a fat panda

Are Fed MBS Purchases Really Holding Mortgage Rates Down?

"If rates are going to rise in the future (and I think they will), it will not be because the Fed stops buying MBS, it will be when the Fed and the market realize that policymakers and market participants have mistakenly assumed that inflation risk is extremely low because of the economy's excess capacity (aka slack)."

And what would happen if the Fed had to start liquidating these assets because the policy makers overestimated the willingness of investors to buy US paper.

The King Canute Economy: Governments' Futile Attempt to Stem the Tide

King Canute is fair. I think an equally apt comparison would be the little dutch boy who having run out of fingers is now just shoving dollar bills into the ever widening cracks in the dam.

Robert Shiller wonders if the recovery is just an optimist's self-fulfilling prophecy: "After all these months, people start to think it's time for the recession to end. The very thought begins to renew confidence, and some people start spending again - in turn, generating visible signs of recovery."

I am not sure what data points that Shiller is seeing. I look at my local area, and discretionary spending isn't improving. What little I see is that spending is very tight. In fact even non-discretionary spending seems to be down. The people I talk with tell me that donations at church are down. For those that don't attend, this stat isn't alarming, but those that do understand that church donations aren't discretionary. I don't see how spending is improving when non-discretionary spending is flat to down.

This may be a local indicator but it isn't a good one for where I live.

More AIG Controversy: Maiden Lane III

Milton Friedman noted that there are four ways to spend money, ranging from spending your money on yourself to spending someone else's money on someone else. He looked at the impact on quality and quantity of consumption. Here is a fifth, you are spending someone else's money on friends and family. The results shouldn't surprse anyone. "The argument for the NY Fed is that the banks had legal contracts that entitled them to the money. "

If you are going to talk about contracts, you can't talk about 2 lines within the contract ignoring the rest of it. The banks were owed money, yes, but these legal contracts carried counter-party risk. So the banks were owed money based on AIGs ability to pay. So the Fed's real argument should be the banks wanted money that didn't exist so we took it from the people who save in dollars.

25 Reasons We Will Not Have a Depression

"Without dwelling on or developing these points"

The next time you post an article you might want to dwell on it bit. Most of what you have said ranges from unsubstaniated to the truely silly :

The biggest problem is that virtually all of your points are transitory which reflect the level of debt incurred by the government. Debt is borrowing demand from the future. So while you are up today, you are apt to relapse tomorrow because of slack demand.

"The rate of new jobless claims is dropping steadily"

As a result of the stimulus and all of the saved jobs? Or we are heading into Christmas and temp hiring is up.

"Government will have paid-back TARP moneys to use soon"

With money borrowed at the Fed Discount Window?

"We are economically better off than we were a year ago"

On what planet do you live? I live in a fairly economically secure area which had maybe 2 or 3 store closings over the last 5 years. Today it is 20. (Of course these aren't banks)

25 Reasons We Will Not Have a Depression

"-- Most economists do not believe a depression is very likely"

Hear that is causing a depression in me.

This isn't even a reason. These are the same guys who missed the coming of the crisis in the first place. It is a statement that a lot of guys who have a terrible record at the track think that their horse won't come in last.

25 Reasons We Will Not Have a Depression

"Big TARP banks are doing better"

And how is the Fed doing with its 2 trillion dollar balance sheet. How are the smaller banks doing because the government decided that bigger banks need to be 'doing better'.

The Fed didn't exactly cover itself in glory in its oversight roles, but neither did any other agency, writes John Berry: Let it regulate.

This article is a great read for anyone who doubts the incompetence of government. You would have assume that he is kidding but he isn't.

Here is the gist of the article : The government decided that we had to save these banks. Now it wants to regulate them. Why? to protect the taxpayer from the entities to be saved. Get this : it is now arguing about which branch did the poorest in the last round of regulation. So we are saving crappy banks with crappy regulators, and we wonder why the dollar is getting hammered.

And now you get to the incompetence part, guess who the saved banks are lending to, the government which is in need largely because it is trying to save the banks. Guess what the banks are arguing about? How to increase payscales in a dying business.

Oh yes, I know, if we don't save them the world will end, yeah yeah I heard it before. Opps... Gotta run... There is another storing close sale opening this morning gotta run. Thank heaven that we saved the banks.

Krugman on the Invisible Bond Vigilantes

PK asked "Since we’re still able to sell debt so cheaply, why is anyone worried about more deficit spending?"

Because the number 1 buyer of treasuries would be the Federal Reserve.

U.S. Debt May Undermine Long-Term Growth Prospects

You are looking at the present obligations impact on the future. You really ought to include future obligations as well. Once you factor in costs like medicare and Social Security, 12 trillion is only a small part of our problems.

The Twenty Year Stock Bubble Is Still Inflated

Great article. I would like to have seen you discuss profit margins as well. Here is why: I don't dismiss the historical relationships, but I would ask you how do you factor in the advent of the PC? You will note the break with the past started in early 90s when PCs were just gaining wide acceptance in the market place. Adding the PC made 1 do the work of two. In my case, I went from programming on 3 PCs to just 1 because the speeds were faster. Our contribution to GNP didn't increase all that much, but we did it with a fraction of the input costs. This is about increasing profit margins which made the value of the business go up a lot.

Bubble Risk Rises with Low Rates

Believe it or not, raising interest rates may well lower joblessness.

Currently banks are giving the choice to loan money to the government which is risk-free money since they borrow from the Fed at zero percent or lending it out to business. With the cost of capital at zero, people accept returns near zero. If you raise interest rates you will force capital into more productive projects. As it is, banks are will to sit on REO, and watch it depreciate.

Separately as rates rise, lenders to the banks will be able to spend the increase in interest. This would put disposable income in the hands of consumers, well other than the bankers.

CDS Regulation: Just One Simple Rule

Kid, Here is my primary concern with CDSs which aren't tied to an insurable asset. They are betting on failure. We are tying up a considerable amount of capital in this market, which that isn't terrible different than a horse race where people are betting on who will finish last. Is that a race you would watch?

In the same way these things are terrible for the economy when you consider the trapped capital and what it could be doing. Consider that hedge fund which borrows a dollar to fund a CDS is responsible for a dollar lost to the economy to promote a bet on failure. We then see the hedge fund do its best to destroy the company in which it has a bet. All told the economy would be better off if the dollar went to open a bar in a brothel.

CDS Regulation: Just One Simple Rule

"Now, here's why it's fallacious logic to apply this reasoning to CDS. If I buy CDS on a company without owning any of the underlying debt, I cannot effect the health of the company."

Rumor has it that you can affect the ability of the company to raise capital. Lowering the ability a company to raise capital in the equity markets does effect the health of the company.

I saw Ackman get on CNBC with a proposal to save the GSEs in which the equity holder would have been completely screwed. The stock opened 25% down. Here it is on SeekingAlpha.

seekingalpha.com/artic...

If the likes have Ackman had to hold the underlying securities to make money on this kind of activity, he wouldn't be so quick to destroy the underlying business.

The Jobless Rate-Interest Rate Conundrum

4. The dollar buys things that are from the US. If productivity rises or innovation leads to new products, there will be a flight to the dollar.

But we are heading in the other direction as far from productivity and innovation as possible. The government is forcing capital into banks to hold bad loans. These loans have low productivity which is why they went bad in the first place. We subsidize the bankers keeping people in banking and away from innovation. It is a killer.

On Nov 19 04:29 PM Mark Bern wrote:

> The last paragraph makes an intriguing point. My guess is that there
> are only two or three non-financial events that could cause enough
> flight to the dollar. I may be wrong, of course.
>
> 1. A major war that involves an entire region of the world, causing
> most nations to chose sides.
>
> 2. A major disruption in the supply of oil (and I do mean major),
> such as an explosion in the Alaskan pipeline or something on the
> scale of the Gulf War demolition of hundreds of wells, taking them
> all offline, another Katrina, or significant sabotage efforts that
> shuts down one or more of the major export ports in Saudi Arabia
> and takes it off line for more than six months.
>
> 3. Revolution in one of the major economic engine countries of the
> world, such as China, Russia, India or Brazil. I think the first
> two would ring higher on the scale.
>
> Am I missing something else?