John At The Center

This is a point worth reiterating. Every time a Chinese official expresses worries about the safety of that $2.1 trillion (the bulk of which is held in dollars), the U.S. financial media broadcasts the news as if it is a horrible and frightening prospect. But in fact acting on those worries (by allowing the yuan to appreciate against the dollar) is exactly what we want China to do. What’s keeping it from happening is extreme suspicion in China of such a course. It is an article of faith within the Chinese business community that Japan’s lost decade in the 1990s was the direct result of acceding to pressure from Washington to allow the yen to appreciate against the dollar. So it seems like any external attempt to pressure China into stopping with the dollar hoarding—which is what a lot of the G-20 crowd seems interested in doing this week—is going to run into an awful lot of resistance.

via Martin Wolf on China’s bad investment in dollars – The Curious Capitalist – TIME.com.

It’s the credit crunch circle of life. The residential mortgage-backed securities market that sent the world into a financial black hole is set to reopen. Lloyds Banking Group has teamed up with its government-owned peer Royal Bank of Scotland to bring £2.8bn of AAA-rated RMBS to market. These are not sub-prime packages; nonetheless no chances are being taken with the sale

via FT.com / Lex / Financial services & property – Mortgage-backed securities.

Yale University, blaming its big bets on real estate and commodities, said its endowment had an investment loss of 24.6% in the year ended June 30.

The Ivy League school said its endowment fell to $16.3 billion — a total that included investment losses of $5.6 billion, spending for the university’s budget of $1.2 billion, and gifts and other adjustments of $200 million. The endowment was valued at $22.9 billion on June 30, 2008. Yale had previously reported the approximate decline in the size of its endowment — but not its annual investment return.

via Yale Endowment Posts 25% Loss – WSJ.com.

This suggests that securitizers weren’t relying on the rule of thumb en masse; rather, it was the originators who were relying on it. So it’s unlikely that we could detect a decline in lending standards caused by securitization with this particular approach to the data.

That isn’t to say a decline in lending standards didn’t happen. Just that securitization might not be to blame for it. (There is other research making this point.)

Still, securitization isn’t entirely off the hook for the subprime debacle. As Yale’s Gary Gorton said in Jackson Hole 2008, the problem with subprime securities was how impenetrable they were, making it nearly impossible to find out about the risks they entailed until it was too late.

via Maybe Securitization Didn’t Cause The Crisis | The New Republic.

I would have preferred it if this debate had focused on what real business cycle theory — whatever its limitations — has to offer. For instance if you are postulating a “jobless recovery,” most likely you are invoking ideas from real business cycle theory. RBC theory has been a major contribution, even if it doesn’t explain the core of the recent financial crisis or even if it has some very limited one-person models. If you think seriously about the persistence of business cycles over time, or the spread of business cycles from one sector to another, probably you are invoking ideas from real business cycle theory. For all its prominence, Keynesian economics tends to portray states of affairs and it often has difficulty presenting a business cycle per se, such as the time paths of variables across the entire range of the cycle. RBC theorists have formalized what a cyclical explanation, in the full sense of that term, has to look like and so they have done a big service to Keynesian ideas also.

At this point the debate is more a topic of sociology than substance. The substantive issues will be better worked through in other forums; this forum has been spoiled. The remaining lesson — and perhaps the major lesson — is that the Jacksonian mode of discourse does not very well suit a discussion of macroeconomic theory.

via Marginal Revolution: What went wrong in the economics profession?.

The argument here is that the huge imbalances between the importing U.S. on one side and exporting China, Japan, Germany and the Persian Gulf countries on the other played a big role in bringing on the financial crisis. The exporters had amassed gigantic excess of dollars that had to flow somewhere, and much of it ended up flowing into really dumb real estate loans in the California, Nevada and Florida.

via Can the G-20 rebalance trade between the U.S. and China by resurrecting a big idea from John Maynard Keynes? – The Curious Capitalist – TIME.com.

Imagine that someone invented a pill even better than the one I take. Let’s call it the Dorian Gray pill, after the Oscar Wilde character. Every day that you take the Dorian Gray, you will not die, get sick, or even age. Absolutely guaranteed. The catch? A year’s supply costs $150,000.

Anyone who is able to afford this new treatment can live forever. Certainly, Bill Gates can afford it. Most likely, thousands of upper-income Americans would gladly shell out $150,000 a year for immortality.

via Marginal Revolution: The Price of Magic Pills.

That is the price Dell is paying to acquire Perot Systems, which derives 50% of its revenue by supplying information technology systems to hospitals. Perot is considered a leading contender to scoop up lucrative government contracts as part of the Obama administration $20 billion plan to streamline electronic health records, a big part of his health-care overhaul.

via Dell’s $3.9 Billion Bet on ObamaCare – Deal Journal – WSJ.

They are looking at Asia-based hedge funds and U.S. and European start-ups planning to launch with roughly $100 million to $250 million in assets.

via Wall Street Shows Its Bets in Hiring, Expansion Plans – WSJ.com.

Those same critics (or the financial reporting nerds, we’re not sure) claim that Apple has technically been underreporting its iPhone earnings as a result of this rule, a reversal of which would fortify Apple’s balance sheet of steel. That’s great for Apple, I suppose.

The rule is as yet in comment draft form, so go nerd on over to FASB and tell them what you think.

Does this mean billions in iPhone revenues will have to be restated going back to 2008? Rub it in, why don’t you?

via FASB Does Apple a Giant Solid – Going Concern – A Tabloid for CFOs, Chief Investment Officers, Accountants & Finance Execs.