Robert Oak's blog

Friday Movie Night - Simon Johnson & Select Bill Moyer's Interviews

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hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This week isn't a full bore film but a series of interviews, with most, save one, from Bill Moyer's Journal.

Simon Johnson

First up in this interview with Simon Johnson saying the financial crisis is just beginning. The Big 6 banks' balance sheet is now equal to 60% of GDP and Johnson believes because of the carry trade and reckless Zombie banks who now have cheap money to dump into emerging markets.

 

 

FDIC may take on Executive Pay

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The headline, FDIC eyes linking levies to bank pay, is yet another media sound byte which might be yet another PR stunt with no action.

US banks’ contributions to a multi-billion dollar fund that insures depositors’ savings could be linked to regulators’ assessment of bank pay plans, under preliminary discussions being held by top banking watchdogs.

So, there is no commitment or comment. At least the FDIC is considering such a move, while Congress does nothing.

Friday Movie Night - The American Ruling Class

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hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This night's film is by request. It's a dramatic-documentary-musical on class warfare. Here is a synopsis and the wikipedia article. Happy New Year and Enjoy!

The American Ruling Class

Happy New Year Economic Populists! Good-bye Lost Decade!

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I would like to say good-bye and good riddance to the lost decade of 2000-2009.

It started with the dot con crash and ended with the financial Economic Armageddon implosion.

I sometimes believed a look of jaw drop would be permanently etched on my face as I watched towers implode, votes not counted, hanging chads, invasions based on obvious lies, the corruption of Congress, the false data and information being put on as news, the implosion of the value of work, the real production economy and the U.S. middle class.

Bubbles, bubbles everywhere, popping and forming, ride 'em up, ride 'em down, but eventually almost all would fall to the ground.

Pricing a CDO - Not only Bad Math, Bad Computation too

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A working paper, Computational complexity and informational asymmetry in financial products, Sanjeev Arora, Boaz Barak, Markus Brunnermeier, Rong Ge. sheds some light on the complex mathematical models upon which credit default obligations and other derivatives are based.

What Arora et al. prove is not only are many derivative mathematical models impossible to compute, never mind in real time, because they require more computing power than the world possesses, the missing information to run a mathematical model is a very good place to cheat with.

To understand what CDOs, derivatives are, see this post, complete with video tutorials. For some background on the mathematics behind derivatives, read We Want the Formula and this one on some of the probability functions.

Onto the paper. Firstly this quote:

One of our main results suggests that it may be computationally intractable to price derivatives even when buyers know almost all of the relevant information, and furthermore this is true even in very simple models of asset yields.

Christmas Movie Marathon - The Age of Uncertainty

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hot buttered popcorn It's Christmas, along with Friday Night Videos! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This week is a marathon, in honor of Christmas day.

Economist or more social scientist, John Kenneth Galbraith, wrote and presented an economic series in 1977, The Age of Uncertainty. Galbraith was kind of a dinosaur by 1977, with Milton Friedman, Thatcherism and Reagan taking power of the political economy. Now that we are suffering through the consequences of unbridled corporate driven (written) policies, it might be nice to go back memory lane and revist Galbraith's view of of economic history.

The series has 15 parts and the 12 which overview economic history are in this post. Happy Holidays.

A little more on revised Q3 GDP

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You may have seen noticed Q3 GDP was revised downward to 2.2%. This is the third and final revision. Originally Q3 GDP was 3.5%. Here is the full BEA release.

A reminder, GDP is:

Y=C+I+G+{(X-M)}

where

Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports.

What happened?

Here is the original breakdown of GDP components first reported:

  • Price index - +1.6%
  • Consumption - +3.4%
  • Non-Res. investment - -2.5%
  • Residential Fixed Investment + 23.4%
  • Exports - + 14.7%
  • Imports - +16.4%
  • Gov. spending - +2.3%
  • Private Inventories - + 0.94%

In the breakdown of Consumption originally we had:

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