Thursday, August 16, 2007

Today's Econ Round-up

U.S. borrowing is having worldwide implications:

The globalization of America's debt co-incides with the enormous current-account deficit – that is the net trade and interest on debt outflow combined. "We as a country spend more than we produce," says Bryson. "We have been borrowing from the rest of the world."

Market volatility causes a record trading volume:

``It's just amazing,'' said Jack Bouroudjian, chief investment strategist at Chicago-based Brewer Investment Group, which oversees about $300 million, including options and futures. ``Traders love volatility, but extreme volatility scares everybody. People are starting to price in extreme conditions and when you see that happen you start to see these extreme moves.''

Charles Wyplosz reminds readers not to believe every ghost story they hear:

The next big disagreement is whether things will become worse. It is easy to build scenarios that lead to disaster. Many excellent stories circulate and, like any good horror stories, they ring true. They usually describe hedge funds with serious exposure to subprime loans as quickly trying to restore solvency by selling their best assets, pushing their value down. Even hedge funds that are not exposed to bad loans may be fighting for their lives if their clients withdraw funds, either because they are worried or because they must, given their own regulations or rules. Rating agencies are then forced to downgrade loads of assets and funds whose fundamentals are perfectly safe, simply because they are being downloaded on the market. At that stage, 1929 starts looking heavenly in comparison with what happens next. Well, that could be what is in store. But note that it does not have to be so.

Remember first that, on its own, the mortgage crisis is small beer. Recall next that most serious financial institutions must have made adequate provisions to face this long-expected crisis, some call it normalization. Note that the large central banks have shown that they have learnt the lesson from past crisis and quickly moved to provide the interbank markets with the required liquidity. The situation is basically sound. But financial markets are always subject to self-fulfilling prophecies: if they believe that things will go wrong, things go wrong. That’s where we stand now.

Private equity firms are now showing reluctance to follow through on buyouts that just a few months ago seemed like blockbusters, but now – not so much:

The shareholders of student-loan provider SLM Corporation (NYSE: SLM), better known as Sallie Mae, have agreed to a $25.3B buyout by a group led by J.C. Flowers & Co. -- but that does not mean the deal is done. Now the buyer must decide if it still wants Sallie Mae, and if so, are they are still willing to pay a price that is now 28% higher than SLM's closing price yesterday.

Dallas Mavericks owner Mark Cuban thinks it might not be a bad idea to allow home-owners to take their houses public:

The rules could be very simple
1. The house is appraised by a company approved by the exchange that lists the houses.
2. "Shares" are set with a Par Value of 10pct of the appraised value. For a 100k dollar house, there are 10 shares potentially available. However at no point in time can more than 40pct of the "shares" in a home be sold. We dont want the opportunity for "hostile takeovers"
3. The price of the shares will of course be set by the market. In a hot market it will be set above par, in a tough market like today, it will sell below Par.
4. All Proceeds from the sale of shares MUST be used to pay down any debt on the home.

TNR picks up on yesterday’s Mark Ambinder post, who comes back today by declaring the economy to be the "sleeper" issue of next year's campaign season.

Soren Dayton also comments on the Ambinder piece and observes that Mike Huckabee sees what’s going on.

But there is some optimistic news: Wisconsin is actually a pretty good place to do business:

It may seem counterintuitive to some, but Wisconsin really is a great place to expand or relocate a business, according to Penton Media's Expansion Management, a business magazine for executives of companies actively looking to expand or relocate their facilities.

The magazine today released its 2007 "Mayor's Challenge" rankings, a "best of the best" list based upon the results of seven research studies the magazine has published over the past 12 months.

Of 362 metropolitan markets studied in the report, Madison (13th), Milwaukee (43rd) and La Crosse (45th) ranked among the top 72 metropolitan markets for expanding or relocating businesses.

Milwaukee ranked highest in the "Logistics/Infrastructure" and "College Educated Workers" categories, and lowest in the "Taxes and Government Spending" category.

And, finally, proof that economists make lousy dates.

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