James Pethokoukis

Politics and policy from inside Washington

How financial crises are like earthquakes

Jun 10, 2009 18:58 UTC

They both seem to follow a mathematical relationship called a “power law” where you have lots of small events trailing off into infrequent but much bigger events, according to a McKinsey study. (So don’t assume stability, look into the deep past not recent history, look for early warning signs and study complex systems. ) Now this is a great chart from the McKinsey study:



The actual Stock Market top (where we are now) has been zigzagging too much.
But the charts warn that any time soon comes the plunge DOWNWARDS.

Schpekulant Suggestions:
1.Keep your money in a safe place. Examples?
Low-expense Bond mutual funds
Investment-grade bonds
Short and long term Government Bonds
2.Resist temptation to buy stocks just because they look very cheap.
3.Wait. (For many traders and investors this is the most difficult)

Remember you have been warned……….

Remember also that this is just a suggestion, everyone is responsible for his own
investment decisions…. YOU have to take care of your own money.

Chaim Kimelblat aka Schpekulant@gmail.com
Listen with your Brain

Posted by Chaim Kimelblat | Report as abusive

Comment of the day …

Jun 10, 2009 17:05 UTC

I may never get a better comment than this one from my post about the $2 trillion cost of climate change legislation:

Personally I wouldn’t be upset if the human race perished, it’s the plant and animal life that doesn’t have a say in all this that I feel sorry for.  Hopefully they’ll fight back before it’s too late.

Me:  This sounded so familiar. I searched my mental memory and eventually recalled a Space: 1999 episode based on this very premise.


Please have reader refer to the book “ISMAEL” written by a buddhist in the 90′s i think. Ismael was a talking gorilla locked in a cell. He stated that the myth of Genesis is that “God” gave power to man to do what he saw fit with the earth. Ismael says this is a false assumption and that man is the one who is destroying is own species. He says to the reader that civilization is like a 747 that has fallen over a cliff 10.000 years ago. We just have not crashed yet.

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TARP repayment: Letting banks ‘slither’ away?

Jun 10, 2009 16:50 UTC

This gem from author and former investment banker William Cohan (via PBS NewsHour):

But I think we do need to restructure the entire architecture of the financial system while we have the opportunity. And letting these banks get out of the TARP and slither away from the grasp of the government at just the moment when we need to restructure the banking system is not wise.

Me: Does Cohan realize there are plenty of Treasury Department openings? Circulate that CV!

An improving job market? Maybe not

Jun 10, 2009 16:37 UTC

The below chart, highlighted by Jeffrey Frankel of RGE Monitor, provides a counterpoint to the idea that the labor market is improving and employers are gearing up to hire. If they were, wouldn’t they first push their folks to work more hours?


Greens and living standards

Jun 10, 2009 14:08 UTC

My pal Nick Schulz comments on the political divisions between Christian Greens and Secular Greens. This bit really caught my eye:

For example, while secular greens and Christian greens both want prudent stewardship of the environment …  they will likely part ways on issues such as the importance of economic and population growth. … Benjamin Friedman and others such as Deidre McCloskey have argued persuasively that there are profound moral consequences to economic growth and that stagnation is hazardous to the moral health of a nation. This understandably prompts Christian greens to place more value on economic growth than secular greens, leading to differing views on regulation and other curbs on the free market. … And secular greens have never much cared for the injunction to “be fruitful and multiply” at least if the zero- andnegative-population-growth crowds are any indicator.

Me: This is a key political division. Should standards of living continue be raised in the US and the West, at least in material terms? A big thrust of current policymaking here would seem to say “No.”

NYTimes: In just five months, Obama almost as much to blame for deficits as Bush

Jun 10, 2009 13:26 UTC

Instead of running $800 billion budget surpluses — as was predicted back in the 1990s — America is running trillion dollar deficits. How did that $2 trillion swing happen? The blame breakdown, according to the NYTImes: recession, 37 percent, Bush policies (particularly tax cuts and the prescription drug benefit), 33 percent; Obama continuing Bush policies (Iraq, tax cuts) 20 percent, the Obama stimulus bill, 7 percent; and the rest of the Obama “investment agenda, 3 percent.

Me:  So 30 percent is Obama’s fault? He’s only been in office for less than five months and he’s almost as much to blame as Bush who was in office for eight years. Personally, I think not fixing a problem means you get 100 percent of the blame. Buck stops in the Oval Office and all that. The NYTImes makes the common flawed assuption that without the Bush tax cuts, the economy would have performed just as well as it did (and generated the same revenue) from November 2001 through December 2007 when the deficit collapsed.


Larry Lindsay said recently that he was a Keynsian — but a Keynesian with a “sharp pencil”. The current “Stimulus” is mis-directed into areas that will have a negligable impact toward economic recovery and is laden with political paybacks. It is un-targetted, has a backwards “time release” (more money going in later rather than sooner), and short changes what should be an easy winner –infrastructure spending.

They got the first part right – agreeing to deploy the funds, but exponentially more important is the where, when & how to spend that precious resource — tax dollars. What do they think – it grows on trees ;-)

The NYT is falling all over itself to make a case that Obama’s budget & policies are not fully & completely responsible for the coming explosive growth in deficits. That’s a neat bit of contortionist rhetoric.

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