More Unemployment Stuff

January 9, 2010 at 11:14 pm · Filed Under The Economy · Comments Off on More Unemployment Stuff 

There are some nice charts over at the big picture to get a visual representation of the current job market.  In summary, things don’t look good.

The New Geithner Toxic Asset Plan

March 22, 2009 at 11:26 pm · Filed Under Broader Market, The Economy · Comments Off on The New Geithner Toxic Asset Plan 

I’m not a fan of most of the current economic policies, and at least I know Paul Krugman, the Nobel Prize winning economist, isn’t either

In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities.  For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Basically, people are refusing to believe that the toxic assets held by the banks are indeed worthless.  By continuing to back these assets, it’s just racking up a huge bill for the taxpayers that will keep snowballing until they cut their losses.  We’re basically playing with a martingale strategy — given an infinite bankroll we could actually break even since the toxic assets will eventually be valued correctly.  The only problem is that we don’t have an infinite bankroll, so eventually we could find ourselves at the point that we can’t double up anymore and we’ll have to eat a catastrophic loss. 

Let the Bankrupt Go Bankrupt

March 1, 2009 at 3:09 pm · Filed Under The Economy · Comments Off on Let the Bankrupt Go Bankrupt 

Nobody listens to me, but maybe they should listen to Jim Rogers, the legendary fund manager who cofounded the Quantum Fund with George Soros.  He had an interview with Business Week last week where he gave his views on all the bailouts:

So what should they be doing?

What would I like to see happen? I’d like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn’t go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don’t care if you did it right or not, we’re going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it’s terrible morality.

Unfortunately nobody will listen to him either, so responsible homeowners and taxpayers will end up shouldering the burden.  At least it makes me feel better knowing that I’m not alone in my views though.

Housing Bailout

February 18, 2009 at 10:04 pm · Filed Under The Economy · Comments Off on Housing Bailout 

You can check out Calculated Risk or The Big Picture for their comments on the new housing plan.  I agree that this plan doesn’t acknowledge the fact that many people buying primary residences were still just speculators using leverage and hoping for home price appreciation.  The people that bought homes with zero down negative amortization loans on the hopes that they could sell it after the price went up will still be bailed out now. 

I also don’t like the ability to force cramdowns through either.  The point of a secured loan is that the lender can take back the collateral if the borrower doesn’t pay.  If the lender sees a benefit to modifying the principle owed, then it should be up to them to modify it.  At the very least, if you had your principle reduced, any price appreciation up to the original loan amount should go back to the lender if you sell your house for a profit ever.  Oh well.  Punish prudence and reward recklessness.

Stimulus Package FAQ

February 15, 2009 at 11:15 pm · Filed Under The Economy · Comments Off on Stimulus Package FAQ 

Saw yet another entertaining post over at The Big Picture explaining the stimulus bill:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China ?
A. Shut up.

Yup, that pretty much sums it up…

Bubble Prevention

January 6, 2009 at 10:36 pm · Filed Under The Economy · Comments Off on Bubble Prevention 

The Fed is always quick to cut rates when things turn sour, but never as quick to take action when things are rising too quickly.  How about preventing bubbles and shifting policies before things get out of hand on the upside as well as the downside?  Barron’s agrees

Asset bubbles swell when risk appetites are high and credit spreads are narrow. Had the Fed considered spreads in its policies for 2004 and 2005, its tightening might have been much more aggressive. Home prices might have cracked much earlier. And today’s recession might have been much milder.

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