Saturday, July 30, 2011

Debt Ceiling Limericks on the Radio

David Lefkovits, the creator of Dr. Goose, sat down with Tess Vigeland of public radio's Marketplace Money to swap limericks on the debt ceiling crisis, including those sent in by her listeners.

Here is the interview, courtesy of American Public Media:

You can read the full text on the Marketplace website; the listeners' limericks can be found here.

Friday, July 29, 2011

Plan Beta for Beijing?

To the US said China: "We trust you will
Pay your bills, as you've often discussed you will,
But on Treasury debt
We may lower our bet,
And diverge to the Dow Jones Industrial."

Economists such as Shanghai-based Andy Xie have suggested that, with the political cloud of uncertainty hanging over US Treasury bonds, China - the largest foreign holder of US sovereign debt - would do well to diversify into US stocks. In doing so, it would have the benefits of strong US corporate earnings backed by rising exports to emerging market countries such as itself; proof that what goes around, comes around.

Weekend Radio Recommendation

For financially sound information
Find your town's public radio station,
Where the Marketplace crew
And Dr. Goose, too,
Will firm your financial foundation.

Tune into public radio's Marketplace Money with Tess Vigeland this weekend, as she talks debt ceiling limericks with David Lefkovits, alter ego of Dr. Goose. Find your local station and time or subscribe to the podcast.

Wednesday, July 27, 2011

Capitol Thrill-Seeker

A fellow who loved a good thrill
Made a bet on the debt ceiling bill,
Going 7 to 3
On a "yes" from the G.-
O.P. Caucus on Capitol Hill.

As the debt ceiling crisis heads toward the Default Date of August 2 with no resolution in sight, many are aware that this impasse has been manufactured by the Republican House majority to force spending cuts on the President and Congressional Democrats.  However, some extreme GOP representatives appear to want to force concessions on their Speaker as well.  The Wall Street Journal reports that Senators Rand Paul (R-KY) and Jim DeMint (R-SC) wrote to House colleagues that Speaker John Boehner's plan to cut $1.2 trillion in expenses doesn't go far enough.  The GOP may yet vote "yea" on a budget compromise, but don't bet your life on it.

Tuesday, July 26, 2011

The Too-Quiet Markets

The US is counting the days away
From default, which we surely hope stays away,
But the markets' reaction
Shows great satisfaction
Catastrophe's still quite a ways away.

Confounding the expectations of financial journalists, the international financial markets remained calm with less than a week to go before August 2, understood by all as the date on which the US Treasury could no longer pay its bills without an increase in the federal debt ceiling. Like Sherlock Holmes investigating the case of the dog that didn't bark, the Wall Street Journal contacted fixed income portfolio managers to explain this odd silence. The general answer seems to be an expectation that the immediate problem of the debt ceiling can and will be solved quickly, even if the larger problem of deficits may be thornier.

* * *

Is there a limerick writer in you waiting to get out? Dr. Goose will appear on Marketplace Money with Tess Vigeland this weekend, and they would like your debt ceiling limericks to add to the fun! You can post them on the Marketplace Money Facebook page, or tweet them to @radiotess.

Monday, July 25, 2011

Whence Came the Deficit?

Uncle Sam, once quite in the black,
Financially fell off the track
Through tax cuts galore,
Recession, and war
In Afghanistan and in Iraq.

The New York Times editorial page gave a lesson in US federal deficit history over the weekend. Countering the notion put forth by Grover Norquist and his Republican pledgees in Congress that the deficit results from "runaway spending" under Obama, the Times demonstrated that a combination of military spending, as well as reduced revenues from lower tax rates and a weak economy, had squandered the surplus left behind by the Clinton administration. The stimulus measures implemented by Obama, though adding to the deficit in the short term, are only temporary.

Friday, July 22, 2011

More Dollars to Gold(en Arches)

Said McDonald's competitors recently:
"While the rest of us lag, they do decently;
We must capture, like they,
An original way
Of promoting the spread of obesity."

In times of dollar distress, investors take to gold. The same holds true for the golden arches of McDonald's (NYSE: MCD) which, practically alone in the fast food industry, continues to grow same-store sales at a healthy (if that's the word for it) pace. Perhaps, as Kelly Evans writes in the Wall Street Journal's Ahead of the Tape column, it's due to the traffic drawn to those fruity smoothies and sweet iced coffee drinks. Or maybe those golden fries really are a store of (caloric) value.

Thursday, July 21, 2011

Greco-Franco-German Wrestling

EC President José Barroso
Says: "The scope of the Greek crisis grows so!
Will combined intervention
Of Germans and French in
This crisis suffice? I suppose so."

Like a pair of grappling Olympians, the leaders of Germany and France are trying to pin down the Greek credit crisis before it injures the Spaniards and Italians. Details of the new accord reached between German Chancellor Angela Merkel and French President Nicolas Sarkozy Wednesday night in Berlin have not yet been revealed, but are expected to include fresh emergency loans to Athens from euro zone governments and the IMF. European Commission president José Manuel Barroso warned all of his member states of the dire global economic consequences of failing to act decisively: "None of these Tea Party shenanigans," he admonished. #notreally

Wednesday, July 20, 2011

What Happens if We Default?

On a US default, we deduct,
If the GOP reps can obstruct,
Our economy's fatally,
Foolishly, finally,
Fittingly, fecklessly f***ed.

Simon Johnson writes in Project Syndicate that some Tea Party Republicans hope that a US default will radically reduce government's role in the economy,
But the consequences of any default would, ironically, actually increase the size of government relative to the US economy – the very outcome that Republican intransigents claim to be trying to avoid.
The reason is simple: a government default would destroy the credit system as we know it.
The entire dollar-based credit system is founded on the assumption that US government debt is riskless; the entire economy is founded on credit; without the one, the other will contract fitfully, fiscally and ferociously.

Hat tip to Tess Vigeland of Marketplace Money.

Tuesday, July 19, 2011

Borders Closing

The consensus in literate quarters
On the shuttered locations of Borders
Is now that the name
Of this publishing game
Is e-book and internet orders.

Only months after filing for bankruptcy, Borders book stores announced that they would close for good. Attempts to find a private equity savior proved unsuccessful, against a backdrop of a changing industry, increasing prevalence of e-readers such as the Kindle and Nook, and a fitful US economy. As a "bookseller selling just books," Borders has found it impossible to compete in this new era.

Monday, July 18, 2011

Confession of Congressman "X"

A fellow I tried to ignore
Cleared out the Congressional floor
With the unpleasant facts
Of budget cuts, tax,
And Medicare, pensions and war.

Writing in, David Rogers distills the reasons that we are still no closer to a debt ceiling deal, even with financial Armageddon looming:

"The bottom line to the debt fight may be a Washington rule of thumb about the two parties:
Democrats hate tough budget votes — as evidenced by the Senate’s failure to even bring up a budget for so long. And Republicans love tough-sounding votes but often fix the deck so they lose and can score political points without having to live with the results.
That’s why the debt ceiling presents such a quandary: It requires both parties to take a tough vote — and it must pass."
Hat tip to Tyler Cowen's Marginal Revolution blog.

Friday, July 15, 2011

Warning to Washington

Said the national raters of credit:
"The Congress appears not to get it;
We may downgrade a notch
While we wait and we watch
To see how out of hand they will let it."

The August 2 deadline, by which the US Congress must raise the federal debt ceiling to avoid defaulting on Treasury bonds and other obligations, is rapidly approaching. However, both Moody's and S&P have now warned that a downgrade of America's sovereign debt rating may come earlier, if the deadline looms closer without an apparently likely political compromise. This of course has alarmed the financial community, which may finally tip the political scales toward reaching a solution.

Thursday, July 14, 2011

It's All His Fault

There's a man whose endorsement is golden,
To whom GOP reps are beholden;
Who summarily axes
The few who raise taxes,
Should ever they feel so emboldened.

In the ongoing stalemate over the federal debt ceiling, many take note of the bind put on House Speaker John Boehner by the Tea Party wing of his Republican caucus; but, how many know of the thrall in which nearly all GOP House members, including the Speaker himself, are held by Grover Norquist, founder and president of Americans for Tax Reform? Drawing on the political legacy of Ronald Reagan, Joe McCarthy and Madame DeFarge, Norquist pressures every GOP candidate to sign his group's "Taxpayer Protection Pledge," and delivers swift and relentless political retribution to those who break it. In Norquist's view, any revenue increase, even from closing loopholes, constitutes a "tax hike." It may be no exaggeration to say that this one man has done more than anyone else in Washington to undermine a budget compromise.

Tuesday, July 12, 2011

Ill-Defined Contribution Plan

For things that aren't broke to be mended
May bring consequence oft unintended,
As the craftiest plan
Of mouse and of man,
Economic'ly, time and again did.

Tess Vigeland of public radio's Marketplace Money recently highlighted the surprising finding of a study first published in The Wall Street Journal: Given a default option of saving a minimal amount in their 401k plans, many employees will take it, rather than setting aside the greater portion of earnings they would have saved on their own initiative. This is too bad, because automatic enrollment at 3% of salary has been widely introduced by defined contribution plan sponsors since being mandated in a 2006 federal law. Statistical modeling has shown that many participants opt for the default, 3% withholding rate when, left to their own devices, they might have "maxed out" their retirement savings.

Friday, July 8, 2011

Overheard at the White House Debt Ceiling Talks

"The Democrats promise you one thing:
There's a limit to populist plund'ring;
We can't from the Right
Stray too far, since we might
Be depending on Wall Street for funding."

Liberal commentators and legislators have begun to give voice to the grievance that President Barack Obama's deficit-fighting measures, despite the symbolism of rolling back tax breaks on luxury goods, are substantially similar to those of House Speaker John Boehner's Republicans. Marginal revenue from taxes on corporate jets would be dwarfed in size and impact by the constraints on Social Security said to be in the works. In substance if not rhetoric, both parties appear to play not to their electoral base, but their donor base.

Thursday, July 7, 2011

Treasury Bill

Said Clinton: "If loopholes would close,
And the government's revenue rose,
Then the corporate rate
Could greatly abate,
As Republicans like to propose."

Former President Bill Clinton may have found a way out of the standoff between Republicans and Democrats over a budget deal to raise the federal debt limit. Mr. Clinton points out that, although the US corporate tax rate is 35%, the average rate actually paid is more like 23%. Some masters of tax avoidance pay zero, as in the notorious case of GE. Why not lower the rate to a level that everyone will actually pay, such as 25%, while getting rid of special write-offs and exemptions?

Tuesday, July 5, 2011

L'Affaire DSK, Revised

An aging Parisian roué,
In New York in a suite for a stay,
Though glad that the maid
Would have him get laid,
Was much too high-minded to pay.

So... many (including Dr. Goose) had joined in the fun of rushing to judgment against Dominique Strauss-Kahn, because of --

  1. His reputation as a cad or, if you will, "Le Grand Seducteur;"
  2. The fact that boorish behavior toward hotel staff is a real and acknowledged problem;
  3. The fact that they indisputably had sex, which couldn't possibly be consensual unless...
Well, it seems now that "l'affaire" was not so much consensual as transactional, at least in the view of the other party, who is said to have become insistent when the first party declined to compensate her, and by the forensic evidence he did so rather roughly.  A downgrade from a felony to a misdemeanor?  While better than rape, this hardly counts as a moral victory for the man who would be president of France.

Friday, July 1, 2011

We Never Learn

Said an analyst: "Risk, from where I sit,
Is consistent, however you slice it,
And our colleagues in banking,
For profit or ranking,
Consistently still underprice it."

Investment manager and commentator Barry Ritholtz, frustrated by the events unfolding between Greece and its creditors, poses the thoughtful question: "Who the f--- would lend a dime to these people?" In a rant posted on his blog, Mr. Ritholtz asserts that lenders are to blame when borrowers default for reasons that were well-known when the deal was done. We agree, but bankers themselves know that competition and the search for yield will, time and again, lead them to underprice risk, or wish it away.

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