It’s been a horrific week for weather for the eastern seaboard of the U.S., but the economic numbers remain encouraging. There’s still no sign that the economy is poised to break free of the slow-growth gravity field, but the numbers generally continue to support the view that a new recession isn’t an imminent threat.
Book Bits | 11.2.12
● How They Got Away with It: White Collar Criminals and the Financial Meltdown
Edited by Susan Will, Stephen Handelman, and David C. Brotherton
Summary via publisher, Columbia University Press
An international team of scholars with backgrounds in criminology, sociology, economics, business, government regulation, and law examine the historical, social, and cultural causes of the 2008 economic crisis. They also take stock of the long-term devastation done to governments, businesses, and individuals, and the ongoing, systemic issues that have so far allowed the perpetrators to get away with their crimes. Insightful essays probe the workings of the toxic subprime loan industry, the role of external auditors, the consequences of Wall Street deregulation, the manipulations of alpha hedge fund managers, and the “Ponzi-like” culture of contemporary capitalism. They unravel modern finance’s complex schematics and highlight their susceptibility to corruption, fraud, and outright racketeering. They examine the involvement of enablers, including accountants, lawyers, credit rating agencies, and regulatory workers, who failed to protect the public interest and enforce existing checks and balances. While the United States was “ground zero” of the meltdown, the financial crimes of other countries intensified the disaster. Internationally-focused essays consider bad practice in China and the European property markets, and they draw attention to the far-reaching consequences of transnational money laundering and tax evasion schemes.
Major Asset Classes | October 2012 | Performance Review
Electricity is still MIA for The Capital Spectator, and more of the same is expected for the next several days, courtesy of the ongoing fallout from Hurricane Sandy. But through the generosity of the local high school there’s a bit of light in this tunnel and the opportunity to update the returns for the major asset classes.
Sandy’s Wrath
Hurricane Sandy has taken a heavy toll on the East Coast of the U.S., and the destruction is particularly harsh in New Jersey. Unfortunately, that’s where The Capital Spectator resides. The lack of electricity is, of course, the 21st century equivalent of getting kicked in the head, and your editor remains dazed at this point. Internet access is spotty and today’s return to the digital world is a brief affair. I’m told that power won’t be restored until early next week, and that’s the optimistic forecast. In short, stuff happened and the usual routine at CapitalSpectator.com remains on hiatus. But not for long. Meantime, to all our East Coast readers, especially those in New Jersey: Be well, be safe.
When A 10-Year Treasury Yield Just Isn’t Enough
In a world of abnormally low interest rates, the search for yield has become a priority for many investors. The good news is that there are several opportunities for boosting your investment income relative to the usual suspects. The bad news is that higher yield tends to come with higher risk. That’s nothing new, of course, which is to say that risk management is still essential for designing portfolios, regardless of your objective.
Book Bits | 10.27.12
● Misunderstanding Financial Crises: Why We Don’t See Them Coming
By Gary Gorton
Summary via publisher, Oxford University Press
Before 2007, economists thought that financial crises would never happen again in the United States, that such upheavals were a thing of the past. Gary B. Gorton, a prominent expert on financial crises, argues that economists fundamentally misunderstand what they are, why they occur, and why there were none in the U.S. from 1934 to 2007. Misunderstanding Financial Crises offers a back-to-basics overview of financial crises, and shows that they are not rare, idiosyncratic events caused by a perfect storm of unconnected factors. Gorton shows how financial crises are, indeed, inherent to our financial system. Economists, Gorton writes, looked from a certain point of view and missed everything that was important: the evolution of capital markets and the banking system, the existence of new financial instruments, and the size of certain money markets like the sale and repurchase market. Comparing the so-called “Quiet Period” of 1934 to 2007, when there were no systemic crises, to the “Panic of 2007-2008,” Gorton ties together key issues like bank debt and liquidity, credit booms and manias, moral hazard, and too-big-too-fail–all to illustrate the true causes of financial collapse. He argues that the successful regulation that prevented crises since 1934 did not adequately keep pace with innovation in the financial sector, due in part to the misunderstandings of economists, who assured regulators that all was well.
US Economic Growth Strengthened In Third Quarter
The U.S. economy grew at an annualized 2.0% rate in the third-quarter, the Bureau of Economic Analysis reports in its initial GDP estimate for the July-to-September period. That’s an improvement over Q2’s sluggish 1.3% pace, and another sign that recession risk in recent months was considerably lower than the dire warnings issued by some analysts.
Chicago Fed: September Economic Improves
Yesterday’s update of the Chicago Fed National Activity Index (CFNAI) strengthened the case for what’s become obvious in recent weeks: economic conditions overall improved modestly in September. Last week’s review of the numbers published to date certainly looked encouraging, as tracked by The Capital Spectator Economic Trend Index (CS-ETI). Not surprisingly, the September read on the economy via CFNAI tells a similar story.
Today’s Economic Reports Bring A Sigh Of Relief
Today’s updates on jobless claims and durable goods orders bring good news, or at least good relative to the worst fears inspired by recent data points in these series. There’s still plenty to worry about and it’s premature to conclude that we’ve pulled out of the bog with these statistics. But if you’re looking for fresh evidence that the economy is crumbling, you won’t find it in the numbers du jour.
New Home Sales Rise In September, But…
The pace of new home sales in September rose nearly 6% vs. August and is up 27% vs. a year ago, the Census Bureau reports, offering more evidence that the housing market continues to improve. The volume of new sales is still far below the pre-Great Recession levels, but in the here and now it’s no trivial matter that residential real estate is on the mend. Housing, after all, is said to cast a long shadow on the economy through a variety of channels, and so every month of improvement brings a bit more confidence for thinking that the economy can continue to muddle forward.