Nerdy. Sexy.

"He's made nerdy sexy," said Rahm Emanuel


Tonight by midnight [from Peter Orszag's OMB Blog]
"In response to the President’s memo, we published a notice in the Federal Register, asking for comments and suggestions; to date, we have received over 140 responses. We have invited comments by a broad array of specialists in the field of regulatory policy. And we have had a number of meetings with people in the private sector. We even extended the original comment period because there was so much public interest. To those of you who sent us your thoughts, thank you. (And if you have not commented and would like to, there is still time; the comment period closes at midnight March 31, 2009. You can send your comments to oira_submission@omb.eop.gov)"


When Peter Orszag came to speak at Wellesley, I gave him a "Stop Global Warming" pin. [he gave a lecture on emissions trading]

I want to be friends with Peter Orszag!

Love: Inferior Good?

Online-dating websites prosper in the recession

NPR is my boyfriend. And he is better than yours.

Newsflash.

Public-Private Investment Program

Tim Geithner Speaks

My spring break so far:

We met a rodeo princess at the Austin Rodeo.

I bought real cowboy boots.  Apparently, square toed cowboy boots are poser boots.

The Alamo Ritz was so fun.  We watched Adventureland, and I had fried pickles that were so delicious.

Went glowbowling for the first time in my life.

There's a lot of good vegetarian food in Austin.  I am pleasantly surprised.

Saw a sign at a diner that read: "Economy friendly prices!"

I am so warm and happy.

But I still need a job.

Response from Martin Feldstein!

Sorry but I never discuss my role as a corporate director.


You can see my holding of AIG stock and options by looking in the annual
report or 10k. You will see that I never sold any stock and had/have a
great many options that are now without value.


mf

It's a bit anti-climactic, but it was very nice of him to write me back.

Feldstein and AIG

So I wrote to Marty today. I hope he responds b/c I really would like to know his answers to these questions.

Dear Professor Feldstein,

My name is Esther Jang, and I am currently an Econ major at Wellesley College. Last semester, for my Economics and Politics course, we read your paper on policy reform regarding social security. I thought you made particularly compelling arguments for privatization and I enjoyed the paper very much.
However, my e-mail to you today does not have to do with Social Security reform. Rather, I would like to ask you about your role on the board of AIG. Some may accuse you of failing to elucidate the problems that AIG would face in the event that housing prices plummeted. However, I would like to believe that you are far too intelligent to have missed such potential market failure. So my questions to you are as follows: Did you succumb to group-think at the AIG board meetings? Did you mean to say something, but in your humility, decided that perhaps the others were right about the proliferation of CDSs? As an AIG board member, did you have stock options? Did you exercise those options in like 2006? Do you currently own any AIG stock?

Thank you for your time and thank you for your contribution to the field of economics.

Enjoy the lovely weather today!

Sincerely,
ESJ

More AIG.

In the NYTimes today.

People were initially upset b/c they thought, "why are AIG employees getting bonuses when they TANKED?"

1. These were not performance bonuses, they were retention bonuses.
2. These contracts cannot be written ex poste.

Okay, fine. I agree that legal contracts should be upheld in order to maintain credibility. After all, poorly defined property rights and threat of expropriation hinder assets from realizing value beyond their natural states in developing countries.
But seriously? Why do we need to retain any of these people who f*cked up? Clearly, if performance is any indication of talent, these people are not worth RETAINING.
Blah. So give them their bonuses for having BEEN retained, and let them all go.

Cuomo wants the names of these people to be released but I can see that going down soooo bad. I want people to be fired, not killed. If my name were released, I would just donate all of it to charity.

In other news:

Martin Feldstein is a board member of AIG. I will be writing him an e-mail with some questions. I hope he responds.

I'm still waiting for George Akerlof to respond to my e-mail from 2 weeks ago...what a heartbreaker he is...

Here's what I wrote:

Dear Professor Akerlof,
My name is Esther Jang and I am an Economics major taking a Money and Banking course at Wellesley College. We are discussing the role of asymmetrical information in the current macroeconomic malaise and obviously your "Market for Lemons" paper came up during lecture. My Professor said that the brilliance of your paper lies in its simplicity and that before you won the Nobel prize, the American Economic Review rejected your paper claiming that they "only publish serious economics." So our question for you is, when you won that Nobel prize, did you go back to the AER and say, "well, Nobel prizes are only given to serious economists, so HA?"
Also, I would just like to say, for what it's worth, that I will gladly publish anything you have to say [uncensored] on my blog at: http://esthernomics.blogspot.com. You will never be rejected.

Thank you for your contribution to the field of Economics.

Sincerely,
ESJ

St. Patrick's Day!

Let's save the beer industry tonight!

Happy St. Patrick's Day!

MDG/Country Pairs

For Development Econ, we had to pick MDG/country pairs that we would want to write about:

1. South Africa, AIDS
2. Indonesia, gender inequality
3. China, environmental policy
4. Kenya, hunger and poverty

see MDGs here.

This week:
Money and Banking problem set, Religion paper, Health Economics midterm --> History Boys @ Harvard, Spring break in Austin and New Orleans!

Oh, it will be deliciously warm weather! Soy excited.

Red Tape, etc.

Interesting things I have come across while studying for Development midterm tomorrow:

Red Tape: how difficult it is to get things done.
Red tape is often a problem in lower income countries because if a government official's wage is very low, there is an incentive for that person to try to receive bribes.

From Mystery of Capital by Hernando de Soto:

Peru: took 6 years and 11 months to obtain legal authorization to build a house on state owned land.
the Philippines: takes 168 steps and about 13-25 years to build a home on state-owned land.
Egypt: to legally register a lot on state-owned desert land takes 77 procedures with 31 agencies and takes 5-14 years.
Haiti: takes 65 steps and about 2 years to lease land for 5 years.

The term "BRIC" was first used by Goldman Sachs. [Brazil, Russia, India, China]

Prior to 1990, only about a million doses of malarial pills were made, but there were about 330 million cases of malaria annually.

Although Latin American may have a similar malaria ecology as Africa, the mosquitoes in Africa prefer human blood to animal blood, making malaria more prevalent in Africa.

From Bloom and Canning's paper:
The working age population grew 4 times as fast as the dependent population in East Asia from 1965 to 1990 [demographic dividend!]

Ireland legalized contraception in 1979

Polio had been successfully eradicated in all countries but Nigeria. However, because of propaganda in Nigeria that the vaccine was meant to give certain ethnic groups AIDS, polio is now present in 15 countries. [see frustrations from previous Jonny Steinberg post.]

Jonny Steinberg.

I attended the Jonny Steinberg lecture today. He attended Oxford University with Professor Nabar and they played cricket together. My kids are going to learn how to play cricket.
Jonny proved to be a very engaging, articulate speaker. I was not disappointed. I am excited to read his book, Sizwe's Test.

In lecture, Jonny talked about the struggle that such organizations as Doctors Without Borders face when attempting to distribute anti-retrovirals to people in South Africa. There is such a stigma attached to lining up for drugs distributed by white people, that more often than not, those who are HIV positive choose to die in shame rather than take ARVs. Then, of course, there is the problem of getting people tested to begin with. There are programs that provide incentives for people to get tested, but Jonny said that it would be difficult to find an incentive great enough to motivate people to take ARVs for the rest of their lives. You would think that a longer lifespan would be incentive enough, no?

Jonny told us some beliefs that people had about HIV and ARVs in South Africa:
1) You get HIV if a demon comes and has sex with you in your nightmare. [if infection is random, people's discount rates become extremely hyperbolic]
2) Sex causes HIV. [sigh, one course in economics would teach them that correlation is not causation]
3) HIV is something that you can feel in your blood.
4) ARV pills distributed by white people are meant to harm you. For example, one type of ARV pill makes you have children without limbs.
5) There is a white doctor who is going around to different villages to spread HIV to the black population.
6) Traditional herbal medicine is a good alternative to ARVs.

I read this in the New Yorker last year and it made me so sad. There are random people claiming that they have developed a cure for AIDS. One man claimed that his dead grandfather came to him in a dream and told him how to make it. Now he makes tons of money off of people who are withering away...

NPR talked about a gel that helps women protect themselves against HIV, but the results of the conducted test were statistically insignificant. Furthermore, women may be reluctant to use it b/c it comes with a plastic applicator which, if found by a husband or other villagers, could put the woman in danger of being physically abused, accused of being unfaithful, etc.

Lesson: We are lucky. Condoms are free at school. Use them.

[my professor and Jonny Steinberg]

I <3 Wellesley.

Wellesley, we are just THAT good.

Thanks Tina, for sending me that.

Announcement:
Come to CSA show on Saturday night! 7 PM. Jewett. You can't tell from the way I look, but I add diversity to the Chinese Student Association b/c I'm Korean.

Highlights.

Obama's administration vows to “make scientific decisions based on facts, not ideology."

Help donate other people's money to fund cancer research at: http://replyforall.com!

This auction is really sad.
But I couldn't help thinking, "does anyone want to buy me a house?"

We are but products of our environment.

I love Well Red.

Haiku

Blogging hiatus.
I am sick and disgusting.
I will be back soon.

OMG AIG!

Last September, the government put together an $85 billion bailout package for AIG and it was called, by the NYTimes, "the most radical intervention in private business in the central bank’s history." However, the term "bailout" is controversial because the $85 billion came with punitive interest rates and the government was given nearly 80% ownership of AIG.
In October, AIG was received $38 billion. Earlier this week, AIG received an additional $30 billion.

AIG only started to package credit default swaps relatively recently, but its CDSs were enough to make the insurer insolvent when margin calls were made. Although other parts of AIG were still profitable [like traditional life insurance, retirement plans, etc], its assets were not enough to cover its losses.

CDSs are "credit default swaps" and they are also what caused Lehman Brothers to go bankrupt. Basically, credit default swaps were securities that insured investors against losses on mortgage backed securities and other CDOs. The proliferation of mortgage backed securities created a market for credit default swaps, which grew to be roughly twice the size of the U.S. stock market. Like mortgage-backed securities, these credit default swaps were also under-capitalized. The trend seems to be that Wall Street depended too heavily on debt instruments that were not financed with appropriate amounts of collateral.

AIG basically did not enforce high enough marginal requirements, thinking that housing prices would continue to rise. Marginal requirements are a way of minimizing counter-party risk and when housing prices fell instead, AIG found itself too highly leveraged. Mortgages have natural marginal requirements [the value of the homes], so when home values fall, it is essentially a drop in the value of collateral. When the value of collateral falls, counter-party risk , which is the risk that one of the two parties of a financial contract defaults, increases.

So why is the government so keen on saving this financial institution?
AIG was not allowed to fail in the first place because its financial activities were so pervasive in the global economy. AIG's inability to pay out its insurance claims may have led to a domino effect in which other institutions would have been forced to revalue those securities and the capital of those institutions would have decreased as well.

But don't worry. Ben Bernanke's still really upset and is aware of the potential "moral hazard" in saving AIG.

AIG is currently priced at $0.43 per share.

Contrast AIG to Goldman Sachs which stood out among other investment banks for having hedged itself against mortgage backed securities and escaping herd mentality. While other i-banks were buying more MBSs, Goldman Sachs decided to take a bet that those MBSs would become illiquid assets. Too bad they were right.

P.S. NPR's Planet Money #12 was about AIG.
So was everything else in the news this week...

In other news: Kimberly Dozier is Class of Green Commencement speaker!

LOVE.

I want someone to sing this to me: Girl Your Marginal Benefits

Lyrics.

Where Has All the Money Gone?

Here.

But I wish there were a section labeled, "Esther's personal checking account." Ha.

UFOs and Social Security.

From "Top Ten Myths of Social Security Reform" :
"a famous poll among younger workers fielded in 1994 indicated that only 28 percent of respondents believed that Social Security would pay benefits to them when retired, compared to 46 percent who said they believed in UFOs."

The current Social Security system is an income transfer system - taxes that are paid by current workers are paid out to current retirees in the form of benefit payments within the same year. Thus, Social Security is highly sensitive to demographic changes. Currently, the worker to retiree ratio is a little over 3:1. In 2040, when the worker to beneficiary ratio is expected to reach 2:1, benefits of 36% of an average worker's earning can only be maintained if the payroll tax on a worker increases to 18 percent from today's 12.4 percent.

Dr. Charles Blahous advocated private accounts in S.S. much like those of the Thrift Savings Plan. He seemed particularly bothered by the argument that transitioning to private accounts would be too costly because, as explained by Brown, Hassett and Smetters, the "transition cost" of having to simultaneously finance benefits to retirees while funding the private accounts is not actually new costs. They call it a "transition investment" because it is simply a re-timing of costs and allows the government to save some S.S. revenue as opposed to paying it all out to current retirees. Dr. B also explained that the government could make the tax code even more progressive with private accounts such that low income workers could benefit more from a S.S. system with private accounts. Redistribution does not necessarily have to be less than that of the current system.

There is also reduced deadweight loss associated with private accounts. Private wealth earns the marginal product of capital while S.S. wealth earns a return equal to the growth of aggregate wages. The capital income loss is the difference between these rates of return. The current pay as you go system does nothing to prevent such losses. There are also distortions to the labor market caused by as people's preferences for different forms of compensation are affected by S.S. tax. For example, maybe people would be more willing to take a job that offers nicer working conditions as opposed to higher salary that is subject to S.S. tax. Deadweight loss caused by the S.S. tax is also much larger than expected since it is imposed on top of federal and state income taxes. Social Security wealth also displaces private savings and provides a disincentive for asset ownership. As of 1992, S.S. wealth reduced overall private savings by nearly 60%. Private accounts could potentially increase real investment and improve incentives for people to save for retirement.
[Martin Feldstein does a better job of explaining all of this.]

Anyway, here's my picture with Dr. B in the West Wing of the White House! I wonder if gov't officials have to practice smiling and posing for pictures...


Peter Orszag and Charles have very different opinions on S.S. reform. But they were both very nice when I spoke to them.
Peter Orszag was the director of the CBO, and he is now director of the OMB.

Basically, he believes that Social Security taxes should be more progressive and that there should be a combination of benefit reductions and tax increases. He believes that those in the higher income bracket should pay legacy taxes and that the gradual increase in the payroll tax should be applied to older people as life expectancy increases.

Charles said that this approach is problematic because it turns S.S. into a welfare program, which is not what it was initially designed to be. There would no longer be a contribution-benefits link in the system, which goes back to Feldstein's point about deadweight loss and displaced savings, etc.

The end!

Thanks to Chands for contributing to this post!