Economy

Has the Market Rally Run Its Course?
September 29, 2009

A potentially telling data point from today's Journal: But some investors don't expect the gains to continue. Barry James, president of James Investment Research in Alpha, Ohio, worries about the recent wave of selling by corporate insiders. Regulatory filings show executives have recently unloaded about $115 in stock in their own companies for each $1 in purchases, a pace unequaled since the market high in October 2007. "Those folks tend to be right in terms of getting out of harm's way," said Mr.

How Legitimate Is the G20?
September 29, 2009

Strong advocates of our new G20 process are convinced that it will bring legitimacy to international economic policy discussions, rule-making, and crisis interventions. Certainly, it’s better than the G7/G8 pretending to run things--after all, who elected them? But who elected the G20? The answer is: No one. And, in case you were wondering, there is no application form to join the G20 (although you can crash the party if you have the right friends, e.g., Spain). The G20 has appointed themselves as the world’s “economic governing council” (to quote Gordon Brown). Is this a good idea? Not reall

Did Weak Lending Standards Really Drive the Crisis?
September 29, 2009

Many commentators assume so. But the role of declining lending standards may be overstated. In a new Atlanta Fed paper, Kristopher Gerardi, Adam Shapiro, and Paul Willen take a look at Massachussets home prices over two housing cycles from 1989 and 2008 and conclude that falling home prices (rather than weak underwriting standards) played the key role in the crisis: [H]ad prices not fallen, we would simply not have had a major foreclosure crisis, regardless of whether lenders had lowered underwriting standards in 2003 and 2004.

Worth Reading
September 28, 2009

NY Mag profiles the founder of conspiracy-theory mongering blog Zero Hedge. On the search for fraudulent pollsters. Cleveland Fed says end of Treasury support for Fed won't be inflationary. Robert Shiller defends financial innovation. A case against mortgage securitization. How the Fed's plan to drain reserves could go wrong.

Tim Geithner as Leading Economic Indicator
September 28, 2009

Or would that be a lagging indicator? Whatever the case, John Harwood reports in his NYT "Caucus" column that: [S]igns that economic growth is resuming have eased the sense of crisis surrounding Mr. Geithner’s work. The economic 'message' meetings in Mr.

Was the G20 Summit Actually Dangerous?
September 26, 2009

It is easy to dismiss the G20 communique and all the associated spin as empty waffle. Ask people in a month what was accomplished in Pittsburgh and you’ll get the same blank stare that follows when you now ask: What was achieved at the G8 summit in Italy this year? Perhaps just having emerging markets at the table will bring the world closer to stability and more inclined towards inclusive growth, but that seems unlikely. Should we just move on--back to our respective domestic policy struggles? That’s tempting, but consider for a moment the key way in which the G20 summit has worsened our pre

Wall Street's Growth: Like a Big Tumor
September 26, 2009

This chart from Princeton's Hyun Shin is the best illustration I've seen of the unsustainability of the boom in the securities sector: In absolute terms, most sectors grew by a factor of 80 between since 1954. But, at its peak, the non-commercial-bank financial sector had grown by a factor of 800. From Shin: The greater detail afforded by the chart in log scale reveals that the securities sector kept pace with the rest of the economy until around 1980, but then started a growth spurt that outstripped the other sectors.

Worth Reading
September 25, 2009

Could the Dems lose the House in 2010? Keynes' "General Theory" was all about rational expectations. And he was right that you could spend your way out of a recession. Significant outflows from mutual funds even as stock prices rise. A primer on how insurance companies make money. Death bonds ain't no mortgage-backed securities.

Obama v. Bush on Protectionism, Cont'd.
September 25, 2009

Just wanted to follow up on my earlier comparisons of Obama and Bush's approaches to trade with two more data points. Both come care of this sober-minded look at recent tariff trends from the DLC. First, if you look at all the temporary tariffs (i.e., the kind Obama just announced for Chinese tires) imposed in the world between 2000 and 2008, you see that the number in 2008 was well below the average across all those years (155 versus 189). Not so in the United States, though.

How to Fix the IMF
September 25, 2009

The headline news from the G20 summit in Pittsburgh is that progress has been made on "IMF reform," meaning increased voting power for emerging markets relative to rich countries--remember that West Europeans are greatly overrepresented at the IMF for historical reasons. But further change in a sensible direction is being blocked by the U.K.

Pages