Yesterday, Princeton Professor Emeritus Burton Malkiel wrote an op-ed in the Wall Street Journal about challenges facing bond investors looking for yield. The piece echoed much of my thinking on the issue, but I wanted to add a few more thoughts.
Category Archives: Blog
Risk-weighting of MBS and sovereign debt under financial regulations
On Saturday, Peter Wallison of the American Enterprise Institute wrote an op-ed in the Wall Street Journal about regulators’ role in the financial crisis of 2008 and the present sovereign debt crisis. I certainly don’t agree with everything that he said, but he makes a very good point about assets that are deemed to be low-risk or risk-free under Basel or other frameworks:
Against higher loan limits for FHA-insured mortgages
A few weeks ago, I wrote about lowering the loan limits for mortgages insured by Fannie Mae and Freddie Mac. Congress, to their credit, wisely decided to restore the limits to their original, lower levels. Unfortunately, Congress decided to keep in the place the higher limits for mortgages insured by the Federal Housing Administration (FHA)—up to $729,900 in some areas.
Gingrich’s Social Security plan: Privatize gains, socialize losses [Huffington Post]
Last week, former House Speaker Newt Gingrich unveiled details of his plan to partially privatize Social Security. His plan would allow younger workers to contribute a portion of their payroll tax obligation to a private investment account. Roughly speaking, Gingrich is signing on to the legislation from 2004 sponsored by Representative Paul Ryan (R-WI) and former Senator John Sununu (R-NH).
The failure of the Supercommittee: A recap and next steps
In not unsurprising news, the Supercommittee will shortly announce that they have failed to reach an agreement to cut $1.2 trillion from the deficit over ten years. The New York Times reports on why the twelve-member group became deadlocked:
In the end the two sides could not agree on a mix of tax increases and spending cuts and — perhaps above all — on the fate of the tax cuts originally signed by President George W. Bush, which are now scheduled to expire at the end of 2012.
Effective business meetings for your organization
The New York Times recently ran a story about CEO Larry Page’s efforts to reform Google. As a first step, he fired his secretary because she was scheduling too many meetings for him. Page understood that many meetings lack focus and fail to achieve any meaningful objective—using up time that he could have spent doing actual work. This wasted time is no small beans for American businesses: meetings take up approximately 35% of the workday (pdf) for middle managers, and up to 60% of the day (pdf) for top executives.
What can organizations and their employees do to mitigate the burden of unproductive meetings? Continue reading
Using debt value adjustment to inflate profits
Financial results in large banks have been inflated in the third quarter due to an accounting rule called “debt value adjustment” (DVA). DVA states that banks are allowed to mark their debt to market. In other words, if their debt decreases in price on the market, this is interpreted as a decrease in liabilities and is reported as profit. In the third quarter, this rule created £10 billion in profits in the biggest U.K. banks and $12 billion in profits in the biggest U.S. banks.
Lowering the Limits for Mortgages Insured by Fannie Mae and Freddie Mac
In the past week, the news about Fannie Mae and Freddie Mac focused on the $13 million in bonuses paid to the top executives. But a much more significant story has received much less publicity: the bipartisan resistance to the lowering of the mortgage limits for Fannie and Freddie.