Our financial system is crumbling this week.

[JackofDiamonds]

Let's keep watching to see how spending cuts work during a slow recovery.

[pioneer98]

Profits at all-time high, wages at all-time low:
http://www.businessinsider.com/profits- ... low-2013-4

[heyzeus]

If only we'd switched our currency to bitcoins back in 2007 this all could've been avoided.

[JackofDiamonds]

http://www.theawl.com/2013/04/a-brief-h ... The+Awl%29

[SHOW]

Etc. Etc..

[pioneer98]

This is pretty outrageous. Oh well, at least only half the planet took their advise.

How a student took on eminent economists on debt issue - and won

When Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics, spotted possible errors made by two eminent Harvard economists in an influential research paper, he called his girlfriend over for a second look.

As they pored over the spreadsheets Herndon had requested from Harvard's Carmen Reinhart and Kenneth Rogoff, which formed the basis for a widely quoted 2010 study, they spotted what they believed were glaring errors.

"I almost didn't believe my eyes when I saw just the basic spreadsheet error," said Herndon, 28. "I was like, am I just looking at this wrong? There has to be some other explanation. So I asked my girlfriend, 'Am I seeing this wrong?'"

His girlfriend, Kyla Walters, replied: "I don't think so, Thomas."

In the world of economic luminaries, it doesn't get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age.

Both have served at the International Monetary Fund. Reinhart was a chief economist at investment bank Bear Stearns in the 1980s, while Rogoff worked at the Federal Reserve, passing through Yale and MIT before landing at Harvard.

Their study, which found economic growth slows dramatically when a government's debt exceeds 90 percent of a country's annual economic output, has been cited by policymakers around the world as justification for slashing spending.

Former U.S. vice presidential candidate Paul Ryan, a Republican congressman from Wisconsin, is one influential politician who has cited the report to justify a budget slashing agenda.

Using the two professors' data, Herndon found that instead of a dramatic fall in growth, the decline was much milder, slowing to about 2.2 percent, instead of the slump to minus 0.1 percent that Reinhart and Rogoff predicted.

Things tend to move at a glacial pace in the world of academic research papers, but within 24 hours Herndon and his two teachers, who co-authored the report, Michael Ash and Robert Pollin, found themselves swept up in a global debate.

Herndon's paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate Reinhart and Rogoff's results, then challenge the idea that high public debt caused growth to slow.

But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them he was onto something.

"At first, I didn't believe him. I thought, 'OK he's a student, he's got to be wrong. These are eminent economists and he's a graduate student,'" Pollin said. "So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, 'Goddamn it, he's right.'"

Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.

Herndon said only 15 of the 20 countries in the report had been used in the average. He also said Reinhart and Rogoff used only one year of data for New Zealand, 1951, when growth was minus 7.6 percent, significantly skewing the results.

Reinhart and Rogoff have admitted to a "coding error" in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.

For Ash, the findings mean the claim that high public debt causes growth to stall no longer holds water.
"Their central thesis has been substantially weakened," he said.

Reinhart and Rogoff, however, say their conclusion that there is a correlation between high debt and slow growth still holds.

"It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said in a joint statement. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."

Now that Herndon has ably crossed swords with some of the most eminent figures in his field, he is thinking about expanding his work into a Ph.D. thesis.

[pioneer98]

Wow!

http://blogs.wsj.com/moneybeat/2013/04/ ... /?mod=e2fb

The Dow Jones Industrial Average plunged within minutes early this afternoon, after somebody hacked an AP Twitter account and posted a bogus tweet saying the White House had been attacked.

The Dow, which had been up about 130 points, fell into the red within two minutes, and then bounced back just as quickly as it became obvious that the “news” was false, and a prank.

White House spokesman Jay Carney quickly got on the air and dismissed the story.

“The president is fine,” Carney said. “I was just with him.”

The Dow was at 14698 when the bogus tweet hit. Within two minutes, the Dow had dropped 127 points and fallen into the red. It just as quickly rose (you can see this quite clearly in the chart).

Dow Jones Kaitlyn Kiernan reported:

“Stocks briefly erased a 125-point gain after a tweet from the Associated Press Twitter account erroneously claimed that there were two explosions in the White House and that President Barack Obama had been injured. The Associated Press said on its corporate website that its account had been hacked. The White House confirmed that there was no incident.

“The AP’s servers got hacked. People quickly figured that out…see how temperamental the market is? The age of social media, if you’re allowed to monitor Twitter feeds like we are, we see that right away,” said Keith Bliss, senior vice president at brokerage firm Cuttone & Co. “Just goes to show, you shouldn’t have a knee-jerk reaction to anything that comes across Twitter.”

Here, for your edification, is a screenshot of the fake tweet.


What stands out to us is how many times that was retweeted, in the parlance of the Twitterverse: at least 1,849 people retweeted that before it was taken down.

[pioneer98]

The top 7% have gained $5.6 trillion during the recovery and the bottom 93% have lost $669 billion

[planet planet]

This is an interesting graph on CEO's comp relative to company performance.

http://graphics.wsj.com/ceo-pay-2013/#i ... =all&s=tot

[pioneer98]

The Stock Market May Have Crashed 18,000 Times Since 2006 - And No One Noticed

What if someone told you the stock market crashed and spiked 18,000 times since 2006, and you had no idea?

That’s the contention of a group of scientists who study complex systems after analyzing market data, collected by Nanex, since the advent of high-speed trading. While the fallout of computerized algorithms has been seen before, including the infamous 2010 “flash crash,” when markets lost nearly 10% of value in just a few minutes, that same kind of sudden volatility is going on all the time, unseen.

In a new paper called “Abrupt rise of new machine ecology beyond human response time,” researchers found a new trading ecosystem that humans don’t even notice.

People can’t really respond to stimuli much faster than in one second. The benchmark comes from cognitive scientists who find that it takes 650 milliseconds for a chess grandmaster to realize that a king has been put in check after a move. Below that time period, you can find “ultrafast extreme events,” or UEEs, in which trading algorithms cause prices to change by 0.08% or more before returning to human-time market prices. This appears to be the case when many simple algorithms, operating on limited information, pile into a single trade.

[pioneer98]

I guess Congress just quietly rolled back Dodd-Frank, which itself was a half-measure.

http://daily.represent.us/theres-someth ... right-now/

Now, the House has passed a bill (H.R. 992) that would roll back these derivative regulations and let banks go back to the same set of rules that let them break the economy in the first place. So, why is it that both parties have found a way to agree on a substantive regulatory change at a time when partisan bickering is supposedly making any progress impossible?

It’s certainly not because the public is up in arms about rolling back derivative regulations — most Americans have never heard of derivatives trading, let alone pressured their Member of Congress to deregulate it. No, this is happening for a very different reason: Big bank lobbyists wrote this bill.

From the NY Times:
http://dealbook.nytimes.com/2013/10/28/ ... itics&_r=1

The House is scheduled to vote on two bills this week that would undercut new financial regulations and hand Wall Street a victory. The legislation has garnered broad bipartisan support in the House, even after lawmakers learned that Citigroup lobbyists helped write one of the bills, which would exempt a wide array of derivatives trading from new regulation.

The bills are part of a broader campaign in the House, among Republicans and business-friendly Democrats, to roll back elements of the 2010 Dodd-Frank Act, the most comprehensive regulatory overhaul since the Depression. Of 10 recent bills that alter Dodd-Frank or other financial regulation, six have passed the House this year. This week, if the House approves Citigroup’s legislation and another bill that would delay heightened standards for firms that offer investment advice to retirees, the tally would rise to eight.

I guess Congress can agree on something and get bills passed, after all. See, the system works!