So…what’s up with the recession?  Economists, stock traders, hedge fund managers, bookstore clerks, the bagger at the grocery store, even the random dude standing at the corner of my apartment building screaming about the end of the world all seem to be putting forth their two cents on this topic.

A couple of weeks ago, forecasters polled by the National Association for Business Economics (NABE) generally sounded optimistic – keeping in line with views held by the Fed – predicting that via a bumpy recovery, the U.S. recession should end very soon.  This recession has been termed by many as the greatest financial disaster since the Great Depression with majority of the optimists expressing opinions that it should end by the third quarter of 2009 and the remaining advocating for either the last quarter of this year or else the first quarter of 2010.

Now before I proceed, I would like to clarify my stance on the comparison of this recession with the Great Depression.  The real estate price boom between 2000 and 2007 largely is the culprit for the most recent crisis.  Economic historians have written several papers in the last year discussing such comparisons and the major similarity would appear to be the sharp drop in the stock prices in the first year following the peak of the market.

There was a drop in the Dow of 48 percent in 1930 and a drop of 37 percent in 2008.  Yet the issue in the 1920s seems to have been propelled by a quantity boom as opposed to the more recent price boom.  The latter period was fueled by low interest rates stemming from a loose monetary policy and some so-called innovative methods for breaking down discriminatory lending practices as folks with bad credit or folks who didn’t put down much in the form of down payments were allowed to take out loans.  Even those who had credit but no real source of income were allowed to take out large mortgage loans.  The background checks and good lending practices were thrown to the wind as loans were granted left and right.  Good old Fannie and Freddie proceeded to purchase huge chunks of such loans between 2004 and 2006 and we all know what happened shortly thereafter.

(more…)

In my first ever blog (The State of the Economy – It affects us all) on this site, I discussed the concept of the Homo Economicus who is defined as a perfectly rational and well informed (in the sense of having the knowledge to compute the results of each scenario) individual who seeks to maximize his utility with the least amount of input/work. Hmm, sounds like a dude who adheres to the classic American dream found in the get rich syndrome that afflicts so many and rings true of a remarkably self-interested character who does everything not out of some goodwill for others but instead for his own gain. To quote Adam Smith:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
(more…)

Keeping with my customary econospeak (my previous posts), it was my intent to blog today about Fannie Mae and Freddie Mac. However, I received some disturbing news yesterday which had been weighing on my mind through the night until this morning’s update realized my fears.

Mike – a gentleman in all respects – had been working with my family in Nigeria for almost two decades; a constant presence in our lives, he had been visibly happier since his marriage three years ago to a lovely young lady. Early yesterday morning, he was headed to work in a local moluwe (common mini buses which serve as taxis in Lagos), when the vehicle happened upon an oil tanker which had somehow crashed a few minutes earlier and was now in raging flames. Ignoring the calls of a policeman who was attempting to cordon off the area, the driver perhaps thinking the aforementioned was attempting to solicit a bribe – a usual course of action – launched into the path of the burning heap and rammed the bus into the way of the flames.

Mike’s wife who was with him passed away despite his heroic attempts to shield her from the fire. His efforts sustained him with horrible burns and through the kindness of some bystanders, he was rushed in another vehicle to the hospital. What family he had in his wife, he lost – what family he had left in us, were unable to do much save for stand by his side.

He passed away half an hour ago. My emotions are divided – part of me wishes he had survived and part of me takes solace in the fact that he passed without having to bear a forthcoming life of much pain and loneliness.

The graph above is related to the Malthusian theory which proposes that higher mortality rates should lead to a higher per capita in the pre/post-industrial world. We know that the shift from such early economists through the times of the Keynesian and then the neo-classical economists, eventually culminating into the world of Freidonomics, all rightly refute this theory. According to the endogenous growth theory which stems somewhat from the latter (post the Solow’s exogenous growth theory), it is largely technology, not a decimating population which is endogenous to growth. Is someone up there in the sky then playing a crude joke by taking away Mike? Will his passing or the daily death toll of thousands of the lumpen masses in the developing world through such senseless accidents contribute to economic growth? No!

Not wishing to fully immerse myself in grief, I looked towards my world of economics seeking a paraclete, yet, I found none. My only comfort is in perhaps viewing the events from a traditional Hindu perspective. A husband and wife who pass from this world together, will return once more in the next life (within a year of the Gregorian standard) to be connected as in the past life. I guess then his happiness will continue as they shall be together in the outside of our present realms.

Through this blog entry, I wish to recognize Mike beyond the scope of his little family in Nigeria. I wish to recognize him as an amazingly patient, hardworking, dedicated and wonderful man. To my readers here thousands of miles away, he was unknown. But as you read this, I invite you to meet him posthumously. He always felt it an honor to hold a key to my family’s house, yet, little did he know he had a much more important key, a key to our hearts. We will miss you Mike, we will really miss you.

May you rest in peace.

The Fed seems to have gotten a much needed sense of affirmation with the latest Consumer Price Index (CPI) report. At first glance it suggests that irrespective of the critical stance which scores of economists poured when the market was flooded with cheap credit – a la interest rate cuts – the case of rising price fever seems to be moderating its temperature, uh at a fleeting glance that is. The Fed, adding to their trophy display this report, cooled inflation expectations – which are still pretty high at 3.1 percent to 3.4 percent – and made rounds to convince the markets that they were fully in control of the herd and would guide the economy through the periods of no growth – well basically no growth unless meager expectations of 0.3 percent to 1.2 percent of GDP increases are considered growth – and high public inflationary expectations.

(more…)

Last week Thursday, I went on my tri-weekly visit to the bagel shop a few blocks from my apartment and placed the same order I always do costing me $4.50. Two days later, I placed the same order and pulled out exact change in anticipation of payment. The cashier took the money but instead of giving me my receipt, he just sort of stood there and gave me a sheepish smile. Not really knowing how to respond, I returned same and for about six seconds, we both just stood there giving each other, well, sheepish smiles. Finally I was spared any further suspense when to my horror, he pointed at the cash register’s monitor which displayed – gasp – my cost was $6.75!!! Imagine my indignation – I mean how the heck had the price risen by 50% in two days?!!

(more…)

When I was first asked to make a contribution to this blog, I was initially concerned that any attempt on my part would inevitably result in a motor of econospeak which might disengage the blog’s audience. However, the appositeness of the aforementioned thought pattern and the timeliness to address an issue of such great concern as the current state of the economy cannot be disputed. It is then wholly pertinent for me to dissert – albeit informally and in very non-technical terms – on how the crisis on Wall Street affects our guests here at St. Anthony’s, how it affects us as providers to those guests and how it affects our donors who enable us to carry out this work. Bear with me as you breeze through this blog, it will make sense in the end.

(more…)