Short Video about Financial Crisis

Nice done and neat video to introduce the current banking problem.

Import Certificates

Today I read this article written by Warren Buffet several years ago about his worries of US trade deficit, which is still substantial amount today. His solution is quite dramatic but not yet applied.

Joe The Plumber

After the final Presidential debate of 2008, Joe the Plumber become the natioanl celebrity.
Here is what happpened the other day. Tax is always an interesting economic issue.

Paul Krugman Wins Economics Nobel

Krugman getting the Nobel is a very interesting result amid current financial crisis.
His contribution is explained here and here.
Update: Krugman explains his own work. Edward Glaeser honors Krugman's work.

Messy Fannie Mae

Charles Duhigg had an in-depth report on the mess of Fannie Mae. For example, one paragraph says:

Whenever competitors asked Congress to rein in the company, lawmakers were
besieged with letters and phone calls from angry constituents, some orchestrated
by Fannie itself. One automated phone call warned voters: “Your congressman is
trying to make mortgages more expensive. Ask him why he opposes the American
dream of home ownership.”

Paul Romer and Gary Becker on Financial Crisis

Paul Romer had an insightful opinion about realists and fundamentalists on economy. In short, fundamentalists are against bailout while realists are supporting bailout.
Gary Becker is one of the realists. See his "We are not headed for depression" in WSJ.

Modern Finance 101 and Credit Default Swap

Here provides a neat chart of modern financial products.
60 minutes provides a good report on Credit Default Swap (CDS).

Sept. Madness

WSJ had a good and detailed article about what went wrong since Government let Lehman go.

Greg Mankiw posted this funny chart to highlight this Sept. madness.

Math and Science in India

WSJ had this article about India's cram schools for college entrance exam. It is pretty astouning. This reminds me of Taiwan, which had similar things before. This is perhaps how most Asian students develope their math and science skills.

Comments on Financial Crisis

Larry Summers on bailout and budget.
Robert Shiller says everybody clam down. .
Lawrence White on WaMu.

Toto, We Are Not In Kansas Anymore!

Princeton had a panel discussion on current financial crisis.
See here.

American Bailouts History

See here for the past.

Here is the latest one.

Remarks by Charles Evans

A decent academic analysis and reference of current finance crisis by Charles Evans, President of Fed Chicago.

Bailout Joke

Here.

Why It Happened So Fast?

Many people are asking why three major investment banks disappeared within 6 months.
Here is one reason, the article back to Nov, 2007. It bothered me that the investment banks still decided giving out so many bonuses amid the housing slump and subprime morgage crisis.

Diamond and Kashyap on the Recent Financial Upheavals

Here.

Notes on Financial Meltdown

Rogoff's opnion Here.
Macroblog's analysis Here.
WSJ's report Here.
NYT's report Here.

What a Crazy Weekend!

The financial hurricane hit Wall Street this weekend. See this.
Krugman had a simple comment.

Getting Real About Health Care

Robert Samuelson had an analysis on the US health care. I agree with this sentence very much:

"The central health care problem is not improving coverage. It's
controlling costs."

The Fall of the Freddie Mac and Fannie Mae

NYT had a good report on the fall of these two mortage giants. The story is as dramatic as the rescue of Bear Stearns in March.

What is the Fair Tax?

Makiw wrote this article about future tax policy. Is he supporting Obama?

Recession Looms in Japan

Another Japanese leader quits as recession looms.

Compared with Japan, US seemed to be OK in terms of economy over the past decade.

Hedge Fund Wizards

Here is an interesting illustration about hedge funds.
I feel a little bit confused that finance professors call on regulations on financial innovations while some economics professors say no.

WSJ has a latest report on hedge funds.

Blanchard Spoke

Blanchard, who is a famous macroeconomist, took a position in IMF.
His interview mentioned about the global economic outlook.

Revised Q2 GDP

The revised number of the US GDP growth (3.3%) surprises a lot of ecnomists.
I am not surprised at all. It says one thing: we were not in Ression, at least not yet!! I had heard a lot of people saying we were in the worst recession after Great Depression over the past year. But it did not happen.
I was skeptical about it from the beginning. Why? Because I believe in this survey.
We should not expect a recession would come so frequently and seriously like several decades ago. Also don't underestimate the ability of Fed amid many negative shocks. The Fed had learned several hard lessons from the past history.

Rajan Had Told You So

Economist Rajan had warned us about the problem of financial system three years ago in Jackson Holes Meeting. This time he comes back to the meeting and everyone listens.

Snapshot of the US Economy Equality

The Recent Report of the US Economy Equality from Census Bureau.

Real median household income in the United States climbed 1.3 percent between 2006 and 2007, reaching $50,233.
Meanwhile, the nation’s official poverty rate in 2007 was 12.5 percent, not statistically different from 2006. There were 37.3 million people in poverty in 2007, up from 36.5 million in 2006. The number of people without health insurance coverage declined from 47 million (15.8 percent) in 2006 to 45.7 million (15.3 percent) in 2007.

What Tax Rate is Fair?

Macroblog raises this big issue.

Treasure Island of Economics and Finance

Videos of the Nobel Laureate Meetings at Lindau, Germany, in August, 2008

Stiglitz (2001): The Global Financial Crisis: Lessons for Policy and Implications for Economic Theory
Scholes (1997): The Role of Liquidity and Risk Transfer Services in the Economy
Yunus (2006): Social Business is the Solution

Note: Peace Price

Myerson (2007): Leadership, Trust, and Power: Dynamic Moral Hazard in High Office
Solow (1987): Low-wage Work in Europe and America
Kydland (2004): From Dynamic Inconsistency to Models with People
Mundell (1999): The Currency and Exchange Rates
Phelps (2006): The Good Life Needs an Economy of Dynamism
Granger (2003): Evaluation of Global Econometric Models
Fogel (1993): Forecasting Changes in the Cost of Health Care: 2000-2040
Aumann (2005): Rule Rationality vs. Act Rationality
Nash (1994): Ideal Money and Asymptotically Ideal Money

Note: Remember the movie "A Beautiful Mind"? Here is the real guy.

Panel Discussion: “Systemic Risks in Financial Markets”, Profs. Scholes, Stiglitz, Yunus and McFadden

How to Invest $10,000 and Sleep Well?

A former student emailed me a question about investment:

Hello Professor Yu,

I'm not sure if you remember, but I took your Econ 202 last spring. I was hoping I could get a little advice from you. I have around $10,000 that I can invest in something. I would like to invest the money since I am still young, it should have more time to compound that way. I don't really know what type of investment would be a wise choice at this age and with that much money. If you could give me a little advice on what to consider I would really appreciate it. Thank you for your help and time. Have a good semester.

[Name Withheld]

Below is my response:

I am glad to hear from you.
It is good to have some extra money to invest for the future.
If you could hold the money for at least five years (the longer, the better) , I would suggest you to put the money in some kind of stock index fund. There are two reasons for this.
First, it has the lowest management fee compared to mutual funds. Second, it is well diversified compared to single stocks.
Never ever buy a single stock because it is too risky. You might buy a stock like Google when you are lucky or Enron (or Bear Stearns) when you are not.
In the long run, stock index will give you a higher return than bond or money market index.
If you ask me what kind of stock index fund, I will say the simplest form: S&P 500 in the US. For example, Vanguard 500 Index Fund is a good one.
I put my 401K money in this kind of funds. By the way, NOW is a good time to buy stock index fund since stock market price is not high.
Also, I won’t give the advise for those who cannot hold their investment for at least five years. So if you only want to do the short-run speculation, ignore what I said above. I am not certain for this kind of investment.