This is a 'shocker'. WSJ reports that the rating agencies stopped slapping AAA on any random bond issuance, because under the FinReg that is about to be signed today, they would be "liable for the quality of their ratings, effective immediately." This has pretty much stopped securitization dead in its tracks for the time being.
And what of the issuers and the underwriters, who still need to - what's that word - oh, right, "disclose" material information about the issuance? Well, nobody trusts them, obviously. And even if they did, people will need time to get used to the idea of actually reading prospectuses and offering memos as well as doing some digging into the credit quality of the issuer. I say, take your time boys, take your time.
But, sarcasm aside, what is really shocking about this story is this. The fact that people are no longer willing to scoop up some securitized awesomeness because the rating agencies no longer want to rate said awesomeness, leads me to conclude that people were still trusting the rating agencies to do their job, and were willing to buy and price bonds based on ratings. WHY???
Wednesday, July 21, 2010
Monday, July 12, 2010
on multipliers
It seems that there Mark Zandi has come to be accepted as gospel truth on fiscal multipliers, at least as far as the left-leaning blogosphere goes. Ok, so according to him the multiplier for extending UI benefits is 1.61. That seems like a pretty clear cut argument to extend unemployment benefits.
Fine. I'm down with that program - do put me in the 'voted yes' column. But I can't get over the short-horizon nature of most of the stimulus programs we've undertaken, and 100% of the additional measures that are being discussed now out-loud. It's all been very deeply unsatisfying. Everything seems to be targeted at the most bang-for-the-buck now - and this applies to the more effective things, like UI insurance, as much as it does to the least efefctive things, like the housing tax credit. These programs create sharp but short bursts of demand. When the money is gone - we're hitting the brick wall again as the demand has no momentum. Perhaps in a slump as deep as we have now, you just can't get the economy back into the positive feedback loop of continuous growth with these teaspoons of caffeine - the best you can to is to lift the funk slightly for a few months or weeks, until everyone gets depressed again. Spending accelerates first, but then - since the deep structural problems aren't fixed, since the consumer is still overleveraged and fundamentally cash strapped and since capacity utilization is still too low to generate business investment - it falls or stagnates like it seems to have now.
And in any event - do we really, and I mean fundamentally, want to drive the economy forward on the back of incessant consumption? Even ignoring the fiscal impossibility of these credit-financed binges, is the social environment of increasing consumption year in and year out a Good Idea? And why are these questions so rarely asked or talked about?
Suppose, for example, that the relentless drive to give more and more people air conditioners, washers, dryers, dishwashers and cars results in a complete environmental catastrofuck, depriving billions from water and food supplies, creating endless suffering for billions more and wars that last for a few decades? What do you say then? Do you say that economic growth now and the corresponding low unemployment rate is worth it?
Now, I am not saying "fuck economic growth, we'd be better off just slowly declining back into the stone age." Not me - no thanks: I like me some creature comforts as much as the next guy. What I am saying is that we need to take a good hard look at the kind of prosperity that we are generating through the choices we make today. And since we happened to be in a situation where the government must play an unusually large economic role to drive growth, perhaps we can kindly ask the powers-that-be to put their philosopher-king hats on for a bit, and think about what it is that we should be spending money on, rather than just relapsing into doling out cash and perpetuating the status-quo of a consumption-driven economy.
But the post is titled "on multipliers." On that, all I have to say is: how short term are those multipliers? I can never believe that over the long haul something like the building of the interstate highway system has a lower multiplier than UI benefits.
Fine. I'm down with that program - do put me in the 'voted yes' column. But I can't get over the short-horizon nature of most of the stimulus programs we've undertaken, and 100% of the additional measures that are being discussed now out-loud. It's all been very deeply unsatisfying. Everything seems to be targeted at the most bang-for-the-buck now - and this applies to the more effective things, like UI insurance, as much as it does to the least efefctive things, like the housing tax credit. These programs create sharp but short bursts of demand. When the money is gone - we're hitting the brick wall again as the demand has no momentum. Perhaps in a slump as deep as we have now, you just can't get the economy back into the positive feedback loop of continuous growth with these teaspoons of caffeine - the best you can to is to lift the funk slightly for a few months or weeks, until everyone gets depressed again. Spending accelerates first, but then - since the deep structural problems aren't fixed, since the consumer is still overleveraged and fundamentally cash strapped and since capacity utilization is still too low to generate business investment - it falls or stagnates like it seems to have now.
And in any event - do we really, and I mean fundamentally, want to drive the economy forward on the back of incessant consumption? Even ignoring the fiscal impossibility of these credit-financed binges, is the social environment of increasing consumption year in and year out a Good Idea? And why are these questions so rarely asked or talked about?
Suppose, for example, that the relentless drive to give more and more people air conditioners, washers, dryers, dishwashers and cars results in a complete environmental catastrofuck, depriving billions from water and food supplies, creating endless suffering for billions more and wars that last for a few decades? What do you say then? Do you say that economic growth now and the corresponding low unemployment rate is worth it?
Now, I am not saying "fuck economic growth, we'd be better off just slowly declining back into the stone age." Not me - no thanks: I like me some creature comforts as much as the next guy. What I am saying is that we need to take a good hard look at the kind of prosperity that we are generating through the choices we make today. And since we happened to be in a situation where the government must play an unusually large economic role to drive growth, perhaps we can kindly ask the powers-that-be to put their philosopher-king hats on for a bit, and think about what it is that we should be spending money on, rather than just relapsing into doling out cash and perpetuating the status-quo of a consumption-driven economy.
But the post is titled "on multipliers." On that, all I have to say is: how short term are those multipliers? I can never believe that over the long haul something like the building of the interstate highway system has a lower multiplier than UI benefits.
Subscribe to:
Posts (Atom)