If everyone is entitled to only one truly brilliant insight during his or her career, the New York Fed‘s President Tim Geithner may be pushing his luck. Geithner is a career civil-servant who took over at the New York Fed in 2003. A few years ago he made banks standardize their credit default swaps. The result was spectacular. The growth of these swaps has allowed banks to diversify, selling their risk to parties who want it, like hedge funds or others. Some say that [...]

Today we hear about the savings rate. Actually, what we hear about is the growth in personal income and personal consumption. The difference is assumed to be savings. And a whole host of scolds will tell us that we’re just not saving enough. Earlier I mentioned how the “Great Moderation” has improved our economic security. Another factor in the low savings rate in the US is the high rate of homeownership here. By convention, my entire mortgage payment is considered to be spending, even [...]

Paul Samuelson says to hold the hysteria, and for once, I agree with him. Samuelson is famous for saying that just because Milton Friedman claimed something doesn’t mean it is automatically false. While I usually find Friedman’s writings much more original and insightful than Samuelson, in this case, they agree. The core of our problem is housing. People who view the economy as inherently unstable see lower prices leading to more foreclosures leading to more supply leading to more foreclosures. Just as in the [...]

Friday we’re going to hear about the savings rate. And a whole host of economic scolds will berate the US consumer for his profligate ways. It’s no secret that the savings rate has declined. 25 years ago US workers set aside over 10% of their reported income. Now the rate is about zero—or even negative. Many observers look at this and only see the wastefulness of the American public. “Goodness,” they exhort. “People should be more careful.” I look at it another way. People [...]

They’re back. Those disciples of the dismal science, the neo-Malthusians, are knocking on our door. And they won’t go away. Thomas Mathus was an 18th-century economist who predicted widespread starvation because food production can’t keep pace with population growth.  He was wrong then, and his disciples, who keep banging the same drum, are wrong now. Because speculators have recently driven the prices of oil, gold, copper, zinc, and other resources to record levels, the “Limits to Growth” crowd predicts that wars, famines, and economic [...]

Today we hear more about the housing market. I don’t know about you, but these housing reports are beginning to wear on me. They’re like the drip, drip, drip of a leaky faucet. Well, today we hear how existing home sales did for the month of February. I’ve got a prediction: they were lousy. Not only is the housing market in the worst recession it has seen since the early ‘90s—and  it’s been that way since late 2006—but the weather was lousy, too. Then [...]

So how do you strengthen your hand? How do you develop the convictions that will help you weather the storms of market turmoil like we’re experiencing now? Strange as it may seem, the best ally I’ve ever had in dealing with market volatility has been my kitchen table. Sitting down and working through my numbers, from how much I’m making and saving to how much my kids’ tuition is going to be is the best way to come up with a plan for investing. [...]

Winnowing. That’s what the market is doing now. It’s winnowing out the weak players, and rewarding those who are disciplined enough -- or bored enough -- to avoid panicking just as the market bottoms. It’s a paradoxical fact, but it’s true: people who fidget and adjust their investment portfolios tend to do worse than the buy-and-hold investor. Studies have shown that just looking at a portfolio too often causes investors to adjust it and underperform the underlying index. The dictionary defines winnowing as separating [...]

Monday Alan Greenspan, “The Maestro,” told us what he thought the problem is. In a Financial Times op-ed piece Saint Alan says that our financial calculators are just  too simple--if we only had more complex computer models, we never would have gotten into this pickle. Is he serious? Complexity helped cause this mess. Talk about not seeing the forest for the trees! By some estimates, we have about $50 trillion of real assets in the world. Factories, land, buildings. But we have about $150 [...]

Okay, so now we know the latest shoe to drop.  One of the oldest firms on Wall Street got caught by a lack of cash, and now it is no more.  Bear Stearns is being acquired by JP Morgan for the princely sum of $2 per share. They’ll play the Good Samaritan and assume all of Bear’s liabilities as well. When will all this bad news end? When the financial markets finish de-leveraging and stabilize. Right now there’s a lot of borrowing and buying [...]