Op-Ed Contributor - The Great Preventer - NYTimes.com

Op-Ed Contributor - The Great Preventer - NYTimes.com:

Interesting piece. I am not sure whether stating that a person was actively complicit in the creation of a disaster and then participated in the rescue from the abyss is the soundest argument to make the case for them to be REWARDED. The opposing piece by Anna Jacobson Schwartz seems more coherently argumented.

Precisely with respect to BICs, when Roubini recalls that "The Fed even committed to purchasing up to $1.7 trillion of Treasury bonds, mortgage-backed securities and agency debt to reduce market rates." it once more makes me thing how much most cost-efficiently the fed could have controlled long term rates with interest rate BICs that replicate the whole curve.

I argue that the Fed making markets on interest rate BICs should be a major aspect of needed reforms at the Fed. Indeed in the 2003-2006 period, the fed had a hard time curbing the speculative bubble in the real estate market because acting only on overnight lending rates, it could not control long term rates that determine mortgage rates.

Holistic Theorem - Wolfram Demonstrations Project

Holistic Theorem - Wolfram Demonstrations Project:


The Wolfram Demonstrations project today released my peer reviewed dynamic illustration of the "Holistic Theorem" which is the basis of my unity of purpose article which argues that it is in the self interest of financial institutions to welcome mandatory clearing of financial derivatives. Its key proposition is that:
"'The more people participate in a system, the more it makes sense for a central authority to mediate their relationships/communication; no matter what the cost for setting up this central authority, as the number of participants increases, this cost is dwarfed by the benefits of centralized mediation on a linear versus quadratic basis'."

Geithner: Business Hedging Isn't Target - WSJ.com

Geithner: Business Hedging Isn't Target - WSJ.com: "Mr. Geithner's testimony Friday didn't shed much new light on details that lawmakers and industry players are clamoring to hear. Specifically, it remains unclear how regulators will determine when a contract is considered standardized. Mr. Geithner conceded the administration isn't ready to carve out a definition, although he promised it would be broad and 'designed to be difficult to evade.'"


Comment:
The question of a definition is indeed KEY.
BICs provide the best framework for providing a robust working definition. See:http://tinyurl.com/cyxhpa
With BICs markets, BICs would be the "standardized derivatives" and everything else would be composed of such BICs. It helps solve hedging ability issues that are matters of concern in this article. In addition, it in effect ensures that economic efficiency forces, in the search for the cheapest production cost, will push derivatives trades where they are cheapest, i.e. in a centrally cleared exchange system.

New Stimulus ? No Stimulus?

Bruce Bartlett, a former treasury dept economist has an article in the FT titled "We do not need a second stimulus plan"

He explains that because really stimulative programs that were part of the stimulus would only stimulate much later, there is no basis for declaring the stimulus plan passed earlier in the year was insufficient and that we need a new one.

Indeed Krugman has held a different view for a long time. So I just checked his blog and there is an entry on the article titled "Bruce Bartlett misstates the problem"

he points out the statement:

"The problem is that the Obama administration was much too optimistic about how quickly stimulus spending would affect the economy. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, chief economist to vice president Joe Biden, forecast in January that the stimulus would reduce unemployment almost immediately."

and points that it is inaccurate.While this may be factually true, it seems to me it does little to invalidate the central argument Mr. Bartlett is actually making.

I wish there would be more Krugman substantiation of the statement: "The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted."

I would be very interested in finding data quantifying the scope of shovel ready projects with large multiplier effects.

As I have written elsewhere projects with network effects as described in my holistic theorem would have the biggest stimulative impact, possibly at the lowest cost.

These include
-network infrastructure projects such as roads and bridges, in particular near housing developments (These would help support prices of houses in those areas by making the developments more easily accessible to urban work areas)
- internet infrastructure development projects
-electrical/smart grid development projects
-Financial Services central clearing

The question to me is how many(number and budget) can be moved along, on what timeframe,



07/09/09 - Here's the WSJ survey of economists on the question:

Wary Banks Hobble Toxic-Asset Plan - WSJ.com

Wary Banks Hobble Toxic-Asset Plan - WSJ.com

It was an ill conceived idea for everybody. The realization now starts to sink in and everybody is trying to get out of it in as politically viable a way as is possible.

The best way of implementing that idea was as a market maker on those assets bought/sold at a refined level of granularity.

I have an article coming in the Investment Professional coming out next month that use the BICs framework to show how a lot of what was said was merely smoke and mirrors, including what the "smartest" said. A must read.

http://www.theinvestmentprofessional.com/upcoming-articles.html

FT.com / Comment / Opinion - Economists clash on shifting sands

FT.com / Comment / Opinion - Economists clash on shifting sands
The neo-classical vs. neo-liberal debate as being framed here between Ferguson and Krugman has always struck by the fact that none of these positions provides clear analytic means for deciding when to decide where government (or central counterparty) action is judicious and when it is not.

While Krugman might be right at this moment, blind acceptance of his prescriptions may lead to trouble at other times.

It it is why I see my piece on the holistic theorem, despite its analytic relative simplicity as crucial in understanding how to decide among these two camps in practical situations such as the present issue of whether or not to adopt centralized clearing of derivatives.

SEE: http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16

Editorial - Congress, the Banks and Derivatives - NYTimes.com

See my knol on the "Holistic Theorem"

This editorial makes a painfully & tragically poor traditional liberal argument for derivatives regulation even though the ultimate goal of regulating all derivatives trades is what is needed. It merely re-hashes the March 29,09 editorial piece. See:http://www.nytimes.com/2009/03/29/opinion/29sun1.html

They conclude by saying:
"Senator Tom Harkin has introduced legislation that would require exchange trading for derivatives. Representative Collin Peterson has introduced a bill that would tighten the regulation of derivatives’ clearinghouses. He acknowledges that his bill is not as strong as he would like but that Congressional politics left him no choice, telling The Times, “The banks run the place.”"

and I say: "duh"

In this specific instance, they fail to see that their is a unity of purpose between derivatives trading institutions and advocates of centralized clearing, and that is the most effective argument to be made in order to effect CENTRALIZED CLEARING OF ALL DERIVATIVES TRADES.

Why set yourself up for a fight against a party where the odds of winning are against you when you can simply & persuasively explain to the other party that it is in their best interest to switch to your side of the argument?
See:http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16

Note also that regulated BICs exchanges on different types of underlyings, by creating exchanges that most efficiently trade instruments that all customized derivatives merely combine would eliminate the loopholes of the proposed legislation

Fair Value Pricing, Government Market Making and PPIP - a knol by Phil Kongtcheu

I have just received notice from Prof. Zia Haqq, Conference Manger that an enhanced version of this paper Fair Value Pricing, Government Market Making and PPIP - a knol by Phil Kongtcheu, which includes the continuation paper http://knol.google.com/k/phil-kongtcheu/estimating-costs-for-ppip-assets-in-a/24v2kgtuvzk2v/4 has been accepted for presentation at the conference "Heterogeneous nations and Globalized Financial Markets: New Challenges" which will be held at Imperial College in London July 9-10,2009. www.worldbizconference.com. I submitted the paper without really thinking too much about it and now I am not sure how I can manage to participate even though I really would like to...

The paper contains a more systematic analysis of the subsidies of the govt plan for investors, as well as the pitfalls of the reasoning systematized under the term "fallacy of expectations based risk management"

Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu

Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu

I have just received a notice from Ms. Carole Dobson conference manager that this knol "Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics" has been selected for presentation at the "Quantitative Methods in Finance Conference (QMF) 2009" to be held 16-19 December 2009 in Sydney, Australia.

The conference site is at http://www.business.uts.edu.au/qfrc/qmf/index.html

This conference is a leading annual financial mathematics conference and I am pleased to be given this opportunity and really hope to be able to participate.

FT.com / Columnists / GillianTett - Why public private plan has bankers squirming

FT.com / Columnists / GillianTett - Why public private plan has bankers squirming
Indeed it is unclear that participation is such a free lunch.