Easy Money, Hard Truths

I liked this piece in the times quite a lot. It is a useful refresher course on macroeconomics and articulate the deficit hawks thoughtful worries about ballooning deficits and debt. It argues fairly persuasively that the lack of apparent inflation in reported numbers might be a smoking mirror or at any rate unhealthy.

It is a fairly challenging counter argument to the "forget-about-the-deficit,-there-is-no- inflation,-expansionary-government-policies" Krugman regularly pushes in his pieces.

The weakness of this analysis in my view is that it is poorly prescriptive. Mindless belt tightening at all costs as one would would asphyxiate the economy making the current predicament even worse. Krugman pushes for expansion but in traditional sectors of the economy.

What I have failed to see in both analyses is the effort to help flow credit to start ups in the services industry who are likely to open up the new industries which are most likely to help the country grow out of its mounting liabilities. When I read about the paltry efforts to get money through the SBA, it is quite puzzling. Thomas Friedman regularly does a god job at drawing the need to focus efforts on high tech startups of the future, but again his prescription for helping flow money in a timely manner to this sector is neither refined nor well calibrated enough.

And this would get me to... BICs


References:

http://www.nytimes.com/2010/05/27/opinion/27einhorn.html?hp=&pagewanted=all

High Frequency Traders and Liquidity

See: Speedy New Traders Make Waves Far From Wall St.


I was reading this article in the times and it just illustrated the fallacy of the argument that high frequency traders provide indispensable liquidity in the markets. Like all other normal or continuous trading assumptions about markets we question here this is one more. These assumptions work in normal times, but when they are most needed, they don't. And it makes dynamic or continuous time derivatives hedging potentially disastrous.

And this is where BICs, with there pre-determined contractual agreements provide economically valuable edge.

Derivatives Clearinghouses Are No Magic Bullet. Really ?

See: http://online.wsj.com/article/SB10001424052748703871904575216251915383146.html

Derivatives Clearinghouses Are No Magic Bullet. Really? but not for the reason this guy gives...and he is a professor at some big Ivy league School!

I read this article with a certain sense of bemusement at the level of ignorance the author therein demonstrated. He seems to have no understanding of issues of 2-timing, N-timing in bilateral netting agreements. The issues he worries about would be addresses in centralized or interconnected hierarchical clearing system as explained in my knol and powerpoint/ youtube presentation

References:

The Holistic Theorem

http://online.wsj.com/article/SB10001424052748703871904575216251915383146.html

Unity of Purpose

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