I have a lot of T-shirts, almost none of them bought in clothes shops. They celebrate or advertise defunct sporting teams, (mostly) unsuccessful political campaigns, obsolete versions of operating systems and long-gone folk music festivals. What’s in your wardrobe?
It’s time (on time for once) for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.
The news from Mumbai is still unclear, but extremely grim. Scores of people are dead, and hundreds wounded in yet another murderous terror attack.
As the cycle of war and terror has gone on, it’s become increasingly clear that the kind of easy evasion involved in slogans like “one man’s terrorist is another man’s freedom fighter” is no more tenable than the bogus arguments for war put forward by Bush and his followers. Terror attacks like this one are always crimes regardless of the purported cause, regardless of whether the terrorists deal death hand to hand or with bomber planes, and regardless of whether they are individual criminals, political or religious groups, or national governments.Phenomenon movie full
I haven’t had time to digest the implications of this story which has been around for at least a month, but only now seems to be attracting attention (I’ve seen it in a few different places today). Apparently, short sellers in the US Treasury bond market are failing to deliver the securities they’ve sold. As long ago as 1 October, the shortfall was more than $2 trillion by one report. Via Felix Salmon, here’s Helen Avery in Euromoney.
I’m not an expert on this stuff, but it seems to raise the question of whether bond markets can and should continue to exist in their current form. Maybe the US and other Treasuries should be selling bonds directly, and offering repurchase options to provide liquidity, perhaps using the banks they’ve already part-nationalised to handle the mechanics.
I couldn’t go past this neat headline on a piece by Michael West in the Age . The central point is that the impending failure of both financier Babcock and Brown and bond insurer FGIC will leave the Vic government holding the risk on a PPP hospital project. Money quote
Maybe the Government ought to have issued its own bonds, with a state guarantee and consequent cheap funding cost, because this now looks like a PPP that lost two of its Ps.
That’s what I thought at the time.
Another note to myself post: an idea I thought I’d blog quickly rather than trying to work through in detail.
One of the big unsolved problems in economics is to explain the risk premium for equity, that is, the fact that the historical average rate of return to equity investment (shares) is much higher (about 6 percentage points) than the average rate of interest on high grade (government or genuinely AAA corporate) bonds, whereas the standard economic model of these things (the consumption-based capital asset pricing model or CCAPM) suggests that the premium should be no more than 0.5 percentage points. The basic idea is that the reason for the premium is that the market portfolio of equity represents a claim on aggregate consumption, so the risk premium must arise from the variability of the growth rate of aggregate consumption and this is small (the growth rate ranges from about 4 per cent in a boom to -3 per cent in a moderately severe recession).
One possible explanation for the puzzle is that equity investment has its own special risks in addition to the riskiness of aggregate consumption. But not any kind of risk will do: the risk has to be correlated with fluctuations in aggregate consumption, that is with the business cycle.
I’ve done a few posts here on the implications of the financial crisis for the ideological/political viewpoint often referred to as “neoliberalism”. Various people have objected to this as pejorative, but usually without offering a satisfactory alternative. I’m just starting a paper on the topic and looking over my old files, realised that I’ve previously used “economic liberalism” which seems much more satisfactory.
The crucial point it conveys is that economic liberals may or may not be liberal in the more general political sense – Pinochet is the most extreme example, but the extensive support he got from the Mont Pelerin society and from authoritarian economic liberals like Thatcher illustrates the point. Locally, the range of possibilities consistent with economic liberalism includes authoritarians like Howard and Downer as well as more broadly liberal positions such as those of John Hewson, Malcolm Turnbull and, to some extent, Peter Costello.