Also, since Evelyne pointed out the part about how Paul Krugman loves costumes...
my Halloween costume two years ago was capital flight!
Monday, February 22, 2010
Paul Krugman Loves Politics...and Costumes!
Paul Krugman's profile in the New Yorker!
Also, since Evelyne pointed out the part about how Paul Krugman loves costumes...
my Halloween costume two years ago was capital flight!
Also, since Evelyne pointed out the part about how Paul Krugman loves costumes...
my Halloween costume two years ago was capital flight!
Thursday, February 18, 2010
Mamma Mia!
I don't care what's going on in Greece. Someone take me. We can do Greece a favor by spending lots of money while we're there...it will be completely selfless!
My mom is in Turkiye right now. I'm so jealz.
Simon Johnson talks about why Greece might go to the IMF for help and why things are not as simple as when Greece had its own currency. He also talks about how politics may (as always) get in the way of things...
In another piece, Johnson talks about Goldman's role. Felix Salmon thinks that Goldman is just a scapegoat.
Martin Feldstein suggests a holiday from the eurozone for Greece - Greece could devalue the drachma to reduce imports and boost exports (reducing trade deficit and maybe increasing GDP and employment)
My mom is in Turkiye right now. I'm so jealz.
Simon Johnson talks about why Greece might go to the IMF for help and why things are not as simple as when Greece had its own currency. He also talks about how politics may (as always) get in the way of things...
In another piece, Johnson talks about Goldman's role. Felix Salmon thinks that Goldman is just a scapegoat.
Martin Feldstein suggests a holiday from the eurozone for Greece - Greece could devalue the drachma to reduce imports and boost exports (reducing trade deficit and maybe increasing GDP and employment)
Monday, February 15, 2010
Roses are red, violets are blue, Hank Paulson loves Wellesley women too!
I hope everyone had a happy lunar new year and valentine's day!
My aloe vera plant, Henry, now has a friend named Zach. Yay!
I bought myself Hank Paulson's new book, On the Brink, yesterday. A funny comment was made about Paulson the other day, I can't remember where...but someone said, "Here is a man who is too big to fail." Ha.
Anyway, I really like Paulson's book so far. But maybe I'm biased because Hank Paulson is clearly a fan of Wellesley women. He writes:
"I come from a line of strong women -- smart independent, plain-spoken women[...]My mother inherited her grit and determination from her own mother, Kathrun Schmidt, who graduated from Wellesley College in 1914 and supported her family through the Depression[...]My mom, Marianna Gallauer, followed her to Wellesley, graduating in 1944."
"In my senior year, several weeks before graduation, I met Wendy Judge, a junior at Wellesley, on a blind date set up by a friend. I was immature and behaved badly." (Hrm...sounds sooo familiar! Haha.) "We went to a Boston Pops concert, and she was not impressed when I folded my program into a paper airplane and sailed it off the balcony at Arthur Fiedler, the conductor. Wendy asked to be taken home early, and I thought I'd never hear from her again. But she called me up later and invited my roommate and me to come down for Tree Day, a Wellesley celebration of spring. So I had reason to think there was hope."
So cute.
Anyway, his book is not all about his love for Wellesley women. (Who doesn't love Wellesley women, seriously...)
He talks about what it was like to tell Fannie and Freddie that they would be placed under a conservatorship. He shares embarrassing moments and first impressions of certain politicians (Sarah Palin, of course)
I can't wait to devour this book. I'm only four chapters in, but I highly recommend it.
[Confession: I wish I were in H.S. again when I could stay up all night reading books and not worry about having to sleep because I knew I could just sleep during classes the next day. I'm pretty sure sleeping at work is frowned upon...]
My aloe vera plant, Henry, now has a friend named Zach. Yay!
I bought myself Hank Paulson's new book, On the Brink, yesterday. A funny comment was made about Paulson the other day, I can't remember where...but someone said, "Here is a man who is too big to fail." Ha.
Anyway, I really like Paulson's book so far. But maybe I'm biased because Hank Paulson is clearly a fan of Wellesley women. He writes:
"I come from a line of strong women -- smart independent, plain-spoken women[...]My mother inherited her grit and determination from her own mother, Kathrun Schmidt, who graduated from Wellesley College in 1914 and supported her family through the Depression[...]My mom, Marianna Gallauer, followed her to Wellesley, graduating in 1944."
"In my senior year, several weeks before graduation, I met Wendy Judge, a junior at Wellesley, on a blind date set up by a friend. I was immature and behaved badly." (Hrm...sounds sooo familiar! Haha.) "We went to a Boston Pops concert, and she was not impressed when I folded my program into a paper airplane and sailed it off the balcony at Arthur Fiedler, the conductor. Wendy asked to be taken home early, and I thought I'd never hear from her again. But she called me up later and invited my roommate and me to come down for Tree Day, a Wellesley celebration of spring. So I had reason to think there was hope."
So cute.
Anyway, his book is not all about his love for Wellesley women. (Who doesn't love Wellesley women, seriously...)
He talks about what it was like to tell Fannie and Freddie that they would be placed under a conservatorship. He shares embarrassing moments and first impressions of certain politicians (Sarah Palin, of course)
I can't wait to devour this book. I'm only four chapters in, but I highly recommend it.
[Confession: I wish I were in H.S. again when I could stay up all night reading books and not worry about having to sleep because I knew I could just sleep during classes the next day. I'm pretty sure sleeping at work is frowned upon...]
Friday, February 12, 2010
An Ode by Wellesley's Chip Case!
Reflections on the Housing Market - in verse form
Karl Case
Karl Case
For the last few years, we have shed many tears
Living through a recession.
The economy's broke and it's not a joke,
When we talk of another depression.
Fifteen million without a job,
Foreclosures and banks that fail,
401K's became 201K's,
And everything's up for sale.
How can it be? What didn't we see
That led to all of this trouble?
There is little doubt that the proximal cause
Was a bursting housing bubble.
But other than that, who can we blame?
And what do they lament?
Millions of people contributed to
This hundred-year event.
For me, it began in '76
With a house on Cleveland Road.
At fifty-four thousand, I thought it a lot
For a small three-bedroom abode.
But ten years later, that very same house
Would sell for four times the price.
I was glad that I bought...I remember the thought,
"This may not be fair, but it's nice."
In Boston alone, that boom created
$100 billion in wealth.
We spent more, saved less, and I have to confess,
It was good for our mental health.
We had to know that it couldn't go on.
Someday prices would fall.
We knew there were risks -- to ourselves and our fiscs
If those prices were ever to stall.
It all began in 2001,
9/11, the dot.com bubble.
The Fed had to act because of the fact
A recession would mean big trouble.
So the Fed funds rate, sitting just below eight,
Was cut to under two.
And you had to know, with rates so low,
That a refi boom would ensue.
The volume of mortgages written back then
Stunned imaginations.
In a single quarter in 2003,
A trillion in originations!
But something happened late that year
That caused long rates to rise.
And that was the end of the refi boom.
It came as quite a surprise.
With refi's gone, so were big fees,
But banks still had money to lend.
And the search for buyers to fill the gap
Seemingly had no end.
The Fed kept pumping through 2005
To keep short rates very low.
And Greenspan gets a share of the blame;
His halo has less glow.
Of course the key for all to see
Was a robust housing market.
Buyers could borrow lots of cash
And a house was a good place to park it.
A summer home...a new big house,
No one seemed to care.
Homes were made of bricks and land,
The value would always be there.
It didn't matter what rate you paid
Or what you made in a year.
For a while liquidity led to stupidity,
"Just sign and see the cashier."
High LTV's and Option ARMs
Negative AM's and more,
2-28's with teaser rates
And ridiculous Fico scores.
Competition was the force
That made the music play.
As long as prices didn't fall
Everything was OK.
People could always sell their house
For more than they had paid.
Defaults and foreclosures stayed quite low
And lots of money was made.
Fannie and Fred were always ahead,
Then Countrywide got in the fray.
Then Lehman and Merrill and Goldman Sachs
Couldn't be kept away.
You can guess that MBS
Helped make the trading brisk.
Investors thought that the paper they bought
Was traunched with well-measured risk.
To that, add leverage and default swaps,
And then when house prices fell,
"Smart guys" got hosed as the risks were exposed,
And that was the closing bell.
Now where do we go? We really don't know.
We've never been here before.
Only time will tell when the markets will clear
And prices will fall no more.
Some of the data suggest a bottom,
While other data conflicts.
Houses are selling at rates not seen
Since back in 2006.
The inventory of unsold homes
Is down, it no longer grows.
And we're not building any new homes.
Starts are at 50-year lows.
A number of problems remain as risks
As the market begins to turn:
The number of loans that still need to be marked
Is making stomachs churn.
Fifteen million who want to work
Don't have jobs today.
And slow is the pipeline of loans in default
Since no one wants to pay.
It could also be that the pick-up we see
Is just from government red.
Lower rates and tax rebates
Buying paper from Fannie and Fred.
All have certainly played a role
And only time will tell.
What will happen when they're withdrawn,
Still empty units to sell?
So now we come to the end of this ode
Without much to say for certain.
I hate to say, that's where we are
Not beginning or final curtain.
The truth of the matter at the end of the day
Is that markets will make you humble.
Just when you think that it's time for a drink
They will turn and fortunes will crumble.
That free markets work to provide what we want
Is a notion that is not in dispute.
The problem is that once in awhile,
Markets overshoot.
Of course there is greed and there is a need
For moral hazard and rules.
You are damned if you do and damned if you don't.
To be "pure" is a game for fools.
Politicians, of course, are starting to shout
That they want more retribution.
It's better, I think, if they used their time
Helping to find a solution.
Living through a recession.
The economy's broke and it's not a joke,
When we talk of another depression.
Fifteen million without a job,
Foreclosures and banks that fail,
401K's became 201K's,
And everything's up for sale.
How can it be? What didn't we see
That led to all of this trouble?
There is little doubt that the proximal cause
Was a bursting housing bubble.
But other than that, who can we blame?
And what do they lament?
Millions of people contributed to
This hundred-year event.
For me, it began in '76
With a house on Cleveland Road.
At fifty-four thousand, I thought it a lot
For a small three-bedroom abode.
But ten years later, that very same house
Would sell for four times the price.
I was glad that I bought...I remember the thought,
"This may not be fair, but it's nice."
In Boston alone, that boom created
$100 billion in wealth.
We spent more, saved less, and I have to confess,
It was good for our mental health.
We had to know that it couldn't go on.
Someday prices would fall.
We knew there were risks -- to ourselves and our fiscs
If those prices were ever to stall.
It all began in 2001,
9/11, the dot.com bubble.
The Fed had to act because of the fact
A recession would mean big trouble.
So the Fed funds rate, sitting just below eight,
Was cut to under two.
And you had to know, with rates so low,
That a refi boom would ensue.
The volume of mortgages written back then
Stunned imaginations.
In a single quarter in 2003,
A trillion in originations!
But something happened late that year
That caused long rates to rise.
And that was the end of the refi boom.
It came as quite a surprise.
With refi's gone, so were big fees,
But banks still had money to lend.
And the search for buyers to fill the gap
Seemingly had no end.
The Fed kept pumping through 2005
To keep short rates very low.
And Greenspan gets a share of the blame;
His halo has less glow.
Of course the key for all to see
Was a robust housing market.
Buyers could borrow lots of cash
And a house was a good place to park it.
A summer home...a new big house,
No one seemed to care.
Homes were made of bricks and land,
The value would always be there.
It didn't matter what rate you paid
Or what you made in a year.
For a while liquidity led to stupidity,
"Just sign and see the cashier."
High LTV's and Option ARMs
Negative AM's and more,
2-28's with teaser rates
And ridiculous Fico scores.
Competition was the force
That made the music play.
As long as prices didn't fall
Everything was OK.
People could always sell their house
For more than they had paid.
Defaults and foreclosures stayed quite low
And lots of money was made.
Fannie and Fred were always ahead,
Then Countrywide got in the fray.
Then Lehman and Merrill and Goldman Sachs
Couldn't be kept away.
You can guess that MBS
Helped make the trading brisk.
Investors thought that the paper they bought
Was traunched with well-measured risk.
To that, add leverage and default swaps,
And then when house prices fell,
"Smart guys" got hosed as the risks were exposed,
And that was the closing bell.
Now where do we go? We really don't know.
We've never been here before.
Only time will tell when the markets will clear
And prices will fall no more.
Some of the data suggest a bottom,
While other data conflicts.
Houses are selling at rates not seen
Since back in 2006.
The inventory of unsold homes
Is down, it no longer grows.
And we're not building any new homes.
Starts are at 50-year lows.
A number of problems remain as risks
As the market begins to turn:
The number of loans that still need to be marked
Is making stomachs churn.
Fifteen million who want to work
Don't have jobs today.
And slow is the pipeline of loans in default
Since no one wants to pay.
It could also be that the pick-up we see
Is just from government red.
Lower rates and tax rebates
Buying paper from Fannie and Fred.
All have certainly played a role
And only time will tell.
What will happen when they're withdrawn,
Still empty units to sell?
So now we come to the end of this ode
Without much to say for certain.
I hate to say, that's where we are
Not beginning or final curtain.
The truth of the matter at the end of the day
Is that markets will make you humble.
Just when you think that it's time for a drink
They will turn and fortunes will crumble.
That free markets work to provide what we want
Is a notion that is not in dispute.
The problem is that once in awhile,
Markets overshoot.
Of course there is greed and there is a need
For moral hazard and rules.
You are damned if you do and damned if you don't.
To be "pure" is a game for fools.
Politicians, of course, are starting to shout
That they want more retribution.
It's better, I think, if they used their time
Helping to find a solution.
Wednesday, February 10, 2010
Welcome back, attention span!
So, my personal life jumped off a 20 story building, landed on concrete and exploded all over the f-ing place...I've been frustratingly distrait (widget word of the day!) for the past few weeks but have been regaining my attention span. I decided to celebrate by reading old issues of The Economist that had been piling up and posts on my Google Reader. Some things that I particularly liked (even though they're mostly from older issue of The Economist...):
"Ouch: Obama says he doesn't begrudge $17 m bonus on Wall St, quasi-defends bonuses. I begrudge 'em. http://bit.ly/aXX5E8 " [NickKristof tweet]
"The authors say that what is needed is not merely institutional tinkering but a different frame of mind. Governments, they say, should think more in terms of reducing risk and increasing resilience to shocks than about boosting sovereign power. This is because they think power may not be the best way for states to defend themselves against a new kind of threat: the sort that comes not from other states but networks of states and non-state actors, or from the unintended consequences of global flows of finance, technology and so on."
Milton Friedman, who, when monetarism was being mocked in the 1970s, replied "our basic function [is] to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable." [The Economist - "A Needier Era"]
"The Volcker rule may have looked like a reaction to the Democrats' loss of a once-safe Senate seat in Massachusetts. Insiders insist, however, that Mr. Geithner and Mr. Summers were not suddenly sidelined but gradually persuaded of the merits of limiting banks' activities." [The Economist - "New plan, new people?"] (I think it's funny to imagine Larry Summers being gradually persuaded of something...or like, coaxed into saying, "Hey, yeah! You're totally right!")
With respect to the unintended consequences of past financial reforms...
"...capital, like water, tends to flow around obstacles. Try to dam its movement at one point, and slowly but remorselessly it will find it's way around." [The Economist (Buttonwood) - "Not what they meant"]
"As many gardeners and farmers know, crossbreeding two wimpy specimens sometimes produces strong offspring - an effect known as hybrid vigour. Hybrid vigour is common in plants and is found in some animals - though, some speculate, it may be lacking in European royalty." [The Economist - "Shelling Out"] (Made me crave oysters)
"By separating our sample into boys and girls, our results also show that girls significantly benefit from interactions with very bright peers, whereas boys are negatively affected by a larger proportion of academically outstanding peers at school. We also find that the positive effect stemming from interactions with ”good” peers is more pronounced for female in the bottom part of the ability distribution. On the other hand, while not strongly significant, our results suggest that more able boys suffer from interacting with a larger fraction of outstanding schoolmates."
"At the other extreme, the most talented girls could gain more than 0.20 of a standard deviation from being educated in homogeneous environments." (Wellesley!) [The good, the bad, and the average: Evidence of ability peer effects in schools]
"Ouch: Obama says he doesn't begrudge $17 m bonus on Wall St, quasi-defends bonuses. I begrudge 'em. http://bit.ly/aXX5E8 " [NickKristof tweet]
"The authors say that what is needed is not merely institutional tinkering but a different frame of mind. Governments, they say, should think more in terms of reducing risk and increasing resilience to shocks than about boosting sovereign power. This is because they think power may not be the best way for states to defend themselves against a new kind of threat: the sort that comes not from other states but networks of states and non-state actors, or from the unintended consequences of global flows of finance, technology and so on."
Milton Friedman, who, when monetarism was being mocked in the 1970s, replied "our basic function [is] to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable." [The Economist - "A Needier Era"]
"The Volcker rule may have looked like a reaction to the Democrats' loss of a once-safe Senate seat in Massachusetts. Insiders insist, however, that Mr. Geithner and Mr. Summers were not suddenly sidelined but gradually persuaded of the merits of limiting banks' activities." [The Economist - "New plan, new people?"] (I think it's funny to imagine Larry Summers being gradually persuaded of something...or like, coaxed into saying, "Hey, yeah! You're totally right!")
With respect to the unintended consequences of past financial reforms...
"...capital, like water, tends to flow around obstacles. Try to dam its movement at one point, and slowly but remorselessly it will find it's way around." [The Economist (Buttonwood) - "Not what they meant"]
"As many gardeners and farmers know, crossbreeding two wimpy specimens sometimes produces strong offspring - an effect known as hybrid vigour. Hybrid vigour is common in plants and is found in some animals - though, some speculate, it may be lacking in European royalty." [The Economist - "Shelling Out"] (Made me crave oysters)
"By separating our sample into boys and girls, our results also show that girls significantly benefit from interactions with very bright peers, whereas boys are negatively affected by a larger proportion of academically outstanding peers at school. We also find that the positive effect stemming from interactions with ”good” peers is more pronounced for female in the bottom part of the ability distribution. On the other hand, while not strongly significant, our results suggest that more able boys suffer from interacting with a larger fraction of outstanding schoolmates."
"At the other extreme, the most talented girls could gain more than 0.20 of a standard deviation from being educated in homogeneous environments." (Wellesley!) [The good, the bad, and the average: Evidence of ability peer effects in schools]
Wednesday, February 3, 2010
Threat of Protectionism - Silly or Systemic?
I went to this lecture in January (by the way, where did January go?!) on rising protectionism in global trade. The speakers were Simon Evenett and Ed Gresser with whom I have spoken about the KORUS FTA back when I was working at the Embassy. He was also a guest speaker at the WTO Academy here at GULC. (Blogged about him here before too. He's really nice and funny!) He is of the belief that the threat of protectionism is being exaggerated and that it is not systemic as many, including Simon Evenett, would suggest. Here is a brief outline of Simon's arguments and Ed's counterarguments. After you read them, take the poll at the end!
Simon Evenett [CEPR, Co-Director in International Trade and Regional Economics] - Simon has taken part in initiating a Global Trade Alert which draws research from seven regions of the world. Its goal is to present an objective view of the rise in protectionism during the economic crisis. The full report can be found here.
Simon Evenett [CEPR, Co-Director in International Trade and Regional Economics] - Simon has taken part in initiating a Global Trade Alert which draws research from seven regions of the world. Its goal is to present an objective view of the rise in protectionism during the economic crisis. The full report can be found here.
- A WTO study showed that almost all major trading jurisdictions exceeded the normal four percent increase in tariff lines. Are these increases permanent?
- The current economic climate has precipitated a new mix of protectionist measures. Always question studies that look at only one form of protectionist measures because in order to truly understand that threat of protectionism, one must look at the entire mix of measures that are being implemented.
- About 1/7 (46 out of 332) of protectionist measures are tariffs.
- Ordinarily, in recession, the most popular form of protectionist measures is trade defense. This includes AD, CVD, safeguards, etc. However, bailouts and subsidies now account for 136 out of 332 protectionist measures making them the most popular. (Is anyone surprised?)
- Interestingly, (but maybe not surprisingly) less than half of these bailouts and subsidies apply to the financial sector; most apply to manufacturing. The sectoral incidence of protectionism has not changed. (The sectors that have traditionally been good at receiving protection continue to receive it)
- Even if the overall impact of new protectionist measures on trade is miniscule now, these measures may be difficult to remove in the long run and affect future trade activity. Congress seems to want to include Buy American provisions in more permanent bills.
- The decrease in imports is roughly parallel to the overall decrease in world trade. The decrease may not necessarily be a good measure of the impact of protectionist policies. Rather, it may simply reflect the fall in global demand.
- Last year, there were 34 cases of protectionism. This figure is higher than those of 2005, 2006 and 2007 (~10-15), but still coincides with the long term average since 1979.
- Are bailouts and subsidies necessarily bad for trade? Allowing the financial sector to fail would have likely been more harmful to trade than any combination of tariffs.
- People draw many parallels between now and the 1930s, but the mentality then was very different. In the 1930s there was a broad decision to move towards autarky and away from the global economy. That is not the case now. Countries are motivated to become more integrated in the global economy.
- There are factors outside of policy that work to liberalize trade. (Ex: cost of moving goods and information goes down every year)
- GTA has not yet studied whether the increase in protectionist measures would be considered normal had there not been a financial crisis. (They still need to see how the financial bailouts/subsidies creates a bias in their results.)
- It is difficult to substantiate information regarding technical standards and regulatory interventions.
- How has FDI changed? How does this affect trade?
- Data on public procurement needs to be improved. It is difficult to find how much of the decrease in imports was in the private or public sector.
Tuesday, February 2, 2010
Austan Goolsbee on the Daily Show!
Austan Goolsbee was on the Daily Show last night! Full episode here. Some of you might remember him as the winner of "DC's Funniest Celebrity Contest." Here!
He talked about the Volcker Rule. WSJ has lots of videos on this (Volcker Rule vs. Basel Committee Proposals) Economics of Contempt responded.
Campus Progress quoted Jon Stewart on Students Over Banks!
"The idea of taking away the middle man in college loans would get us 46 billion dollars over 10 years- that, stunned me. That gets us more savings than removing subsidies from oil companies which I guess over 10 years is like 40 billion."
Sorry I haven't blogged in a while...last week was hectic because I was catching up on classwork and work work. And I now have a roommate and a dog!
He talked about the Volcker Rule. WSJ has lots of videos on this (Volcker Rule vs. Basel Committee Proposals) Economics of Contempt responded.
Campus Progress quoted Jon Stewart on Students Over Banks!
"The idea of taking away the middle man in college loans would get us 46 billion dollars over 10 years- that, stunned me. That gets us more savings than removing subsidies from oil companies which I guess over 10 years is like 40 billion."
Sorry I haven't blogged in a while...last week was hectic because I was catching up on classwork and work work. And I now have a roommate and a dog!
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