The New York Times has a multimedia map of unemployment rates by county. Organized this way, it is easy to see how hard the downturn has hit the West Coast. In contrast, the Flyover States are sitting pretty. “What’s the matter with Kansas?” Full employment, that’s what.
Source: New York Times
What's the Matter with Kansas?
|
Interiors
|Real estate listings can be a great source of ideas for interior design and decoration. 
Polished marble floors, rococo wall sconces, crown moulding. 
Raised panel wainscoting, pilaster columns, entablature. .
Now that’s the way to fill the vertiginous space created by one of those vaulted ceilings that were ever so common among 80s vintage houses.
Note the use of light and lighting.
When, exactly, did marble counter tops become mandatory? At least we can say that one legacy of the Great Housing Bubble will be an abundance of fabulous kitchens. Every cloud has its marble lining. How much you want to bet that the appliances are brushed steel?
Heads, I Win. Tails, the Taxpayer Loses.
|Joe Stiglitz disects the Geither Plan and finds it lacking.The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.
Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!
Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.
If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.
Even in an imperfect market, one shouldn’t confuse the value of an asset with the value of the upside option on that asset.
Stiglitz concisely diagnoses the problem:The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.
In a recent podcast of EconTalk, Allan Melzer suggested an alternate approach. Have the banks raise the money they need on the open market while Uncle Sam pledges to match the money raised dollar-for-dollar. If a bank can not raise the money they need, they are insolvent, need to be shut down, and sold off. This way, the taxpayer would only be on the hook if a bank has at least one foot on the ground.
The dead wood needs to be cleared out of the system, not piled on the backs of the taxpayer for years to come.
Getting a Lag Up?
|
(Click image to enlarge)
Calculated Risk has a graph that shows the history of unemployment rates for the last fifty years or so.
Sure enough, unemployment is a lagging indicator: the rate never falls until a recovery is underway. The pattern that surprises, however, is how quickly the rates fell in the 60s, 70s, and 80s after the economy turned the corner into recovery. It’s only in the last 20 years (two recessions) that lag has been so long. What changed in the economy around 20 years ago that would account for this growth in the time lag?
Trillions
|Uncle Sam has put the taxpayer on the hook for an amount nearly as large as the economy itself in just under six months.
The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s. New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.
Source: Bloomberg
Am I wrong to feel uneasy about this? If America were a firm with shares trading on a stock exchange, I would have to take a pass. Too risky.
Subscribe to:
Posts (Atom)