How Dismal is the Fiscal Future For America and Europe? Becker – The Becker-Posner Blog

www.becker-posner-blog.com

Here’s Nobel Laureate Gary Becker’s views on the possibility of a (developed economies) debt crisis: “Posner lays out clearly many of the present and future solvency and default risks to the United States federal government. He bases some of the analysis on a valuable recent Morgan Stanley report with the provocative title “Ask Not Whether Governments Will Default, but How”.”

O’Grady: Kirchner’s Assault on the Press – WSJ.com

online.wsj.com

“In the Wall Street Journal, Americas columnist Mary Anastasia O’Grady writes about the Argentine president’s campaign to silence the country’s two most influential daily newspapers.”

Mark Helprin: The World Trade Center Mosque and the Constitution – WSJ.com

online.wsj.com

“In the Wall Street Journal, Mark Helprin of the Claremont Institute writes that proponents have a right to build the mosque, but no American can be forced to pour concrete or cross a picket line of grieving families.”

Robert Barro: The Folly of Subsidizing Unemployment – WSJ.com

online.wsj.com

“In the Wall Street Journal, the economist Robert Barro of Harvard writes that his calculations suggest the jobless rate could be as low as 6.8%, instead of 9.5%, if the Obama administration hadn’t extended jobless benefits to 99 weeks.”

Paul Rubin: Ten Fallacies About Web Privacy – WSJ.com

online.wsj.com

“In the Wall Street Journal, Paul Rubin of Emory University writes that we are not used to the Internet reality that something can be known and at the same time no person knows it.”

Life-Insurance Coverage Wanes for U.S. Households – WSJ.com

online.wsj.com

“Nearly a third have no policies, a combination of the financial pressures on middle-income families and a reticence to purchase insurance due to the high cost of some policies and the hardball tactics used by some agents.”

ABREAST OF THE MARKET: The Decline of the P/E Ratio – WSJ.com

online.wsj.com

“As investors fixate on the global forces whipsawing the markets, one fundamental measure of stock-market value, the price-to-earnings ratio, is quietly shrinking, both in size and importance.”

For a New Generation, an Elusive American Dream – NYTimes.com

www.nytimes.com

“In the Nicholson family, America is not delivering for a grandson as it did for his father and grandfather.”

NHTSA: No, Toyotas do not Suddenly Accelerate Unless You Press the Accelerator

www.theatlantic.com

“At the apex of PJ O’Rourke’s description of the 1980s Sudden Acceleration Incident craze…”

‘Artificial Intelligence’ Gains Fans Among Investors – WSJ.com

online.wsj.com

“A new wave of investment firms are turning to artificial-intelligence programs to make trading decisions. The programs are designed to crunch numbers, learn from decisions, and adapt. Some are having success.”

Shadow Banking

www.ny.frb.org

Here’s some “light” reading for folks who are interested in having a better understanding of how financial intermediation works in the real world: “The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, shadow banks are particularly important institutions.”

James Woolsey and Rebeccah Heinrichs: Iran and the Missile Defense Imperative – WSJ.com

online.wsj.com

“R. James Woolsey and Rebeccah Heinrichs write in The Wall Street Journal that U.S. intelligence now sees Tehran developing intercontinental missiles by 2015. If we continue our current strategy, we will not be able to counter the threat.”

Jenkins: Bank CEOs and the Bewitching Carrot – WSJ.com

online.wsj.com

“Holman Jenkins writes in The Wall Street Journal that shareholders of large, publicly traded banks have a higher appetite for risk than is compatible with our regulatory system.”

The Uncertainty Principle – WSJ.com

online.wsj.com

“The Wall Street Journal writes that Dodd-Frank will require at least 243 new federal rule-makings and lots of economic uncertainty for struggling businesses.”

Nation Demands Tax Dollars Only Be Wasted On Stuff That’s Awesome

www.theonion.com

Satire concerning “stimulus spending” from The Onion… “Nine of 10 respondents said they favor the continued public financing of new sports stadiums, but only if the old ones are imploded in an elaborate pyrotechnic display that everyone can watch from reclining chairs as AC/DC’s “Highway To Hell” blasts in the background.”

Q&A: The Limits of Arbitrage – Fama/French Forum

www.dimensional.com

“The people in behavioral finance treat the Shleifer and Vishny (1997) paper as if it is empirical evidence. In fact, it is theory built on a set of assumptions – in the end, a clever set of claims. It can’t discredit market efficiency until it is supported by rigorous empirical work.”

The electoral consequences of large fiscal adjustments

www.voxeu.org

“The market turmoil in recent weeks pose a key question: can European governments credibly commit to cutting their deficits? This column presents evidence that fiscal adjustments do not increase the likelihood of electoral defeat for incumbent governments.”

Eating to Live or Living to Eat? http://on.wsj.com/aw8phL  

Mission Group Reels After Losses in Uganda http://on.wsj.com/clhkDG

Scientists Discover Keys to Long Life – WSJ.com

online.wsj.com

“By analyzing the DNA of the world’s oldest people, Boston University scientists said Thursday they have discovered a genetic signature of longevity. They expect soon to offer a test that could let people learn whether they have the constitution to live to a very old age.”

Charles Krauthammer – Terror — and candor in describing the Islamist ideology behind it

www.washingtonpost.com

“The administration’s refusal to identify terrorists reflects a dangerous cowardice.”

Brad Greenberg: How Missionaries Lost Their Chariots of Fire and Why They Should Add the Gospel Back

online.wsj.com

“In The Wall Street Journal’s Houses of Worship column, Brad Greenberg says that over the past century, Protestant mission workers have moved from spreading the Gospel to do doing good works, and says that they should be doing both.”

Paul H. Rubin: Why Is the Gulf Cleanup So Slow? – WSJ.com

online.wsj.com

“In the Wall Street Journal, Paul Rubin writes that there are obvious actions to speed up the Gulf oil spill, but the government oddly resists taking them.”

Kim Strassel: The Obama Trade Games – WSJ.com

online.wsj.com

“In the Wall Street Journal, Potomac Watch columnist Kimberley Strassel writes that free trade is making a convenient comeback in the Obama administration.”

E.J. McMahon: The Empire State’s Stimulus Addiction – WSJ.com

online.wsj.com

“In The Wall Street Journal, E.J. McMahon writes that New York will never get its budget under control as long as Washington feeds its spending habit.”

Daily Kos Founder Says Polling Data Was Faked – The Numbers Guy – WSJ

blogs.wsj.com

“In an unusually public rift, a prominent left-wing political Web site is renouncing polling it had commissioned and published and is suing its former pollster.”

Short-term insurance buyers in Massachusetts

theincidentaleconomist.com

“Further evidence on how consumers in the real world “game” insurance mandates – this is a cautionary tale for Obamacare, given that ObamaCare is in essence a nationwide implementation of RomneyCare…”

Keynes vs. Alesina. Alesina Who? – BusinessWeek

www.businessweek.com

“Economist Alberto Alesina argues that austerity triggers growth.”

The Problem With Food Aid – Freakonomics Blog – NYTimes.com

nytimes.com

“Planet Money and Frontline report on the distorting effects of foreign food aid on local food economies, particularly in Haiti. People don’t buy rice when they can get it for free.”

It Depends on What the Definition of ‘Austerity’ Is

www.american.com

“Paul Krugman says we are in a ‘new era of austerity.’ When will government spending be enough? … In the last ten years, the private sector has, on average, grown 1.2 percent annually, while the government has, on average, grown 3.5 percent annually.”

John B. Taylor: The Dodd-Frank Financial Fiasco – WSJ.com

online.wsj.com

“In The Wall Street Journal, Stanford University economist John B. Taylor says the Congressional financial reform bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code.”

No Way to Help Small Business

www.american.com

“The need of many small businesses to raise money has led to several proposals to give small businesses more access to credit. Will they work?”

Menace to Mobility

www.american.com

“Comparing the administration’s new transportation plan to a Soviet ‘five-year plan’ would be unfair to the Soviets.”

Economics for (and by) 10th Graders – Freakonomics Blog – NYTimes.com

nytimes.com

“An economics primer written by 10th graders.”

Bounding the Price Impact of the New Home Buyer Credit

caseymulligan.blogspot.com

“1.6 percent is still less than the housing price increase reported by Case-Shiller over the most recent twelve months. So, even if a 1.6 percent impact were not exaggerated, housing prices would have been stable or increasing over the past year even without the credit.”

Sculpture Made by Bees

www.neatorama.com

“Dutch designer Tomáš Gabzdil Libertiny made a sculpture of Jesus that was completed by bees. He erected a sealed glass container with his mold inside. Libertiny then released 40,000 bees who worked on the honeycombed surface of the mold.”

France Loses; Warren Buffett Wins : NPR

www.npr.org

“Berkshire Hathaway sold an insurance policy that would have paid $30 million if France won the World Cup.”

The Classroom Still Matters – Freakonomics Blog – NYTimes.com

nytimes.com

“Classroom instruction beats the internet in a new paper.”

Drop Argentina from the G-20

www.american.com

“The G-20 heads of state will gather June 26 and 27. One issue that should be on the agenda: Argentina’s unsuitability to remain a G-20 member.”

Arthur Levitt: A Missed Opportunity on Financial Reform – WSJ.com

online.wsj.com

“In The Wall Street Journal, former SEC chairman Arthur Levitt asks: How could Fannie Mae and Freddie Mac have escaped the Democrats’ attention?”

John Yoo: Democrats and the McChrystal Fiasco – WSJ.com

online.wsj.com

“In The Wall Street Journal, John Yoo says that Democrats during the Bush years egged on military resistance to Bush’s war policies, further increasing distrust between civilian and military leaders.”

Notable & Quotable – WSJ.com

online.wsj.com

“Max Boot writing yesterday in Commentary magazine’s Contentions blog on General Petraeus replacing General McChrystal in Afghanistan.”

American Thinker: Paul Krugman, the Self-Contradicting Economist

www.americanthinker.com

“An argument that questions the credibility of economists in general is that there are a number of disagreements among many economists, and not all of them can be right at the same time. In the case of Nobel Prize-winning economist Paul Krugman, these disagreements come from Krugman himself, as he holds contradictory opinions on a large number of topics.”

Nonsense 4.0 at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas

www.thebigquestions.com

I wholeheartedly agree with Steven Landsburg’s assessment of Anatole Koletsky’s Wall Street Journal essay (see http://bit.ly/9Hjoqg), excerpted from his book Capitalism 4.0. A better title for Koletsky’s tome would be Nonsense 4.0!

How the Unemployed Spent Their Time in 2009 – Freakonomics Blog – NYTimes.com

nytimes.com

“They weren’t doing the laundry.”

Schumpeter 2.0 — The American, A Magazine of Ideas

www.american.com

“A great thinker’s contribution not only appears in his or her finished works and arguments, but also within the rich intuitions or core ideas that underlie the arguments.”

Stephen A. Blumenthal: It’s Time to Nationalize Fannie and Freddie – WSJ.com

online.wsj.com

“In The Wall Street Journal, Stephen A. Blumenthal writes that any solution that allows private companies to have a special relationship to government is destined to fail.”

Think Smarter About Risk – WSJ.com

online.wsj.com

“Moshe A. Milevsky says in The Wall Street Journal that when gauging risk, too many investors don’t consider the most important asset: their human capital.”

Opening weekend – 2010 World Cup – The Big Picture – Boston.com

boston.com

“The 2010 FIFA World Cup opened last Friday in South Africa, after years of preparation, with an Opening Ceremony at Soccer City Stadium – the first matches taking place over the weekend.”

Foreign Tax Bill Likely, But ‘A Bad Idea,’ Validus CEO Says

highlinedata.com

“NEW YORK-Proposed legislation denying tax deductions for reinsurance premiums paid to offshore affiliates will likely pass through Congress, a Bermuda executive predicted here yesterday, but he criticized the measure as a restriction of free trade.”

The Dark Side of Stimulus

“‘Regulating Wall Street’ Co-Editor and NYU economics professor Thomas Cooley breaks down the pros and cons of stimulus spending…”

Gerald O’Driscoll: The Gulf Spill, the Financial Crisis and the Failure of Big Government – WSJ.com

online.wsj.com

“In The Wall Street Journal, Gerald P. O’Driscoll notes that Republicans and Democrats fail to see the limits of centralized regulation in a modern market economy.”

Dynamic Dr. Krugman|KeithHennessey.com

KeithHennessey.com

“In his column today Dr. Paul Krugman argues that the deficit impact of a large ($1 trillion) stimulus would be mitigated by the effects of higher GDP growth.”

Women Prefer Men Holding State Bonds, Japan Ad Says (Update1) – Bloomberg.co.jp

Bloomberg.co.jp

“June 9 (Bloomberg) — Japanese women are seeking men who invest in government bonds, according to an advertisement being run by the Ministry of Finance.”

The Road to Price Controls — The American, A Magazine of Ideas

www.american.com

“Conventional wisdom is that U.S. pharmaceutical companies made out well under the Obama health plan by bargaining with the White House. That wisdom is wrong.”

Just How Risky Are Nuclear Industry, NASA Missions? – The Numbers Guy – WSJ

online.wsj.com

“Scientists in some risky pursuits attempt to quantify risks, which helps identify trouble spots. That might be in the future of the deep-sea oil-drilling business.”

Scenes from the Gulf of Mexico – The Big Picture – Boston.com

boston.com

“Based on recently revised estimates, BP’s ruptured oil well at the bottom of the Gulf of Mexico continues to leak 25,000 to 30,000 barrels of oil a day. The new figures suggest that an amount of oil equivalent to the Exxon Valdez disaster could still be flowing into the Gulf of Mexico every 8 to 10 days.”

Lawrence M. Krauss: Science and the Gulf Spill – WSJ.com

online.wsj.com

“In The Wall Street Journal, scientist Lawrence M. Krauss says that TV has fueled unrealistic expectations of a quick fix to the oil spill.”

Fouad Ajami: Iran and the ‘Freedom Recession’ – WSJ.com

online.wsj.com

“Fouad Ajami writes in The Wall Street Journal about the anniversary of the Iranian crackdown on pro-democracy protests that Facebook had no answer to the pro-regime vigilantes who ruled the streets. And the U.S. president, who might have helped, stood aside.”

Andy Kessler: The iPhone, Net Neutrality and the FCC – WSJ.com

online.wsj.com

“Andy Kessler writes in The Wall Street Journal that the FCC should make it easier for more companies to enter wireless data and cable broadband markets.”

Peggy Noonan: ‘We Are Totally Unprepared’ – WSJ.com

online.wsj.com

“Peggy Noonan writes in The Wall Street Journal that nine years after 9/11, there is a chilling complacency about WMD attacks.”

Charles Krauthammer – The myth of Iran’s ‘isolation’

washingtonpost.com

“Obama’s strategy against Tehran hasn’t worked.”

Don’t Believe the Double-Dippers

online.wsj.com

“Alan Reynolds writes in The Wall Street Journal that while liberals issue dire warnings to argue for more stimulus spending, Republicans embrace gloom as evidence stimulus hasn’t worked. Truth is the economy isn’t that bad.”

Obama Meets Toto

online.wsj.com

“In The Wall Street Journal, Dan Henninger writes that with the Gulf oil spill, faith in the omnipotence of government has put us in the land of Oz.”

Europe’s Determination to Decline

www.project-syndicate.org

“At a time when their economies are sputtering, European leaders have embraced the bizarre idea of further reductions in greenhouse-gas emissions. There is a strong correlation between carbon emissions and GDP growth, so, in the absence of alternatives to fossil fuels, Europeans are, in effect, calling for an even deeper recession.”

Keep in mind that since insurance is state regulated, HHS Secretary Kathleen Sebelius has no legal authority to undertake a regulatory enforcement action against private insurers.  This is why the White House is urging repeal of the health insurance industry’s exemption from the McCarran Ferguson Act of 1945 as part of its latest health care proposal (specifically, see page 3 of the proposal under the section entitled “Strengthen Oversight of Insurance Premium Increases”). Thus the administration’s current political strategy is to create a regulatory “carve-out” of the health insurance industry so that the feds can regulate health insurance premiums.  Presumably the rest of the insurance industry would, for the time being, continue to be regulated primarily at the state level, as has been the case for the past 65 years.

I would like to offer, as an antidote to Patterson’s article and video, Steven Shreve’s October 2008 Forbes article entitled “Don’t Blame the Quants”.  Steven Shreve is the Orion Hoch Professor of Mathematical Sciences at Carnegie Mellon University, where he has built one of the world’s leading quantitative finance educational programs.  Professor Shreve notes that:

“It is easy … to point an accusing finger at the “quants” on Wall Street, that cadre of mathematics and physics Ph.D.s who crunch numbers in esoteric models. Without the quants, the complicated mortgage-backed securities that fueled the housing bubble and led to the freezing of credit might not have been created…To prevent a recurrence of financial crises, some call for a return to a simpler time, before derivative securities and the quants who analyze them–a time when investors bought stocks and bonds and little else. Such complaints miss the point (italics added for emphasis). When a bridge collapses, no one demands the abolition of civil engineering. One first determines if faulty engineering or shoddy construction caused the collapse. If engineering is to blame, the solution is better–not less–engineering. Furthermore, it would be preposterous to replace the bridge with a slower, less efficient ferry rather than to rebuild the bridge and overcome the obstacle.”

I completely agree with Professor Shreve’s perspective on the role played by “quants” during the financial crisis.  The problem was not with the technology per se.  Rather, the problem involves a combination of poor managerial judgment coupled with perverse managerial incentives.  It is difficult to exercise sound judgment about financial engineering and risk management when top management views risk models as black boxes which exist for the purpose of printing money.