Podcast of the Day

Acemoglu on the Financial Crisis

Carnival of Economic Podcasts

More Or Less;
The numbers behind the news with presenter Tim Harford. This week: the figures behind fertility, statistical significance and what is a recession?

Phelps Says Unemployment Has `Exploded Like a Virus'

Levitt Says Davos Exhibits `Extravagence' of Power, Excess

Case Says Housing to Hit Bottom This Year as Building Stalls
Karl Case, an economics professor at Wellesley College and co-creator of the S&P/Case-Shiller home-price index, talks with Bloomberg's Pimm Fox and Ken Prewitt about U.S. housing.

LSE's Davies Sees More Turmoil in U.S. Insurance Market

Taleb Says Banking Is Organized to `Milk' Investors

Stephen Roach Says Mood at Davos Is `Very Pessimistic'

Yale's Levin Says Economic Stimulus May Not Be Enough

Hausmann Predicts More Fiscal Regulation in 2009

Geiger Says Lawsuit Could Expose Madoff's Swiss Assets

Big Powers/Small Conflicts - The U.S. in the Sri Lanka Peace Process

Reflections on the World Economy - Paul Volcker

Origins of and Responses to the Ongoing Financial Market Crisis

Crisis and Capitalism: Does History Suggest Where We`re Headed?
Michael Bordo, Prof. of Economics, Rutgers University; Jerry Muller, Professor of History, Catholic University of America; Robert J. Shiller, Arthur M. Okun Professor of Economics, Yale University; Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, New York University .

The Stimulus Evaluated

Myron Scholes Global Markets Forum: Evaluating Obama's Proposed Stimulus Package
A Panel Discussion featuring John Huizinga, Robert Lucas and Kevin Murphy

Here's the video

EU Financial Stability actors

OECD Economic Surveys: Euro Area 2009

Podcast of the Day- Tim Harford

Presenter Tim Harford considers the risks of eating Irish sausages contaminated with dioxin; why the latest retail sales figures are not as bad as the retailers' make them sound; the quirks of British street numbering; and he witnesses the most important numbers in the world being calculated: the London Interbank Offered Rate - LIBOR.

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Kyrgyz - Investment Climate

Kyrgyz Republic: Preparing the Investment Climate Improvement Program

Podcast- Accounting's role in the crisis

Wallison Says `Fair Value' Accounting a Cause of Crisis

Peter Wallison, a fellow at the American Enterprise Institute, talks with Bloomberg's Tom Keene about the outlook for the proposed $700 billion bailout of financial institutions, the role accounting rules played in the credit crisis and the risks facing financial markets and the economy

Loan interview of the 21st century

Sub-prime's impact in emerging markets

The sub prime crisis : implications for emerging markets

Summary: This paper discusses some of the key characteristics of the U.S. subprime mortgage boom and bust, contrasts them with characteristics of emerging mortgage markets, and makes recommendations for emerging market policy makers. The crisis has raised questions in the minds of many as to the wisdom of extending mortgage lending to low and moderate income households. It is important to note, however, that prior to the growth of subprime lending in the 1990s, U.S. mortgage markets already reached low and moderate-income households without taking large risks or suffering large losses. In contrast, in most emerging markets, mortgage finance is a luxury good, restricted to upper income households. As policy makers in emerging market seek to move lenders down market, they should adopt policies that include a variety of financing methods and should allow for rental or purchase as a function of the financial capacity of the household. Securitization remains a useful tool when developed in the context of well-aligned incentives and oversight. It is possible to extend mortgage lending down market without repeating the mistakes of the subprime boom and bust.

Assorted Podcasts

Malvey Says Financial `Risk Storm' Has Not Subsided

Morgan's Roach Says Bailout Plan Will Help Stop Panic

Rogoff Says U.S. May Spend $1.5 Trillion to End Crisis

Professor Meltzer Sees Fed Setting `Terrible Precedents'

New York Mellon's Woolfolk Says U.S. Dollar Has Bottomed

Would Fiscal Policy defense work?

IMF's John Lipsky at UCLA Economic Forecasting Conference;

Fiscal policy provides a second line of defense. It has played a role in the United States already and automatic stabilizers are appropriately providing support elsewhere in other advanced economies. In many emerging economies, fiscal policy will have to play a supportive role to monetary policy in helping to bring down inflation.

Fiscal policy is broadly appropriate across the advanced economies, but room for maneuver is limited given the need for medium-term fiscal consolidation in many of these countries. However, support for the financial sector inevitably will involve budgetary costs that must be taken into account in considering policy alternatives.

In emerging economies where inflation remains a problem, fiscal policy should play a more supportive role in restraining demand growth and easing inflation pressures. In particular, greater restraint on spending growth would be helpful as a complement to tighter monetary policy.

Direct intervention is the third line of defense. It has become obvious that direct fiscal intervention is going to be needed in the United States and elsewhere in order to attain the goals of removing distressed assets from financial institutions' balance sheets, and in recapitalizing the financial system where appropriate.

In this context, we welcomed the decisive actions taken by the U.S. authorities to shore up the GSEs, providing crucial support for the U.S. housing market, the banking system, and the broader economy. Over the longer term, a deep restructuring of the GSEs remains essential to restore market discipline, minimize fiscal costs, and limit systemic risks for the future. Ultimately the conflict of private ownership and public policy objectives within the GSEs' former business model needs to be resolved.

The challenge of removing distressed assets from financial institutions' balance sheets currently is front and center, with the US authorities' TARP proposal currently being examined by Congress. The discussions of the TARP have underscored the myriad difficult judgments that have to be made in order to make such a program a success. It is possible that similar challenges will be faced by other advanced economy authorities in the coming months. Earlier this year, the IMF proposed a solution based on long-term swaps of mortgage securities for government bonds. The advantage of such an approach is that it provides near-term relief for bank balance sheets, while ultimately leaving the underlying credit risk with the banks, rather than the taxpayers. In any case, the current discussions also have underscored the importance that moral hazard issues play in direct fiscal intervention in resolving financial sector crises.

More broadly, efforts aimed at alleviating systemic risks, including notably the provision of support to key financial institutions, will require sound judgment. For example, the current market strains to some degree reflect solvency risks. underscoring the need for a systematic and comprehensive approach to deal with distressed assets of failed institutions and in the financial sector more broadly.

In these circumstances, the key is to strike the right balance between safeguarding present financial stability and limiting future moral hazard. This task is by no means an easy one, but the consequences—either in the short- or longer-term—would be severe if the pendulum swings too far in either direction.

Photo of the Day

Source: NYT

Sub-prime crisis looking cool

A Year of Heavy Losses- a visualisation of the losses on Wall Street.

Assorted

Treasury’s Financial-Bailout Proposal to Congress

Bold ideas for solving America’s financial mess

Diamond and Kashyap on the Recent Financial Upheavals

The end of central bank independence, a continuing saga

Where did we go wrong?

Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again

Modern Financial Systemic Risk: A Primer

Chief Financial Plumber

How Government Accountants almost killed one of the greatest innovations in Macroeconomics

Leontief believed that the economy could be broken down into sectors, like farming, steel manufacturing, retailing, and so forth. Each sector uses material and services from other sectors to produce material or a service, which it supplies to those other sectors. This interrelationship can be described in the form of a mathematical matrix. It is often called an “input-output analysis.” When he first began investigating this model at the end of World War II, Leontief went to the Bureau of Labor Statistics to help gather the data he needed. To assist him, the bureau assigned a young analyst who was working there at the time, Jerome Cornfield.

Leontief could break the economy down into a few broad sectors, such as putting all manufacturing in one sector, or he could subdivide the sectors into more specific ones. The mathematical theory of input-output analysis requires that the matrix that describes the economy have a unique inverse. That meant that the matrix, once assembled, had to be subjected to a mathematical procedure called “inverting the matrix.” At that time, before the widespread availability of computers, inverting a matrix was a difficult and tedious procedure on a calculator. When I was in graduate school, each of us had to invert a matrix- I suspect as a kind of rite of passage “for the good of our souls.” I remember trying to invert 5 x 5 matrix and taking several days, most of which I spent locating my mistakes and redoing what I had done wrong.

Leontief’s initial set of sectors led to a 12 x 12 matrix, and Jerry Cornfield proceeded to invert that 12 x 12 matrix to see if there was a unique solution. It took him about a week, and the end result was the conclusion that the number of sectors had to be expanded. So, with trepidation, Cornfield and Leontief began subdividing the sectors until they ended with the simplest matrix they thought would be feasible, a 24 x 24 matrix. They both knew this was beyond capacity of a single human being. Cornfield estimated that it would take him several hundred years of seven-day work weeks to invert a 24 x 24 matrix.

During World War II, Harvard University had developed one of the first, very primitive computers. It used mechanical relay switches and would often jam. There was no longer any war work for it, and Harvard was looking for applications for its monstrous machine. Cornfield and Leontief decided to send their 24 x 24 matrix to Harvard where its Mark I computer would go through the tedious calculations and compute the inverse. When they sought to pay for this project, the process was stopped by the accounting office of the Bureau of Labor Statistics. The government had a policy at the time; it would pay for goods but not for services. The theory was that the government had all kinds of experts working for it. If something had to be done, there should be someone in government who could do it.

They explained to the government accountant that, while this was theoretically something that a person could do, no one would be able to live long enough to do it. The accountant was sympathetic, but he could not see a way around the regulation. Cornfield then made a suggestion. As a result, the bureau issues a purchase order for capital goods. What capital goods? The invoice called for the bureau from Harvard “one matrix, inverted.”

Source: The Lady Tasting Tea: How Statistics Revolutionized Science In The Twentieth Century, By David Salsburg, pp.177-78