Did the Fed Cause the Housing Bubble?

WSJ opines whether Alan Greenspan's Federal Reserve caused the bubble, or was one of the culprits only in the mess. 6 scholars present different and interesting views.

Assorted articles/links

Why Foreign Aid Is Hurting Africa
1992 Nobel Economist Gary Becker's interview on the current state of the market
Most presidents are either hedgehog or a fox, but so far Mr. Obama is neither, and shows no clarity of thought either
Possiblity of interest rates in negative?

Get over the AIG bonuses, what about the bailout money?

WSJ reports The Real AIG Outrage :
President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.
Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue."
Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes ...
....This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.
Besides its not worth the time, Greg Mankiw says :
The AIG bonuses now being debated in Congress and everywhere else represent about .001 percent of annual GDP. If a typical Congressman spent that fraction of a 2000 hour work year on the topic, it would consume only about 1 minute of his or her time.
Yes, I know, that calculation is silly in many ways, but here is my point: Regardless of how outraged you are about the AIG bonuses, it is probably not an optimal allocation of resources for our elected leaders to spend large amounts of time and energy on the topic. The economy has bigger problems right now, and it would be better to focus attention on those.

China's concerns over U.S. Treasuries

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Last week, Chinese Premier Mr. Wen expressed concerns over the huge amount of money lent to U.S. in the form of U.S. Treasuries and the safety of the said assets.
China has already lost billions in their risky holdings of Fannie Mae, Freddie Mac, Morgan Stanley. In fact, the largest foreign investor (bonds) from the twin housing companies was China, but now reduced their debt from these sources.
It would be natural to think about the safety of your money, given the current conditions in the U.S. and world over and also their unfruitful experience in the holdings of the above institutions.
In order to quickly douse the fire over these concerns, the U.S. through a spokesman and through the president's chief economic adviser, insisted that U.S. Investments were the safest.
There is not much Mr. Wen can do in this regard. China cannot just withdraw the hundreds of billions of dollars of U.S. treasuries, as this may have a ripple effect and the world-over, a dislike of U.S. Investments may crop up. This would drive down the dollar, increase the interest rates - increased interest rates would most probably mean a worse recession. Driving down the dollar would reduce the value of the present $1.946 trillion foreign reserves with China, and also reduce the exchange rate for exported goods. Such actions would not be in China's best interest and not certainly in any other country's as well.
Over and apart from all this, Mr. Wen is going to introduce a stimulus package in China, and maintain an 8% growth rate. The Chinese Premier has to justify these actions to his own countrymen and also to the world for financial stability. The decisions he is going to make will be crucial.

Obama's $80 billion exaggeration!

The President says that his flagship proposal for national adoption of electronic medical records -- a computer-based system that would contain every patient's clinical history, laboratory results, and treatments would save a staggering $80 billion dollars a year.
WSJ presents a good argument to prove that $80 billion is a tall tale.

Mankiw on Obama’s budget proposal

Greg Mankiw writes a thought provoking article on what we learn about the President and his economic advisers from their budget documents.
His 4 observations (nicely explained points) are as follows :

1. They are economic optimists
2. They like to spend
3. They are serious about climate change
4. They are deficit doves

In fact, not much of it is 'change'...

Bad news for international students

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The Crimson reports that an amendment to the Stimulus Bill in USA will prevent firms/banks that receive TARP( Troubled Assets Relief Program) money to hire internationals, those holding H1B visas.
This is a severe blow to many top US Universities as more than a third of MBA candidates in different universities are internationals. No jobs for them, and a severe blow to America's image as the 'land of opportunity'.
Discrimination on this basis creates many problems at a time. The only pro is that more Americans will be now employed so the unemployment rate will fall. But what about those who have come into another country, help to increase GDP, incomes and consumption level of the  population, all the while paying taxes and helping to stimulate the economy? Thats a raw deal then...
Also considering that such situations require some of the brighest and most talented minds to solve a problem at such a scale, and employing on this basis surely means they are going to lose out on a vast array of experience, talent and acumen of the international students.
What are your comments? I'd surely love to hear. Keep them flowing

Possibility of a depression

Is 20%, according to economist Robert Darro. His 'approach uses long-term data for many countries and takes into account the historical linkages between depressions and stock-market crashes'
Many readers may be wondering about the difference between a recession and a depression.
Its simple: recession means a decline of 2-3 consecutive quarters of GDP plus and minus minor factors, and a depression means when GDP and consumption fall by greater than 10% (something last seen in the 1930s).
He concludes by saying that during periods when stock markets crash, depressions are more likely and when everything goes on smoothly, depressions are unlikely. The fact that the recent year has seen great stock market crashes, the likelihood of a depression has increased to 20%.
Don't worry because the bright side is that there is 80% probability of not facing a depression!

Book Review: 'Losing my virginity' by Richard Branson

Richard Branson is the kind of entrepreneur every young man dreams of being. His story has all the hallmarks of the happy-go-lucky lifestyle we imagine rock stars live. But when one reads his book, one realizes the hard-work that goes behind building the biggest private company in UK.
He's been behind a number of business innovations at the same time has held parties for his staff and weekend long romps at Necker Island, while being exalted to Knighthood for his services to Entrepreneurship in 1997.
Like every autobiography, his story starts from his childhood when he was dyslexic and almost failed every paper except English. His love for media and business grew slowly while in school. It became very clear in his childhood he was carved for big things: he started a string of false businesses like growing Christmas trees and raising Australian parrots. At the age of 17, he dropped school to start Student Magazine along with his friends in his basement. He was young, ambitious and rebellious. He hit the street, learnt the hard way, wrote top class articles, created a large subscription for the magazine and garnered advertising for his young magazine.
One thing led to the other, and soon he had a mail order business. During his early days, he defied taxes and to a small extent, broke some tax rules governing European countries. After being caught, he started a chain of music shops and a music recording business, which subsequently attracted singers like Janet Jackson and Phil Collins in his portfolio, and made Virgin Music a big brand in UK.
Then followed a long account of his cold war (or open war) against British Airways, which had a virtual monopoly in UK for airline operations. After selling Virgin Music to EMI records, he founded Virgin Atlantic and meticulously attacked the unethical practices of British Airways. Soon the company swelled, and so did the Virgin Brand, which propelled him to open more businesses.
The most interesting aspect of Branson is that this man never sleeps. Between growing his billion dollar businesses and marketing his brand, he enjoys hot air ballooning and playing with near-death dangers. His famous quote : "A business has to be involving, it has to be fun, and it has to exercise your creative instincts." This maverick appears on the front page of the newspaper every now and then. In his book Branson states that this is the cheapest yet best form of publicity. No wonder, he is seen in funny attires or with beautiful ladies - this is a foolproof way of making headlines...
In summary, the book is as much a thriller, adventure like book, as an autobiography. One of the autobiographies that don't follow conventions, 'Losing My Virginity' shares all the secrets and feelings of Branson, who writes the book truly from his heart.