The Economic Populist - Speak Your Mind 2 Cents at a Time Mon 2009-12-28 18:57 EST

Pricing a CDO - Not only Bad Math, Bad Computation too

A working paper, Computational complexity and informational asymmetry in financial products, Sanjeev Arora, Boaz Barak, Markus Brunnermeier, Rong Ge. sheds some light on the complex mathematical models upon which credit default obligations and other derivatives are based. What Arora et al. prove is not only are many derivative mathematical models impossible to compute, never mind in real time, because they require more computing power than the world possesses, the missing information to run a mathematical model is a very good place to cheat with.

Bad Computation; bad math; CDO; economic populist; Mind 2 Cents; Price; speaking; Time.

zero hedge Mon 2009-11-30 11:15 EST

Fannie Mae Reports Massive Q3 Loss, Asks For Another $15 Billion From Government As It Is Set To Become Largest US Landlord

The latest particular does of lunacy and economic calamity coming out of the intellectual midgets at Fannie and the FHA should be sufficient to push the market well into 1,100 territory tomorrow. FNM's loss for Q3 is $18.9 billion, up from $14.8 billion in Q2, a time when the market was up a good 15%: ever wonder who keeps on subsidizing those gain? That's right - you. Credit-related expenses increased to $22 billion in Q3 from $18.8 billion in Q2. Oh, and Fannie now wants another $15 billion rescue from the Treasury (which is having some troubles with getting that pesky debt ceiling raised to one googol) so it can continue with its plan of keeping shadow inventory away from the market, rent foreclosed houses to their owners at staggeringly low rates, and continue the pretence that bank's balance sheets are well capitalized...

15; asks; becoming largest; Fannie Mae Reports Massive Q3 Loss; government; landlord; set; Zero Hedge.

Mish's Global Economic Trend Analysis Tue 2009-11-03 20:30 EST

Is Debt-Deflation Just Beginning?

Michael Shedlock

You should not be afraid of deflation. You should be afraid of policies attempting to fight it. Deflation (rather price deflation) is actually the natural state of affairs. As productivity increases, more goods and services are produced relative to the population and prices would therefore be expected to drop. It is the Fed, along with misguided Keynesian and Monetarist economists who think falling prices are a bad thing. Who amongst us does not like falling prices (except of course on things we own like houses, but even then who is not sick of higher property taxes that result)? The reality is inflation benefits those with first access to money. Guess who that is? The answer is easy: banks, government, and the already wealthy. Inflation is actually a tax on the middle class and the poor who get access to money last. During the housing bubble, by the time the poor could get access to to money easily, it was far too late to buy. Given that inflation benefits those with first access to money, any targeted inflation at all is morally wrong.

Debt-Deflation Just Beginning; Mish's Global Economic Trend Analysis.

Jesse's Café Américain Tue 2009-11-03 20:12 EST

Nine More Banks Fail with CIT on Deck for a Packaged Bankruptcy While Gold Shines

Jesse

...The current state of economics is most remarkable for its arrogant complacency in the face of two failed bubbles, a near systemic failure, a pseudo-scientific perversion of mathematics exposed, and an incredible capacity for spin and self-delusion. The people wish to believe, and Wall Street and the government economists are all too willing to tell them whatever they wish to hear, for a variety of motives. And there is an army of salesmen and lobbyists and econo-whores touting this fraud around the clock...There are good reasons for this failure of American "monetary capitalism," and it has to do with an oversized financial sector and a surplus of white collar crime that both distort and drain the productive economy. The current approach is to pump money into a failed system without attempting to reform it, to fix its fundamental flaws, to make an honest accounting of the results. The result are serial bubbles and the foundation for long duration zombie economy with a grinding stagflation that may morph into a currency crisis and the fall and reissuance of the dollar, as we saw with the Russian rouble. It will stretch the political fabric of the US to the breaking point. This is how oligarchies and their empires fall.

banks failed; CIT; deck; gold shines; Jesse's Café Américain; packaged bankruptcies.

Yahoo! Finance: Tech Ticker Tue 2009-10-27 11:18 EDT

Policymakers in "Denial" About the Banks, Carmen Reinhart Says

In "This Time Is Different," economic professors Kenneth Rogoff (Harvard) and Carmen Reinhart (Maryland) examine eight centuries of financial crises, demonstrating how the credit crunch of 2008 wasn't so unique, after all. That's the good news...Reinhart gives policymakers "low marks" for failing to deal head on with toxic assets. There's "a lot of denial" in the approach to the banks, she says, seeing comparisons to Japan's post-bubble policies of delaying write-downs, which created zombie banks. "I'm not seeing a great deal of learning,"

bank; Carmen Reinhart Says; denial; finance; policymaking; Tech Ticker; Yahoo.

Fri 2009-10-23 08:55 EDT

Is Goldman Sachs Evil? Or Just Too Good? -- New York Magazine (2009-07-26)

Joe Hagan

(Goldman Sachs, Financial Times, The Wall Street Journal, Rolling Stone, John Rogers, John Whitehead, AIG, Neil Barofsky, Troubled Asset Relief Program, Morgan Stanley, Hank Paulson, Lloyd Blankfein, John Thain, Lehman Brothers, Standard & Poor's, Tim Geithner, JPMorgan Chase, Jon Winkelried, David Solomon, Richard Friedman, Jamie Dimon, Robert Rubin, Dan Jester, Eric Dinallo, Hank Greenberg, Edward C. Forst, Neel Kashkari, Edward Liddy, Stephen Friedman, Sidney Weinberg, TARP, Joseph --Stiglitz, Lucas van Praag, Frank Suozzo, Mike Morgan, Matt Taibbi, Edith Cooper, Byron Trott, Warren Buffett, Barney Frank, John Thornton, Michael Lewis, Larry Summers, Barack Obama, Rahm Emanuel, Robert Hormats, Eliot Spitzer) Inside Goldman Sachs, America's most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism. [2009-07-26]

2009-07-26; Goldman Sachs evil; good; just; New York magazine.

The Big Picture Wed 2009-10-14 11:36 EDT

Andy Xie: Here We Go Again

Former Morgan Stanley Analyst Andy Xie explains why China is a potential bubble: [Consider] the US Savings and Loans crisis of the late 1980s and early 1990s. The US Federal Reserve kept monetary policy loose to help the banking system. The dollar went into a prolonged bear market. During the descent, Asian economies that pegged their currencies to the dollar could increase money supply and lending without worrying about devaluation, but the money couldn't leave home due to the dollar's poor outlook, so it went into asset markets. When the dollar began to rebound in 1996, Asian economies came under tightening pressure that burst their asset bubbles. The collapsing asset prices triggered capital outflows that reinforced asset deflation. Asset deflation destroyed their banking systems. In short, the US banking crisis created the environment for a credit boom in Asia. When US banks recovered, Asian banks collapsed. Is China heading down the same path? There are many anecdotes to support the comparison. Property prices in Southeast Asia became higher than those in the US, but ``experts'' and government officials had stories to explain it, even though their per capita income was one-tenth that of the US. Their banks also commanded huge market capitalizations, as financial markets extended their growth ad infinitum. The same thing is happening in China today. When something seems too good to be true, it is. World trade -- the engine of global growth -- has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth. China is an export-driven economy. Bank lending can support the economy for a short time, however, stocks are as expensive as during the heydays of the last bubble. Like all previous bubbles, this one, too, will burst.

Andy Xie; Big Picture; Go.

Dr. Housing Bubble Blog Tue 2009-10-13 20:03 EDT

No Country for Old Jobs: 10 Charts Showing the Fragile Recovery. Home Sales, Buying versus Renting, Unemployment, and Real Economy Data.

...Until jobs start showing up, any talk of a rebounding housing market is moot especially with this entire artificial stimulus still bouncing around the economy. And collapsing tax revenues are not a good sign. I don't buy the jobless recovery argument and the government tends to agree. If all is well, why is the U.S. government and Fed buying $1.25 trillion in agency debt to lower mortgage rates, putting in place an $8,000 tax credit, boosting car sales with gimmicks, encouraging risky low money down loans with FHA insured products, and extending unemployment insurance to a record 92 weeks in states like California? Do these things sounds like policies of a booming economy?

10 Charts Showing; Buying versus Renting; country; Dr. Housing Bubble Blog; Fragile recovery; home Sale; old job; Real Economy Data; unemployment.

Mish's Global Economic Trend Analysis Mon 2009-10-12 09:22 EDT

One Hand Clapping Theory Analyzed

Michael Shedlock

Numerous people have asked me to comment on Chris Martenson's article The Sound of One Hand Clapping - What Deflationists May Be Missing. Chris Writes: ...``Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt. But let me ask this: What prevents the authorities from simply storing them out of sight forever?...I am now wondering if they cannot keep this up indefinitely.'' ...In a credit based economy, the odds of a sustainable rebound without bank credit expanding, and consumers participating is not very good. Even if one mistakenly assumes that the recent rally is a result of pretending, should we count on sustained success now more so than a measurement of stock prices in April of 1930, or any of Japans' four 50% rallies? I think not. Pretending cannot accomplish much other than prolonging the agony for decades. This is the message of Japan. Moreover, the US is arguably is worse shape than Japan because our problems are unsustainable consumer debt, high unemployment, and massive retail sector overcapacity. Those are structural problems that no amount of pretending in the world can possibly cure. In due time, the market will focus on those problems.

hand clapping theory analyzed; Mish's Global Economic Trend Analysis.

The Big Picture Sun 2009-10-11 16:08 EDT

Kaptur & Johnson on Bill Moyers

Former International Monetary Fund chief economist Simon Johnson and US Rep. Marcy Kaptur (D-OH) report on the state of the economy... MARCY KAPTUR: Think about what these banks have done. They have taken very imprudent behavior, irresponsible. They have really gambled, all right? And in many cases, been involved in fraudulent activity. And then when they lost, they shifted their losses to the taxpayer. So, if you look at an instrumentality like the F.H.A., the Federal Housing Administration. They used to insure one of every 50 mortgages in the country. Now it's one out of four. MARCY KAPTUR: Because what they're doing is they're taking their mistakes and they're dumping them on the taxpayer. So, you and I, and the long term debt of our country and our children and grandchildren. It's all at risk because of their behavior. We aren't reigning them in. The laws of Congress passed last year in terms of housing, were hollow. ... SIMON JOHNSON: And Rahm Emanuel, the President's Chief of Staff has a saying. He's widely known for saying, `Never let a good crisis go to waste'. Well, the crisis is over, Bill. The crisis in the financial sector, not for people who own homes, but the crisis for the big banks is substantially over. And it was completely wasted. The Administration refused to break the power of the big banks, when they had the opportunity, earlier this year. And the regulatory reforms they are now pursuing will turn out to be, in my opinion, and I do follow this day to day, you know. These reforms will turn out to be essentially meaningless.

Big Picture; Bill Moyers; Johnson; Kaptur.

Thu 2009-10-08 17:04 EDT

After subverting bank insolvency, our leaders are now about to make a mess of liquidity

FT.com | Willem Buiter's Maverecon

Unless there is a major change of direction among global economic and financial officialdom, we are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised. This would be the exact opposite of what makes sense: solvency is (or should be) a private good and liquidity is (or should be) a public good...The authorities should not waste their limited organisational capital to force banks to provide inefficiently the public good of liquidity when confidence and trust are low. They should instead focus on ways of enforcing hard budget constraints on banks - to confront them with the realities of insolvency in a way that separates shareholders, unsecured creditors, boards and managers from their investments while leaving the bank as a functioning organisation capable of continued intermediation.

leaders; liquidity; makes; Mess; subverting bank insolvency.

Tue 2009-09-29 11:43 EDT

The Post-Bubble Malaise

Mike Whitney

...the Fed is building excess bank reserves (nearly $1 trillion in the last year alone) with the tacit understanding that the banks will return the favor by purchasing Uncle Sam's sovereign debt. It's all very confusing and circular, in keeping with Bernanke's stated commitment to "transparency". What a laugh. The good news is that the trillions in government paper probably won't increase inflation until the economy begins to improve and the slack in capacity is reduced. Then we can expect to get walloped with hyperinflation. But that could be years off. For the foreseeable future, it's all about deflation...The question is, how long can the Obama administration write checks on an account that's overdrawn by $11 trillion (the national debt) before the foreign appetite for US Treasurys wanes and we have a sovereign debt crisis? If the Fed is faking sales of Treasurys to conceal the damage--as I expect it is--we could see the dollar plunge to $2 per euro by the middle of 2010...The consumer is maxed out, private sector activity is in the tank, and government stimulus is the only thing keeping the economy off the meat-wagon. Bernanke might not admit it, but the economy is sinking into post-bubble malaise.

Post bubble malaise.

Jesse's Café Américain Sun 2009-09-20 11:07 EDT

Stock Market Rally: Shenanigans Abounding

Jesse

...The US markets in general have every mark of a maturing Ponzi scheme...Bonds, stocks, metals, sugar, cocoa, and oil are all moving higher, while the dollar sinks. Is the dollar funding a new carry trade?...We remain guardedly 'optimistic' on the markets for next year ONLY because of the Fed's and Treasury's willingness to continue to debase the dollar to cover the massive unrealized losses in the banks' portfolios, even as they return to manipulating markets in business as usual. Inflation is good for financial assets, and we think another bubble is in the cards, at least for now given Obama's unwillingness to reform, unless some exogenous event or actor intervenes...

Jesse's Café Américain; Shenanigans Abounding; stock market rally.

Language Log Wed 2009-09-16 18:57 EDT

Language Log >> Google Books: A Metadata Train Wreck

.This is almost certainly the Last Library, after all. There's no Moore's Law for capture, and nobody is ever going to scan most of these books again. So whoever is in charge of the collection a hundred years from now -- Google? UNESCO? Wal-Mart? -- these are the files that scholars are going to be using then. All of which lends a particular urgency to the concerns about whether Google is doing this right...you need good metadata. And Google's are a train wreck: a mish-mash wrapped in a muddle wrapped in a mess.

Google Books; Language Log; Metadata Train Wreck.

Jesse's Café Américain Fri 2009-09-04 18:58 EDT

Stiglitz on the Financial Crisis

Jesse

Joe Stiglitz describes the current financial crisis and prospective recovery quite well, and the conclusions he draws are remarkably similar to our own which is gratifying. It's good to hear these things from a distinguished Nobel laureate, and not just from your humble Propriétaire, while puttering over his daily bread. Bloomberg Stiglitz Says U.S. Economic Recovery May Not Be `Sustainable' By Michael McKee Sept. 4 (Bloomberg) -- The U.S. economy faces a ``significant chance'' of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said. ``It's not clear that the U.S. is recovering in a sustainable way,'' Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Financial Crisis; Jesse's Café Américain; Stiglitz.

Minyanville Sun 2009-08-30 15:08 EDT

How China Will Handle the Yuan

Ryan Krueger, Lance Lewis: Something is up with China and the yuan...What if it were close to revaluing against the dollar? We know it's fed up with funding US debt, but it can't stop funding it as long as it continues to peg to the dollar and is forced to buy dollars every day in order to hold down the yuan. The US isn't even its largest export market anymore. The EU is. The US consumer is broke. Why does China need to keep exporting cheap goods to the US if the US consumer can't buy them anyway?

China; handles; Minyanville; Yuan.