Archive for March 2009

I loved the kindle,

March 21, 2009

and now it is dead. 😦

And no way to repair it–either buy a new one, or pay $180.00 for a refurb.  I am sad and annoyed.

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In the summer, I went to a talk by regulators,

March 20, 2009

who argued that a big problem they had was that financial institutions did not want to borrow money because of ‘stigma,’ which ended up making the liquidity problems worse.  So the regulators wanted to take away that stigma.

Fast forward to fall 2008, in which the government has ‘solved’ the stigma problem by making the deals better and apparently forcing some of the institutions to borrow money.

Now we know that some of then financial institutions had ‘rational expectations’ about the problems with taking money from the government. 🙂

The more I think of it,

March 18, 2009

the more that I think that this financial bailout is a giant scam.  Follow Bagehot’s rule: Lend freely at a penalty rate if you think that the assets are good.

But that’s what they tried with AIG. Didn’t work, because good assets can become bad assets before the crisis ends.  After all, the Fed was telling us that AIG’s assets were good, they just had a liquidity problem, not a solvency problem.

That could be true, since much of the money is going to collateral, not to pay off claims.  But some are real losses.

Even the ones for the bankers forced by Paulson to take the TARP money?

March 17, 2009

What Congress Can Do To Stop The AIG Bonuses – The Atlantic Politics Channel

That’s one way to get the banks to pay back.  It’s also another way to move people from banks to hedge funds. 

Oh boy the hedge fund guys must be happy.  The survivors are going to be really rich, because they are going to run the next I-banking business.

And all this bonus pay is ‘tax driven’ anyway:

It is worth recalling however, as a reader wrote me today, that we have been here before. The Clinton Administration in its 1993 tax law change wanted to cap the amount of executive pay that could be deducted against income taxes. My correspondent writes:

There was also a loophole, a provision that said that Bonus Compensation was taxed differently than standard compensation. Bonus compensation under those provisions is fully deductible. That was the year when people like Michael Eisner of Disney got large bonuses for performance. Over time, Executive Compensation was shifted from Salary to Bonuses, and such provisions were written into Executive Contracts and those of other high performing employees. Presumably “Bonus Compensation” was to be tied to performance or certainly used as an incentive to get a star performer to move into a failing area of the business to help “right the ship”. Another point that is sometimes missed is that compensating someone with a bonus is being more responsible to the shareholders because this allows the company to structure its tote sheet in a way to reduce the overall corporate tax burden.

Now fast forward to the “Banking Crisis” and “Bailout Packages” and we have a sudden attack on “Bonus Payouts”. People who apparently don’t understand how business works or how to get top level performers to stick their careers out on the line are attacking people who get such rewards.

quoted from:SCSUScholars: What happened last time

I am not a supporter of the bonuses to AIG, but all the current political posturing is a bit rich. 

Awesome

March 11, 2009

Falkenblog: Economists Aren’t More Stupid than Other Scientists

Alas, I don’t know enough physics to judge this.  Perhaps all those ex-physicists and mathematician types who actually run the complicated derivatives models will comment.

The economists’ asteroids are realizations of mean zero random variables…fashionably now with power-law tails.

Economist as charlatan

March 10, 2009

Listening to Paul Krugman on tv telling us that ‘for sure Japan’s government spending during the lost decade saved them from a great depression.’

There is no way he knows that.  No one knows that.