ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
August 12, 2011
The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
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Yves Smith at Naked Capitalism had a pretty detailed post calling into question the valuations on the AIG CDOs in that article:
http://www.nakedcapitalism.com/2010/01/ft-joins-ranks-of-shameless-fed-boosters-runs-front-page-story-with-incredible-claims-re-aig-cdos.html
On the 2010 Index - Canada is penalized pretty lightly for having consistent but stably higher tax rates and a welfare state (universal health care and so on). On the other hand, the US is penalized pretty heavily in financial freedom and property rights, both of which seem tied to the short-term political storm.
This isn't a new pattern; Singapore's government outright owns and runs a huge proportion of its GDP via it state investment arms, but consistently ranks high on the Index. The Index just weights stability very, very highly, even over the strict idea of free markets.
This, on the other hand, is a more accurate reflection of US vs. Canadian government roles in the free market, I think.
You are rich!
My vote is for NZ. Remember, with a telephone, YOU make the call!
Just in case one doesn't pick up that NZ reference straight off:
http://www.youtube.com/watch?v=JMvtKy1zFfY
Even if the numbers are correct, that would mean that the securities have retraced 50% of their decline. Wouldn't that mean that at best 50% is liquidity-related? After all, they aren't trading at 100 cents on the dollar.
How come there's not a ETF that shifts money around between country indexes based on the economic freedom index or some equivalent. Is the lag in how often th economic freedom index is updated simply to slow that the market has already priced in all those considerations?
The reason I always believed this was a liquidity problem (I wrote about this obsessively on my blog in 2008 and early 2009) was through a "bottoms up analysis"---the best of which was performed by William Lucy of UVA. The "implied foreclosure" rates (think implied volatility during a crisis) were so high as to not be plausible for the long run.
Of course a liquidity crisis can lead to a solvency crisis, so there is always circularity in these arguments. This is one reason the Fed is sitting on AIG CDS gains. As of this summer, at least, AIG had not yet suffered a default in its CDS portfolio.
This was a bad problem made almost catastrophic by government misunderstanding, and a literalistic interpretation of the meaning mark to market accounting. We did have a problem---but it was smaller than perceived. But the loud guys (read--"Goldman" and others) had a bigger problem than did the financial system---which they happily equated as the same thing.
Now we have various "fixes" proposed which are non-sequiturs. If we had simply forced financial firms to use the same margin rules in CDS as they do in their repo books (or on futures exchanges), AIG and others would have been a fraction of their size---as would have the CDO/MBS market. (Imagine also if Fannie and Freddie had no de facto government guarantee? How plausible would a global real estate bubble have been?). The proposed "bank fix" announced today is both besides the point and probably harmful, as it is bound to lower liquidity.
We also don't need "Greenspan caused the bubble" theories to explain the magnitude of the 2007--2008 problem, even if the Fed got the ball rolling.
At least in 1998, Greenspan did not put taxpayer dollars at risk. AIG and LTCM were identically caused---they demanded and received huge non-collateralized credit lines. These single handedly put the financial system at tipping points from a liquidity perspective. But if normal futures/repo cash collateral rules applied, no one could ever get that big. Liquidity crises, in these two instances at least, were caused by allowing these entities to have "infinite" leverage. We continue to make this more complex than it is.
The irony is I disagreed with the Paulson/Geithner solution, even as I agreed with their liquidity analysis. Why should companies be bailed out from liquidity problems? They should solve it themselves (think 1907). Solving a liquidity crisis is the first line of defense against a solvency crisis. Look how quickly we recovered in 1907 and 1998. No Fed in 1907 and no Govt bailout (arm twisting is different than money given) in 1998.
Still, the real estate losses were overstated in 2008. Why do you think the financial institutions have such high profits in a weak economy? Where do you think a good chunk of those over stated 2008 losses went?
To 2009's income statement.
[blog link fixed--Econlib Ed.]