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Investing and Economics Blog

Why do we Have a Federal Reserve Board?

Jon Stewart is a Genius

Jon Stewart asks Alan Greenspan an excellent question:

Why do we have a Fed? Why do we have someone adjusting the rates if we’re a free-market society?

Alan’s answer is not satisfying, but I don’t blame him: The economics profession does not have a good answer. We economists have rigorous and fundamental theory to explain why we have environmental regulation (externalities) and to explain why we have antitrust laws (market power), but there is no consensus about what market failure calls for the existence of a central bank. The answer has something to do with the benefits of a system of fiat money. And it has something to do with the possibility of short-run monetary nonneutrality…

Nice post from the recent Chairman of the Council of Economic Advisers to President Bush and current Harvard professor. If I remember right he was in consideration to serve on the Fed. I also don’t think he is questioning the regulatory role of the Fed but the interest rate and monetary policy.
Related: Bernanke Calls for Stronger Regulation of Mortgages – Investor Protection Needed – What is the Fed Funds Rate?

September 25th, 2007 by John Hunter | 1 Comment | Tags: Economics

Home Price Declines Exceeding 10% Seen for 20% of Housing Markets

Double-digit home price drops coming

Over the next few years, more than three-quarters of the nation’s housing markets will suffer some decline in home prices. Many will experience double-digit hits in a forecast that has worsened considerably in recent months. According to an analysis conducted by Moody’s Economy.com, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more.

The survey attempted to identify the high and low points of housing prices in each of the markets, some of which started declining from their peak in the third quarter of 2005. All are median prices for single-family houses. Nationally, Moody’s is projecting an average price decline of 7.7 percent. That’s a jump from the 6.6 percent total price drop that the company was forecasting in June and more than twice that of last October’s forecast of a 3.6 percent price decrease.

This forecast appears to me to be from the absolute top to the bottom over the course of several years. That decline is now estimated to be over 10% for nearly 23% of the markets. The remaining 67% will decline less than 10% from the peaks or increase. There average price decline prediction (again from the top of the market to the bottom) nationwide is now 7.7% up from an estimate of 3.6% last year.

September 19th, 2007 by John Hunter | 3 Comments | Tags: Economics, Investing, Real Estate

Fair Use Worth More to Economy Than Copyright, CCIA Says

Fair Use Worth More to Economy Than Copyright, CCIA Says

Fair use exceptions to U.S. copyright laws account for more than $4.5 trillion in annual revenue for the United States, according to a report issued on Wednesday by the Computer and Communications Industry Association.

“Much of the unprecedented economic growth of the past 10 years can actually be credited to the doctrine of fair use, as the Internet itself depends on the ability to use content in a limited and nonlicensed manner,” CCIA president and CEO Ed Black said in a statement. “To stay on the edge of innovation and productivity, we must keep fair use as one of the cornerstones for creativity, innovation, and, as today’s study indicates, an engine for growth for our country.”

September 14th, 2007 by John Hunter | Leave a Comment | Tags: Economics

Majoring in Credit Card Debt

Majoring in credit-card debt:

Critics say that as the companies compete for this important growth market, they offer credit lines far out of proportion to students’ financial means, reaching $10,000 or more for youngsters without jobs. The cards often come with little or no financial education, leaving some unsophisticated students with no idea what their obligations will be. Then when students build up balances on their cards, they find themselves trapped in a maze of jargon and baffling fees, with annual interest rates shooting up to more than 30%. “No industry in America is more deserving of oversight by Congress,” says Travis Plunkett, legislative director for Consumer Federation of America, a consumer advocacy group.

First, it is sad that college students are so lame they can’t even understand basic personal finance concepts like high interest credit card debt is very bad. But millions of them seem to actually be that lame (not exactly a great sign from our future leaders :-/). The credit card companies actually claim: “Our overall approach toward college students is to help them build good financial habits and a credit history that prepares them for a lifetime of successful credit use.” Does anyone believe this? A related articles discussed how much cash universities were taking from credit card companies: The Dirty Secret of Campus Credit Cards.

But Leech warns that schools that get money from credit card companies through affinity contracts or other marketing agreements face intractable problems, in which the school’s financial interests are in direct conflict with those of students and alumni.

It really isn’t that hard to do the right thing. Credit card companies have learned to profit by gauging their customers. If they claim that they are trying to teach good financial habit then the university to set up a contract to favor that. If bad practices occur (students not paying off the full balance say) they the credit card companies don’t get to make a profit on that – since it would be rewarding failure by the credit card company. How you want to do this is up to you but I can’t think of several ways. It is pretty simple – don’t let the credit card companies profit by encouraging stupid credit card use – like they do now.

Yes, creating a climate where the universities focus on the credit card companies actually doing what they say they want to do is a new way of thinking. But paying universities millions to market exorbitantly expensive financial products that harm students finances and teach them bad financial lessons is not some grand tradition passed down from Cambridge 200 years ago. Obviously neither side minds doing things differently for the right amount of cash. Lets see if they mind doing so to help the students learn. My guess is they will mind doing that. But I will be happy if I am proved wrong. My guess is that some schools would (and maybe even are doing this) – some schools really do care about helping their students learn.

The universities could choose to use their clout to help student instead of just getting a big payday for themselves. That would be a good lesson for students to learn. Much more effective then telling students they really should act ethically and not only chase after the dollars after they graduate. Such “advice” rings pretty hollow if you see that same university selling students out for a quick buck.

Related: Poor “Customer Service” from Discover Card – Credit Card Tips – Don’t Let the Credit Card Companies Play You for a Fool

September 10th, 2007 by John Hunter | 1 Comment | Tags: Credit Cards, Financial Literacy, Personal finance

Homes Entering Foreclosure at Record

Some pretty amazing statistics are in this article – Homes entering foreclosure at record:

Delinquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the Mortgage Bankers Association (MBA) said in a quarterly survey.

Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter. The loans actually entering foreclosure proceedings stood at 0.65 percent, a rise from 0.58 percent in the first three months – and the highest rate in the MBA’s 55-year history.

This quote however is a bit misguided I think:

More Americans are falling behind in their mortgage payments as stagnant home prices, auto-industry weakness and climbing interest rates have taken a toll on housing affordability.

Stagnant home prices have not taken a toll on housing affordability. Yes people that put nothing down and took out mortgage where they could not pay the monthly payments and planned to just borrow even more from the house if the house price went up can’t afford it – but they couldn’t afford it in the first place.

Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – Ignorance of Many Mortgage Holders – Median Housing Prices Down 1.5% in the Last Year – How Not to Convert Equity

September 6th, 2007 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, Personal finance, Real Estate

Washington’s Funny Accounting

Fuzzy Bush math

There will be lots of celebrating in Washington next month when the Treasury announces that the federal budget deficit for fiscal 2007, which ends September 30, will have dropped to a mere $158 billion, give or take a few bucks. That will be $90 billion below the reported 2006 deficit and will be toasted by the White House and Treasury as a great accomplishment.

But I have a nasty little secret for you, folks. If you use realistic numbers rather than what I call WAAP – Washington Accepted Accounting Principles – the real federal deficit for the current fiscal year is more than 2-1/2 times the stated deficit.

What is going on? The same old story. Those in charge of spending the money in Washington like to use deceptive tactics to try and trick people that don’t know any better. For example, if the government incurs a deferred liability to pay $100 Billion dollars in future social security payments this year and invests that money in treasury bonds they act like the government didn’t spend that money. Of course it did, they took $100 billion in social security taxes and spent it to build bridges to nowhere, pay huge corporate welfare payments, other worthless wastes, even worthwhile things etc..

Related: USA Federal Debt Now $516,348 Per Household – Washington Paying Out Money it Doesn’t Have – Concord Coalition

September 4th, 2007 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, Taxes

           
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