Fun Pictures (Copy &Pasted)

************************************************************************************

http://www.l99.com/202020/blog/view/40967

Received the following mail. i think it is cool

The 2008 crash is probably the most serious economic crisis we have faced after the Great Depression. Stock markets from around the world fell as much as 20% in a single week, dozens of banks either failed or were rescued by government and private instutitions, and companies started laying off employees as a consequence of the reduced demand.

We know how we entered into the crisis, but we don’t how, when, or how we will be getting out of it. Considering that issue, we decided to our little bit to help cheer everyone up by redoing the logos of some renowned companies …. after the crisis.

On Obama's Inaugural Address

"The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified."

I am glad that finally both Bush and Obama agreed on this point. Although we still have to wait and see how the new administration makes sure the government achieve administrative efficiency.

DeLong Bashing Fama

Determining which of these is most likely to happen would require a model of the economy of some sort--and Fama does not have one: all he has is an accounting identity that he does not understand.

The exit plan of Ben Bernanke

Here is the speech Ben gave at LSE today.

Ben first explained his approach in dealing with the financial crisis with the asset side of the Fed's balance sheet. Jim Hamilton does not like this approach but Ben clearly laid out his exit strategy focusing on how he will manage the inflation expectation as the economy recovers. He is building the expectation or say anchoring it by doing exactly what he is doing now: talking about it. It sounds like Ben knows what he is doing. But I am with Jim that the Fed probably should minimize the interest paid to excess reserve since paying interest on reserve itself is a contractionary policy and on the other hand, the Fed is trying to create liquidity in credit market, which is monetary expansion. I think maybe the Fed can sell something like the loan insurance to the banks, which may be helpful.

A little puzzle raised by Hamilton is that the Fed hope that by removing the toxic assets from the banks' balance sheet, the banks will start to lend out money again. However, the goal is not fully achieved for a while, at least. On the other hand, had the Fed not removed those toxic assets from the banks' balance sheet, there will be no credit easing for sure. Hamilton suggested that the Fed should off-load the colorful assets it has taken onto the asset side of its balance sheet, but my question is: How? Who will buy them and at what price? Won't that result in an immediate loss? It seems that the Fed need to do something effective in boost long-term lending for now and worry about everything else later since if the economy goes deeper into recession, the loss for taxpayers will be even higher.

Here is Q&A session.

Here is Hamilton's response.

Economists vs. House

The similarity between economists and doctors these days is that both professions give out prescriptions to cure something wrong, one for an ailing economy and one for a patient. There is actually a big gap between the two seemingly close practices.

Krugman, in his New York Times column, recently concluded that Friedman is not quite right on the healing power of monetary policy even Ben Bernanke has twisted his arms in all possible ways that he can imagine and Keynes was right the first time that monetary is not very effective during a financial crisis and large scale fiscal policy is needed. This shows the difference between economists and doctors. Some economic theories are only hypothesis and can be only tested once there is an opportunity. However, doctors, like Greg House, can some times experiment on their patient. As long as we don't have frequently repeated similar recessions, we may never know the true effect of the policy alternatives as long as they have not been adopted. Even for those policies were actually effective in boosting the economy, we may not fully understand the exact mechanisms of how these implemented policies work since in most cases, each recession may be quite different from one another.

Obama's second term and the Bank CEOs' compensation

1.6 billions to the Bank Execs in 2007 and we still do not know how much money the bank CEOs will get for their wonderful job of destroy the economy and their reluctance to revive it by lending the money out, which they got from the government.

If after next January, the bank CEO's 2008 compensation and how the banks used the bailout money still cannot be revealed, by then the president Obama will have a lot to do to prove his changes are really that we can believe in and he will have a hard time to get his second term.

On the other hand, will the bank execs fly back from their holiday vacations and start to cook the books?

The second mistakes

Since October of 2008, the motivation behind the effort in rescuing Wall Street thus the economy follow closely to the idea that the U.S. policy makers should avoid making the same mistakes during the Great Depression again. In terms of monetary policy, Ben Bernanke has by now cut the federal fund rate close to zero and the balance sheet of the Fed has ballooned in all possible ways that Ben can think about. On the fiscal policy side, the President-Elect Obama's stimulus package is in the making and Paul Krugman has suggested that the size of the package should be similar to the size of the financial rescue plan.

Both kinds of policies are aiming at the increase spending, directly or indirectly through increase in lending (leviating the credit crunch). While in avoiding a second mistake like the government made during the great depression, Jim Hamilton pointed out that we should also try to avoid a second mistake which lead us to the current situation, namely, very low savings thus investment in the U.S. economy. Hopefully, the future investment plans can pay off. One concept need some clarification is that the government spending in this situation should be considered and should be investment into the future, not just buying bombs and drop them in the middle east desert. On the other hand, Paul Krugman put his bet on the spending from the super rich class, not the middle class. Traveled too much Paul?