September 29, 2008

Discussion Topic: Economy

I'm going to link to this on the right so we can have one discussion thread.
Posted by at
Labels:

8 comments:

  1. ChrisSeptember 29, 2008 3:13 PM

    Given the dearth of good articles on the current economy, here's a decent one.

    ReplyDelete
  2. ChrisSeptember 29, 2008 3:24 PM

    This can't be true:

    Of the $700B, "It's not based on any particular data point. We just wanted to choose a really large number."

    ReplyDelete
  3. ChrisSeptember 29, 2008 4:29 PM

    (The following started out as an email to Warren and devolved into a rant)

    We know two things:

    1) Congress WILL pass some sort of bailout.
    2) The Dow dropped 700 today.

    Assuming this was on the news of the bailout falling through, one only assumes that by the time the bailout passes, this 700 will be made up. Just a thought, but I'm surprised the markets are so fickle.

    OK, now I've got a mini-rant. One assumes that 700 should incorporate the risk of there being no bailout (simplifying assumptions are flying around left and right here), so theoretically, if no bailout means that the Dow drops by X, then at any point, it should drop by X*(p) where (p) is the probability the bailout falls through. (So if it does fall through, p becomes 1.00 and we get the full drop of X).

    So, I'll go a few ways with this:
    If investors see a 10% chance there is no bailout, this implies a 7000 pt drop if there is no bailout.
    If investors see a 1400 pt drop if there is no bailout, this implies a 50% chance there is no bailout.

    Either way, I feel like the market is really overweighing this, or it's dropping for some other reason, but I'd expect most of this to be made up between now and just after the bailout's passage.

    ReplyDelete
  4. WarrenSeptember 29, 2008 4:55 PM

    You forgot something. The fact that the bill failed signals to Wall Street more than just that they will have to wait a little while longer. Its says Washington is resistant to the idea in general and that (in Wall Street's view) this means that the bill will be politicized to the point that it will become ineffective.

    ReplyDelete
  5. ChrisSeptember 29, 2008 5:06 PM

    Interesting. Another factor on the politics of all of this (I really was going to post something before Nate over at 538 beat me - damn!) is that the bill would have passed if it weren't for Congressman with re-election battles, who voted nearly unanimously against the bill.

    Basically, any one politican benefits from voting against it, at the risk that so many will vote against it that it will fail. From a game theory perspective, this bill had no chance (again, with assumptions).

    ReplyDelete
  6. ChrisSeptember 30, 2008 10:43 AM

    If you haven't read it:
    Wikipedia's page on the bailout bill

    ReplyDelete
  7. ChrisSeptember 30, 2008 10:50 AM

    Warren,
    I otherwise agree with your worries of politicization with one exception in this case, and that is that the bill was defeated in a somewhat bipartisan manner (it got about 60% of Dem support and about 33% of Rep support).

    The issue at hand seems more to be the fact that the people aren't in favor of the bailout, and so regardless of party (as I eluded to before) swing district congressmen can't vote for it.

    For everyone:
    OK, next question. I'm really having trouble understanding why it is in the best interest of the economy at large to have anyone, government or not, purchasing huge amounts of assets above their market price. This may help the private sector, but in the end it's getting paid for one way or another, and won't those costs be greater? Clearly not or we wouldn't be talking about this bill, but I don't understand why.

    Finally, I heard a clip of a guy from IMF on the radio this morning who said that massive bank failures are common, that the average cost of a massive bank failure is 13% of GDP, and that in a government bailout situation, the average (though I'm sure it varies wildly) is that 18% of govt bailout expenditures are recuperated.

    ReplyDelete
  8. ChrisOctober 01, 2008 3:08 PM

    October 01, 2008
    The Real Fiscal Crisis

    We're all worried about the $700B and we should be. It's a lot of money. But I'm terrified for the future.

    First off, the financial hit of $700B may well pale in comparison to the philosophical beating that capitalism is getting. With Democrats' poised to gain the House, the Presidency, and the (possibly-filibuster-proof) Senate, the new era of regulation is here, and America will make its biggest socialist revolution since the 1960s.

    But beyond that the numbers we have are terrifying. Government debt could reach 80% of GDP (the only unit worth using to see how "big" the debt is, as far as I know) by the end of Bush's term. Both candidates propose net tax cuts. We are currently paying nearly $500B per year to pay interest on the national debt.

    Now, paying interest on the national debt is not such a bad thing as long as there is a good reason to borrow. Like if you're going through times that you think will be tougher than the times ahead. But we've got Medicare and Social Security just over the bend, and these are politically untouchable.

    To reduce the debt to 50% of GDP in 50 years we would have to run budget surpluses of $700 billion per year until 2058. Just think about it that way.

    (Finally, a note of trivia. I lost the link, but it showed the percentage by which government revenues and expenses had increased under each president since FDR. Every president increased government expenses, but the one who did it the least was Bill Clinton.)

    ReplyDelete

Note: Only a member of this blog may post a comment.

Subscribe to: Post Comments (Atom)