Blame the Fed - Barrons.com

Several Thoughts on Modeling: Blame the Fed - Barrons.com

(from the article):

"In three forthcoming academic papers, Brown University economist Jerome Stein shows there were early-warning signals in 2005 that financial institutions were overleveraged. The tool he uses is one used by NASA to guide rocket trajectories, with the daunting name of stochastic optimal control.

Stein argues that optimal debt and leverage are not one-size-fits-all numbers but rather constantly changing variables that can and should be tracked and optimized...

...There is a Hebrew saying that clever people can extricate themselves from disasters but wise people avoid them."


The alarm bells on the debt bubble should be ringing - but, sort of as you say, its a sound too harsh to bear.

So this weekend Germany says it won't let the improvident banks go bust for lending to the improvident EU periphery countries; and, the Administration and the Republicans hope the bell doesn't toll on their entitlement wonderworld.

As said, it would appear 'cleverness' is the hope and prayer of those administering the economy.



(comment: let's remember that after the dot.com bust, many were worried about a Japanese deflationary scenario, and justifiably so.)

It's true that Bush didn't really understand the needed changes to the economy - other than, he did get tax rates lower (maybe in retrospect, especially for corporations, not low enough); but, the other aspects of making American friendly to business instead of unfriendly (e.g. immigration policies) weren't there.

Now of course we have the entitlement bandwagon going full blast with even less understanding of turning around the economy.

It's sort of like the housing bubble - i.e. how can house prices go up at a rate faster than incomes, esp. when there is no barrier to supply more houses.

Likewise today, how can an economy have the wherewithal to grow when Administration policies are anti-business and anti-capital formation and pro-union so labor remains mis-priced?

Let basic logic prevail over stochastic modeling (not that the modeling isn't helpful and nice) - etc.