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FDIC may take on Executive Pay

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The headline, FDIC eyes linking levies to bank pay, is yet another media sound byte which might be yet another PR stunt with no action.

US banks’ contributions to a multi-billion dollar fund that insures depositors’ savings could be linked to regulators’ assessment of bank pay plans, under preliminary discussions being held by top banking watchdogs.

So, there is no commitment or comment. At least the FDIC is considering such a move, while Congress does nothing.

Friday Movie Night - The American Ruling Class

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hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This night's film is by request. It's a dramatic-documentary-musical on class warfare. Here is a synopsis and the wikipedia article. Happy New Year and Enjoy!

The American Ruling Class

Happy New Year Economic Populists! Good-bye Lost Decade!

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I would like to say good-bye and good riddance to the lost decade of 2000-2009.

It started with the dot con crash and ended with the financial Economic Armageddon implosion.

I sometimes believed a look of jaw drop would be permanently etched on my face as I watched towers implode, votes not counted, hanging chads, invasions based on obvious lies, the corruption of Congress, the false data and information being put on as news, the implosion of the value of work, the real production economy and the U.S. middle class.

Bubbles, bubbles everywhere, popping and forming, ride 'em up, ride 'em down, but eventually almost all would fall to the ground.

Get ready for another Wall Street bailout

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When you know you are about to do something unpopular you try to hide it. For instance, the public would never know that over 140 banks (not counting credit unions) have gone under this year because their announced failures only happen on Friday evenings.
Another extremely unpopular event would be another round of bailouts for Wall Street banks. That's why the provisions are hidden deep within the financial reform bill.

For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system.
Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

Believe it or not, this is not the most outrageous thing Washington has done in the last week.

You have been warned

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The underlying assumption that the current world monetary system is built upon is that America will always over-consume and the world will always accept our debt at face value. It's a warped and unhealthy relationship, but its worked (sort of) for several decades. That's why it was notable when a Chinese central banker spoke up last week.

"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."

Impossible? That's absurd. For decades foreigners have been more than willing to exchange their excess dollars from trade surpluses for our debt in order to keep their currencies at artificially low levels.

Pricing a CDO - Not only Bad Math, Bad Computation too

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A working paper, Computational complexity and informational asymmetry in financial products, Sanjeev Arora, Boaz Barak, Markus Brunnermeier, Rong Ge. sheds some light on the complex mathematical models upon which credit default obligations and other derivatives are based.

What Arora et al. prove is not only are many derivative mathematical models impossible to compute, never mind in real time, because they require more computing power than the world possesses, the missing information to run a mathematical model is a very good place to cheat with.

To understand what CDOs, derivatives are, see this post, complete with video tutorials. For some background on the mathematics behind derivatives, read We Want the Formula and this one on some of the probability functions.

Onto the paper. Firstly this quote:

One of our main results suggests that it may be computationally intractable to price derivatives even when buyers know almost all of the relevant information, and furthermore this is true even in very simple models of asset yields.

Christmas Movie Marathon - The Age of Uncertainty

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hot buttered popcorn It's Christmas, along with Friday Night Videos! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This week is a marathon, in honor of Christmas day.

Economist or more social scientist, John Kenneth Galbraith, wrote and presented an economic series in 1977, The Age of Uncertainty. Galbraith was kind of a dinosaur by 1977, with Milton Friedman, Thatcherism and Reagan taking power of the political economy. Now that we are suffering through the consequences of unbridled corporate driven (written) policies, it might be nice to go back memory lane and revist Galbraith's view of of economic history.

The series has 15 parts and the 12 which overview economic history are in this post. Happy Holidays.

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