The Multibillion-Dollar Iceberg

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

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NEW YORK SUN CONTRIBUTOR

BLOOD IN THE STREET

Nouriel Roubini at RGE Monitor (rgemonitor.com/blog/roubini/) has been warning that the bloodbath in the credit and financial markets will “sharply worsen.” In a Monday post, he called the hope that the credit and liquidity crunch would ease “delusional” and reckoned the amount of losses that financial institutions have already recognized — $20 billion by his count as of Monday — “is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars.” Much of his discussion centers on new regulations that “will limit the ability of financial institutions to put ‘illiquid’ asset in ‘level 3’ securities, i.e. securities where the lack of market prices allows them to use dubious ‘valuation models’ and ‘unobservable inputs’ to value such assets.”

Mr. Roubini quotes a commentator on his site, identified as Bernard, as warning that “many Wall Street firms are still playing the game of putting too many assets in the ‘level 3’ bucket. …” Bernard took reported level 3 assets for some major institutions and divided them “by their equity capital base,” which, he reckons, “will give us a better idea as to which of them may really remain solvent at the end of the day.” Bernard’s reckoning: “Looks to me like Goldman Sachs and Morgan Stanley are by far in the WORST situation among the investment banks.” He notes that the press is focusing on Merrill Lynch, which he thinks has the least exposure. Comments Benard: “What a joke.”

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REFUTING RECESSION TALK

Not everyone agrees with Mr. Roubini that the worst is yet to come. Mark Perry (mjperry.blogspot.com) is arguing that there will not be a recession because jobless rates for educated workers remain low and show no signs of increasing. He argues: “The continued stability of unemployment rates for the most educated American workers, those whose role is most important in a knowledge-based, intensively competitive, global economy, suggest that the Goldilocks economy will continue its healthy expansion into 2008.”

He points to October’s unemployment data from the Bureau of Labor Statistics to make his case:

1. For workers with some college (but no degree), the unemployment rate in October 2007 was 3.5%, almost the same as October 2006 (3.4%), and about the same as the average rate of 3.6% over the last three years.

2. For college graduates, the October unemployment rate was 2.1%, exactly matching the average unemployment rate for that group of workers during the last three years. The jobless rate for college grads has moved in a tight range between 1.8% and 2.5% for the last 24 months, with a slight downward trend.

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FOXES IN THE HENHOUSE

Don Boudreaux of cafehayek.com cites New York Post columnist Jeffrey Milyo and his piece explaining how campaign finance regulations stifle public discussions and participation in politics.

Mr. Milyo says: “Today, citizen groups as small as two people with as little as a few hundred dollars must register with the government as a ‘political committee’ in order to speak about a ballot issue. State campaign-finance laws also require detailed disclosure of almost every transaction by such committees; most states then post the names, addresses and employers of most committee contributors on the Internet.”

These laws are not just for donations, but include yard signs and even fliers. “Dare to engage in similar political activity with neighbors or other like-minded citizens, and you will probably become a ‘political committee’ under the law. Either way, detailed reports on your activities are likely required. Fail to file them and you could face large fines or even be sued by political opponents.”

Mr. Boudreaux queries his readers: Whose “bright idea was it to let politicians determine the rules that govern competition for political office?”

NY Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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