Insider trading.

Carly and I are currently dog-sitting in midtown for my aunt and uncle. They live next door to Raj Rajaratnam, a hedge-fund manager (he founded Galleon Group) and number 236 on Forbes' list of the richest Americans. Raj is also notable for his fantasy football league, which has a $100,000 entry fee and awards a total of $1,000,000 to the top three teams each year.

Early this morning his apartment was raided by the FBI and Raj was hauled in on insider trading charges alleging he earned over $20,000,000 illegally. Apparently the FBI is good at quiet raids, because Carly and I slept through the 6am arrest and apartment search.

**Correction: Raj was arrested Friday morning, not this morning. Carly and I still heard nothing.

Pretty charts. Ugly news.

A few pretty and devastating graphs.

First: Percentage job loss from peak during post WWII recessions (Calculated Risk):

Second: year-over-year delinquency rate changes, where red indicates an increased rate and green indicates a decreased rate (New York Federal Reserve):

Third: the current delinquency rate as of the second quarter of 2009, where a darker color indicates a higher rate (ibid):

Making the USA look great.

As you may or may not know, Iceland is one of few places in the world that has made the USA look financially responsible and risk-averse during the turmoil of the last few years. Basically, Iceland privatized and monetized its fishing industry in the 1970s, and the new-found free time allowed the country to turn into "[...] a machine for turning cod into Ph.D.’s." Unfortunately, this led many (extremely overconfident) Icelandic men to jump into finance with no training or experience; hilarity ensued, if hilarity can be equated to financial and economic ruin.

I recommend reading this (admittedly lengthy) article by Michael Lewis, written for the April 2009 issue of Vanity Fair: "Wall Street on the Tundra." Aside from describing the logic behind the rise and fall of Icelandic financiers and banks, this article supplies what I always desire in travel writing: a picture not only of the beautiful scenery and buildings of a country, but also of the personalities and idiosyncrasies of the population.

"Who Gains from President Obama's Stimulus Package...And How Much?"

I recommend everyone at least read this summary of a recent publication by two economists at The Levy Economics Institute of Bard College (summary taken from this website):

"In this Special Report, Levy scholars Ajit Zacharias, Thomas Masterson, and Kijong Kim provide a preliminary assessment of the 2009 American Recovery and Reinvestment Act (ARRA), a package of transfers and tax cuts that is expected to provide relief to low-income and vulnerable households especially hurt by the economic crisis, while at the same time supporting aggregate demand. By the administration’s estimate, ARRA will create or save approximately three and a half million jobs by the end of 2010; while the ameliorating impact of the stimulus plan on the employment situation is surely welcome, say the authors, the government could have achieved far more at the same cost by skewing the stimulus package toward outlays rather than tax cuts. Their analysis points toward the necessity for a comprehensive employment strategy that goes well beyond ARRA. The need for public provisioning of various sorts—ranging from early childhood education centers to public health facilities to the “greening” of public transportation—coupled with the severe underutilization of labor, naturally suggests an expanded role for public employment as a desirable ingredient in any alternative strategy."

If you are interested in reading the complete article (only four-and-a-half pages), it can be directly downloaded here.

Reshaping Earth.

Using images from NASA's Earth Observatory, Wired has created time-lapse views of regions of the world undergoing significant changes.

The disappearance of the Amazon rainforest:


The draining of the Aral Sea:


The urbanization of Dubai:

Visualizing Obama's budget cuts.

Shh, don't say anything - you don't want to jinx it!

Not sure how many of you have noticed, but the numbers that keep coming out on the economy are consistently pretty-bad-but-they-could be worse kind of numbers. Also not sure if you noticed, but the news has sort of just stopped talking about the economy ...

So it should come as little surprise then, even with no indication of economic improvement, that consumer confidence numbers are on the rise - and fast! It seems that without hearing bad news about the economy all the time, people are actually starting to think it's improving (even I have to actively resist this trap). But then again, people thinking the economy is better could very well be all it takes to start the recovery.

Don't screw this up for us CNN.

The Hidden Bailout

The Atlantic has a few really cool graphics showing all that the Fed has been up to recently. As you can see from the above chart, the bailout and stimulus package represent only a small portion of their actions. I recommend you check out all of charts.

Scary econ. graph of the day, part 2

Ask and ye shall receive, even the anonymous amongst us. The above graph, based on FDIC data, shows the percentage of FDIC insured financial institutions to fail or receive assistance each year between 1934 and 2007. I could not find data on the number of institutions insured beyond 2007, when there were 7,283 institutions, three of which failed and zero of which received assistance. In 2008 thirty institutions failed or received assistance, and assuming the number of institutions did not change from 2007 this gives us a failure plus assistance rate of 0.412%. In 2009 so far twenty-three institutions have failed, and, using the same method of approximation as was used for 2008, this give us a failure plus assistance rate for this year (so far) of 0.316%.

To directly answer the two anonymous concerns:
1. Graph is now in terms of percentage and the trend remains. By the way, I totally agree with this critique. Thanks for reminding me to keep everything in relative terms;
2. I agree that the high failure rate in the late 1980s and early 1990s likely lowered the number of banks in existence, thereby lowering the absolute number of failures in future years. (Am I wrong in thinking that this could push the percentage of failures either higher or lower depending on other factors? If the remaining banks are healthier overall the failure percentage will decline in the future, but if there are still a bunch of unhealthy banks just waiting to fail then the failure rate will rise.) It also must be recognized that in the late-1980s and early- to mid-1990s there was a big push for de-regulation that significantly increased the likelihood of bank mergers and thereby pushed the number of existing institutions down. In fact, "From 1980 to 1994, there was an average of 423 mergers per year—a total of 6,347 mergers, which amounted to 43 percent of all banks in existence in 1980" (source). I don't have an answer as to the effect of each of these forces, but you can see the overall trend clearly in this graph:

Scary economic graph of the day

Doom and Gloom

I always just skip past the big headline on Drudge, so imagine how depressing it was as a read all the headlines I could see below and then, already depressed, scrolled up to see the headline and image ...

Damn You, Economy

I just got the word: no carbon offset purchases for my office this year. With my term as green czar ending in May, I was hoping to be able to push through this historic legislation.

PS - I'm having a lot of trouble believing/verifying some of the claims made in that article Bart posted about Todd Palin's snowmachine racing. If anyone has an info, let me know.

... and More Articles!

Hey, if you're going to steal from Bart, why stop at just one?

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"Dr. Doom," famously pessimistic NYU economics Professor Nouriel Roubini, argues that the best solution for resolving the toxic asset problem is (temporary) nationalization. Without it, he argues other options result in one of three problems:

If government takes on debt:
1. Overvaluing assets ---> Massive cost to taxpayers
2. Undervaluing assets ---> Risks massive bank failures
If government helps private sector keep debt:
3. Non-transparency and/or overcomplication (see Tax Code, the)

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In a rather odd article, scientists have discovered a bacterium in the Russian mammoth graveyard that may extend the duration of human lives in general, as well as the duration of their sex lives.

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I only read a little bit of this article, but it seems there's been something of a real-life Catch Me If You Can, with a woman taking on fake lives at Ivy League schools as part of her rouse.

Articles!

A quick article dump to start the day’s blogging activities.

”Sarah Palin's $159,050 Conflict of Interest” - Todd Palin is currently racing a “snow machine” 1,971 miles across Alaska, during which his “Arctic Cat's powerful two-stroke engine will emit the same amount of hydrocarbons as an automobile driving from Chicago to San Francisco and back 150 times.” Fantastic. And it only gets trashier and more polluting. First, the pollution: “[During the race] Todd Palin will release as many cancer-causing and smog-forming pollutants as a Chevy Malibu driven around the Earth at its equator 28 times.” Now, the conflict of interest: the race is sponsored by “[…] the petroleum giants Tesoro and Conoco-Phillips; State Farm, Wells Fargo, Frontier Airlines, Alaska Airlines and the Alaska First National Bank.” You may be saying, “But you are not being fair. Maybe the Palins do not get a shady benefit from this.” Well, Todd is an annual competitor (seemingly surprising for a race with a field of 40 people willing to do this kind of evil to the environment) who has only one four times. “Once after Sarah was elected to the Wasilla City Council, once after she was elected mayor, the year she was appointed to the Alaska Oil and Gas Commission, and the year she was elected governor.” Okay, okay, maybe I jumped the gun. Sorry for trying to shame such an upstanding family.

“Video Games Are Good For Children – EU Report” - Nothing too surprising here, but it is nice to have confirmation of something I believe: An EU panel determined that "’video games can stimulate learning of facts and skills such as strategic thinking, creativity, cooperation and innovative thinking, which are important skills in the information society.’" Yay! An excuse to play more video games!

Unemployment as stimulus -
“A Novel Approach: Using Unemployment Benefits as a Means for Stimulus” – An interesting plan to maximize the benefits created by unemployment payments: instead of paying out cash to an unemployed person for a set amount of time provide that person with a voucher that subsidizes them as an employee. For example, assume Mr. Doe is unemployed and receives $200 each week in unemployment payments ant that were anyone to hire Mr. Doe it would cost that firm $500 each week, a (made-up) prohibitive amount. The likely outcome here is that he remains unemployed. But if Mr. Doe can suddenly walk into an interview and say, “Instead of costing you $500 each week I will only cost you $300 each week and the money that would have been my unemployment check is now paying the other $200 of the salary.” Obviously this has limitations (e.g. what happens when Mr. Doe’s salary is no longer subsidized?), but in the short term this plan creates a greater overall income, implying a greater overall level of consumption, for the same government investment. At the same time it increases the overall production level of the economy.

“Big Satellites Collide 500 Miles Over Siberia” – This story seems pretty ridiculous at first, though it does highlight the very real concern of the volume of junk orbiting Earth. Apparently a non-functional Russian satellite launched in 1993 and described as “[…] out of control” crashed into a commercial satellite launched in 1997, creating thousands of particles that will now orbit Earth waiting to smash into other man-made satellites. I can’t help but think of this as a case of modern space zombies in which each zombie (read: smashed satellite) spends the rest of its time trying to create more zombies (read: smash other satellites). For perspective on the dangers we are facing from orbiting junk only fifty-two years into man’s era of sending crap into space: “[…] orbital debris is now the biggest threat to a space shuttle in flight, surpassing the dangers of liftoff and return to Earth.” I will now officially swear off space flight until we have orbiting Roombas keeping me safe.

“Letting Scientists Off the Leash” - This is an interesting article written by a researcher at Stanford University who discusses the flaws in the way money for research is distributed. His main point is that the typically conservative review boards that approve funding for grant proposals do not fund very imaginative or risky research. This leads to a situation where most of the ideas we are pursuing are those that we are already sure we can turn into a profit, not those that could have a substantially larger impact but at the same time carry larger risks (in that they are more likely than the boring projects to have an outcome different from that discussed when the grant was proposed). I don’t know too much about this, but I do support the idea of devising a more efficient means of identifying and funding riskier and more creative research.

Two Thoughts on the Economy

1. For reasons unknown, I have begun to read Rush Limbaugh's stimulus proposal. I haven't gotten far, but in the beginning he sets up a sharp contrast between the "Keynesian" (i.e., Democratic) solution of funding "shovel-ready" projects and the "supply-side" (Republican) solution of tax cuts.

My knowledge of economics puts me in a better place to discuss the Republicans' proposal than the Democrats'. Tax cuts will stimulate the economy to some degree - the more progressive the tax cut, the more short-term relief is brought about. This is because poor people spend the highest percentage of their income, while wealthier people tend to save/invest it. So tax cuts to middle- and upper- class folks will largely be saved, or used to pay down individuals' debts.

So my question is - assuming (and I think I can do so safely) that the average American currently has ballooning debt, is it possible that the tax cut route might actually be better, in that private debts (mortgages, credit cards) could represent a coming crisis that needs to be averted now? Just a thought.

(And I should add, it's entirely possibly that such a proposal wouldn't actually result in Americans making a net payment on their debt, or at least the right Americans paying down the right debts.)

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2. This second thought it much more political than economic, but it's something to watch for: the Republicans need to carve out a voice ASAP if they want a shot at the 2010 elections. So they're going to have to find ways to oppose the Democrats. Thus far, they haven't had a lot of luck.

But with the economy being the number one issue, here's an argument you're going to hear more and more as election day comes ...

Let's say you're God. Let's say unemployment is currently 8%. Let's say without action, it will be 14%, with the Republicans' stimulus it will be 12%, and with Obama's stimulus it will be 10%.

So the Democrats say, "Wow, look at that, we saved a whole lot of jobs!"
So the Republicans say, "Wow, look at that, they didn't create any jobs. In fact, they lost jobs!"

I guess it would have been a whole lot easier for me to say "There's going to be an upcoming argument about jobs saved vs. jobs created." Oh well, you get the point.

A few things (Updated Twice)

(Update: I was going to say that I never thought Caroline had much of a chance. And using your uncle's collapse to find a way out is not just total BS, it's horrible.)

Random thoughts and rants.

Should Tim Geithner's tax issues be a bigger deal? I hear more about that than if he's really the best guy to be in the position. For what it's worth, I heard O'Reilly belligerently defending Geithner against a conservative caller yesterday.
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Obama's speech was not that bad. Everybody's ripping on it. Not everybody, but many people. I thought the speech was very good. Expecting it to be epic is like expecting Babe Ruth to hit three homeruns just because you're at the game. People, he can't give one of the greatest 20 speeches in American history every time he opens his mouth.

Besides, I actually took a copy of the speech and read it line for line, trying to choose the ones that might be "remembered" in history. In so doing, it became quite clear that there's no way to know, because it all depends on what happens in the future. It needs to sound prophetic. If the energy crisis somehow got much worse, and he got us out of it, the line about "harnessing the wind, sun, and soil" could very well be the hallmark of a 21st century presidency. Or not. It all depends, and the whole speech is like that. But I thought that the tone was appropriate, and that the style achieved the sort of timelessness you're looking for in an inaugural address (i.e., except for a few specifics, it basically could have been given by any president).

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As was the case with the Golden Globes, Heath Ledger is nominated for an Academy Award for Best Supporting Actor. Maybe I'm delusional here, but whether you want him to win or not, I would have thought he'd be in the best lead actor category. He's got to have pretty similar screentime to Batman I'd think, and his performance certainly leads the movie. A pretty minor controversy, to be sure, but just a thought I'd had.

Also, I think it was underreported that Kate Winslet won Best Lead and Best Supporting at the Golden Globes. Then again, it is the Golden Globes.

(Update2: An interesting coincidence is that the nominations for the Oscars were announced today, on what I just read is the one-year anniversary of Ledger's death.)
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This whole re-oath thing is pretty stupid, but dammit Barack, why didn't you use a Bible the second time? Just save us the grief! On a related note, Konservapedia is still sure he's Muslim. ("He took the oath on a Bible and not a Koran? Well that's what a secret Muslim would do.")

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I knew I had something else but I can't remember it so I'll do this instead.

Starting with 2008 GDP of $13.84 trillion and debt of $10.6 trillion, and assuming long-term growth of 2% and inflation of 1%, and also assuming the CBO estimate for debt as a percentage of GDP, then in 80 years the nominal GDP will be $150 trillion and the nominal debt will be $1 quadrillion.

Toyota makes a run

It appears that Toyota will end GM's 77-year run at the top of the auto-sales heap. I wonder how much of this has to do with the crisis and how much has to do with policies within the companies (e.g. Toyota's development of the Prius).

That's a lot of money

Christopher Buckley, or C-Buckz, as I'm tempted to call him (just kidding, although that really makes me wish he'd marry Star Jones so she could be Star-Buckz - sorry, it's been a long week) has an article at the Beast trying to put a handle on how much the $1.2 trillion dollar deficit really is. And while I like what he does, he's taking a macro approach, and before I had read it I was already planning on taking more of a micro approach.

Let's start with Bernie Madoff. One fraud case, 50 billion dollars. That's a lot of money. A whole lot. It averages out to about $170 for every man, woman, and child in America.

Now, you didn't lose $170 in the Madoff fraud case, which you're probably pretty happy about. And that makes you like most Americans - almost all of them in fact. But for every American who didn't get ripped off by Madoff, that means that one of them who did lost an extra 170 bucks. Put another way, if you put all Americans on one side of a giant room with a big line down the middle, then for every single person that got to cross the line to the "didn't invest" side, some investor would have to pay $170. Just think about how long that would take ...

Now think about the stimulus. The tax rebate stimulus in early 2008 was $150 billion. Then TARP was $700 billion. Now Obama proposes another $825 billion. That adds up to $1.675 trillion (Just for fun: $1,675,000,000,000) There are 138 million taxpayers in the United States, so this amounts to $12,140 per taxpayer. That's incredible! Essentially, the federal government is forcing taxpayers to band together and go into (an additional!) $12,140 worth of collective debt each (albeit at a low interest rate, and of course the burden is not evenly distributed).

The entirety of the debt when Clinton left office was under $6 trillion. It's now over $10 trillion with $1 trillion deficits projected indefinitely. And we haven't even gotten to Social Security et al yet.

Bernie Madoff sucks

I know this story is sort of ubiquitous, but it can't hurt to emphasize how awful this guy is. I mean, the guy cost his investors 50 billion dollars. That's with a B. Billions of dollars is not foreign to us, but it's not something you hear with individuals. Bill Gates' entire net worth is $58 billion, roughly the same ballpark as the amount stolen. Or, put another way, $50 billion is also roughly the same amount the government has spent on AIG, Chrysler, and GM combined - and it'll get some of that money back.

What really did it for me, though, was that he defrauded his own sister out of millions, leaving her with "nothing" (though to be fair, I'm not sure what "nothing" means to a millionaire).

Obama/Senate honeymoon over?

I saw this paragraph in an NYT article (as in, the paper version) this morning and thought the phrasing was hilarious:

"President-elect Barack Obama’s economic recovery plan ran into crossfire from his own party in Congress on Thursday, suggesting that quick passage of spending programs and tax cuts could require more time and negotiation than Democrats once hoped."

Don't you hate it when quick passage requires more time?

I could add some analysis of the stimulus, but 538's is more interesting. Apparently public perception of the "stimulus" is way better than the "bailout," so the opposition that the bailout saw from moderate Republicans just before the election is unlikely to be repeated, and Obama will likely get most of what he wants.