to be posted at a later date

Posted by js paine at 10:04 PM

marginal revolution's
masonic comment cages

swarms with tooth pick armed

austrian neophytes :

“Why should there be an authority at all?”

after all there's

no king neuron of my neurons

obviously you figure there ain't no good enough reason
for folks to have popes and princes and captains and such

keep thinking
history suggests

maybe there's more to this authority gig

then meets your eye

…
“To me a key issue is who the paternalist is “

really ???
or do you mean not “is” but ” up to “

btw
seems personal preference

may vary

even to the point of contradictions

hey u folks are fun

and diverse

even a few shy
alps apes

why didn't i fly over here
months ago

its like visiting

the stuffed dodo section

of the natural history museum

and finding

real live dodo birds

Posted by js paine at 09:59 PM

is this an april fools post??

“unconstrained profit-driven institutional behaviors”

dd dear soul of course you mean external constraints
of a

by uncle sam for the whole of us people kind

let's have none of this
flap doodle about corporate ” govern-meant “

by and for

the broad mass of direct and thru funds indirect

outside stockholders….

ie

the small fry

the corporations only exist
as public holdings

because rubes can be skinned

otherwise private equity would reign everywhere

not just where the big inside boys

don't want sec watching em

and maybe “straight jacketing ” em

….oh ya and the courts having

a lawful way

to throw em in jail

Posted by: paine | Link to comment | April 02, 2008 at 09:44 AM

paine says…
some avenues could use a dose of liberty

case in point :

“Libertarian paternalism would imply that you give the kid a choice of whether or not to be at school at all in the first place”

end the high school draft

Posted by js paine at 09:57 PM

“Presumably, there would have been less mortgage lending, fewer home equity loans “

not necessarily so

if the income to payment ratio were set right
you'd get

only smaller mortgage amounts and thus less lot value inflation

and i suspect

if that meant

lower induced non supply regulating

ground rents

—- here taking the form

of mortgage payments ——

then

no decrease in real economy activity

but as to the its a macro problem

i agree
only to me its a matter of effective demand management thru

say a package of …

pri sec job creating

pri sec wage increasing

fiscal and job reg policies

Posted by: paine | Link to comment | April 02, 2008 at 08:17 AM

paine says…
to be clear

fed policy
besides lender of ghastly resort

ought to be about the dollar forex

ie

close the f in trade gap

leave direct management of jobs growth
to the executive branch

fisc deficit and reg wise

of course

as over sighted and mandated by

our people's reps over at the US congress

Posted by: paine | Link to comment | April 02, 2008 at 08:22 AM

paine says…
ryebread

“a financial engineer who pursues credit policies to directly influence the economy, whether using the Taylor Rule or some other, distorts the time value of long-lived assets “

the hi fi cap values are circularly caused
the whole hi fi set up

produces multiple equilibria

some parteo superior

to your ” spontaneous “

commodity money paradigm

but nice stuffy tyrolean presentation none the less

hari

you could go crazy
trying to detect

those real “nuances “

amidst all the cover noise of hugger mugger

i suspect the after math
of the latest

excess

of spec market zeal

will be very different

from that after

either

the s and l fraud

or

the dot plop

this time ” we mean business “
might amount to ….

a partial truth

Posted by: paine | Link to comment | April 02, 2008 at 10:52 AM

paine says…
“What I get upset about, (I really do!), is the idea that the current structure just needs more regulations or that current regulations just need to be enforced in order for the Taylor rule to work”

and rightly so…

but i suspect they'll try to quick shuffle
for a spell more yet

hoping the crisis is passed

then lead us merry maid like
thru a job grinder for 7 quarters

Posted by: paine | Link to comment | April 02, 2008 at 10:55 AM

paine says…
hey maybe once again they dodge the show down

in the “real ” economy they deserve

for fucking over the hi fi system

what in hell do i know

but if they don't dodge it
and after all the two systems are interwired

then

this time ther might be unlike the last pair of tit twisters

a deep dark real bear of a hell

waiting for us up ahead

worse then the volcker two scoop
—-the one that mortally wounded

industrial america——

maybe

and if so
the electorate will wake up and scream

we could be in for some sporting times indeed

Posted by: paine | Link to comment

Posted by js paine at 09:52 PM

commodity spot price movements
over the years

like for oil and cotton and copper and wheat and rice and milk and coffee beans

and sugar and timber and …

look spooky to ya ??

does to me

krugman on wheat price rises now:

“It can’t be speculation:

that raises prices by inducing stockpiling,

and stocks of wheat and rice

are at or near record lows.”

i say it can be spec driven
as with oil prices

as long as the leading specs

are also the spot price setters

supply and demand for tany raw shit now
looks like what….in functions ???

does alfred the great formal stuff apply
if there's perfect short run price lift pass thru ??

do i have a sound counter model
in algebra for it all ….

well errrr i should

the olig sisters
op'sony and op'oly

can set prices as they wish ???

no ??

so if they have ..the power
why not prof max spot pricing all the time

could the trans nat's
play politics with prices ???

why not if its all just rents they're playing with

but what governs their price move choices ??

Posted by pinky at 06:02 PM

my take
the creditor debtor conflict

enherent to private enterprise

creates too much “artificial uncertainty”

too much dark shadow

in an interconnected set up

where firm fates are so interlaced

balance sheet wise

badly run

pseudo independent hunks

following their own head and tail winds

onto the rocks risking the greater wholity

can't be allowed to fail

by hierarchs

despite obvious “mal-practice “

on the ground level

room for vatican like …corruptions of the faith

Posted by js paine at 12:25 AM

got to laff

the great larry summers strikes again

his marching orders to the spec fundees

” u free corps in free fall
gotta

add to your equity caps “

that Rx applied
by larry and bondage bobby

at the level of sovereign reserves

led to the savings glut

the massive trade imbalance

and more precisely

the lot bubbles we got a-poppin today

its sort of more of the same
applied elsewhere

that implies

dreams

“this time instead …

it will make all things better

not worse “

Posted by js paine at 12:21 AM

vox vulgaris:

“The financial markets are
in crises exactly because

they have grown so much bigger

than the real economy has”

bigger here
must have

a nice complex function like generator

where n-m of the roots conjugate to zero

Posted by js paine at 12:19 AM

“And I, for one, really don’t want to live through a replay of the 1930s.” pk

live thru

odd participant observer
point of view

if that were

all there needed to be to my view

i'd say

bring it on
for the midst of it would be a life time

of economic muggery fulfilled

let the market tempests roar
the finacial ocean blast and bust

these feeble arcs

let the economy like a sky
fall in apon us

and bury us in protracted misery …..

we deserve it

we filthy humans

i'd suggest

“we ” econ con's —-from august u the clark winner
with the nyt column bine

to me the mini-ex-maoite

simmering in a teacup ——

all of us

stick to another point of view

the point of view of … our science ..
yes yes my dear paul

our dismal algebra spotted science !!!!!

Posted by js paine at 09:29 PM

Let's show this mathematically.

6. Let g be the fraction of good borrowers among all borrowers. In order to earn an expected return of r, the lender charges borrowers (which cannot be distinguished and hence face the identical loan rate) r1 such that:

gqgr1 + (1-g)qbr1 = r = expected return if lender charges r1 to all types.

The lender should charge:

r1 = r/[gqg + (1-g)qb]

7. Using this strategy, the lender will thus earn r if borrowers are chosen (walk through the doors of the bank) randomly. But they don't show up randomly, so this is not the end of the story.

Notice that r/qg < r1< r/qb. Good borrowers are paying too much, and bad borrowers are paying too little. Thus, good borrowers are more likely to drop out of the market, and the fraction of good borrowers will diminish over time increasing average default rates (perhaps because they are good borrowers they can find other, cheaper ways to finance investment) .

This is a classic lemons problem - good borrowers leave the market increasing the average risk and default rates of borrowers still in the market, interest rates go up to compensate for the higher risk, more borrowers leave the market, average risk goes up, more borrowers leave, etc. - and it will lead to market failure.

8. Now let's change the model slightly to illustrate equilibrium credit rationing. Loans are characterized by more than just the interest rate, and here we will characterize loans by three parameters, the interest rate lenders charge on loans, r1, the size of the loan L, and the required collateral on the loan, C.

9. The probability that a loan is repaid depends upon the return yielded by the borrower's risky project. Let a particular project yield a return of R. Then the lender will be repaid if

L(1 + r1) < R + C

That is, the lender is repaid if the value of the loan is less that what the borrower has to give up in default (the lender gets to claim any return, R, that the borrower made on the project plus the value of the collateral). This just says that the borrower repays when losses are smaller from doing so.

10. Now suppose that the return, R, is risky:

Return R = R1+x with probability 1/2
Return R = R1-x with probability 1/2

Then the expected return is R1, and the variance of returns is x2. As x increases, there is a mean-preserving spread in the distribution, i.e. risk goes up, but the expected return is not changed.

11. Next, to limit the outcomes to the ones we are interested in, assume that

R1-x < (1+r1)L - C

This means that the borrower will always choose to default when a bad outcome is drawn (-x), and will always repay when there is a good outcome (+x).

12. Thus, under a good outcome the borrower earns

R1+x - (1+r1)L

(this is the return on project minus the cost of the loan) and under a bad outcome, the borrower loses -C, i.e. loses the collateral on the loan.

13. Then the borrower's expected profit is

EπB = (1/2)[R1+x - (1+r1)L] + (1/2)[-C]

[The superscript means borrower]. That is, the borrower gets the good outcome shown in the first set of brackets 1/2 the time, and the bad outcome of -C shown in the second set of brackets the other half of the time.

14. Define x*(r,L,C) ≡ (1+r1)L - C - R1. That is, x* is the value of x such that EπB > 0 whenever x > x*, and EπB < 0 whenever x < x*. It's the point where profit turns negative.

Another way to say the same thing is that, with x* defined in this way, EπB = (1/2)(x-x*). x* gives the level of risk (how big the bad outcome must be, i.e. the size of x) where it becomes worthwhile for the borrower to walk away from the loan and default.

15. Notice that x* is increasing in r1. This means that as r1 increases, those with smaller x values drop out (i.e. those facing less risk), but the riskier borrowers (those with larger x values) remain in the pool. The mix of borrowers changes toward riskier borrowers and defaults will increase.

16. What about the lender? The lender's expected profit is

EπL = (1/2)[(1+r1)L] + (1/2)[C+R1-x] - (1+r)L

The first term is the return in the good state, the second is the return in the bad state (both happen with probability 1/2), and the third term is the opportunity cost of the funds it lends out (so the return is r, not r1, since the opportunity cost is the market return, r).

That is, the lender receives a fixed amount in the good state, (1+r1)L, but as x increases, the lender does increasingly worse in the bad state where it receives C+R1-x (i.e. as x increases, profit falls). This means that EπL is decreasing is the level of risk, x.

17. Now, let there be two groups of borrowers . Good borrowers are low risk (have small x values), bad borrowers are high risk (have large x values). Designate the x-values for each group as xg and xb, where xg < xb.

From the condition that EπB = (1/2)(x-x*), if r1 is low enough,

xg < xb < x*(r, L, C)

In this case, all loans are repaid, and all loans are profitable. If each type of lender is equally likely to be in the market, then expected profit for the lender is

EπL = (1/2)[(1+r1)L+C+R1] - (1/4)[xg + xb] - (1+r)L

This is increasing in r1.

18. But, as r1 increases, we will eventually reach the point where xg = x*(r, L, C) and the good types drop out of the market and stop borrowing (this is adverse selection at work). In this case, expected profit falls to

EπL = (1/2)[(1+r1)L+C+R1] - (1/2)[xb] - (1+r)L

Thus, EπL falls discretely when xg = x*, i.e. profit falls discretely when r1 increases and reaches

r1 = (1/L)[xg - C + R1] - 1

since this is the point where low risk types exit the market (the discrete jump comes from having two groups - with a continuum of risky borrowers, the discrete jump would be replaced by a maximum profit point, i.e. a single-peaked profit function).

19. We can show this graphically:

For loan rates between 0 and r1, no loans are profitable and none will be made. For loan rates between r1 and r*, both types of borrowers are in the market, and all loans are profitable (and profit is increasing in r).

For loan rates between r* and r2, loans are unprofitable, so no loans would be made. For loan rates above r2, loans are profitable, but only the risky group will be in the market.

Thus, credit rationing is possible at equilibrium. If loan demand is robust, lenders will increase r until it hits r*. At r*, there can be excess demand, but lenders will not raise the loan rate unless demand is so strong that rates can be profitably increased all the way to r2. Thus, if demand is strong enough to produce excess demand at r1, but not strong enough to push rates all the way to r2 or above, there will be credit rationing at equilibrium.

Conclude briefly:

We have shown two things. First, when the interest rate increases, adverse selection mechanisms can cause good borrowers to drop out of the loan pool increasing the riskiness of the average borrower. This increases default. Thus, this shows how an increase in the interest rate can increase default rates.

Posted by js paine at 09:01 PM

very clear
so far as the tale goes ……

example of fence line not crossed

“perhaps because they are good borrowers they can find other, cheaper ways to finance investment”

i like the case for both rational default
and rational risk increasing

of the second model with collateral

again the info limits ring out loud
at least those of the lender

on a best guess at the “real” objective

risk involved

as with other models'
employer and regulator and buyer

we get a falsely precise take on

the source of the problem

my take
the creditor debtor conflict

enherent to private enterprise

creates too much “artificial uncertainty”

in an interconnected set up

where firm fates are so interlaced

balance sheet wise

ill run semi independent hunks

can't be allowed to fail

despite obvious “mal-practice

Posted by js paine at 08:59 PM

let's suggest to ourselves
the regs over hazard debate

must notice a fact

hi fi is a floating crap game
not physical location wise

but market and institutional location wise

maxim to al hi fi ers

after the latest post debacle rage cools…

when the new improved boundary lines
of the new improved reg ring are clear

once you got the rubes playing again
and

in a state of secure folly

start moving more and more
of the high stakes play

to innovative great games…..just outside the reg ring

moral of tale :

” hazard “
in a world like this

always exists in fact its sought out by necessity

where perpetual need
for ever faster private gain exists

unreg rough neck fronteer markets 
will appear and of their own making

yup and go for the full cycle too

  pop up prosper and wreck themselves

wreck themselves so bad in fact
they threaten the welfare of the “real” economy

and as nite follows day
sanity requires

the latest great smash up's perps

receive

a “one time only ” bail out errrr….

to save the system of course

….from itself of course

and

just for the sake of all them

ass hole innocent

threatened “real “economy players

saying
” well

it won't happen again”

is true

not precisely

“in this way ” that is

cause we're gonna reg it up
so it can't happen “this way b” again

you know

force this market to join

the civilized markets

and be a good citizen

…

what vexes me some

why allow this spec game in the first place

what at its best does the real economy gain by allowing these gamblers
to be our collective eyes and ears

our co ordinators of first resort

self centered gamblers
folks ..gamblers without a concious social intent

ie miracle invisible handing

with a vengence

self centered gamblers
over eyes and ears

society might otherwise provide itself

like
a more transparent

society wide

co ordinated system of credit

ie

a more fully socialized economic system

without dark private gain corners

yes bright light rents
but publically doled

perpetually challenged

and

retained provisionally

for their expediency alone

not worship-ed

as the quintessence of americanisn

the highest form

of the universal individual right

to pursue happiness

after all we ought to minimize asyymetry
not promote it

in the last analysis
are we not all

our sisters agent ??

if optimal social mechanism design

is the issue

why waste time and ingenuity

on

how can we tame

a wild spec marketeer community

enough to harness

our “real ” economy safely to it

when other higher forms of social organizations
are out there in draft form

“Congress appropriate $xoo billion to some special purpose entity for the purpose of buying new bank capital”

exactly
have uncle s

buy the needed beefed up

equity buffer stake

in these errrr…”are they or

aren't they solviossos”

larry summerslide

assigned to

“the p.e.c.-er heads”

(the private equity community)

Posted by: op | Link to comment | March 31, 2008 at 12:10 PM

op says…
“Hubris. That's the only word to use for the interventionists and central planners who think they can outsmart the regulated”

hey pal no one got outsmarted
they got out run

run away from one admin till the next

gives you a free pass

if the track down was forever
then the regulated could still

run

but they couldn't hide … not forever

not hide and still hold on to their share
of the above ground wealth

at any rate

does any one see this as indeed a comic strip

formula

laff tracked slap stick
cycle of bad boys of wall street

fill in the blank …..

after weeks of three panel hi jinx
the boys

prank # 17134

ends in massive caulk up

final panel

miss prim patented
wagging stifled smiled

indulgent hair bunned head

as she

once again

for the umpteenth time

exclaims her feel good last line

at those bad bad boys

“alright alright guys …
i'll see to the clean up..

…. this one time …but…no more of this

promise me “

the boysin chorus

“yessssss miss prim …weeee promise “

the wacky further mishaps and

sanguinary adventures

of ….

the hi fi in' hazard brothers (llc)

mike
is right you pinko wankers

there is no talking mister ed “free market”
but if a reification like that could talk

it surely wouldn't

call for

“…the government to create a bank
and centrally plan the availability of credit “

hey

come dah gosbank mickey me lad

i have a nice
salt mine job

all lined up for you

down shaft 13

Posted by js paine at 08:26 PM