Debating the toxic

Fianally comes the long awaited Obama-Geithner plan (click here) to clean America's bank from toxic asset.

But Krugman attack the plan as causing despair. head investor won and tail investor loose. (click here)

If government is subsidizing private investor and protecting them from risk, why bother. Just do it directly and nationalize the bank. Those director should be held responsible for their action.

No more USD 165 million bonus after destroying the financial system.

Bradford de Long provided Q& A version of the plan here. But its positive tone is criticize by Krugman (click here).

Let the debate continue.

Stimulus and election

Never let a crisis goes to waste. Thus said Obama's chief of staff.

As election looming, this is a chance to propose something grand and visionary in stimulus without worry (too much) about inflation and international credit rating.

Must admit quite dispapponted with both the detail of stimulus (click here) and the way election candidates present themselves (click here).

Looking for silver lining and rainbow after the rain.

Europen Economist on Financial Crisis

Just find out a link to download a complete book for free by strong list of European economists o financial crisis. The authors including Guido Tabellini, William Buiter and Paul de Grauwe.

Highly recommended to anyone interested in non Anglo Saxon point of view. Click here to read in full

P.S.
The VoxEU website is an excellent portal of column and papers of many top European economist. Ignore at your own perils.

Creative monetary policy

Found a 2004 paper with Bernanke (yup, the Fed chairman) as one of co-author.

It listed alternative policy when the rate cut is neither feasible nor having impact (click here to read in full).

America is so lucky to the someone so prepared for the crisis at in charge of the monetary policy. BI still have a lot of ammunition to cut rate but its good to be prepared.

US-led Global Capitalism is Dead! Long Live US-Led Global Capitalism!

The first part is the title and opening while the second is the ending line of my today's article in the Jakarta Globe.

The editor change the title and cut the opening/closing line, I guess to make it more sexy and rebelling. Hope the careful reader still get my intended meaning.

The system of buying and selling with market is still the preferred option when it is the best means to increase welfare but stronger transparancy and government regulation is needed more than ever. The same with the role of US, they are still there in pedestal but maybe not much longer if they stumble again.

The economics in the mirror

How bad/long would it be?

That's the most often question come out when people meet me after the crisis unfold and think I (am supposed to) know some economics.

Tim Hartford say it best:

"Consumers should cut back their spending if they believe that their earning power will fall for an extended period of time, but if they believe the hard times are temporary—say, a short period out of work—then they should "smooth" by borrowing in hard times and paying back when things pick up"

But what consumer belief affect their action and expectation of companies/banks while government trying to project both to come up with appropriate policies.

Since so much (but not all) of the problem is self-fullfilling and paradox then I'd suggest an (slightly altered- in italics) jadul song lyrics as big part of the answer

I'm starting with the economics in the mirror
I'm asking it to change its ways
And no message could have been any clearer
If you wanna make the world a better economics
Take a look at yourself, and then make a change

The intuitive economy

New York Times has this incredible piece:

Since September, when the Dow collapsed, Mr. Taccetta, has talked with his psychic about once a month, roughly twice as often as a year ago. “There is no rhyme or reason to the way the market is trading,” he said. “When conditions are this volatile, consulting a psychic can be as good a strategy as any other....Ms. Hartman, the Los Angeles psychic, said her Internet traffic has picked up substantially, from about 30 visitors a day to more than 200. She charges from $150 for a 30-minute telephone reading to $500 for 90 minutes of “intuitive counseling."

So when the rational is down, the intution is up.

But when the market is a stochastic or random walk proces, any advice is as good as any.

Radical time call for radical solution?

I am pulling out some not-so-mainstrem ideas in article (click here) at Jakarta Post for global economic crisis. Most part are taken from a paper I wrote and selected to be presented in a conference at Bordeaux Uni - France, just added some update of the moments.

I do neglect the prudent behaviour of preferrential treatment of FDI and limitation of secondary capital outflow for stock/bonds. I expect monetary authority to be aware of that already, maybe I'll mention on my next article entitle "Its time to get moderate"

The Runaway Rupiah

Even thoug it is less than 30 % drop in Australian dollar, but this week saga has brought some panic in financial authority.

Will the ten steps help?

It was good policy and a detailed prescription. But we could not do it alone.

What needed now is real money put down the table by global institution or collection of economically strong states (east asia and middle east comes first to mind) saying they will help the country in need to protect exchange rate.

And by real money I am not referring to paltry USD 80 billion comitted at last ASEM meeting. Certainly not enough to scare off potential speculators.

I am disappointed that the amount was not even half the US bailout tag (USD 700 billion). Confidence to Indonesia's should is also headed south when our reserve shrunken more than 10 % (7 trillion rupiah) for Indover bailout.

This week will be a bumpy ride for rupiah. Hold on tight.

Addendum:
Indover is getting the bail out (click here) and rupiah is steady close to 11 thousand.
As Keynes said; "if one must forecast, forecast often." Especially true in this fast pace and changing policy

Do what you told to us, you lucky b*$&d

Well, that's pretty much what the essence of my article about US and financial crisis in today's Jakarta Post

Its kind of annoying but relieving to be told of being wrong but to watch the doctor have to swallow their own medicine that they gave to us.

Click here to read in full.