Economic Policy Review

You know that the US has a budget every year and t...

2009-11-06T03:10:37.678-05:00

You know that the US has a budget every year and that we pay for that budget by levying taxes and tariffs. When the US government spends more money than it takes in, there's a deficit; a shortfall. Now, to cover that shortfall, the US government sells bonds. We cover the shortfall from the money taken in from sale of those bonds. Once the government sells a bond it then creates ten times the amount of that bond as money available to spend. That's what they do, illogical as it sounds. We sell, on average, about 380 million dollars of these bonds every week. The primary buyers of these bonds are Japan and China but every country in the world does because those bonds represent an IOU from the US government and, in this world, an IOU from the US government is seen as money in the bank. These countries then use those IOUs to back their own currency or buy oil. You can only buy oil in US dollars. There are only two oil exchanges in the world, in London and New York. Both only take US dollars. So if you're from any other country in the world, you need dollars to buy your oil. Because of this, there is always a market for US dollars or, in this case, the next best thing: the IOUs.

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Debt management plan

Interesting. It also seems to me that as lower wa...

2009-11-02T22:20:44.985-05:00

Interesting.

It also seems to me that as lower wage manufacturing jobs migrated overseas it would be natural for finance to be a larger share of what remains for at least three reasons. One, the removal of the other jobs increases the relative share. Two, the expanding global reach of US companies creates a growing need for expansion of finance services. And third, our growing wealth created a greater general need for financial services.

Incentives based on performance are an ideal solut...

2009-05-30T12:22:19.479-04:00

Incentives based on performance are an ideal solution. The problem is that the unions will not allow them.

Yes, that is a good point -- the aggregate dollars...

2009-04-24T15:42:17.646-04:00

Yes, that is a good point -- the aggregate dollars are only limited to Legacy Loan program participants.

If you combine the TLGP issuance and this program, plus the normal deposit insurance fund, it makes the FDIC look like its on pretty thin ice...

This FDIC guarantee may not be as bad as it appear...

2009-04-16T15:52:15.282-04:00

This FDIC guarantee may not be as bad as it appears, from an aggregate dollar standpoint. According to the White Paper on the FDIC website, http://www.fdic.gov/llp/PPIPWhitePaper.pdf, the FDIC is only participating in the "Legacy Loan" portion of the PPIP.

The Legacy Securities program, which is aimed at buying MBSs on balance sheets of financial institutions, is being handled by the Treasury and the Fed. My suspicion is that those aggregate dollars are considerably higher than the "legacy loan" program's dollars.

Of course, your point is still extremely valid and probably accurate. It is just likely to impact a smaller amount of dollars, which would limit the total downside.

You state "In Iowa, Massachusetts, and Connecticut...

2009-04-16T12:03:27.318-04:00

You state "In Iowa, Massachusetts, and Connecticut, same-sex couples are offered the same rights as opposite-sex couples at both the state and federal level." This is false. The federal government does not recognize my marriage. In fact, I just had to do my taxes several different ways -- filing as married for my Mass and Conn. taxes (I live in one state and work in another) and redoing the taxes to file as single for the federal government. And each pay period, my spouse has extra federal taxes taken out of her pay check for the health care coverage I receive via her employer -- since the federal goverment deems our relationship as not a family.

Taxing these bonuses is also convenient for Congre...

2009-03-24T15:21:16.235-04:00

Taxing these bonuses is also convenient for Congress. Since they have had several chances to address these bonus payments before they were made and did not. The unanswered question is whether they did not address these bonuses because a compelling argument was made that they were needed or whether Congress is approving multi-billion dollar capital calls without so much as asking a question.

Bad as this is that AIG employees received bonus payments, I fear far more a world where Congress and the Federal Government unilaterally begins abrogating contracts.

Just mistakes? Their actions wiped out the value ...

2009-03-19T15:19:24.026-04:00

Just mistakes? Their actions wiped out the value of millions of lifetimes worth of working hours.

A trespasser can be shot for burglarizing a garage, but there are no repercussions for bankrupting life's savings?

Political forces push for taxing away these bonuses to appease people who can no longer afford to see these actions as just "mistakes"... people who are instead forced to see these actions as those that led to their accumulated worth being wiped out.

The only thing seperating the "mistakes" that AIG did from capital crimes are unwritten criminal statutes. Unwritten laws that are skyrocketing in popularity within the electorate, due to the narrow view being espoused that these actions should be considered simply as mistakes.

It should be understood that the chance to give back these bonuses is the chance to self-regulate behavior that the nation finds unacceptable. Emphasizing the current legality of the bonus arrangement is tantamount to demanding that legal status be changed.

I think putting more money to infrastructure proje...

2009-02-20T19:09:58.432-05:00

I think putting more money to infrastructure projects would have improved the effectiveness of the bill, and had the added benefit of increasing Republican support for the bill. I agree that tax cuts are not the best way to stimulate the economy and bring about recovery. The market seems to agree that the stimulus bill isn't great...

There are a couple of clarifications with regard t...

2009-02-11T14:00:45.559-05:00

There are a couple of clarifications with regard to this article I would like to make. First, not all hedge funds require investors to be "qualified purchasers." Section 3(c)(1) funds can be sold to "accredited investors" (generally a lower net worth requirement) and in some cases to non-"accredited investors."

Second, the Transparency Act will additionally require hedge fund management companies to register with the SEC as investment advisors under the Investment Advisers Act of 1940. Presumably hedge fund registration will provide hedge fund investors with another level of protection, in addition to the information gathering aspects of the Act.

Keith,Sorry for the delay in postings- we were on ...

2009-01-25T09:59:48.597-05:00

Keith,

Sorry for the delay in postings- we were on Christmas break, so our editorial board was unable to meet. We're back in business now, so you should see a renewed flow of posts.

Thanks for reading,

Eric

Hi,I have noticed that there hasn't been an update...

2009-01-09T11:03:47.693-05:00

Hi,

I have noticed that there hasn't been an update lately. I just wanted to say that you guys make some insight posts and that you should continue updating this blog -- it really does have some good stuff. Keep posting.

Cheers

Duly noted. Sorry for the error.E

2008-12-22T22:05:51.868-05:00

Duly noted. Sorry for the error.
E

Warren has an M.S. in Economics

2008-12-19T20:31:47.912-05:00

Warren has an M.S. in Economics

I'm a lawyer, and my firm carries contingent fee c...

2008-12-16T20:49:03.756-05:00

I'm a lawyer, and my firm carries contingent fee clients. We make an investment in their case. We take risks too. Should we be able to claim capital gains for any fee recovery?

Let's say you take a project on spec--that is, take the risk that the client won't pay, or will cut the bill. Should you be able to claim capital gains treatment?

Let's say you invest in your education. Should you be able to claim that your increased earnings qualify for capital gains treatment.

Where does all this foolishness end?

How does this increase the supply of physicians gi...

2008-12-16T20:43:16.560-05:00

How does this increase the supply of physicians given that the AMA seeks to restrict imports and/or the number of doctors admitted to training?

If we gave everyone $10,000 to buy a car, the price of a car would go up by some amount. Giving hospitals money to forgive loans does not increase the supply of doctors and only increases the price paid for physicians.

Corey, as the auto companies are out of cash, if t...

2008-12-14T17:10:17.882-05:00

Corey, as the auto companies are out of cash, if they entered Chapter 11 they would need an immediate loan. These are typically available to companies in Chapter 11 (they are called debtor-in-possession, or DIP loans), but the confluence of the credit crisis and the ugly position of the automakers means that no lender is likely to want to provide DIP financing. I am in complete agreement that a Chapter 11 restructuring would help them, but without the DIP loan, they would end up in Chapter 7. Hence my suggestion in an earlier article for the government to provide the DIP loan with some additional features, and then use the normal bankruptcy process.

Texan in Grad School, you are obviously right.

I think this sums it up here:http://www.geeksarese...

2008-12-13T11:23:08.229-05:00

I think this sums it up here:

http://www.geeksaresexy.net/2008/12/10/a-message-from-north-american-car-manufacturers/

How about no evil?Why is passing any bill required...

2008-12-12T17:21:49.905-05:00

How about no evil?

Why is passing any bill required? Chapter 7 is not where they are headed, it's Chapter 11. This would allow for an orderly restructuring of their flawed business model.

I think you mean "wreak havoc" not wreck. Wreckin...

2008-12-12T02:14:22.630-05:00

I think you mean "wreak havoc" not wreck. Wrecking havoc doesn't make sense.

The solutions proposed at the end of your post are...

2008-12-09T17:32:04.759-05:00

The solutions proposed at the end of your post are great, but they are not as simple as they appear. As you mentioned in your post, carbon taxes could help decrease consumption. However, it can affect companies' profitability; in this economic situation, anything that can hurt industry is feared and frowned upon. It would be great to stop, or at least reduce, deforestation, but one of the current causes is the high soy costs that is driving more Amazonian farmers to cut down the rainforest to plant crops. Trying to solve this problem is even more complicated because of the global issues. The last suggestion that government create green jobs is probably the best solution given the relative simplicity of the task and its potential ability to improve the economy.

I think what you're seeing is the effect of social...

2008-12-05T13:53:07.191-05:00

I think what you're seeing is the effect of social networks and internet marketing. It can effectively organize small, individual donors and mutes the advantage of larger, more aggregated pools of money that "influential" folks control. I wonder whether or not the spirit of campaign finance has been satisfied with this evolution? If this is so, the marketplace once again solved what lawmakers tried to do through legislation.

So one possible answer is that the CDS contracts a...

2008-12-03T18:07:37.756-05:00

So one possible answer is that the CDS contracts are structured as "pay as you go" contracts. There are two types of CDS: one that only pays in the event of the default, and one that pays based on an underlying index (the ABX subprime asset-backed index is used for pay as you go CDS on subprime bonds, for instance). If this is pay as you go, where the CDS settles daily, paying any payments from insurer to insured, then these would make sense... but I'm not sure what index you would use... and so find this an unlikely possibility.

Dick Fuld? Jimmy Cayne? Take your pick of any inve...

2008-12-03T17:47:46.990-05:00

Dick Fuld? Jimmy Cayne? Take your pick of any investment banker CEO, or even more appropriately, mortgage originators...

Totally agree, although i would argue that the US ...

2008-12-01T21:40:30.341-05:00

Totally agree, although i would argue that the US is actually better off here than a lot of other countries. I know that in Belgium no one (and i mean no one) with any sense would ever go for a job in government. Here you at least get some competent people (e.g. Madam Nguyen :-))

But good point nonetheless