Adventures in Smarshland

September 29, 2008

Misconception about “Bailout”

Filed under: Economics,Politics — Tags: , , — smarsh @ 8:13 pm

I have seen this misconception portrayed in almost every media article that I have read concerning the proposed government intervention in the capital markets.  The overriding error in logic is that the proposed 700 Billion dollars is simply flushed down the toilet.  Wrong!  The federal government would be buyings assets that currently are not liquid, but do have some value.  Much of these assets are collateralized debt obligations, or sometimes referred to as securitized loans.  A substantial portion of these loans are “non-performing”, meaning that that there are payments in arrears or perhaps the foreclosure proceeding have already begun.  This does NOT mean these instruments are worth nothing!  For instance, even if they government had to foreclose on every loan, the government would still be able to sell the collateral (the house) for some amount of money.  Furthermore, since the borrowing costs to the federal government are extremely low (treasury yields are almost at 0.0% percent right now), this means the government can take a long time to unwind these securities.  Many reputable economists and financiers believe the government will be able to purchase the distressed asset for less than cost (including carrying costs).  This is commonly referred to as a profit.  For instance, Warren Buffet believes that the few securities that are trading in this highly illiquid market are seeing potential rates of returns in the 15-20% range.  Meaning, the federal government may ultimately be able to turn a profit on investment of around 140 Billion dollars.  Failure to act on the other hand could lead to a collapse of the finance markets.

I should state that there are highly intelligent people who disagree with me.  For instance Robert E. Lucas Jr and James Heckman both Nobel Laureate economists along with ~200 economists signed a petition with objection to the original State Department proposal.  I have excerpted the objections from the position below:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses.  Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity.  Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

I hope my two cents have helped you be more informed as to the trials and tribulation of the current economic mess.  If you would like to know how we got into this mess in the first place you might want to check out this funny cartoon.

September 27, 2008

It’s about to get very busy

Filed under: Life — Tags: — smarsh @ 11:53 am

Timeline of business:
8 Days until Portland Marathon
38 Days until Actuarial Exam MFE
40 Days until my Dad, Brother and I travel to China
After China is Thanksgiving and then Christmas

September 22, 2008

World Events

Filed under: Economics — Tags: , , — smarsh @ 8:24 pm

Related to the economy:

Why Steve Paulson is Wrong is a short essay by a well respect U. Chicago professor Luigi Zingales about the bailout plan for the financial industry.

Greenspan interviewed by George Stephanopoulos watch the video

Freakonomics blog post which discusses the current upheaval.

The President of South Africa Thabo Mbeki has been removed from power which I see as a very positive development withstanding the possibiliity that he could be replaced by someone worse.  It is a positive development in my mind because Mbeki furvently denies that HIV causes AIDS, which is made worse because South Africa already has one of the highest HIV infection rates in the world at 20%.  Link

September 15, 2008

Yasso 800 Results

Filed under: Athletics — Tags: , , , — smarsh @ 10:43 pm

I completed a set of 10 Yasso 800’s, a famous predictor of marathon performance.  The concept is quite simple, run 10 sets of 800 meter intervals with 400 meter recoveries between each 800 meter effort.  If you are able to average 3 minute 30 second 800 meter times, then you should pace for a 3hour 3 minute marathon.  In other words each second on an 800 meter effort corresponds to a minute on your marathon time.  I have heard anecdotally that it somewhat underpredicts by maybe around 5-10 minutes.

My results were:

  1. 3:12
  2. 3:27
  3. 3:17
  4. 3:25
  5. 3:19
  6. 3:21
  7. 3:17
  8. 3:26
  9. 3:22
  10. 3:30

Average: 3:21.6

I think I will go out at 3:35 pace and then adjust pacing accordingly.

September 7, 2008

18 Mile Down, 20 Miler to go

Filed under: Athletics — Tags: , — smarsh @ 2:13 pm

I finished my 18 mile long run yesterday.  Surprisingly I felt better doing 18 miles this week than I did 16 the week previously, likely due to more favorable weather.  It was raining this week, but the temperature and humidity were much better.  I plan on doing some Yasso 800’s this week, a 20 miler next Saturday and then begin tapering.

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