Commercial paper uncorrelated to GDP growth
Reading Casey Mulligan, it occurs to me that it will be ironic if GDP continues to grow in the near future, since the politicians will claim that they were responsible for good GDP numbers because of their bailout, when in reality they had nothing to do with it: http://caseymulligan.blogspot.com/2008/09/wall-street-will-drown-alone.html There was a time when people believed that the Sun and stars revolved around the Earth. Of course, now we know that the Earth is not the center of the universe, or even the center of our little solar system. In the somewhat more recent past, economists thought that the non-financial sector in a modern economy revolved around financial markets, despite the facts that only 4 percent of the workforce was employed in the financial sector (including insurance and real estate), and even today that sector employs only 6 percent of the total. President Bush and supporters of the recent massive Wall Street bailout plan still believe Wall Street to be the center of the entire economy. Economic research over the last couple of decades rejects this belief. It has shown that the financial and non-financial sectors experience quite independent changes, especially over the short and medium term. Take for example the promised yield on the best commercial paper. Fluctuations in this yield are critically important to persons in the financial sector (such as money market traders), but have hardly anything to do with activity outside of that sector. Since World War II, the correlation between the inflation-adjusted commercial paper yield and subsequent inflation-adjusted growth of GDP per capita is zero. That is, GDP growth has been high following high yields just as often as it has been low. It is equally hard to detect a correlation between stock returns, long term bond returns, or commodity returns and subsequent GDP growth. Quite simply, history has shown that the non-financial sector can do well when the financial sector does poorly, and vice versa. In order to find good predictors of non-financial sector performance, and GDP growth generally, we look to the non-financial sector itself. One of those predictors is the profitability of non-financial capital, or the “marginal product of capital” as we economists call it. The marginal product of capital after-tax is a measure of how much profit (revenue net of variable costs and taxes) that each unit of capital is producing during, say, the last year. When the marginal product of capital after-tax is above average, subsequent rates of economic growth (and subsequent marginal products of capital) also tend to be above average. The weak correlation between asset prices and non-financial sector performance and the strong profitability of today’s non-financial capital are two good reasons to scoff at the idea that the non-financial sector will collapse because of the recent events on Wall Street, and even better reasons to scoff at the Bernanke-Paulson-Bush idea that a massive bailout of financial firms is the key to avoiding a non-financial collapse. Wall Street’s woes are and will be largely limited to Wall Street. The Bush administration should not use the power of the IRS to force the rest of us to board Wall Street’s sinking ship. Of course, six percent of the workforce is bigger than zero, so a Wall Street mess has indirect effects on the non-financial sector as it absorbs former Wall Street employees and finds alternatives to the financial services Wall Street once provided.. But, as long as the government does not get in the way, the marketplace will quickly react to provide the non-financial sector with financial services, even if the main players in that marketplace are no longer named Lehman, Merrill, or Goldman. There are two basic obstacles that Washington might create in this process, both of which are included in the Bernanke-Paulson-Bush proposal. One is to pile on regulation and further impede entry by new firms that might provide financial services to the non-financial sector in the years ahead. The second is to impose a heavy tax burden on the non-financial sector to pay for Wall Street subsidies. The Treasury and the Fed should let Wall Street drown alone, to be replaced by new financial service providers who can swim as robustly as are non-financial American businesses. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams wrote: Imagine that you, me, and a few other stupid guys believe that some stock prices will go up tomorrow by 10%. What should we do? Not enough information. What probability will they go up by 10%. What are other possible outcomes and probabilities? How much money do we have to risk? It should be implicit, by what I wrote next, that those stupid guys knew for sure that prices would raise by 10% - and they are wrong. After all, what's the point calling them stupid? Now suppose that some smart guy _knows_ that there's a 50% chance that tomorrow's price will raise by 100% and there's a 50% chance that tomorrow's price will get back to 0%, and that whenever he puts money in that, the g*vernment steals 1% from him. That is straightforward to profit from with any number of options strategies. Look up long straddle and long strangle for example. I am making it simple. There ain't no options. Just buy or (short) sell. Would s/he be wise to put his/her money into this lottery just to prove that we are fools? Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] I am making it simple. There ain't no options. Just buy or (short) sell. Oversimplifying, and missing obvious ways to make money. Typical of people who think they know better how to spend other people's money. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
John Williams wrote: I am making it simple. There ain't no options. Just buy or (short) sell. Oversimplifying, and missing obvious ways to make money. Typical of people who think they know better how to spend other people's money. Goodbye. I won't waste my time with Trolls. Alberto Monteiro ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] Goodbye. I won't waste my time with Trolls. Unfortunately, that is NOT typical of those who think they know better how to spend other people's money. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
You Can't Rescue the Financial System If You Can't Read a Balance Sheet
http://hussmanfunds.com/wmc/wmc080929.htm What the financial system has needed most has been for Congress to streamline the bankruptcy process for investment banks, so that in the event of failure, the “good bank” (assets and liabilities, ex the debt to bondholders) could be cut away quickly and liquidated to an acquirer, leaving the proceeds as a residual for the bondholders. Indeed, that's exactly how it works for regulated banks. What investors overlooked in last week's panic was that we actually saw the largest bank failure in history – Washington Mutual – with absolutely no losses to customers or the U.S. government, precisely because the good bank was seamlessly cut away and sold to J.P. Morgan, wiping out shareholder equity, preferred equity, and subordinated debt, with partial repayment to the bondholders. Snap – just like that. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
On 9/28/2008 7:14:14 PM, John Williams ([EMAIL PROTECTED]) wrote: Alberto Vieira Ferreira Monteiro [EMAIL PROTECTED] Goodbye. I won't waste my time with Trolls. Unfortunately, that is NOT typical of those who think they know better how to spend other people's money. Yes it is. xponent Cry Havok Maru rob ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: My contribution to the bail-out
Rceeberger [EMAIL PROTECTED] Yes it is. I wish I lived in your world, then. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Male or Female?
http://www.youtube.com/user/17586063 This person has the 8th most subscribed channel on YouTube-Japan. But the controversy among a group of people I know is over this persons sex. Is this a cross dressing guy? Is it a 24 year old woman with great guitarist hands? In either case this person plays guitar very well and can play some piano too. Opinions? xponent Or No Controversy At All Maru rob ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: $10
On Sep 26, 2008, at 11:17 AM, Jon Louis Mann wrote: In this case, Jon claims that John Williams is channeling erstwhile list-member Eric Rueter with his gruff posts. Dave i guess eric was before my time, but i am not the one who accused jw of channeling eric, i doubt jw is on that level. i do suspect that jw is using an alias. i wonder have much five pounds is in today's dollars? Five pounds of what, would be the determinant. Dave ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: $10
On Sep 26, 2008, at 11:11 AM, Richard Baker wrote: Dave said: In this case, Jon claims that John Williams is channeling erstwhile list-member Eric Rueter with his gruff posts. I don't recall a list member of that name, but there was an Erik Reuter. OK, Mr. Spelling Person, I stand corrected :-). Dave ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: Books, was Proper function..
John Williams wrote: David Hobby [EMAIL PROTECTED] ... It could be that The Atrocity Archives is best appreciated if you know a lot of theoretical computer science, so I'll withhold comment. Did Stross come from a CS background? When you say theoretical computer science, do you mean something like Knuth or Sedgewick? Or further back, like von Neumann? John-- I guess I'd say like Karp. The books are set in a universe(?) where P equals NP. Once one has a polynomial- time algorithm for doing NP-complete problems, Computational Demonology becomes feasible... : ) He has a few other stories where P equals NP. One of those is Antibodies, which appears in _Toast, and other rusted futures_. Apparently the standard behavior for AIs that get a bit above human level in intelligence is to promptly rush to transcendence, eventually hacking the computational substrate of the universe itself. Finding how to do NP-complete problems in polynomial time is one of their first steps along the way... ---David ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: More on the meltdown
http://delong.typepad.com/sdj/2008/09/kron-4-5-pm-sun.html Former brinneller Brad speaks up. xponent In The News Maru rob ___ http://www.mccmedia.com/mailman/listinfo/brin-l
