feel that it had a voice in the process, even if that voice is, in practical terms, symbolic. A great virtue of democratic polities is stability. The toleration of silly opinions is (to speak like an economist) a small price to pay for it.

The Energy Future

The Peak Oil Theory predicts we must look for a change in supply in energy. What can replace oil? Lots of things and nothing seems to be the answer.

Who Makes the IPod Or Globalization 101

Economist's View: Hal Varian: Who makes the iPod?

How to Price Art

The bigger the better? Or is it dogs?

Blackstone

It still has a lot further to go. It should be trading at no more than 12x.

Simple Explanation of the Bear Stearns Hedge Fund Blowup

In song.

Intellegence, Management and Government

The Becker-Posner Blog: Intelligence and Leadership--Posner
talks about the limited " versatility of combined general-specific human capital that a lateral entrant brings to a high level government job of a managerial or advisory rather than technical character." In other words smart people might just be bad managers for three reasons: 1) intelligent people often neglect other traits of good management and rely only on intelligence, 2) logical reasoning does not always provide the best way to solve political problems, 3) smart people often don't listen to staff who are not as smart as they are but might know more about a specific problem.

Is Chinese Art a Bubble

FT.com / Wealth / The art market - Chinese painting’s long march
Not enough of the good stuff.

Raw Fish

NYT Book Review highlights the history of sushi and two books:
The Zen of Fish and The Sushi Economy.

Graphical display of Information

This is an interesting speech in regards both to its content (development) and presentation. Hans Rosling on stats and third world myths. Here is the site to play with the data yourself.

Long Short Equtiy secrets revealed

Many are really long only funds that lose money on shorts. As shorting is so difficult, a number of managers are shorting etfs.

Gas Prices Explained

Why it costs $70 to fill up.

Monsters?

On wall street agency trading desks.

Capital Ideas Evolving

I wish that I had read and understood the original Capital Ideas by Peter Berstein. Here is a shorted review of the new book.

China Stocks

No short term trading for now. The 30 bp tax is the same as Japan in the old days. But Japan's was only for foreigners on sales. This is for all and on both sides. Stock loan is also hard, if not impossible.

Understanding Poll Results

The Pew Research poll that showed the number of American Muslims that liked Al Queda, favored suicide bombing etc was a non-negative number got lots of play. However it is just as scary what the rest of us believe.

Do we really want to remember Everything?

An interesting essay on the future of computing.
Gorden Bell of Microsoft, one of the original Digital Computer guys who drove the establishment of the net., thinks about what we will do when we have information about everything.

Immigration

A look at immigration and what it really means for productivity, growth and society.

Why are gas prices so high?

And why are our politicians so uninformed?

If you always wondered..

Why Chinese move interest rates by 18 bps? You are ...

Income Inequality

Is it education or something else? If education explains income differentials why is the gap amoung dentists growing? Only your dentist knows for sure.

Why Cayman

An answer why non-profit money wants offshore hedge funds. Even they need to dodge taxes too

Confused? Help is on the way

An ETF cheat-sheet.

Art Hedge Fund

A new offering in alternatives space.

Alpha may be beta in disguise.

This is an old Vanguard paper looking at the recent false debate between separating alpha and beta. It all depends on how you define the risk factors.

Don't get old

Some depressing reading for us 40 somethings.

Stop CEO Whining

SOX while bothersome, is not causing the decline of American capital markets says a new paper. CEO's should look inward.

One flew east and one flew west

One reason why Blacksberg happened.

Iraq and Blacksburg

Does the Blacksberg shooting remind Bush that many events like this occur everyday in Iraq? I doubt it.

Nothing to do with Succession Plans.

Nothing to do with succession plans. Who was the genius at the WSJ to call Purcell to ask for his opinion on Pandit?

"Vikram is a brilliant guy and he's got a real sense for markets and risk and an ability to lead people to the right place," says Philip Purcell, the former Morgan Stanley chief executive. "He'd be a net plus for Citi."

Wish he'd said that in April 2005.

Markets vs Government Solutions

This is one of many in in the never ending debate. But not a bad summary with Global Warming as the topic.

Imus

The real problem is much deeper: its not just Imus.

Who loses from Subprime

Not the big banks. The tranches and individual bonds were sold off to investors looking for high yields. What do Americas do when their crazy investments don't turn out: lawsuits.

Parkour

My favorite movie chase scene is explained somewhat by the phenomena of parkour, which is highlighted in No Obstacles.

Subprime Victims

Who are the subprime victims? The borrower or the lenders? There will be alot of press and regulatory efforts to address both sides.

If you can't make money in art now, you are in the wrong business.

Art these days.

Truth hurts

The non-pc editorial from the Boston Globe on how to improve return on social programs: cut out the bottom decile.

Free Trade

I am glad I waited a day to post on the Blinder article on the front page WSJ. Mankiw's response sums up my feelings. But the comments should be read as well. As it is often said "reasonable people can disagree" are American jobs more important than foreign jobs?

Laugh or cry

35% of the borrowers do not know if their mortgage is fixed or floating.

The biggest secret knowledge in business is the stuff that ought to work, but doesn't

Arnold Kling reviews the new business book, Science of Success by Charles Koch. While Nick Schulz draws one other lesson: how to exit is important.

Soros on Israel

Soros.

Sonnefield on SOX

Associate dean of Yale SOM tells CEO's to stop whining, SOX is not so bad.

Half full or half empty

Not a bad summary of things.

Perma bear

One of these years Steve Roach will be right again.

American Foreign Policy After Iraq

Nye, like Brzezinski, sees the world in a more complex way than the administration, congress or pundits. Power is the ability to get the outcome one wants. The distribution is three dimensional: military relations (unipolar, economic relations (multipolar) and transnational issues (climate change, pandemics, terrorism) where power is chaotically distributed. Clearly most see only the first and misunderstand the latter two

Second Chance

I remember wondering while reading Zbigniew Brzezinski's " The Fragile Blosom:crisis and change in Japan", how Brzezinski could have so many insights about an area which is admittedly not part of his expertise. He was able to do this because of his sophisticated and complete world view. It remains to me one of the best books on Japan's role in the world and has stood the test of time.

His new book the Second Chance confirms his place as one of the best thinkers on foreign policy that we have. He sees the biggest danger now is that America has a notion that we are the forcesof good against evil and our moral superiority justifies immoral acts. Bush has squandered credibility, legitimacy and respect for our power.

It also confirms John Stewart's place as one of the more insightful book reviewers that we have.

Harvard

Some self promotion by Mohamed El-Erian in the NYT and FT adds little to insights given during private talks. But he has a different attitude towards market timing than either Meyer or Swenson: he thinks he has an edge.

Learning from history

A great article about trade and baseball, Japan and China.

Sub prime

NEW lost financing today. Interested to see the impact on MS earnings. Lots of views on the subprime: bearish from CS and more sanguine from of course the WSJ.

FT on Yen Carry Trade

The FT supports my view that the yen carry trade is not all that important except to pundits.

Guns, Germs and Steel

Jared Diamond in Gun Germs and Steel writes to a more popular audience than Karl A. Wittfogel did in Oriental Despotism: A Comparative Study of Total Power but comes to the same conclusions. Environment makes societies. Jared says that the availability of crops and animals and the orientation of the continent (east west versus north south) led to development of some cultures faster than others. I didn't buy the environment idea when I read Wittfogel and I don't buy it in the infinitely more entertaining Diamond. There is more to the development of cultures than the accident of geography. People and peoples make choices and individuals do matter.

Chinese Herbal Medicines

Will the FDA change its approach to herbal medicines? It has established a botanical review team and is looking at 250 drugs in clinical trials.

The end of the Beginning?

Mortgage market has made the front page of the NYT. Will Time and Newsweek be far behind? Is that a sign of the end of the selloff? There are signs that there will be pain in the higher end as well.

Causation

Did a sell off in China cause the correction last week. If so, why did a bigger sell off in February not cause the market to sell off then? And who has the yen carry trade on hedge funds or Japanese individuals?

The politics of Alternative Energy

The simplest answer to reducing the use of oil is a straight forward tax on oil. Which is why it will never happen.

New Data Feeds

Always looking for new sources of data. One like this Dow Jones offering which has news has been on my request list for a long time.It is called Dow Jones Elementized News Feed" today. The feed delivers news items, such as economic indicators and corporate earnings

Buffet

Buffet published his annual letter last week. Are these investors Buffet-like? Spencer Capital, Glen Greenberg,
Tilson Funds

Free Trade

The value of free trade accrues to Chinese as much as Americans. The move from absolute poverty to middle class is striking in China.

3% Market Move

This was the first time in many years I've been in the US with a 3% market move. Lot's of gab.

Ann Nicole Smith

I can't have a blog without at least one ANS story.

Look at Recent History with Japan to Understand China

Larry Summers was the under secretary to the Treasury and negotiated trade and market opening with Japan in the early 90's.

Gore in 2008?

The past and future Gore.

Art as the New Fashion

Another look at Chinese modern art.

How to Study

A simple list. Can be used for college students and life long learning.

Sub prime lending

BBB tranches.

Starbucks

Great companies like Starbucks and Toyota always question themselves and their strategy.

Winner take all Society - Academia

Academia, not just corporate CEO's, investment bankers and sports stars benefit with the concentration of knowledge and access to capital.

The Fed Looking at Hedge Funds

The Bush administration has rejected more oversight of hedge funds but the regional Fed Branches are increasing their understanding.

Room to Read

Room to read gets a big boost.

Japanese Shareholder Activism

Local boy Scott Callon leads a Japanese shareholder fight to victory. Tokyo Kohtetsu is up more than 30% since Ichigo began buying.

The articles are also revealing about press relations. The WSJ journalists are good and sympathetic friends while the NYT (Reuters story) gets the bio all wrong.

For Yale

Yale's Swenson continues to shine.

Yellen on Housing

SF Fed's Yellen on the housing problem:

"The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward."

Venture in China and Emerging

Lots of money pursuing venture capital in China.

Health Care in China

Bill Hsiao of Harvard tries to improve Chinese rural healthcare by spending 4.50 dollars per year. This puts all the verbage about inequality and healthcare in America in perspective.

Christmas Presents for Hedge Fund Managers

What else can explain the year end effect?

What Inequality Matters?

The Economist points out that sibling inequality accounts for three quarters of all US inequality and inequality among nations is high

Harvard Management

Mohamed El-Erian spoke at the Harvard Club of New York yesterday.

Why do Endowments outperform?
1) Simplicity of Mission
Enhance and preserve the purchasing power of the endowment
Endowment pays for 30% of the running costs of the university.
Pays 15% of the financial aid - but the absolute dollar amount has doubled over last five years.
2) Permanent Capital
Long investment horizon
AAA rating.
3) Right asset allocation versus the right amount of return and risk.
Right Vehicles
Right risk management

What is Changing
1) Vehicles are changing
What are the borders among geographies and instruments?
Derivative products have reduced barrier to entry (exotic mortgages make home buying easy)
ETF's have made international investing cheap
2) Risk factors are evolving
What are the new risk factors
Sovereign risk has decreased - how to measure emerging market risk?
As sovereign risk has decreased bottom up opportunities are available in many markets.
3) Asset allocations are changing

The Environment is Different
1) Huge imbalances
Trade and capital flows
2) Realignment of the global economy
Huge wealth transfer
Commodity prices and cheap labor have moved wealth to the poor but
"the irony of our times is that the poor countries are using surpluses to fund rich countries"

The hybrid model of management
Internal versus external.
Internal
AAA rating
permanent capital
Capacity of managers
External
Expertise
Cannot play catch up
Cannot pay thru distribution of equity
Nor can the enterprise value of the organization be realized.

Former Treasury Secretaries Sounding More Reasonable

Snow is the voice of reason on SS and SOX now that he is out of office. Just raise the cap on ss. SOX is not that bad; "You do not want to (weaken) corporate governance reform in the face of corporate scandals."

Why aren't companies like the NBA?

I thought it would be more efficient if all salaries were revealed. Here the economist tells why it might never happen.

Globalization and Inequality

Tim Worstall sums up the two "problems "of Globalization and Inequality.

"Yet in this particular instance I find that my own answer is quite simple. Those poor who are getting richer in other countries are not moving from one level of luxury to a slightly higher one. They are moving from destitution, from not knowing where the next meal is coming from, to something close to a middle class income. They are doing this in their hundreds of millions, across the globe, and that has to be a good thing."

Brad Delong agrees with this but still outlines "an unequal society cannot help but be an unjust society" because of the fact the some are able to capture more than they deserve.
And the Angry Bear thinks it is too simple an explanation.

Greg Mankiw adds
To what extent is inequality of outcomes a source for concern in and of itself?

And Bernake
adds the point in his speech "The Level and Distribution of Economic Well-Being" that inequality has increased in all professions, including professional sports.
Therefore something more subtle is going on than rich CEO's paying themselves.

It's not the End of the World

Francis Fukuyama uses what once was my favorite quote. And the Economist strikes a rare positive note in "You've Never had it so Good".

Headline: Politician Speaks the truth

Chirac speaks the truth about Iran, and then is force to retract it. At this point only containment will work. The only other recent example of this kind of straightforwardness is Gavin Newsom.

Inequality is not the most important problem, wealth creation and poverty elimination are more important.

CAPM

Is CAPM dead or just misunderstood?

SOX

I spent a lot of time writing meaningless documents that will never be read in the hope that those documents would help Morgan Stanley comply with SOX. Maybe they will and maybe they won't. Maybe there were some wasted fees on accountants, lawyers and internal paper pushers. But it cannot be said that this would hurt competitiveness. It might make a thoughtful person rethink business practices. It is Wall Street whining about globalization which it normally praises in other industries.

Economic Development - Lessons from Iraq

The debate continues between economists about what steps are necessary to promote growth.

Combacks

Everyone loves a comeback story.

Efficiency in the Service Sector

What makes productivity grow is people who think up things like this.

Home Mortgage Loans

The subprime market continues to suffer.

Foreign Aid

A bit dated now, but an good review of recent books on foreign aid. And some of the ensuing debates.

Income Inequality

There are lots s comments about income inequality and CEO pay. But what really matters, income or happiness. And why look at only the US? Why not the world?.

Kat on Fund Creator

Kat on the specifics of his hedge fund model.

Letters from Iwo Jima

I hope I will see the day when a film is made about the invasion of Iraq from the side of the resistance. It will mean that there is a lasting peace where each side can challenge the stereotypes of war. World War II was truly a "War Without Mercy". The Japanese Kamikaze are the modern ancestors of the suicide bombers. Only after 50 years are Americans ready to acknowledge that this was nobly dying for their country. Letters from Iwo Jima
pounds the message home that cruelty and also humanity are not linked only to the winning or the American side.

Survey of Hedge Funds

An interesting take on the state of the hedge fund industry.

Eat the Rich

It often takes an outsider to distill the essence of something. P.J. O'Rourke on one page in Eat the Rich gives all the advice that the west ought to ever give on development. The secret to getting ahead is hard work, education, responsibility, rule of law, property rights and democratic government.

The way he gets there is a world tour of Wall Street (Good Capitalism), Albania (Bad Capitalism), Cuba (Bad Socialism), Sweden (Good Socialism), Russia (How not to reform an Economy), Tanzania (How to make Nothing from Everything), Hong Kong (How to make Everything from Nothing) and Shanghai (the worst of both Worlds). I am not sure if he would re write the chapter on Shanghai.

Eragon

This is quite a simple story of the quest and the transition from boy to man. Man loves animal. Animal loves man. But be careful when making movies from children's books. They remember every detail and hate deviations.

Rashomon

Kurosawa's Rashomon can be viewed any number of times with a fresh perspective. This was my first. I guess that I never really understood all those references. Three different people see the same event, proving that there are at least three stories of what really happens, yours mine and what really happens. Even although only one day has past, each seeing the event from their own perspective describes it quite differently. All agree that the husband was tied up and died, but do not agree on who killed him.The thief Tajomaru describes how he planned to rape the wife, but she gave into him. She begs him to duel with the husband to cure her shame of knowing two men. He recounts his heroic fight with the noble, resulting in a dignified death. The women runs away.
The wife sees herself as raped by the thief and abandoned by the husband. The husband wants no part of her and looks at her with cold eyes. She faints and wakes up to find him dead.
The husband sees a betraying wife and a noble suicide
But the third party only sees betrayal and mistrust on all sides. The fight was a cowardly one and death ignoble. The end tries to deliver some kind of upbeat message, but it is too late to salvage the low view of man.

The New Year Social Legislation

Two of the most important domestic legislations of the new year are California health insurance and the minimum wage. While action, any action was needed to open debate on the problem, politics triumphed efficiency in both cases. The poor would be better targeted by the earned income tax credit and the health plan might increase ineffiency. Of course in some simple models raising the minimum wage would work, but America is not at all like American Samoa.

Unfortunately...

I will not have an obituary as well written as this one.

The Law of Large Numbers

Whether Japan in the 80's, internet in the 90's or China in the 00's, growth does not continue on a straight line path. The law of large numbers or reversion to the mean take over. Heathcare costs which some predicted to grow as large as the entire economy are now growing as fast as the economy as a whole.

The Visual Display of Data

A great periodic table of the various ways to display data.

Not a Puzzle

An honest appraisal of the problems of the city from Baltimore and from Oprah.

Puzzle or a Mystery

I do not claim to understand Malcom Gladwell and found it hard to get through blink. There are a lot of semantics about the question of Enron's guilt. But certainly they fooled primarily people who wanted to be fooled. One of our company offsites was devoted to the subject of how to be more like Enron.

Glad I applied in 1979

Competition is much tougher in high school and once you get to college.

China's New Artist Class

The new artist class is china is way more than middle class. They are branching out into real estate and development.

And on another note.

Too much reading about the issues of Iraq distract from the point that wars and violence are on the decline.

The Middle Class Squeeze.

Many economists including Steven Roach and Larry Summers are pointing out that there could be backlash against globalization as labor continues to suffer at the expense of the holders of capital. Recent papers and surveys support this view. Maybe a bit surprisingly Wal-Mart actually fired the first salvo of the New Year by introducing its new work schedule. Oh, and Wal-Mart's stock was up 3% against a 1% rise in the market.

It is important to Remember History

Amidst all of the pageantry of an ex-president's funeral, the real impact and meaning of his term is forgotten. What was so heroic about the Nixon pardon? What was so great about the staff of Ford?