Congratulations Mr Krugman.

From the New York Times...

Krugman Wins Economics Nobel
By CATHERINE RAMPELL

Paul Krugman, a professor at Princeton and an Op-Ed page columnist for The New York Times, was awarded the Nobel Memorial Prize in Economic Science on Monday.

The prize committee cited Mr. Krugman for his “analysis of trade patterns and location of economic activity.”

Mr. Krugman, 55, is probably more widely known for his Op-Ed columns in which he has been a perpetual thorn in President Bush’s (and now John McCain’s) side. His columns have won him both strong supporters and ardent critics.

The prize, however, was awarded for the academic — and less political — research that he conducted primarily before he began writing regularly for The Times.

“To be absolutely, totally honest, I thought this day might come some day, but I was absolutely convinced it wasn’t going to be this day,” Mr. Krugman said in an interview on Monday. “I know people who live their lives waiting for this call, and it’s not good for the soul. So I put it out of my mind and stopped thinking about it.”

Mr. Krugman won the prize for his research, beginning in 1979, that explained patterns of trade among countries, as well as what goods are produced where and why.

Traditional trade theory assumes that countries are different and will exchange only the kinds of goods that they are comparatively better at producing — wine from France, for example, and rice from China.

This model, however, dating from David Ricardo’s writings of the early 19th century, was not reflected in the flow of goods and services that Mr. Krugman saw in the world around him. He set out to explain why worldwide trade was dominated by a few countries that were similar to one another, and why a country might import the same kinds of goods it exported.

In his model, many companies sell similar goods with slight variations. These companies become more efficient at producing their goods as they sell more, and so they grow. Consumers like variety, and pick and choose goods from among these producers in different countries, enabling countries to continue exchanging similar products. So some Americans buy Volkswagens and some Germans buy Fords.

He developed this work further to explain the effect of transportation costs on why people live where they live. His model explained under what conditions trade would lead people or companies to move to a particular region or to move away.

Mr. Krugman’s work has been praised for its simplicity and practicality — features economists are often criticized for ignoring.

“Some people think that something deep only comes out of great complexity,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, who wrote a textbook on international economics with Mr. Krugman. “Paul’s great strength is to take something very simple and make something new and very profound.”

Mr. Krugman applied his skill at translating complex ideas into clear, entertaining prose to his Times columns, which he began writing in 2000. In recent years, in his column and a related blog on nytimes.com, nearly everything about the Bush administration — from health care policy to Iraq to “general incompetence” — has been the object of his scorn.

Along the way, Mr. Krugman has come in for criticism himself from both economists and lay readers.

“Much of his popular work is disgraceful,” said Daniel Klein, a professor of economics at George Mason University, who this year wrote a comprehensive review of Mr. Krugman’s body of Times columns. “He totally omits all these major issues where the economics conclusion goes against the feel-good Democratic Party ethos, which I think he’s really tended to pander to especially since writing for The New York Times.”

But he has equally fervent fans of his popular work.

“I praise today’s prize as being deserving and even overdue, but more than that I reproach the Pulitzer committee, which owed him at least a couple of prizes in the past,” said Paul A. Samuelson, a previous winner of the Nobel in economic science. “Paul Krugman is the only columnist in the United States who has had it right on almost every count from the beginning.”

Mr. Krugman said he did not expect his award to have much effect on how colleagues and his popular readership — whether they be friends or foes — regard him.

“For economists, this is a validation but not news,” he said. “We know what each other has been up to.”

“For readers of the column,” he added, “maybe they will read a little more carefully when I’m being economistic, or maybe have a little more tolerance when I’m being boring.”

He said he did not expect the prize to silence his critics, given the treatment of another outspoken laureate, the 2001 winner Joseph E. Stiglitz. Mr. Stiglitz has been both praised and criticized for his writings on whether globalization in its current form has been beneficial.

“I haven’t noticed him getting an easy time,” Mr. Krugman said. “People just say, ‘Sure, he’s a great Nobel laureate and he’s very smart, but he still doesn’t know what he’s talking about in this situation.’ I’m sure I’ll get the same thing.”

Mr. Krugman first gained a popular following while writing about economics for Slate magazine and Forbes in the 1990s. He frequently weighed in on contemporary free trade debates related to his research.

“He was appalled by the monster he created,” said Michael Kinsley, the founding editor of Slate, who hired Mr. Krugman. “He’d come up with this theory about why sometimes free trade wasn’t the best policy, and suddenly everyone was citing it as an argument against free trade, while he thinks it applies once in a blue moon.”

While Mr. Krugman’s popular writing is now more focused on politics and his research more concentrated on international finance, he has occasionally returned to his interest in trade. In the last year he has written several times about the negative results of free trade, both in his column and in a paper he wrote for the Brookings Institution about whether trade with poor countries increases inequality in developed nations like the United States.

In 1991 Mr. Krugman received the John Bates Clark medal, a prize given every two years to an economist under 40 who has made a significant contribution to economic knowledge. He follows a long list of Clark medal recipients who have gone on to win Nobels in economic science, including Mr. Stiglitz and Mr. Samuelson.

Mr. Krugman, who grew up on Long Island and has a bachelor’s degree from Yale and a doctorate from M.I.T., has been teaching at Princeton since 2000. This semester, he is teaching a graduate-level course in international monetary theory and policy. He often teaches all-freshman seminars on issues related to economics.

Mr. Krugman joins another Princeton economist, albeit one of different ideological leanings, who has been in the news recently: Ben S. Bernanke, the chairman of the Federal Reserve who, coincidentally, offered Mr. Krugman his Princeton post. Mr. Bernanke and Mr. Krugman were fellow graduate students at M.I.T. in the 1970s.

Their era at M.I.T. produced several other economists who went on to prestigious careers in public policy, including Olivier Blanchard and Kenneth Rogoff, the current and former chief economist at the International Monetary Fund.

Monday’s award, the last of the six prizes, is not one of the original Nobels. It was created in 1968 by the Swedish central bank in Alfred Nobel’s memory. Mr. Krugman was the sole winner of the award this year, which includes a prize of about $1.4 million.

Still, his collaborators and mentors in his international trade research — some of whom were considered competing candidates for the prize — extended their praise.

“Lots of people are saying to me, ‘Why didn’t you get it?’” said Jagdish Bhagwati, an economics professor at Columbia who helped Mr. Krugman publish one of his seminal papers when other academics thought it was too simple to be true. “Given the fact that I didn’t get it, this is the next best thing.”

No Soup For You, Mr. Paulson and Mr. Bush!

The bail out fails.


Image courtesy of the Huffington Post.

So This is How Chase Is Going to Pay for WaMu...

I understand Chase is buying Washington Mutual. Chase is my bank and I chose Chase based on their management and asset mix. In other words, I thought they were a good bet not to get caught up in this mess. They didn't sign people with terrible credit for terrible mortgages and they didn't go nuts on the financial products based on those terrible mortgages. All in all, I feel pretty good that my bank is still standing.


As I checked my account balance online I notice a check I wrote for $70.00 was cashed for $75.00. I got the image of the check I clearly wrote $70.00 in the number box and spelled it out. I went to my local Chase branch and they credited me my $5.00. But I have to wonder...

Is this a coincidence this happened? Is this how they raised the funds to by WaMu? Perhaps they processed millions and millions of checks all over the world, charging an extra $5.00. Would anyone notice? It's like the scheme in Office Space with all the extra cents.

Hmmm....

As the US financial System Burns, Europe Laughs

From the LA Times:

Europeans on left and right ridicule U.S. money meltdown

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Daniel Berehulak / Getty Images

A street scene near London's financial center. Among Europe’s economies, Britain’s most resembles America’s in its vulnerability. Europeans cited Alan Greenspan and greed as culprits in the Wall Street meltdown.

They list greed and Greenspan among the culprits, and there are comparisons to . . . Albania. But amid the gloating, there is fear for financial systems in Britain, Spain, Italy and elsewhere.

By Sebastian Rotella and Janet Stobart, Los Angeles Times Staff Writers
September 20, 2008

LONDON -- It's a rare day when finance officials, leftist intellectuals and ordinary salespeople can agree on something. But the economic meltdown that wrought its wrath from Rome to Madrid to Berlin this week brought Europeans together in a harsh chorus of condemnation of the excess and disarray on Wall Street.

The finance minister of Italy's conservative and pro-U.S. government warned of nothing less than a systemic breakdown. Giulio Tremonti excoriated the "voracious selfishness" of speculators and "stupid sluggishness" of regulators. And he singled out Alan Greenspan, the former chairman of the U.S. Federal Reserve, with startling scorn.

"Greenspan was considered a master," Tremonti declared. "Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most. . . . It is clear that what is happening is a disease. It is not the failure of a bank, but the failure of a system. Until a few days ago, very few were willing to realize the intensity and the dramatic nature of the crisis."

In an interview Thursday in the Italian newspaper Corriere della Sera, Tremonti drew a comparison to corruption-ridden Albania in 1997, when a nationwide pyramid scheme cost hundreds of thousands of people their savings and ignited anarchic civil conflict.

"The system is collapsing, exactly like the Albanian pyramids collapsed," Tremonti said. "The idea is gaining ground that the way out of the crisis is mainly with large public investments. . . . The return of rules is accompanied by a return of the public sector."

On the other end of the political spectrum, among leftists who have long predicted calamity for what they call the "savage neoliberal capitalism" of Wall Street, there were gleeful allusions to the stock market crash of 1929.

"Between the dread of a world in the midst of collapsing and the shiver of pleasure that finally something serious is happening to the kingdom of liberalism, how to orient oneself?" Eric Aeschimann wrote Thursday in the newspaper Liberation, a voice of French intellectuals whose disdain for capitalism persists in the 21st century.

Expressing nostalgia for "the good old days when bankers jumped out of windows," Aeschimann condemned as "extortion" the rescue of U.S. corporate giants by the very state that free-marketeers resent.

But fear accompanied gloating. The crisis threatens to worsen woes -- inflation, unemployment, weak growth -- of regional powerhouses including Britain, Spain and Italy. Joaquin Almunia, an ideologically moderate Spanish Socialist who is the European Union's economic commissioner, offered a simple analysis.

"It has been a problem of greed," he told El Pais newspaper. "In Europe it can't be said that we did nothing, European banks bought toxic products. . . . Nobody knows when this will end."

Anxiety was acute here in London. Britain's FTSE 100 stock index swung wildly this week, dropping about 8% between Monday and Thursday, then rocketing nearly 9% on Friday.

Among the European economies, it is Britain's that most resembles America's in its vulnerability. The big news of the week drove that home: an announced $22-billion rescue-takeover of the wobbling HBOS bank by Lloyd's TSB.

In ordinary times, regulators would have opposed the merger of the giants as anti-competitive. But beleaguered Prime Minister Gordon Brown, whose economic expertise is one of the last arrows in his political quiver, pushed for the deal.

"The financial tsunami that has engulfed Wall Street since the weekend hit these shores yesterday," the Daily Telegraph declared in an editorial Thursday. "It swept away the country's biggest mortgage provider -- and with it, much of the [financial sector's] regulatory machinery. . . . The government has prevented a banking collapse that would have had unimaginable consequences for the economy."

But a more optimistic school of thought saw the week's events as an inevitable period of reconfiguration from which the markets -- and U.S. economic dominance -- will emerge reasonably unscathed.

This analysis gained ground with the strong recovery of European markets Friday.

In addition to the FTSE, France's CAC 40 rose more than 9% and Russia's RTS index jumped 22% after trading resumed after a two-day suspension.

"This time next year we'll be seeing things back to normal," said Eamonn Butler, director of the Adam Smith Institute, a think tank here. "The last thing we need is to slap more rules on the system. . . . From time to time, businesses fail and the worst thing a government can do is to bail them out because that just passes the cost on to the taxpayer and creates a moral hazard."

The spectacle across the ocean has left a lasting impression on many Europeans. Hanna Evers of Berlin, a cellphone retailer interviewed in the shopping district of Wilmersdorfer Street, said she was angry about the amount of money that had been "burned" in recent days.

"And I'm furious when I see the pictures of Americans who thought they were on the sunny side of life and now have lost their homes and have to live in their cars," Evers said. "I definitely do not feel sorry for the bankers who lost their jobs in the last couple of days. I can't believe that a country like the U.S.A. could have been so careless on a money issue!"

"I was taught that the U.S.A. is the motherland of moneymaking," she added. "And now all I can see is a herd of headless chickens running around on Wall Street."

Rotella reported from Madrid and Stobart from London.

Special correspondents Maria De Cristofaro in Rome and Christian Retzlaff in Berlin contributed to this report.

"Of Course You Need Money. That's Why They Call It Money!"

The financial mess is troubling. The lack of knowledge of how the American financial system works by the American public is equally appalling-especially for minorities and low-income people. There are many reasons for this and I think blame falls on the system and the people. Access to clear information is a problem, but people have to make it a priority to seek out the information. I think basic personal financial education should be a requirement to graduate high school. The consumerism the United States fashions is part of the problem as well. As a society, especially in the black community, we must look and think about what is really important and what is valuable. I will try to contribute to this conversation and seek out intelligent information.

Here is a synopsis about what is going on:

Investment banks made gambles on bundles of risky mortgage loans.  They packaged these loans into financial instruments (Bonds, etc.) and sold them as investments for banks, municipalities, foreign investors, rich people, and retirement systems. When people could not pay back the risky mortgage loans, the owners of the loans would take back the property, usually at a loss. The loan would default. When the loans defaulted, the bundled financial instruments would not bring any return on the investment for the banks, municipalities, etc. The investment firms were holding financial instruments that became worthless. That is why they failed and the government let some of them (Lehman Brothers) fail. No one wanted to buy them because they had no other profitable businesses (Chase bought Bear Sterns and the government helped because Bear Sterns had some value). All in all this is part of how the free market works, businesses succeeds and businesses fail. The government is involved because of the scale. We are talking about trillions of dollars.

The scary thing is the government bailout of the insurance company AIG. AIG provided insurance for these banks, municipalities etc against this thing happening with these financial instruments. Essentially, with all of these types of financial instruments failing, AIG did the math and realized there could be a run on the insurance companies. AIG did not have the assets to cover all of the policies it was holding. The government had to step if the banks take the losses on these financial instruments or try to re-insure them with other companies, then banks will not lend money to other banks, business, people etc. The cost of insuring or taking the losses would be too much and the flow of money would stop. Moreover, because everything is so intertwined, nobody can really drill down to what exactly makes up these financial instruments or who owns what.

 

This is a very basic synopsis of what is going on. I would suggest these websites to stay informed:

www.bankrate.com-The best consumer finance website. The have education modules for all of your personal financial needs.

www.thebigmoney.com-Slate.com's new offspring dedicated to finance and economic news and issues.

www.smartmoney.com-This is the Wall Street Journal personal finance website and magazine. Good stuff and very helpful with breaking down the macro to the micro.

www.wsj.com-Still the standard for financial journalism. They cover everything. There is a premium charge for complete access to the site. Hey, I'm an MBA so I have to have it.

www.economist.com-For the world view on the U.S., this magazine is great. Plus you can get information on the world markets.

www.blackenterprise.com-This might be the best written magazine for African-Americans. The website is very informative.

If you really get into this stuff, there are thousands of sources for information. I tend to like ready websites or magazines, rather than watch CNBC or other financial networks. The nature of television doesn't let people digest these issues thoroughly in my opinion.  Shout out to Bloomberg media also. There is a reason this guy is a billionaire.