Monday ReadsPosted: March 21, 2011
I’m finishing up a paper today that’s off to be published on Real Estate Investment Trusts (REITS). Don’t worry! I won’t bore you with the details but it’s basically about locating speculation bubbles like the one that happened in real estate markets in the 2000s. There were a lot of folks that made money off of that ride although most of us little guys lost a lot. The reason I’m bringing it up is that my first read of the day is a Paul Krugman response to Allan Greenspan’s critique of Obama’s economic policy. I just wanted to remind you of what a mess the first part of the century has been and that many of the pots and the kettles still appear to be confused about their true nature. I mean, the entire mess has given me a great research agenda, but at what cost?
Greenspan’s tut tuts Obama’s ability to create economic chaos in the academic journal International Finance (pdf here). While most of us are still trying to figure out what went so horribly wrong, Greenspan is trying to pin the blame on the new guys. I’m going to quote his abstract because it’s just more of the same old same old from one of the beasts that brought us to this mess and its worth the bask in the arrogance to just remember his access to power. Greenspan says it’s too much government regulation and Obma activism that’s hampering the recovery and that he can prove it with bad, outdated statistical methods. This comes from the man that gave Wall Street a lot of cheap money and no regulation so they could go hog wild. The recovery may be tepid, the stock market may be recovering, but I’ll be damned if there’s any regulation left standing upon which he can float his argument. Oh, Krugman dismisses the methods by which Greenspan infers that it’s government activism and its inherent chaos that’s created a stale recovery. To be honest, a first year doctoral student would use better methodology and know the literature better. That really scares me, frankly. What did he do while at the Fed? Reread The Fountainhead?
So, here’s the bubblemeister’s blowing you know what up you know where with techniques that wouldn’t get me published in a mimeographed neighborhood newsletter let alone International Finance. Why hasn’t this man retired to an island somewhere?
The US recovery from the 2008 financial and economic crisis has been disappointingly tepid. What is most notable in sifting through the variables that might conceivably account for the lacklustre rebound in
GDP growth and the persistence of high unemployment is the unusually low level of corporate illiquid long-term fixed asset investment. As a share of corporate liquid cash flow, it is at its lowest level since 1940.
This contrasts starkly with the robust recovery in the markets for liquid corporate securities. What, then, accounts for this exceptionally elevated level of illiquidity aversion? I break down the broad potential sources, and analyse them with standard regression techniques. I infer that a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory and financial environments faced by businesses since the collapse of Lehman Brothers, deriving from the surge in government activism. This explanation is buttressed by comparison with similar conundrums experienced during the 1930s. I conclude that the current government activism is hampering what should be a broadbased robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.
So, here’s Paul Krugman with ‘Rantings of an Ex-Maestro’.
He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, denied not only that there was a national housing bubble but that such a bubble was even possible.
If he wants to redeem himself through hard and serious reflection about how he got it so wrong, fine — and I’d be interested in listening. If he thinks he can still lecture us from his pedestal of wisdom, he’s wasting our time.
Brad Delong actually does some analysis over at his blog Grasping Reality.
I don’t see how this hangs together in any coherent fashion at all.
If businesses are unwilling to invest in illiquid capital out of the fear that government action will impair the value of their investments, businesses must also fear that government action will impair the value of their existing illiquid investments. What is the value of their existing illiquid investments? The value of their existing illiquid investments is nothing more than the stock market value of their companies–liquid stock market value is, in the last analysis, nothing more than the cash flows proceeding from the illiquid investments that companies have made that generate the profits.
A much better and more sensible explanation for the relatively high value that the stock market places on existing illiquid corporate assets and the relatively low value that companies place on illiquid investments to expand their fixed capital is precisely that capacity utilization is low–so why spend more money now building factories when doing so would be more expensive and only add to your idle capacity?
And, indeed, if you ask people running businesses what is their single most important problem, they say that it is not (as they sometimes say it is) taxes; they say that it is not (as they said it was at the start of 2000) the cost and quality of labor; it is not (as they said it was in 2004) the availability and cost of insurance; it is not (as they briefly said it was at the start of 1993) government requirements. What do they say their biggest problem is? Poor sales.
Yup, it’s pretty basic. You gotta have customers and those customers gotta have jobs and decent paychecks. That’s the problem right now.
So, just as a note for your reference, there is some indication of speculation bubbles in some REIT markets and just in case you’re interested in people that ride them to big fees, you may want to check out Erskine Bowles’ CV. He’s not just one of the chairmisers of the Catfood Commision. He’s a director of Cousins Properties, Inc. That’s a REIT group. It’s a tough job finding more bubbles and creating more bubbles, but some one has to do it. When he’s not begrudging old folks their social security annuities, he’s out there looking for ways to jack up their property values unrealistically.
Okay, so now for something completely different … the continuing war on public servants and their ability to have some say in their work lives. Sodexo USA announced that it filed a civil lawsuit against the Service Employees International Union (SEIU) under the Racketeering Influenced and Corrupt Organizations (RICO) Act. They accused the SEIU of extorting campaign contributions out of employees.
The lawsuit representing Sodexo is Hunton & Williams – the same firm SEIU and its allies have accused of launching a “dirty tricks” campaign against them in retaliation for their anti-Chamber of Commerce campaigns.
One of the largest food services and facilities management companies in the world, Sodexo is the provider of choice for most schools, universities, companies, hotels, prisons and other facilities that outsource their cafeteria and food catering operations, and for those that outsource industrial cleaning services. SEIU has been incessantly battering Sodexo since 2007, in its desire to unionize some of its nearly 400,000 employees, many of them hotel and food service workers. Exacerbating the tensions was a longstanding turf war between SEIU and UNITE HERE over hotel and casino workers, which often spilled over into SEIU’s antics prior to the settlement the warring unions reached this past summer.
Sodexo USA has filed the lawsuit in an attempt to halt the over-the-top harassment from SEIU, alleging that many of the acts are very serious and outside of the normal realm of union tactics, including acts of ” SEIU blackmail, vandalism, trespass, harassment, and lobbying law violations designed to steer business away from Sodexo USA and harm the company.”
If I were Sodexo or any of their lawyers, I would consider never eating in another school cafeteria again. You know what disgruntled food workers tend to do to food, don’t you? Anyway, follow the link even though it goes to Breitbart’s site and is basically a buncha propaganda. The Youtubes that “liberty chick” touts as offensive are actually pretty inspiring.
I don’t know if you’ve read about the criticism of Obama’s decision on Libya by various persons of interest, but here’s a few to entertain you over coffee.
The Hill reports that Ralph Nader thinks Obama should be impeached for ‘war crimes’.
“Why don’t we say what’s on the minds of many legal experts; that the Obama administration is committing war crimes and if Bush should have been impeached, Obama should be impeached,” Nader said in an interview with the anti-war Democracy Now! organization.
Minister of Evil Louis Farrakhan asks Obama “Who The Hell Do You Think You Are?” over the President’s request to Gadhafi to step down. (Link to right wing blog here.)
FARRAKHAN: “I warn my brother do you let these wicked demons move you in a direction that will absolutely ruin your future with your people in Africa and throughout the world…Why don’t you organize a group of respected Americans and ask for a meeting with Qaddafi, you can’t order him to step down and get out, who the hell do you think you are?
Michael Moore’s been tweeting that Obama should have his Nobel Peace Prize recalled and continues to ask him if he really wants to be known as the “war president”.
May I suggest a 50-mile evacuation zone around Obama’s Nobel Peace Prize? #returnspolicy
Hey, I just quoted them for entertainment purposes. I’m not making ANY editorial comments. You can do that for me.
Here’s some updates for the BIG stories:
Japan had some success cooling reactors at the crippled Fukushima Dai-Ichi plant, bringing two of the six reactors under control and connecting a second electric cable to the station, according to reports. Asian nations are screening Japanese food imports, and Taiwan said yesterday it had detected radiation on vegetables from Japan that was within acceptable limits.
Edano said higher-than-normal levels of radiation were found in milk in four different locations in Fukushima prefecture and in spinach in neighboring Ibaraki prefecture.
The British defence secretary, Liam Fox, said the scale was in line with UN resolutions that had been”essential in terms of the Gaddafi regime’s ability to prosecute attacks on their own people”. He also said it was possible that Gaddafi himself could become a target of air attacks if the safety of civilians could be guaranteed.
Also, another Louisiana fisherman reports that fresh oil is coming ashore near South Pass, LA, and that cleanup crews are laying new boom near the beach. He also reports that cleanup crews in four-wheeled vehicles were patrolling the beaches near the marsh filled coast spraying a substance on the beach.
I don’t want ANY more substances on ANY more beaches!!!
What’s on your reading and blogging list today?