Oil Implications

http://finance.yahoo.com/news/Oil-climbs-to-highest-since-apf-1947152419.html?x=0&sec=topStories&pos=main&asset=&ccode=

Rising oil prices is at the top of my list of catalysts for economic recovery. Today oil closed at its highest level in 2.5 years (closing at $106.76). Obviously the most direct implication of these high prices is seen at the pumps when we fill our cars up, but high oil prices effect far more than just the price of gas.

Personally I do not see oil prices decreasing substantially even when issues in Libya are cleared up for a number of reasons (read up on peak oil). As such, I am a huge proponent of green energy research and investing. Unfortunately, it is not yet a truly viable alternative and its development is still in its infancy.

What do you see as being the biggest catalysts in our economic recovery, and what role to you think oil will pay?

Ponzi scheme

A lot of people think the entire financial system is one big Ponzi scheme.  Here is a quick look at Ponzi schemes.  Basically, someone acts like an investment broker.  The money from the second wave of investors is used to pay off the first wave.  This continues until there aren't any more new investors and the scheme explodes.

One reason why the financial crisis is not over....chronic crisis? I hope not

Here is a good timeline of the problems facng the eurozone over the next week or so.  Basically, Ireland's banks are insolvent; Greece's banks are too; and so are Portugal's.  At some point denying this reality is not enough to keep the banks afloat.   But no one wants to put real resources toward the problem.

How Amazon beat Google and Apple to the Music Cloud

Hey everyone, just a heads up this is my blog posting for Tuesday, I'm going to be busy all day tomorrow so I thought I would get it to you tonight so that you can respond throughout the day instead of late tomorrow night. Anyways, I came across this article about the music cloud and found it really interesting so I thought I would share it with the class. I'm sure you've all heard about the cloud, and might even have data stored on it; but if not its basically an online database that you can store stuff on and then access that information via your computer, phone, and even tv. I think the cloud in general is a great idea and a huge opportunity for many businesses. Amazon on Tuesday, however, launched the Amazon Cloud Drive, an internet service that lets its customers store music and other digital files on the companies' servers; a more everyday consumer focused market. Google and Apple have been trying to make this move for awhile now but have been waiting for record labels to get on board with licensing agreements. Amazon is clearly taking huge legal risks, do you think these risks are going to be worth the potential lawsuits? As college students every one of us listens to all kinds of music, would you personally be interested in storing your music on Amazon's Cloud Drive? This article was more out of interest as opposed to the financial crisis... any other comments about the music cloud??? See link here

Changes in the Housing Industry

Although deregulation of the housing and mortgage markets resulted in a catastrophic market crash, these regulation changes made housing affordable to many Americans. While we can see the error of our ways now… during the deregulation period many Americans thought this was great. It made home buying “appear” affordable to families who could previously not afford it.

The government is now faced with the difficult task of re-reregulating the industry, a necessary task but at the cost of making housing once again unaffordable to many Americans.

The following link http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html is a proposed change to housing regulations, which will require buyers to place a 20% down payment in order to receive the most favorable interest rate from their lending institution.

What are your thoughts on the re-regulation of the housing and mortgage industry and on the changes being made?

China Warns of 'Dollar Trap'

The dollar can't catch a break lately.

A top Chinese economist warned that the world has fallen into a "dollar trap," as U.S. trading partners lack an alternative to the greenback and can't prevent the Federal Reserve from printing more money.

With the rise of the Chinese economy there has been increasing concern over the U.S. dollar and some economists and policymakers are suggesting what might replace the current dollar-centric system in the coming years. Due to our current economic status here in the U.S. as well as the expansive monetary policy of the Feds, the dollar index is currently reaching its recent lows. "The dollar is down over the past year against the yen in spite of a massive disaster in Japan, and has failed to appreciate against the euro even as the Continent stumbles toward another spring of costly, politically divisive bailouts."

This is a short article but I think is really interesting hearing it from a Chinese economists perspective. Although a free-floating system has been in place here in the U.S. for decades, do you think that it might be time for change? In this article, Xu Hongcai suggested implementing a system of multiple reserve currencies that would be overseen by the International Monetary Fund. What do you think about this proposal? Any other comments about this article?

See article below

http://finance.fortune.cnn.com/2011/03/30/china-warns-of-dollar-trap/

Quick summary of Ireland's woes

If you think we have a financial crisis, consider poor Ireland.  (See here)  The eurozone  has already bailed out the banks (the Irish banks have borrowed over 150% of Irish GDP in this failed attempt to restore them to health) once and now they are being "re-audited" through stress tests.  Unfortunately, the banks are still failing.  The big question is "now what?"

But don't worry.  Isn't this just like a soap opera?  America's big banks are concentrating their growth in the international markets.  Read the account in the National Journal about how the banks have fared in the recent past.  Great prose and pictures.

One more quick post on moral hazard

Many of you have seen this post about moral hazard.  Once you are insured against risk, your risk-taking behavior changes.  In many ways, the evolving story of the financial crisis is one of increasing moral hazard.

Differing views of the world

As you begin to read Econned I hope you will notice the large gap between abstract theory and real world practice.  Smith comments on a recent editorial by Alan Greenspan where he again explains how financial deregulation and innovation led to world prosperity.  Smith compares the the real cost to the world economy (think of a world production possibilities function) of the financial crisis (between 60 and 200 trillion) to the benefits of unregulated banking.  (see here)  The US has a real GDP in the range of 14 trillion dollars.  So the costs of the crisis are multiples of our yearly real output.  Note too how large the large banks have gotten--Citibank is a $1.8 trillion dollar firm.  That's over 10% of our GDP.  Somehow it doesn't seem to me that we live in a world best characterized by perfect competition.  Comments??

NEW FOR 2011 SEMINAR: Securitization

In regards to the movie "Inside Job" we watched in class today and the topic of securitization I am uploading my part of a presentation from last semester. I discussed securitization, how it works, and its role in the financial crisis. I uploaded it as a Googledoc so hopefully everyone can take a look...

https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0ByYM71NDWX5iNzllMmM5ZmEtNGNlOS00MjliLTkzMjQtNjc4ZjU0MWZiMTY4&hl=en&authkey=CKLl-JED

Unfortunately, this is only the powerpoint which doesn't have all my speaking notes so it might be hard to follow, but I am hoping everyone can get the gist of how the math works.

My thought on the topic is that securitization is a good idea gone wrong. What is everyone's response/reaction to "Inside Job", securitization, and the role of CDOs?