skeptics and true believers

Bankers give bankers a bad name

2008-12-15T15:12:00.002+08:00

It pains me to see our financial markets and landscape heading further and further south week after week that will soon come tra-la-la-ling in when 2009 comes around.

Now it really pains me to read about rogue bankers misplacing investors capital and ultimately trust from the general public at the expense of taxpayers' money. Credibility is dented and the investor, whether a noob or savvy one, will start to think twice before handing his/her piggy-bank into the hands of a banker. And I am not talking about pennies here, I'm talking about billions of funds. Where was the regulation? Surely the SEC would have seen something amiss happening. Such huge amounts cannot be hidden under the rug for very long.

1 case in point is the Madoff case, the prominent trader who is accused of running a $50 billion Ponzi scheme that left many HNW investors duped. It is stunning how 1 person could have pulled off such a far-reaching, long-running fraud, carrying out all the simple practical chores the scheme required - producing monthly statements, annual tax statements, trade confirmations and bank transfers. Surely fund and money managers of professional advisory firms would have seen something in their P/Bs with regards to any Madoff investments in their portfolios. Did they exercise diligence on their part?

Taxpayers are still fuming that their monies are being compiled into a huge bailout to save companies from bankruptcy. CEOs foregoing their million dollar bonuses as an act of goodwill and responsibility. Big deal. I am pretty sure areas of the general public want to see blood.

Only when the tide goes out do you discover who's been swimming naked.

-Warren Buffet

Next up is the back-to-the-drawing-board bailout proposal of the Detroit Big Three. Will the bailout for them be beneficial in the long term?

2008-12-09T17:05:00.002+08:00

All in a day's work

2008-12-02T11:14:00.004+08:00

Economic (101) View

What Would Keynes Have Done?

N. GREGORY MANKIW

Published: November 28, 2008

IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

Skip to next paragraph

Enlarge This Image

David G. Klein

According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.

The situation reverses, Keynesian theory says, only when some event or policy increases aggregate demand. The problem right now is that it is hard to see where that demand might come from.

The economy’s output of goods and services is traditionally divided into four components: consumption, investment, net exports and government purchases. Any expansion in demand has to come from one of these four. But in each case, strong forces are working to keep spending down.

CONSUMPTION The Conference Board reports that consumer confidence is near its record low. It is easy to understand why consumers are so scared. House values have declined, 401(k) balances have shrunk and unemployment is up. For many people, the sense of economic uncertainty is greater than they’ve ever experienced. When it comes to discretionary purchases, like a new home, a car, or a washing machine, wait-and-see is the most rational course.

A bit more saving is not entirely unwelcome. Many economists have long lamented the United States saving rate, which is low by international and historical standards.

For the overall economy, however, a recession is not the best time for households to start saving. Keynesian theory suggests a “paradox of thrift.” If all households try to save more, a short-run result could be lower aggregate demand and thus lower national income. Reduced incomes, in turn, could prevent households from reaching their new saving goals.

INVESTMENT In normal times, a fall in consumption could be met by an increase in investment, which includes spending by businesses on plant and equipment and by households on new homes. But several factors are keeping investment spending at bay.

The most obvious is the state of the housing market. Over the past three years, residential investment has fallen 42 percent. With house prices continuing to decline, increased building of new homes is not likely to be a source of robust demand over the next few years.

Business investment has lately been stronger than residential investment, but it is unlikely to pick up the slack in the near future. With the stock market down, interest rates on corporate bonds up and the banking system teetering on the edge, financing new business projects will not be easy.

NET EXPORTS Not long ago, it looked as if the rest of the world would save the United States economy from a deep downturn. From March 2004 to March 2008, the dollar fell 19 percent against an average of other major currencies. By increasing the price of foreign goods in the United States and reducing the price of American goods abroad, this depreciation discouraged imports and bolstered exports. Over the last three years, real net exports have increased by about $250 billion.

In the coming months, however, the situation may well go into reverse. As the United States financial crisis has spread to the rest of the world, fast-moving international capital has been looking for a safe haven. Ironically, that haven is the United States. Since March, the dollar has appreciated 19 percent, a move that will put a crimp in the export boom.

GOVERNMENT PURCHASES That leaves the government as the demander of last resort. Calls for increased infrastructure spending fit well with Keynesian theory. In principle, every dollar spent by the government could cause national income to increase by more than a dollar if it leads to a more vibrant economy and stimulates spending by consumers and companies. By all reports, that is precisely the plan that the incoming Obama administration has in mind.

The fly in the ointment — or perhaps it is more an elephant — is the long-term fiscal picture. Increased government spending may be a good short-run fix, but it would add to the budget deficit. The baby boomers are now starting to retire and claim Social Security and Medicare benefits. Any increase in the national debt will make fulfilling those unfunded promises harder in coming years.

Keynesian economists often dismiss these long-run concerns when the economy has short-run problems. “In the long run we are all dead,” Keynes famously quipped.

The longer-term problem we now face, however, may be more serious than any that Keynes ever envisioned. Passing a larger national debt to the next generation may look attractive to those without children. (Keynes himself was childless.) But the rest of us cannot feel much comfort knowing that, in the long run, when we are dead, our children and grandchildren will be dealing with our fiscal legacy.

So what is to be done? Many economists still hope the Federal Reserve will save the day.

In normal times, the Fed can bolster aggregate demand by reducing interest rates. Lower interest rates encourage households and companies to borrow and spend. They also bolster equity values and, by encouraging international capital to look elsewhere, reduce the value of the dollar in foreign-exchange markets. Spending on consumption, investment and net exports all increase.

But these are not normal times. The Fed has already cut the federal funds rate to 1 percent, close to its lower bound of zero. Some fear that our central bank is almost out of ammunition.

Fortunately, the Fed has a few secret weapons. It can set a target for longer-term interest rates. It can commit itself to keeping interest rates low for a sustained period. Most important, it can try to manage expectations and assure markets that it will do whatever it takes to avoid prolonged deflation. The Fed’s decision last week to start buying mortgage debt shows its willingness to act creatively.

It is hard to say how successful monetary and fiscal policy will be in avoiding a deep downturn. But as events unfold, you can be sure that policymakers in the Fed and Treasury will be looking at them through a Keynesian lens.

In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” In 2008, no defunct economist is more prominent than Keynes himself.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and advised Mitt Romney in his campaign for the Republican presidential nomination.

2008-11-05T09:44:00.003+08:00

9 o'clock and 3 o'clock

It was a great afternoon over the weekend in Changi where we got to push these brand new mitsubishi ex lancer gt cars to their limits. it was pretty much a no holds barred affair minus driving into the sea and I am now a proud certified stage 1 stunt driver and I must admit, I love it!

2008-10-18T18:47:00.001+08:00

I havent felt this way in a long time. It's coming back...

2008-10-13T00:14:00.001+08:00

Paris Paris Paris!

2008-10-11T16:57:00.003+08:00

Boss of me

Written by a friend of my sis. Lots of useful insights from the
various entrepreneurs featured.

Do check out her blog @ http://www.bossofmesingapore.blogspot.com/

2008-10-10T09:46:00.003+08:00

Through the Monsoon

And the nightmare continues...

2008-10-09T09:40:00.002+08:00

The heroes' heroes

Festivities came early this year!

2008-09-29T15:57:00.001+08:00

Is this the end of the shadow banking system?

2008-09-15T11:03:00.001+08:00

What we are facing now if the beginning of the unraveling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc.) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank like runs; but unlike banks they are not properly regulated and supervised, they don’t have access to deposit insurance and don’t have access to the lender of last resort support of the central bank (with now only a small group of them having access to the limited and conditional and thus fragile support of the Fed). So no wonder that this shadow banking system is now collapsing. The entire conduits/SIV system has already collapsed with the roll-off of their ABCP financing; next is the collapse of the broker dealers (Bear, Lehman and soon enough the other ones) that rely mostly on unstable overnight repos and other very short term funding for their financing; next will be hundreds of poorly managed hedge funds that will face a tsunami of redemptions; and finally runs on money market funds that are not supported by a large financial institutions or other smaller member of the shadow banking system as well as highly leveraged and distressed private equity funds cannot be ruled out either.

This is indeed the most severe financial crisis since the Great Depression and occurring at a time when the US is falling in a now severe consumer led recession. The vicious interaction between a systemic financial and banking crisis and a severe economic contraction will get much worse before there is any bottom to it. We are only in the third inning of a nine innings economic and financial crisis. And the only light at the end of the tunnel is the one of the incoming train wreck.

Link

Such is life

2008-08-27T09:26:00.000+08:00

Ditto. haha

Are you hanging on to your hero?

2008-08-26T09:32:00.001+08:00

picture courtesy from kerry

Threads

2008-08-23T13:17:00.003+08:00

http://www.thesartorialist.com/press.html

Chasin the Blues

2008-08-18T17:16:00.002+08:00

Have you done your part and called Mohan yet?

2008-08-05T17:11:00.001+08:00

Screwed...

2008-07-23T09:53:00.000+08:00

Your result for The 3 Variable Funny Test...

the Idiot Savant

(19% dark, 46% spontaneous, 42% vulgar)

your humor style:
VULGAR | SPONTANEOUS | LIGHT

You like things silly, immediate, and, above all, outrageous. Ixne on the subtle word play, more testicles on fire, please. People like you are the most likely to RECEIVE internet forwards--and also the most likely to save them in a special folder entitled 'HOLY SHIT'.

Because it's so easily appreciated, and often wacky and physical, your sense of humor never ceases to amuse your friends. Most realize that there's a sly intelligence and a knowing wink to your tastes. Your sense of humor could be called 'anti-pretentious'--but paradoxically enough, that indicates you're smarter than most.

PEOPLE LIKE YOU: Johnny Knoxville - Jimmy Kimmel

The 3-Variable Funny Test!

- it rules -

Take The 3 Variable Funny Test at HelloQuizzy

2008-07-09T09:38:00.015+08:00

He..l.l..o

My blog hasnt seen the light of day for a while now. I will picture-blog now because I'm just too lazy to type.

-------

my time away from home

Stealing a nap in between. I can see you covering your nose in disgust..

MINDEF....please do not charge me....please.....please...

plainsunset

a breath of fresh air. finally something worth listening to.

It was just 1 of those days when compulsiveness kicked in.
who says retail therapy doesnt work for guys?