Tuesday, March 31, 2009

Financial Stability Has Arrived

Well, the government website at least has. The long awaited financailstability.gov has come to be a full site similar to recovery.gov.

The nicest feature of the site so far is the ability to download into Excel the full listing of money given out through the Capital Purchase Program that was announced in October and that began work in February. There have been 519 actions under CPP as of March 20 (the latest report).

Below I've listed the top 10 recipients under CPP. It's not a sup rising list.

Amount in Millions of US$

More surprising is how ubiquitous warrants have become. The CPP requires the Treasury to take warrants, essentially a future option to buy stock, as a guarantee for all transactions of more than $50 million. Of the 250 transactions below that threshold, only eleven have given the government only preferred stock with no warrants.

More on CPP in the near future.

Monday, March 30, 2009

Irish lose AAA rating

The government of the Republic of Ireland lost it's AAA rating from Standard and Poor's today, according to the Irish Times. The country's debt was downgraded to AA+. According to S&P that means that Ireland no longer has an "extremely strong capacity to meet financial commitments" just a "strong capacity." The move puts Ireland in the same category as Kuwait and Saudi Arabia. 

The move, comes almost eight years after Ireland first gained the coveted AAA-rating. The boom of the Celtic Tiger has been heavily hit by the current global downturn. The country's GDP was off 7.5 percent year-over-year in the forth quarter of 2008, according to Reuters.

Ireland is not the first European country to have it's debt downgraded. Greece had it's debt downgraded in January and ratings agency Moody's cut Hungary's debt back in November.

The downgrades will make the cost of borrowing more expensive at the same time that President Obama will try to convince EU leaders to enact fiscal stimulus.

Thursday, March 26, 2009

HT at The Corner

The piece that I posted on Treasury's financialstability website. Got a hat tip in a posting by John J. Miller at National Review's The Corner this morning.

It also seems that Treasury's web comedy continues unabated at their main website. On Inauguration Day, Treasury launched a new e-mail alert called "Secretary's Corner." The site was to be a place for the Secretary to put out releases and thoughts. To my understanding something akin to the great Director's Blog over at CBO that the former and current Director utilize. As of today the number of post at the Secretary's Corner: 0.

The Treasury states that the site is the "Future Home of Secretary's Corner." I'm a bit doubtful.

Monday, March 23, 2009

Posting at The American

I've got a short piece this afternoon at The American. It's on the Public Private Invetment Plan released today.

The full piece can be found here.

Thursday, March 19, 2009

Quantative Easing Primer

As the last post was extremely wonky, here is a video primer (serioulsy no reading) from the Finanical Times that gives a very simplied explination of quantitative easing.

Federal Reserve given Lessons from Japan

Yesterday the Federal Open Market Committee, the board that votes on policy rates at the Federal Reserve Bank buried it’s lede. After making the predicted moves of keeping the Federal Funds rate near zero and extending $750 billion to buy agency mortgage-backed securities, the FOMC announced a move upon long-term interest rates.

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The move places the Fed clearly in the position of quantitative easing, although they prefer the term credit easing. The policies involve continuing to expand reserves at a central bank even after the policy rate has hit zero. This is done in the hopes of using the balance sheet to impact the economy. The US’s efforts to use new discount windows like TALF are examples of such a program.

The Fed’s decision reverberated at a IMF conference in Washington this morning. The conference, “Japan’s Policy Response to a Financial Crisis: Parallels with the United States Today,” offered insights from those who had dealt with a long episode of quantitative easing in Japan earlier this decade.

Before introducing speakers, the IMF’s James Gordon expressed that the planners doubted if an event on Japan would be relevant by the time it could be arranged. Yet rather than recover the US economy has taken on more characteristics of Japan’s “Lost Decade.”

Hiromi Yamaoka, the Alternative Executive Director for Japan at the IMF and a former Bank of Japan (BoJ) official, reviewed the Japanese experience. While many see the zero bound as a great constraint for central banks, Yamaoka referred to the period of low rates between 1998 and 2005 (Japan held a rate of zero for most of 1999 and 2000 and a rate of .25 following) as “the busiest time in my life as a central banker.” While Yamaoka stressed that the US has been more aggressive than Japan, reaching the zero bound in just over 18 months, a feat that took Japan nine years, he explained that they have yet to detail their entire direction. Speaking to the FRB’s preferred terminology, Yamaoka said that “the complete definition of credit easing is not yet widely shared.”

Alternative monetary policy alone will not solve the crisis, said Yamaoka. He pointed to the 1998 case of Yamaichi Securities, at the time one of Japan’s largest securities firms. To bailout the firm, the BoJ provided a large loan with little collateral. The firm became insolvent and the BoJ lost 111.1 billion yen.

According to Adam Posen, the deputy director of the Peterson Institute for International Economics, investing in rocky firms, like the American auto industry can pay off in the short run. While his preliminary research here shows some positive correlation between the “wastefulness” of a project and it’s short-run multiplier effect. Taking a longer run view, Takatoshi Ito of the University of Tokyo said the government should instead direct fiscal stimulus toward areas like health care, and education where efficiency gains are possible.

Tuesday, March 10, 2009

Unending Stimulus?

The website at Recovery.gov continues to offer up information, even on days when little is added. I've written on the stimulus projections before but I've been taking the administration's projections ending in 2019 at face value. What if they actually intended the stimulus to be with us forever?
At the bottom of the recovery web page is a timeline that lets you track important upcoming reports or actions associated with the stimulus bill. The last listed event is on July 15, 2009. But wait, there's more...

Much more, due to what I assume was an attempt to create a simpler HTML code. The stimulus milestone chart appears to extend into eternity. I gave up around 2045. Sure I realize this is just a coding error that gives us an eternity of nothing but it's a hilarious result.

Monday, March 9, 2009

Private Sector Competes on Recovery

Sometimes the best discoverys are mistakes. This one's getting added to that group.

Hoping to pick-up on traffic headed for recovery.gov, the government run clearinghouse for everything about the recent stimulus bill, the business-government partnership facilitation firm picked up a nice piece of web real estate: recovery.com

The firm lists information about specific projects funded by the stimulus bill and offers to connect firms that will try to access those funds with the proper government agencies. The stimulus bill was designed to create counter-cyclical spending but no doubt spending used to lobby/bid for government funding will be lambasted as wasteful, even though they create jobs. So despite comments that "jobs are jobs" we really do care where they are created.

The site is also putting out some easy to follow figures for tax payers. The chart below compares the stimulus spending to the overall spending typically given to each state.

Source: Recovery.com

The small size of the stimulus funding relative to the state's regular appropriations gives some credibility to Paul Krugman's argument that its just too small. Although, the stimulus money is in addition to, not a substitute for, all that regular funding.

I take the spending as a case that it may do more rather than not enough good. If the stimulus gave out huge funds to programs like unemployment insurance states could face problems readjusting to pre-stimulus levels.

Friday, March 6, 2009

Unemployment: Is that all?

The unemployment rate reached 8.1 percent in February according to new data out today from the Bureau of Labor Statistics. The administration's budget projected an annual unemployment rate for the year of 8.1 percent for 2009 followed by 7.9 percent in 2010.

The administrations predictions had already been called rosey; they are beginning to look illusory. If unemployment continues to rise it will likely have to drop below the predicted 7.9 percent in 2009 just to hit the 81. percent yearly figure.

Geithner's "Full Range"

The goal of all the bank bailouts, mortgage adjustments, balance sheet expansion and the like is simple: growth. Terms like jump starting the economy, creating jobs, and recovery are all about returning the US economy to a path of growth. The 2010 Fiscal Budget has been criticized for providing estimates of growth that are unreasonably high. In his testimony to Congress, Treasury Secretary Geithner was asked by Rep. Kevin Brady (R-TX) to name an economist that supported the projections. He responded:

“It’s an important question. The administration’s forecast is within the range of CBO’s post-stimulus forecast, it’s within the range of the full range of private forecasts that are out there.”
Here's the image of what he means:

Source: 2010 FY Federal Budget, CBO Macro Effects of ARRA (March 2, 20009)

The Low/High CBO lines are estimates produced by the Congressional Budget Office that include the impact of the stimulus. The budget line is the forecast utilized by the administration in it's budget projections, which also includes estimates of the stimulus' effect, and the Blue Chip is a trend reported in the budget taken from information by traders.

I'm not going to respond directly to the private forecasts although the blue chip consensus provided in the budget itself is well below the Budget projections. Yet the CBO projections do little better. To establish the CBO low and high lines above, the CBO estimated low and high estimates of how much growth the stimulus bill (ARRA) will add to growth on top of its 2009 baseline (reported in the budget).

As we can see the CBO estimates are, well, high. The high estimate forecasts growth of 5.4 percent in 2011. According to data from the Bureau of Economic Analysis the last time that real GDP grew that much was 1984.

Even the budget baseline and the CBO low forecasts three years of growth greater than 4 percent from 2011 to 2013. The US had a streak like that recently, from 1997 to 1999. Of course that was following years of sustained growth in the early 1990's and during the dot com bubble not in a recovery.

Even beyond the large numbers, Geithner's comments ring a bit hollow. Since CBO provides no information on how likely it's high or low estimates are evaluating them is more difficult. If, as is likely the CBO high represents a possible scenario well above the median outcome, say the 75the percentile , then calling on this hopeful range as good proxy for likely outcomes may be a poor choice.

CBO could have used stochastic simulation to solve this problem. Stochatic simulations, run multiple iterations of large models to produce an array of results and then attempting to assign probabilities to each outcome, or more precisely to assign outcomes to a probability distribution function. The Social Security Administering (SSA) has included such models in its Trustees Report for some time (see Figure II.D7 in the link). Although SSA still uses low/high estimates as well. The benefit of low/high, and the reason that CBO likely generated them, is that they are simple to read and much faster to compute.

Thursday, March 5, 2009

Paid in Prestige or Sign of a Terrible Job Market?

Some jobs pay in salary and others pay in prestige. Prestige has long been a consideration in wage-setting (See Mayer, Prestige and Wages, 1959). Some people take lower wages in exchange for prestige or access, take Hill staff for example. Yet this ad posted to DC's Craigslist today is one of the more inventive attempts to trade on a title I've seen in awhile.

Sandwich and Salad Assembler
Organic to Go

Wednesday, March 4, 2009

Citi, Treasury both release mortgage plans

The US Treasury this morning released new details about its Making Home Affordable Plan. The plan seeks to refinance or modify loans for between seven and nine million Americans. One interesting point provides cash incentives of up to $1,000 for three years to homeowners who enter and stay in the program.

The federal government is not the only one seeking to adjust loans. Citigroup announced yesterday an Unemployment Assist program. The plan reduces mortgage payments for the unemployed with the idea of making the homes similar in price to rental properties that foreclosed individuals often opt to enter. Citi had announced a one month foreclosure moratorium for mortgages on primary residences. That month is set to expire on March 12.

Tuesday, March 3, 2009

Celebrating the Graying of America

Thanks to JFK, with a name revision by Jimmy Carter, we are only two months away from Older Americans month. While this blog so far has focused mostly on the financial crisis, another segment of my job is Social Security and pension reform.

This morning the Census Bureau released its Facts for Features for Older Americans month. Of interest to pension reformers, the Census Bureau expects employment among those over 65 to grow from 5.8 million in 2007 to 10.1 million in 2016. This is an increase of almost 84 percent. Labor force projections from the Statistical Abstract (Table 568) predict that the growth will be split almost evenly between men and women. This could be good news as the number of people over 65 is only expected to grow by 24 percent by 2015, from 37.9 million in 2007 to 46.8 million (Statistical Abstract Table 10).

As the population shifts toward a more square age pyramid this increase in older age working population could shift expectations about Social Security and allow for reforms. If a greater share of older people retain wages and see Social Security as a supplement rather than their whole income the ability, benefit reductions may be more palatable.

Monday, March 2, 2009

More Students Major in Econ

NPR reported yesterday that the number of students majoring in Economics is on the rise. It's worth the four minute listen. If only for the joke about jaded journalists and bandwagons at the end.

While this may be good for the field, I'm not convinced that it's good for my salary prospects. Using the lessons learned from the courses that this new crop of economics enthusiasts is taking, an increase in the supply of economists will reduce the price they can charge for their work. I would have thought that the collapse of investment banking and the government intervention in banks would have students running from economics.

Are they all hoping to become regulators?

Or did they all read Forbes this summer? ranked economics as the second most lucrative major for college students, behind only computer science.