Thursday, March 29, 2012

Ben's Lectures IV

Moral: Wherein we continue with Ben's look at the crisis.

---                       Lecture 1Lecture 2, Lecture 3, Lecture 4

Foreword: Today's lecture (03/28/2012) is the 4th in the series (Aftermath of the Crisis).

Well, it has been interesting, so far, especially seeing him talk in real-time for a couple of lectures. One can see the rationale behind his decisions. However, from the initial blink to the open spigot, the impact has been more for the financial side's benefit than for the common citizen (oh yeah, prevent a downturn -- Ben, you know there are real people hurting?), especially those who have saved (and are being robbed by banks, 0.25% (or less) for a CD - come on!). Ben seems to be after two things:
  • evidently, he wants our attention (and money) to be put toward the ca-pital-sino (at our risk) rather than in more safe instruments (ah, ever-clever finance has seen to it that there is no such thing as safe?). 
  • seems that he would rather that the consumer be in debt, to their eyeballs, than to have real assets accumulated (notice, please, that market advances are not 'gains' in any real sense, many time - they are? show me an accounting of when it's not near-zero; too, daily there is what is essentially pilfering, rationalized, many times, under the guise of stupidity).
Somehow, those who foster on us the things talked about in Lecture 3 seem to be after a perpetual-motion analog (is p-m ever to be? - what we see is near-zero in action). And, we know that won't work (oh yes, CEOs, you do not WORK!).

But, enough; as we said in the first post, we'll hear him out even if his role would be best done wearing the garb of a 'magical' wizard. Ah, happy talking, indeed. So, to the final Lecture. 


Notes (italics, my aside, sometimes with links - times are clock - CDT):

~11:45 ... late start, on my part ...

~12:00 on QE, using chart
          2008 loans (blue), rose at first, then balance diminished
               as these got paid back
          LSAP  (red), larger area, added to the balance sheet

        why? lower long-term rates, for one thing
             inducement to move assets elsewhere

~12:04 how was this paid for?
          credit bank account of people who sold them
          showed the base light blue, currency
             not printing money (it's a metaphor, Ben)
             reserve balances go up (aeration, in any case)
                    not in circulation, not cash
          but, part of monetary base

       quantitative easing worked    30-year mortgage < 4%
            corporate credit became available
                 stock prices rose (ah, yes, to his good)
             confidence? up?
       not housing, though

~12:07 employment and inflation
            says inflation is low
               but not negative

       large-scale asset purchases, monetary
              fiscal: spending, taxation
       interest on LSAPs, profit to Treasury

       other tool, communication, open policy
         statement, such as defining price stability
                          which is, 2% inflation

      future, talk FOMC policy

~12:13 says recovery was mid-2009 (from 2007), GDP increase, 2 1/2 yr
          sluggish,compared to post WWII recoveries
             so unemployment still problematic
             housing, not recover
                vacancy rate high, continuing foreclosures
                    home prices going down

~12:18 too, tighter standards on mortgages
        higher credit scores needed (> 700)

        consumer less willing to spend, cautious
            new construction discouraged

        banking system is stronger
            expansion in lending

        European effect on financials

~12:23 structural issues not addressed by monetary policy

        the long run, abundant issues are still there
           headwinds, essentially

        so, now the (rah-rah) pitch
           growth, constant 3%, from 1900, Depression and recovery,
                 then at 2007+, a decline (permanent?)
           regulatory changes - for systemic+ issues
              Dodd-Fank, plus Consumer Protection Act of 2010

                = Financial Stability Oversight Council
                      Fed is a member
                = closes some of the gaps
                = too big to fail
                    more supervision, Volcker rule
                    stress tests (annually)
                    if keep from failing, ratifies the bad behavior
                          (moral hazard)
                       so orderly liquidation authority (FDIC)
                = require transparency for derivatives
                      get them out of the shadows
                = Consumer Financial Protection Bureau

~12:37 goal: being effective while controlling cost

          many thought stability was junior to monetary
            Fed's start was to prevent panics (full circle)
                 bubbles happen
            if can't prevent, can mitigate (ah, sounds like Alan)

         so, Fed prevented things from being worse

-- Main versus Wall, monetary policy the latter, how
       to relate to the former:
    fed has done outreach, fed is accountable, does speeches
       complicated institution, not simple issues
         Americans don't like central banks

-- one the buy back from Fed balance sheet (unwind):
    pay interest on reserves (more than they will pay customers)
      drain, via other liabilities
        assets mature, or sell them elsewhere (Government backed)

-- help homeowners refinance at lower rate:
    harp program, for instance, FHFA (for underwaters)
      banks may not be part of all programs
        Fed not involved with those

-- deflation (japan's experience), cushion (2%) too small:
     international consensus around that
        must be above zero, but can't be too high
           research issue

-- monetary and structure problems:
    housing, white paper on the issues
        no recommendations, but did the research
    Europe - difficult, firewall to stop spread of contagion
    labor - training

-- other tools:
    give me an example, Ben says
         unemployment continuing, countries failing
     he has laid out the tools
          hopefully, F-D will help protect
    don't have other tools beyond what was said

-- key indicators, for tightening:
    jobs creation, unemployment claims
    demand and growth - consumer spending, sentiment, capital expenditures, etc.
    inflation, of course

Post the questions: Prof Fort talked about how the series came to be. Fed's initial query in Dec, 2011. Lots of coordination, since then, required on both sides. These four Lectures will be the basis for the rest of the class. Much to discuss. (ought to be interesting)


04/01/2013 -- Ben as the new Central Planner.

12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

04/03/2012 -- Response 1.

03/30/2012 -- Ben didn't mention student loans as his focus was on what had already happened. He carried on with Alan's short-sight. What about student loans? How can something so simple get so screwed up? Thanks, Sallie (cousin of Fannie and Freddie). 

Modified: 04/01/2013

Monday, March 26, 2012

Ben's Lectures III

Moral: Wherein we continue with Ben's look at the mess and its aftermath (do we want to know what roles contributed to the problems and the lessons to be learned by those involved?).

---                       Lecture 1Lecture 2, Lecture 3, Lecture 4

Foreword: Today was the 3rd (on youtube, transcript (pdf)slides (pdf)). The first two lectures were on 3/20 and 3/22. Material (video, transcript,slides) are available at (media center). There will be one more after today. These are being hosted by the George Washington University School of Business. The following are notes and comments that were taken while watching the third video today. See earlier Lecture posts for background.

Note: Since both the transcript and the slides are available with the video, the below notes are terse entries to jog my memory later on. Ben did a good job of talking about the crisis, gave his side of many of the stories (information not available through the press), and supported the actions. He used 'ad-hoc' several times which is in his favor. He expressed the distastefulness of what they had to do (I agree). Next time, he'll talk the future.


Notes (italics, my aside, sometimes with links - times are clock - CDT):

Last time, we heard about the onset of the crisis. Today, we'll hear 'what he did next' from a prime player.

Ben reminded of the context, the 2008 financial crisis. Too, there are two responsibilities. For the financial stability task, the thing is to act as lender of last resort. For the economic stability task, the focus is on monetary policy, principally interest.

~11:47 -- recap on vulnerabilities (see Lecture II), there were both private and public
     private -- too much leverage (result of the long-going moderation?), exotic securities
    public -- gaps in regulation, even fannie & freddie
      they pioneered securitization, using morgages for packages, but f & f' got to where
         they operated without adequate capital, and other problems that portended problems

     (this was seen, by many, long before the crisis --
                     it would be interesting to list those discussions)
        also, f & f' started to buy packages from others, of unknown value

        on triggers     mostly non-standard mortgages
              payments assumed rising house prices, anytime re-financing (post a year, for example)
                many types, ARM, option-ARMS, too long term 30+ years,
                      even negative amortization

         showed a couple of ads, one offered this: 1% start rate, for a year, only needed to
                   state income (no documentation required), 100% financing, interest only
                           (get this!) debt consolidation (put together your credit card and other debt
                                           rolled into the mortgage)

    so, these things were packaged and sold into the financial market
                    (2011 - Tranche and trash, 2007 - Tranche and truth)
             CDOs - combined mortages, and others
               then tranche'd, which leads to complex and opaque entities
                   these were given AAA (see below)

      sold to pension funds, foreign banks, etc.

~11:57 -- AIG (got special attention several times), used other derivative types
                         to insure these above, which amplified the risk
               the AAA?, partly through negotiation

            (essentially, junk offered) large basis for the crisis

     what is a crisis: some illiquid event, causes loss of faith, then panic (runs)

      2006, 2007 - mortgages started to fail, shifting the ground under the securities
             actually, not large losses (compared to movements on the stock market)
               but, no one knew was responsible for what
                        (too, leveraging brought into the securitization scheme)

        during the depression, 1000s of bank failures, small
          2008 Bear Stearns (mar), Lehman Brothers (sep), Merrill Lynch
              and mae and mac (propped up by Treasury)
                   AIG, Washington Mutual Bank, Wachovia (oct)

        for a depression, central bank needs to lend, also be accommodative

            2008 vigorous action by Fed, also G-7 (Oct 10)
                    shows interbank rates, went up (2007), then down (after Oct 10)
                       didn't trust each other 
                (hah! worse than the lemons problem -- "... the recent affair where the 
                       bankers (and other financial types) essentially froze their gaming 
                        as they knew that they were dealing mainly with crooks 
                            (like themselves) ...")
      Fed, discount window, longer terms, lower rate, auctions
               new programs, and collateral for loans

      enhance stability, allow availability (didn't work)

     emergency authority already in the law (13-3)
       banks, broker-dealers, paper borrowers, money market funds, asset-based securities
                     that last, consumer credit

        mmfs     buy shares, invest in short-term assets (commercial paper)
                     $1 share price
                 not insured         on demand, plus interest
           90 days, non-financial (payroll, inventories), financial (manage positions)
       lehman created a shock-wave, was into cps, plus mortgage, comm real est securities    
                                    lehman  both cre and mortgage hits
               withdrawals, ..., no new capital, so bankruptcy
                      even Fed tried to help

     mmfs failed their $1, hence redemptions (run or panic)

        Treasury, Fed provided backstop, ..., run ended in a few days

            about billion a day outflow

             mmfs started to drop cp which went into shock
                   cp rates went up    
              so Fed again     bolstered confidence
                   cp rate peaked, then recovered

              mar 08, bear stearns to jp morgan
                  oct 08, fed bailed out AIG
                       AIG said that they would insure what were bad securities
                            (no doubt, all sorts of bonuses for this crap)

               AIG did have collateral, 85 billion

                      Fed repaid, but Treasury own stock
                             distasteful, not to set a precedence

~12:34  too big to fail (will go into next time)
                trying to end this                      

    gdp down 5 percent     manu 30 down       homes 80 down
             serious collateral impact (yeah, savers sacked)

                      8 1/2 million out of work            global slowdown
                threat of a Great Depression

                 it was worse, the policy response seems to have worked

       indicators: stockmarket, 29, 07    truncated timeline, essentially
                         (yet, moral hazard still there - too, we have not
                                un-wound from the computational influences)

             15-16 months, stock price recovered, in U.S.
                       (so, what does this mean beyond aeration?)

           industrial production,        large v,  versus short, less deep v
                       (we'll id the slides when they're out)

~12:39       aftermath next, recovery, change, lessons

-- why the bad mortgages with high risk? --
      too much confident about prices going up
            1 year, then re-finance            
      demand for the securitized product
         ever-clever finance,  (he said that
             took the mix, then engineered AAAs (something from nothing)
               kept the bad pieces or sold
                of course, [would try to] sell them off [if there were a problem]
     it was profitable (short term, yeah bonuses)

-- volcker rule? --
       will talk about this next, reduce risk, prevent banks from doing
             proprietary trading -- legitimate exceptions (hedging, make markets)
               how to keep exceptions in control?
        liquidity - trading volumes  (he sees as important!)
               contagion - sell offs, lower price, puts pressure on those
                     who still hold

-- global collaboration, G-7, bail-out of AIG? --
            some inconsistencies, say Lehman UK and US,
              complexity is that something too big to fail might be international
                    how to help them fail safely?,
       said ad-hoc, no lead time was problematic
            cooperation between federal banks
               some use dollar funding
                  swapped dollars for euros (still in existence)
             coordinated cuts on same day in 08
      cooperation will be an on-going issue

-- off-balance sheet vehicles? --
       accounting rules, create vehicle, bank might own part,
           limited control, so separate organization, to get away with less
                 capital, ..., rules have been re-worked, need to be
            consolidated and put on the books

-- large firms, too big to fail -- how do you decide? --
             no doctrine, judgment on size, impact, etc.
            reform is to get rid of this     bad, unfair, etc.
        said they chose the least bad thing to do
       tried to be conservative
         AIG was obviously in need,
           Lehman was insolvent, couldn't borrow from the Fed
               was before TARP, there was no way to do the lone
         ad-hoc, again
            now, they'll have to assess how critical some bank is
                size, complexity, inter-connectedness, etc.
       on merger, will it create a more dangerous situation?
                numerical thresholds need to be determined
          if bad, no merger
     more focused on stability, group working on metrics, etc.

-- vulnerabilities, ratings, buyers would want better ratings,
             why these didn't come forth?  --
     you would think that it wouldn't be the seller who did the rating
             the buyer bears the risk,
         free rider problem, how to keep the work secret?
               better incentive for credit raters
                 investors would have to save the cost,
                      not want to give it away


12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

04/03/2012 -- Response 1.

03/28/2012 -- New page covering the series and its material.

03/28/2012 -- Distasteful? Many are saying that (Romney, et al). However, we could have NATIONALIZED the idiots. Perhaps, we ought to have (we would not have been any worse off). Of course, Ben's mind cannot grasp that notion. He says 'ever-clever' finance. Well, their antics hurt the rest. Why is that type of thing allowed? He says accounting is to blame. Who works to monitor/limit the 'smart' idiots and their tactics that lead to inevitable messes? How about having more mature approaches as the standard? Hey, Harvard!! You there? Oh wait, you left that realm in the mid-1800s, right?

03/28/2012 -- Added links. Will update when transcript and slides are available.

Ben needs to think about how he's sacked the savers (they are legion) over the past few years just so that he could get his pseudo-capital markets back up into an inflated mode (as if the ca-pital-sino, as evolved, is it for us). Ah, big guy!

Too, he's looking only at junk via mortgage packaging. Big guy, there were other types, and you know it. Plus, leveraged buyouts have been part of the scene for a long while. In many case, wrecking havoc, in the small, that is much worse than this slowdown which came from silly games.

Modified: 12/13/2012

Friday, March 23, 2012

Ben's lectures II

Moral: Wherein we continue with Ben's explanation for himself (which, we hope, is more than fairy dusting upon a gab'd standard).

---                       Lecture 1, Lecture 2, Lecture 3, Lecture 4

Foreword: The first of four lectures was on 3/20 (video - also available at The second was on 3/22 (video). There will be two more. These are being hosted by the George Washington University School of Business. The following are notes and comments that were taken while watching the video today. The intent is to watch all four of these and to summarize at the end.

Today, I watched real-time. I'll delay and watch the video after the fact, henceforth. It was a little different; as one could watch Ben work his thoughts into words. However, after the fact, there can be a pause to see the slides (in real-time, they're only flashed momentarily).

Too, the first four posts will be re-capping only and will provide a means to link into work already done on this and the related blogs. Summarizing, and analysis, will occur after the last video. While listening, it was too easy to turn Ben's comments around and put them into a context for a question. That is, he is being driven by his abstract'd background which is great (don't get me wrong). And, he's lifting out to that realm where it's more fuzzy, by nature. The trouble is that when one then goes back to the technical space, things don't match up (it's partly topography, in a sense).


Notes (italics, my aside, sometimes with links - times are clock - CDT):

Ben restated the need to take a historical view to set the context.

~11:46 Today, he will go over early challenges (post WWII), then cover the great moderation, and finally get into the current crisis. Reminder: macroeconomic and financial stability are goals.

~11:49 During WWII, the Government kept interest low, post the war, keeping them low was seen to risk heating up the economy, and leading to inflation
          1951 – FED got okay to be independent in setting interest rate

          William McChesneyMartin, 51-70 (the longest term), the idea was to lean against
              the wind, whichever way it blew, even so, there were 2 recessions,
                   plus the expense of Korean effort.

          By the 60s, the policy was too easy, hence a surge in inflation, until 79, peaked at 13%
~11:54  Why? Ben used 'optimistic' on his slides
                  (but the idea was to think about parameters),
                         implying an ability to control, however response was mostly too slow
              Too, theory started to say: permanent tradeoff between inflation and employment

          70s: oil (Israel & Middle East) and food shocks, costs of Vietnam war, rising inflation
              Nixon’s wage-price controls tried to dampen inflation, didn't (as we know)

           Arthur Burns' comment: change supplies opportunities for mistakes
                      (Ben, you listening?)

           About 'optimism' and its association, fine tuning (if only)

~12:01  1979, Paul Volcker, came in, facing double-digit inflation, during Carter's time,
                         PV raised interest rates, established a disciplined approach, also allowed
                                big change, that is, other than small deltas

                  80s, there was a drop, to 3 to 4 % from the 13%    (so, FED was successful)
                              collateral damage (isn't there always, as we're seeing with Greece)
                             unemployment went up, peaked at 11%, 1982
                   Reagan and congress continued to support Volcker

~12:06  1987, King Alan's time, he held it for almost 19 years (see WMcM, above)
                   his time was of the 'great moderation' and growth
                                (not the stagflation of the 70s)
                   GDP growth rate (chart) shows a dampening into a smaller span, less variability
                           Recessions, 73, 81; the band was stdev 
                    was same for inflation, smaller band
                               (one could think control, almost)

                  Why?  …, monetary policy was a focus, therefore economic stability,
                       …, but, structural changes, too (inventory management, for example)
                                 and luck?
                  Downturns during the period, 1987, 2001 (dot com)
                               87's influence short-lived, the dot com? see below

~12:15   Housing bubble (late 90s to 2006 - remember, a retrospective, 
                               he did not see this in 2007, see note yesterday)
                   turned out to be a 130% rise in prices
                   too, lending standards deteriorated
                          the thought: couldn't lose?, house prices would keep rising,
                   as well, underwriting became bad
                   in short, poor mortgage quality
                        before 2000, down payments, documentation of finances,

                   then nonprime came to fore (more than subprime)
                   peak of nonprime, middle 2000s, 1/3 were non-prime
                          also rise in those with no documentation, 60% little or no docs
                                          (sell at any cost, was the slogan)

                   but, with prices up, payments up, so, how to pay?
                          eventual dampening, 2007, hit the limit
                  then, declining demand, 2006, prices dropped, 30% drop across the country

~12:22   Aftermath, …, some felt rich, then were underwater
                               negative equity (to say the least)
                      12 million, out of 55 million, were underwater
                  too, delinquencies and foreclosures up signicantly                            

~12:24    (Ah)  securities based upon these mortgages, had losses
                          (understatement, I want to hear about the toxic)
                 says that we need to consider triggers vs vulnerabilities    
                         housing losses were like
                                 but, had a smaller effect
                decline in prices and loss of mortgages were triggers
                        vulnerabilities enhanced the effect of the triggers of the housing bust
                what were these??        
                           = too much leverage (debt)
                           = lack of sufficient monitoring of risks (complexity of the securities)                       
                           = confidence from the great moderation?

                           = in 2006, they wouldn’t have been able to say what the impact of
                                   a house price drop would be  (lessons learned?)
                           = short-term funding, and exotic instruments (toxic, to boot)
                                     CDS, as an example used to sell insurance,
                                          if you lose money, we’ll cover you,
                                               (hah) or so they said
~12:31  Where was the government --- AIG was without supervision
                   = regulations lagged and supervision, such as consumer protection
                   = no one looking at systemic issues working against stability
                         no real oversight,
                   = then, there were fannie and Freddie
                   = even if laws were there, not implemented  (FED, too)
                           FED didn’t measure risk as it ought to have and banks couldn’t
                                banks could monitor themselves?
                   = no cooperation, FED, FDIC, SEC (turf issues)    
                   = nobody was looking at things in the whole (but, then, who can?)

~1236    Monetary policy, too low interest rates in early 2000s?, in 2003, 1%,
                                   it increased the demand for housing,                             
                  but, UK had a housing boom/bust even with tight money
                       …, too, housing bubble was beyond scope of mortgage rate changes
                                     …, size of bubble was huge (so, other factors)
                  Germany and spain as example, germany housing flat, spain boomed
                  and, timing, started 1998, even rose after 2004 tightening

                  Asian crisis, reserves built, needed investments
                         capital inflow heats up markets
                          so what was the monetary influence?
                                 (these were quick asides as he has two more hours)

~12:41    References on the topic
                             stress went up, stocks declined,
                             home construction went way down, unemployment 

~12:46  Questions (several of these were of the same vein, plus Ben punted some
                                       to the later lectures):  
                tighten: too early, too late --- how to know?,
                          challenging, forecasting is difficult,
                 plus expectations change, prices up,
                          so wage demands increase, etc.
                                 (I hope that he touches on the issues of
                                    unwinding from his hugely inflated 
                                         balance sheet -- anyone even talk
                                            moral hazard any more? 
                                               ought we look at why?)

               2000, low rate, didn’t spark the mortgage bubble?--- in 2002, paper
                             bubbles and  monetary policy, …,
                          need to use tools correctly, …, plus, regulations and monitoring
                                       …, ought to have been done better, …,

               Global imbalances, borrowing increase plus greater consumption? --- says low
                                   rates increase capital (yes, one thing he can re-look at)
                             capital increases (ah, yes – the markets),
                             too, trade imbalance is down

               2000, interest not cause of the mortgage, but what about forcing riskier
                           investment (or as we can say, sacking the savers)? ---
                                 says balance needed,

               2000, did he see recession coming? --- he was Economic advisor for Bush,
                                   they looked at house price declining, possible effects thereof,
                                       didn’t see that the decline would have such a big effect,
                                                     he’ll be going over the chain of events and causes

               government lending for more mortgages? --- the American dream,
                        home ownership goal, but, Ben says, the worse loans were private
                           sector, not Fannie/Freddie,
                                (who seemed to have gotten greedy later)

               transparency, can it be too much? --- it’s important for accountability,
                              can make it work, …, 'tis better,
                                as market then know how to respond
                                       (remember when Ben blinked?)

              price stability, liquidity? --- his actions are trying to bolster confidence
                             with easy money (see Lecture 1


12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

04/03/2012 -- Response 1.

03/28/2012 -- New page covering the series and its material.

03/26/2012 -- From the Fed's media center (Lecture 2 PDFs - Transcript, Slides). As an aside, see Slide 35. It references unpublished material that would suggest that low interest rates do not cause housing bubbles (no smoking gun, yet). Looking forward to the next two. As well, see that I'll have to go back to his Jan 3 talk dealing with this subject. Ben realizes, no doubt, that housing is not the only issue. We can easily find companies (probably even banks) who went bankrupt from over-leveraging (related to cheap money and more). Do we know what shenanigans have come from too-easy rolling out of securitization schemes (are they not, too, related to (actually implicated in) this mess?)? And as far as a smoking gun (their metaphor, not mine) goes, is not the current policy standing savers up against the wall and knocking them down one by one (well, at least, picking their pockets to the point of depletion)?

03/23/2012 -- Minor updates. Links added.

Modified: 12/13/2012

Wednesday, March 21, 2012

Ben's lectures I

Moral: Wherein we give Ben a chance to speak for himself (and his roles - which, we hope, is more than fairy dusting upon a gab'd standard).
---                         Lecture 1, Lecture 2, Lecture 3, Lecture 4

Foreword: The George Washington University School of Business was the site of the FED's recent outreach. Lecture 1 (video - also available at of a 4-part series took place yesterday.

The following are notes and comments that were posted while watching the video today. The intent is to watch all four of these and to summarize at the end.

As we said earlier, he has an impossible task in his position, and we'll be a little more respectful this year. After all, he has not acted like King Alan.

Now, in one write-up on the lecture, there was mention that Ben joked about the 'gold' standard as this: moving something from a hole in South Africa to another hole. I'll be looking for that remark, so expect a comment about that bit (the notes will be marked with the corresponding time stamp from the talk). The idea is to get away from a gab standard, and there are many way to do this.

Other than that, I'm going to listen open-minded as one would expect. And, my comments, hopefully, will be fair.

Notes (italics, my aside, sometimes with links - times are elapsed minutes):
  • ~4:28 - looking at the broader contexts, including his area of the Great Depression
  • ~5:12 - Part 1, why central banks? Next week will get into the current issues.
  • ~8:00 - what do central banks? Stability, essentially (macroeconomic, financial)
  •       macroeconomic - think jobs, inflation                
  •       financial - bailouts to prevent runs
  • ~9:00 - usual tools? monetary policy (interest rate, mainly; but, print, or burn, money - using bonds) and liquidity (cheap loans, without due credit assessment - of course, last resort - do we all not wish for that?)
  • ~12:04 - third tool? financial regulation and supervision (not unique to the FED) to reduce risk
  •      side note (wasn't this the same guy who said that things were fine in the 2007 timeframe?)
  • ~13:07 - a look at early efforts, Sweden, 1668, most backed by gold (see below)
  • ~15:28 - financial panics (lack of confidence, runs - everyone wants their money, whatever that is
  •                            this part pulled out into a separate video (Financial panics)
  • ~21:17 - lender of last resort (bailouts to calm panics - uses Bank of England as example, quotes Walter Bagehot -ah, Bagehot says if there is collateral - in other words, don't enhance leveraging already gone awry, too, Bagehot says higher interest rate - Ben did not do that!)
  • ~23:42 - now to the FED's history, the functions were done privately before the FED, first the clearing house, daily exchange, they would close down and look at failures (if only we could do that), but private turned out to be inadequate, 1893 stands out
  • ~28:27 - finally, the FED, and gold's use to base money, ..., 
  • ~30:14 - here it is, gold, used as a standard: a waste of resources, dig a hole/move stuff/put into a hole (at least, you have something that is real!), of course, money supply is limited, why then a central bank?, says inflation (?), closer ties (sensitivities) between economies of countries (some would argue that is good, he admits), uses China as an example (tied to US currency - yes, we're in a big hole to them), ..., independence, he says, if not use gold? (chimera), speculative attackes? (ah, guy, we don't see these now?), didn't prevent panics (again, the FED does? - I get pangs thinking of how the FED treats savers), lack of credibility? (did not this last go-around take care of that for the central banks?), hallelujah, over the longer term, prices were stable (did you review your slides, guy?)  
  • ~38:01 - deflationary example, related to gold (sounds just like people being underwater now, what is the difference?)
  • ~39:50 - Williams Jennings Bryan wanted to add silver to gold, so that there would be a bigger basis (there are other elements! - it's called heterodox, what about an energy model? -- the cruxifix now is the Street (not Main) and ca-pital-sino
  • ~40:30 - President Wilson, and the FED is born, 1913, lender of last resort, and manage the gold standard, disagreement between Main Street and Wall Street (ah, never heard of such a thing) on control, so 12 Banks, BOGs in DC, equitable?   
  • ~45:00 - lucky for the FED, that its start was in the good times (Roaring 20s), but, then 1929!, global in scope, from 1929-41, stocks down, output and prices down, 25% unemployment
  • ~50:00 - why did it happen, according to Ben? WWI aftermath, gold, stock bubble (see Minsky), panic and collapse, ..., liquidationism (eliminationism? - what about the egos of the bankers, bonus mentality, ...?),   
  • ~52:08 - the FED failed (we knew this was coming): didn't ease monetary policy (rather, tried to stem speculation), policy tightening and inaction, also gold (1933 change eased deflation), didn't play lender of last resort (from whence the funds for this?, taxpayers, of course
  • ~55:25 - admits banks were insolvent, gives FDR's actions (1933, 1934) credit for Deposit Insurance (runs) and getting off of the gold standard (fire up the presses), these helped offset the FED's errors, says bank failures went to zero (oh yes, 1000s had already failed, so wouldn't those left be stronger?)  
  • ~58:27 - he's using modern concepts, and language, to argue FED failure (overlooking a whole lot of detail - no doubt, he's looked into these details, but he cannot compare now and then as closely as he has been allowed to do - subject to be discussed further - in other words, how are we different now - besides computation?), next time, he'll look at the central bank since WWII up to 2008/9 and show the reasons for his/their actions (can't wait!)
  • ~59:19 - questions 
  • first one: Ben notes that the one knob of interest rate cannot control the stock market and has a big impact on the economy (and savers, too, guy), in this case, the FED trusted the traders, too much
  • second one: gold standard, why the interest? is it possible? Ben says price stability (partly true, long run) and the removal of his role (yeah! oracle, in chief), Ben says that the practical side says there isn't enough gold, expense, the policy side (ah, Labour gets its nod) would make it difficult to try to keep employment up -- says that, historically, those countries who dropped the gold, as standard, recovered more quickly from the Depression; 
  • third one: double dip, despite FDR's intervention, Ben says premature tightening, fiscal and monetary, but there is controversy about that view; 
  • fourth one: recoveries take time, but people (especially politicians) have short term views,    Ben says to consider the Depression as an outlier, but, in general, financial downturns take longer - this latest, finance; do central banks cooperate? they did, recently, historically, there have been issues (used Europe after WWI, as an example), gold standard forces cooperation, somewhat, ..., now, hopefully, there would be more

12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

04/03/2012 -- Response 1.

03/28/2012 -- New page covering the series and its material.

03/26/2012 -- From the Fed's media center (Lecture 1 PDFs - TranscriptSlides).

03/22/2012 -- Lecture II. Watched this real time and took notes. Before I write them up, I'll wait for the video (missed the old pause button).

03/21/2012 -- Next lecture is tomorrow, 3/22. Then, there are two next week.

Modified: 12/13/2012

Sunday, March 11, 2012

Alan M. Turing

Moral: Wherein we get back to some technical issues that imply limits.


The motivation is partly celebration of the 100th of Alan M. Turing. The March ACM Communications has a series of articles. We'll use one of these. To be brief, Turing's work was seminal to computing; yet, some, like the quants in their race for profit, ignore some basic issues. Then, we, the populace, bear the costs. Too, economists have migrated toward 'modeling' as a key method; they, too, do not seem to have paid attention.


But, first, a comment is in order. What we have in the world are two things: those who use these limits to sustain their intake (Made-offs and those who game the system and more) and those who let themselves be led by the nose (as in, the stupid, the Made-off victims, et al).

You know what? This has always been the case. The problem now? Computation. It is not as robust as we might be led to believe.


One of the ACM articles is by Prof Cooper (of Leeds, UK): Turing's Titanic Machine? The Prof looks at the background and provides some insight into the current debate. But, we might ask, what debate? You see, many operational stances have been able to skirt around the issues. That ability, itself, can be seen within the contexts we obtained from Turing's work.

For now, let's just look at the categories of adaptation to the reality. That is, even if one has not read Turing's work, dealing with computation causes one to broach upon this subject, by necessity. The Prof has four categories (Note: the order does not imply ranking). We (perhaps, tongue in cheek) could add more.

  • Reductionists -- characterized by confidence, these apply what they know. Is this the most? Wait? Isn't this operationalism, at its core? Or, in economics, making money if one can. 
  • Impressionists -- now, this mindset has become aware of the limitations of science (ah, is this where quasi-empiricism first come to fore?) and knows that we need philosophical (just keep from becoming too meta) bridges. Wait? Perhaps, the economic schools, and the debates thereof, crop up. 
  • Remodelers -- ah, hypercomputationalism or perturbations, one might say. Or, there looks to be something parallel to what we see with the interpretations in the realms dealing with the quantum world. In economics, is this where we have the interminable experimenting with our lives? 
  • Theorists -- ..., sloughing off a whole lot of detail, let's just point to Chaitin (pdf), for now. But, one could ask? Where is our meta-economics? 

To reiterate the importance of the subject, we can use a phrase from the Prof's article: In 1970, the negative solution to Hilbert's Tenth Problem when combined with results from classical computability arising from contrived priority constructions, circumstantially pointed to a very rich infrastructure of incomputable objects.

Which means several things that ought to give one pause. Of course, we can (ought to) go ahead with innovation. But, letting the best-and-brightest experiment real time (and consideration of the side-effects, thereof) is not something to take lightly.


We'll get more into the Prof's notions. However, for now, contemplate the fragile state, please.


12/13/2012 -- Is it time to move beyond the Turing Test?

08/04/2012 -- Alan will feature in coming discussions.

05/01/2012 -- We'll get back on this theme: Technological singularity (note, not too late, page dates from late 2010). This is put here as Alan argued that computational intelligence might exceed human talent (true, in many cases). Yet, I need to ask him: Alan, how are computablity issues to be resolved within the computer? You see, this is what the role will be for humans: cut out of the fog, essentially. The argument will ensue at some future point, and memes will be on thing to consider.

03/16/2012 -- Computability's definition (yes, used in the context of this post) will need to cover some notion of the delta (difference) between expectations and delivery, implying (yes) the importance of the user's values. That is, the providers (ISPs) are servants, not the other way around. Utility, if you would.

03/12/2012 -- Related organization (CiE). They'll feature Alan this year at their meeting in Cambridge.

03/12/2012 -- Prof Cooper has an interesting mathematical pedigree. With two advisors, he has two 'grandparents' of note: Ludwig Wittgenstein (Wiki) and Alan M. Turing (Wiki). The blogger does not have an advisor/parent, but he claims a heritage via a cousin and an uncle: Carl-Wilhelm Reinhold de Boor (Wiki) and G.H. (Godfrey Harold) Hardy (Wiki).

Modified: 12/13/2012