Aimee's Blog

Pieces of Paper: Dollars, Euros, Pounds, and MBS, CDOs, CDS.

So will throwing ‘pieces of paper’ at other ‘pieces of paper’ solve anything?

I’ve been thinking about the stone money of Yap. If the bankers of Yap had created complex derivatives, how big do you think those stones would be?

Perhaps larger than island of Yap itself. Maybe that explains why bankers aren’t lending now.

Stone Money of Yap: Rai Stones

The extrinsic (perceived) value of a specific stone is based not only on its size and craftsmanship but also on the history of the stone.

Aimee

My comments on Hear: Prescription? Borrow. from NPR’s Planet Money.

I imagine the Fed’s job is to ensure confidence and would argue the TED is not a good measure/indicator. Perhaps that is true. But it’s also true that the Fed’s job is to wear rose colored glasses when advising the public on the status of the economy. 

But with the new found popularity of the TED spread (as evidenced in these comments & Planet Money’s popularity, & other web sites), the TED spread now has more significance than ever. 

I’ve read comments on other sites (for traders) about waiting for it to drop a lot before getting back in the market. For me personally, it’s effecting my confidence in the banking sector/financial system and therefore curbing my spending and changing the way I save.

I think the Baltic Dry Index will become more popular too. It’s like what David mentioned about Krugman’s “Widening Grye.” This crisis is growing and sweeping up everything in it’s path.

You can read my latest comments on my Views page.

Aimee
“Aim for Comments” 

Wells Fargo is one of the nine banks that will able to get direct capital injection from the Treasury. This morning CNN Money reports that Wells Fargo will announce “Better than Expected” profits.

What??? Aren’t banks in crisis?

Is our government planning to inject capital into profitable companies?

I am furious with these ignorant bankers taking bets (credit defaults swaps) they can’t cover and getting all of us into this mess. By some estimates, their shadow markets are worth over $500 trillion dollars.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them. 

THE RECKONING Taking Hard New Look at a Greenspan Legacy THE NEW YORK TIMES

Graphic: Shadow Derivatives Market 

If this were just about home foreclosures, we could handle in the same as way as we did the housing debacle of the early 1990s. That episode did not freeze the global credit markets.

This crisis is about untested products called ‘Complex Derivatives’ and those who are responsible for creating & using them should be held criminally responsible.

A few years ago, Warren Buffet referred to these derivatives as, “financial weapons of mass destruction.”

I’m livid. It’s time for me to take a step back and count to ten.

Aimee
“Aim for Knowledge”

TARP Lives! Paulson Secretly Using Fannie and Freddie As Crap Asset Dumpsters

Now, he’s just going to be doing it quietly, through Fannie and Freddie, which have just been ordered to buy $40 billion of garbage a month. [Read more]

Too bad our government couldn’t move a little faster. Ideology clouded Paulson’s decision making. He wanted to solve the crisis with some convoluted plan aimed at purchasing bad assets from banks, rather than just injecting liquidity directly (in exchange for stock). He lost precious time.

It’s hard to avoid the sense that Mr. Paulson’s initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as “private good, public bad,” which must have made it hard to face up to the need for partial government ownership of the financial sector.

Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis.

[Gordon Does Good THE NEW YORK TIMES]

This is the beginning of the end of American world dominance. In my opinion, our decline has come from poor and inadequate leadership. This crisis proves to me that all U.S. government officials from the President to Congress are at fault. Failing to act quickly, rationally, and directly in the global economic crisis is shameful and sad.

It is reality-check time for America. We must get it together or be left behind.

Aimee
“Aim for Understanding”

This is not the first time I’ve written about the Keating Five scandal.  [earlier article]

Please visit a brand new site about Charles Keating, a bailout of banks by U.S. taxpayers, U.S. Senators and Congressional Ethics Charges, oh, and John McMcain at the Center.

The current economic crisis demands that we understand John McCain’s attitudes about economic oversight and corporate influence in federal regulation. Nothing illustrates the danger of his approach more clearly than his central role in the savings and loan scandal of the late ’80s and early ’90s.

John McCain was accused of improperly aiding his political patron, Charles Keating, chairman of the Lincoln Savings and Loan Association. The bipartisan Senate Ethics Committee…

[www.KeatingEconomics.com]

Vote! Vote! Vote! Don’t forget to register and vote this November! (Register Online Now)

Below is a letter that leading American Economists sent to Congress concerning the $700 billion Bailout Plan.

September 30, 2008

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

As economists, we write to support the plan before Congress dealing with the financial crisis. We are well aware that the proposed intervention entails very large sums and considerable risk for American taxpayers, albeit upside as well as downside risk.

Ours is a mixed, private-public economic system. Even in normal times, our government is heavily involved in the economy and holds a considerable claim on the private sector via the tax system. That said, none of us would counsel government arrangements of the proposed type in normal times. Today’s situation is far from normal. Nor, unfortunately, is it unprecedented.

Our country has weathered significant financial crises over the years. It will weather this one as well. The main lesson learned from prior crises is that timely and aggressive government intervention can restore confidence and galvanize the private sector to take mutually reinforcing and economically beneficial actions. This ability of the government to set the economy on a healthy path makes the proposed intervention much less risky than would otherwise seem to be the case.

We call upon all members of Congress to support this important legislation knowing full well that doing so is neither easy nor guaranteed of success. *

Signed by*

Richard J Arnould, University of Illinois
Henry Aaron, The Brookings Institution
Bahram Adrangi, University of Portland
Lanny Arvan, University of Illiniois
Alan Auerbach, University of California at Berkeley
Lawrence Ausubel, University of Maryland
Kathy Baylis, University of Illinois
Valerie R. Bencivenga, University of Texas, Austin
Douglas Bernheim, Stanford University
Dan Bernhardt, University of Illinois
John Bigelow, The Princeton Economics Group
Douglas Blair, Rutgers University
Alan Blinder, Princeton University
Emily J. Blanchard, University of Virginia
Michael Boskin, Stanford University
Ricardo Caballero, MIT
Domingo Cavallo, Fundación Mediterránea, Argentina
Christophe Chamley, Boston University
Joaquin Cottani, LECG, LLC.
Peter Cramton, University of Maryland
Robert H. Dugger, Tudor Investment Corporation
Todd Easton, University of Portland
Everett Ehrlich, ESC Company
Niall Ferguson, Harvard University
Jeffrey Frankel Harvard University
Daniel Friedman, University of California, Santa Cruz
Donald Fullerton, University of Illinois
K.C. Fung, University of California
Eric Furstenberg, University of Virginia
Robert Hall, Stanford University and the Hoover Institution
Daniel S. Hamermesh, University of Texas at Austin
James Harrigan, University of Virginia
James Henry, Sag Harbor Group, Inc.
Firouz Gahvari, University of Illinois
Richard Gilbert, Compass Lexecon
John Goodman, National Center for Policy Analysis
Lawrence H. Goulder, Stanford University
Seung-Hyun Hong, University of Illinois, Urbana-Champaign
William Johnson, University of Virginia
Joseph Kasputys, Global Insight, Inc.
Justine Kilpatrick, retired
Roger Koenker, University of Illinois
Laurence J. Kotlikoff, Boston University
Howard Kunreuther, University of Pennsylvania
Arvind Krishnamurthy, Northwestern University
Kevin Lang, Boston University
Barton Lipman, Boston University
Michael Manove, Boston University
Preston Mcafee, Caltech Robert Margo, Boston University
Walter W. McMahon, University of Illinois
David G. Mathiasen, United States Senior Executive Service
Joe Minarik, Committee for Economic Development
Len M. Nichols, New American Foundation
Van Doorn Ooms, Committee for Economic Development (retired)
Jon Orsag, University of Southern California
Christina Paxson, Princeton University
Thomas J. Prusa, Rutgers University
Salim Rashid, University of Illinois
Bruce Reynolds, University of Virginia
Hugh Rockoff, Rutgers University
Alice M. Rivlin, The Brookings Institution
Isabel Sawhill, Brookings Institution
Elliot Schwartz, Committee for Economic Development
Neil Sheflin, Rutgers University
George P. Shultz, Stanford University
Hal Sider, Compass Lexecon
Alan Spearot, University of California, Santa Cruz
Eric Toder, The Urban Institute
Eric Van Wincoop, University of Virginia
Luis M. Viceira, Harvard University
Ingo Vogelsang, Boston University
Eugene N. White, Rutgers University
Roberton C. Williams III, University of Texas at Austin
Robert Willig, Princeton University
Sidney G. Winter, University of Pennsylvania

* We are signing as individuals and not as representatives of our organizations, which are mentioned for identification purposes only.