What I Learned in 2011

In 2011 I learned
That attention is artfully earned
By enhancing the text
With verses well-sexed,
Where economists' blogs are concerned.

As 2011 draws to a close, I would like to thank all the supporters of Limericks Économiques; those who read the blog, all you e-mail subscribers, Facebook fans and Twitter friends and followers. In particular, I would like to thank Professor Greg Mankiw, whose clarity in writing economic textbooks cannot be matched, though it can evidently be sexed up a little. Prof. Mankiw's Ten Principles of Economics inspired Dr. Goose's most widely read rhymes this year - The Ten Limerick Principles of Economics. To all those who inspired and encouraged these limericking efforts this year - thank you.

Happy New Year to one and all!

Happy Holidays from Internal Auditing

It's required, in bank regulation,
That each trader have two weeks' vacation;
While preventing their burnout,
An audit may turn out
A case of a "rogue" operation.

During the holidays (or the dog days of August), when the thoughts of some bankers turn to carefree vacations, others contemplate... forensic accounting. Bank regulations call for every employee to take two consecutive weeks off each year, to give internal auditors sufficient time to uncover whatever financial fraud they might secretly be working on. This is based on the observation that such frauds usually require the frequent oversight of one or more conspirators, whose forced, temporary removal may cause the scheme to unravel.

Slow Week

Said a stock market man named O'Toole:
"Never trade in the week after Yule;
For liquidity's thin
When the traders aren't in,
Which, for now, is the general rule."

Discussion of stock market trading in the week between Christmas and New Year's invariably touches on the low market volume. For example, Tuesday's New York Stock Exchange volume, at two billion shares, was half the normal daily figure of 4.3 billion shares traded. This is caused not only by the fact that half of the market participants are on vacation, but also by the fact that most of them will have already "cleaned up" their balance sheets for year-end financial and regulatory reporting, and are loath to untidy them again. Interest rates for short-term funding over year-end can be volatile and expensive as well, another encouragement simply to take the week off.

The Fight before Christmas

'Twas the week before Christmas and all through the House
Each rep wished to go home to children and spouse;
When what to their wondering eyes should appear,
But a tax cut expiring at the end of the year.

The Speaker maneuvered to tie its extension
To a pipeline Obama would rather not mention;
But the President managed to win to his side
The bulk of the voters, who fitfully cried:

"On Boehner, Pelosi, McConnell and Reid -
Put cash in the pockets of workers in need!"
And Republicans claimed, 'ere they drove out of sight:
"We had all the votes, but Barack won the fight!"

House Republicans finally caved in the latest high-stakes Washington duel, over a two-month extension of the cut in payroll taxes to 4.2% from 6.2%. The issue provided a means for President Barack Obama to combine middle-class advocacy with tax cutting, a feat of political jiu-jitsu he could use in undermining the GOP House majority. Speaker John Boeher's bid to combine a year-long extension with the controversial Keystone XL oil pipeline failed, as both the press and the public saw his party as the obstacle toward tax relief for the average family. 

* * * 

As the Night Before Christmas approaches, Dr. Goose wishes a Happy Holiday to all those who will celebrate around the world this weekend, and joins you is wishing Peace on Earth and Goodwill to All.

Los Arcos Dorados

Said a friendly investment advisor,
As to where the best stock market buys are:
"Just look to Brazil,
Where, intriguingly, still
The best markets for burgers and fries are."

Investment advisor Josh Brown, whose nom de blog is The Reformed Broker, was among the stock pickers helping Investor Place to select the Ten Best Stocks for 2012. The reformed broker's pick? Arcos Dorados (NYSE: ARCO), the world's largest McDonald’s franchisee, with more than 1,750 locations, largely in Latin America Mr. Brown shines a light on the southern hemisphere's expanding consumer spending, particularly in Brazil (50% of $ARCO revenues), where a thriving middle class of 100 million people gives the company "incredible room for growth." Well done, Mr. Brown, but we can only hope that Brazilians' waistbands are equally expandable.

U-1 = Unemployed / Workforce

When the rate of the jobless declines,
The message is one of two kinds;
Either jobless are fewer
(The positive view) or
They gave up the job-seeking lines.

When reading of the unemployment rate, also known in the US as U-1, one must always be mindful of the fact that both the numerator - the jobless - and the denominator - the workforce - can fluctuate. As a recent Wall Street Journal headline ("Unemployment Eases, Jobs Still Scarce") reminds us, the unemployed can lower the jobless rate by becoming too discouraged to look for work. In this sad state, they no longer count in the denominator of the U-1 equation, and thus lower the unemployment rate.

On a brighter note, let us pause to wish all of our Jewish friends a Happy Hanukkah (regardless of their employment status)!

An Il Wind from North Korea

To the President whispered the Queen,
As the Dictator passed from the scene:
"The foe that we know
Is preferred to the foe
that we don't, If you see what I mean."

The death of North Korea's "Dear Leader" Kim Jong Il incited mass displays of hysterical grieving in that country. Reactions among the global political and military elite tended more toward anxious calculation, as each country tries to figure out what the passing of the torch to Kim Jong Un, the late dictator's youngest son, will mean for them. China, in particular, would like to sustain its neighbor's government, both to avoid a flood of North Korean refugees in the event of that state's collapse, as well as to act as a buffer against South Korea, Japan and the US. The latter three are hoping, first and foremost, that "a 27-year-old running a repressive regime with nuclear weapons" (in the words of a US defense official) does not do anything rash.

France Defends Its Credit Rating

Said the Banque de France Gov'nor Noyer,
On the risk to the French "triple-A":
"But ze debts of ze Brits
Are so deep in ze sh£ts,
For comparison's sake, if I may."

French central bank head Christian Noyer may have sparked a war of words with Britain. Responding to S&P's putting his nation on negative credit watch, with the possible loss of its prestigious AAA rating, Mr. Noyer commented:

"A downgrade doesn't seem justified to me when you look at the economic fundamentals, or else a downgrade should come first for the U.K., which has a greater deficit, as much debt, more inflation, and less growth than us, and collapsing credit."

Trying to keep a stiff upper lip, a spokesman for Prime Minister David Cameron's Conservative government noted the credibility of the UK's deficit reduction plan. In truth, the British have nothing to gain by rising to Mr. Noyer's bait, since their public deficit, at 9.4% of GDP, is far above France's 5.8%.

Overheard at FedEx

"A drop in the pricing of oil
Should sweeten the fruit of our toil,
But since shipping has slowed
In the air and the road,
The fruit of our toil may spoil."

When should shippers not rejoice in the falling cost of fuel? When it indicates a slowing economy, according to the Wall Street Journal's Kelly Evans. Her Ahead of the Tape column points out that lower oil prices have coincided with weakness in the price of $FDX and the S&P 500 generally. Although cheaper fuel is clearly a benefit when looked at in isolation, it may be correlated with global economic activity, as is the shipping business.

Euro Downer

The market's unflinching barbarity
Toward the euro zone's flagging prosperity
Has its rate on a path
From a buck-and-a-half
Toward - eventually - dollar parity.

The euro has reached an 11-month low of $1.30, accelerating a trend that has seen the Old World's currency decline 12% from a high of $1.48 in May. As usual, the reasons are many; they include the belief that Europe is headed for a recession if its leaders do not soon restore confidence. European banks are poorly positioned to ease a credit crunch, as their piles of idle cash result from mandated deleveraging and recapitalization. Even the European Central Bank is contributing to euro weakness, based on the expectation of future rate cuts, which typically devalue a currency.
Chart courtesy of The Wall Street Journal.

US 4th Quarter Growth Forecast

America's merry 4th quarter
Has economists caroling (sorter),
But growth that's depending
On holiday spending's
Reversing again in short order.

The Wall Street Journal reports that a number of economic forecasters have raised their estimates of US 4th quarter growth to a robust 3.5%, compared to average forecast of 2% when the Journal surveyed economists in October. Among other things, consumer sentiment has improved, and shoppers are dipping into savings to make purchases, while companies are replenishing inventories. Of course, using one's savings for consumption is not a sustainable trend, which may be one reason why the forecasts for the 1st quarter of 2012 average only 2.1%.

A Prime Minister Who Can Say No

Said Cameron: "I could have been cannier
In dealing with France and Germania,
But when they're on a roll
About Euro-control,
In my mind I can hear Rule Brittania."

When the 17 euro-zone governments announced a deal to save their common currency on Friday, it was not - as some had hoped - accompanied by a major, supporting treaty change among the 27 EU members. Britain's Prime Minister David Cameron, constrained by his "euro-skeptic" Conservative Party, vetoed changes that would have centralized more fiscal controls with the European Commission, EU executive and European Court of Justice. This left Britain isolated within the EU but bolstered Mr. Cameron's standing at home, where a clear majority desire a "Prime Minister [who] can say 'No,'" in the words of one prominent Conservative.

Corzine's Congressional Testimony

"A billion-point-two, evidently,
Has failed to be found, accidentally;
Though we foundered, it's true,
When our funding withdrew,
Our finances were fine, fundamentally."

Ex-MF Global CEO Jon Corzine told the House Agriculture Committee that he was "devastated by the enormous impact on many people's lives" when the giant futures broker went bankrupt. In his first public appearance since the firm's collapse, Mr. Corzine expressed regret but not remorse. MF Global's failure was, in his view, precipitated not by his misjudgment in holding a $6.3 billion leveraged position in European bonds, but rather the market's sudden lack of confidence in in the firm's balance sheet. Regarding the notoriously missing $1.2 billion in MF Global customers' funds, Mr. Corzine testified: "I simply do not know where the money is."

A Refined American Export

The GDP targets we've missed of late
Makes Americans' fuel use desist of late,
But with fuel usage surging
In markets emerging,
We ship more petroleum distillate.

The Wall Street Journal recently reported that booming US exports of gasoline and other refined petroleum products would soon make America a net fuel exporter for the first time in 62 years. Though still the world's leading importer of crude oil (that's right - we're still dependent on "foreign oil"), the US' huge and growing refining capacity feeds the demand from growth markets such as Mexico, Brazil and Singapore. Even moribund Europe are "PIGS" for Yankee petrol. Of course, there is a dark side to this good news: the net export balance is helped by our slow economy, which has reduced US fuel consumption.
Graphs courtesy of The Wall Street Journal.

Those M*F* Risk Controls

A risk manager, naturally prone
To deny an improvident loan,
Heard the boss say: "We're wishin'
To cut this position;
Not that of the loan, but your own."

The Wall Street Journal reports that the Chief Risk Officer of MF Global found himself out of a job after he questioned that firm's big bet on European bonds, arranged by CEO Jon Corzine (pictured). CRO Michael Roseman had argued that the "repo to maturity" trades - in essence, leveraged long bets on treasury bonds of Italy and other sovereigns - could endanger the firm's capital if markets went strongly against them. Both privately and in front of the MF Global board, Mr. Corzine had responded that Mr. Roseman's dire scenarios were unlikely or even impossible. Eventually, Mr. Corzine is said to have grown annoyed with the CRO's persistence; whatever the reason, Mr. Roseman soon found himself assisting in the transition to his successor. Of course, soon afterward, his impossibly dire scenarios came true and the firm was bankrupt.

Walking out of Econ 10

Said Harvardian students of Mankiw:
"Shall we occupy seats here? No thank you!
We simply despise
Inequality's rise,
Among whose enablers we rank you."

The professor replied in an entry:
"You need learning that's more supplement'ry
Before jousting the rich
With your knowledge base, which,
Like my lectures, is quite element'ry."

One of the recent highlights of the Occupy movement was the walkout last month of some of the Harvard freshmen in Professor Greg Mankiw's Economics 10 introductory class. The students asserted that "the biased nature of Ec10 contributes to and symbolizes the increasing economic inequality in America." Though the story has faded from the front pages, the Professor is continually asked about it, and gave his thoughts in a New York Times op-ed piece on Sunday. While acknowledging that claims of inherent conservative bias in the economics field are not new, Prof. Mankiw prefers to cite Keynes' view that

The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.

Hot and Cold in Brazil

"When Brazil overheated by fractions,
We carried out rate-hiking actions;
When it cooled a bit, then
We sank 'em again,
Plus the tax on financial transactions."

Brazil has surprised the markets with a fiscal stimulus package meant to block the "contagion" of developed countries' financial distress, according to Finance Minister Guido Mantega. Such measures include the lowering of financial transaction taxes on consumer loans, home appliances, homebuilding and foreign purchases of corporate bonds tied to infrastructure projects. All this comes on the heels of the Banco Central's lowering the overnight lending rate to 11% (although the highest among the major economies, this is low for inflation-prone Brazil). What's odd is that, not long ago, the central bank and finance ministry had raised rates and let tax breaks expire, because they feared an overheating economy; though cheered in the short run, some market participants wondered aloud about Brazil's long-run policy consistency.

Liquidity Injection

Said Bernanke: "I'd like to eschew
That the euro would bid us adieu,
So I'll open the taps
To help out those chaps
In the Old World as well as the New."

The Federal Reserve led an internationally coordinated effort among the leading central banks to inject US dollar liquidity into the European banking milieu. With a half-percent cut in the rate on dollar swap lines to the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, the Fed hopes that dollars would in turn be made available to those Old World financial institutions for which liquidity has dried up of late. Marketplace's Heidi N. Moore, in her Tumblr, compared the action to siphoning unleaded premium from a Hummer so that a distressed Mercedes tow truck - and the broken Ferrari behind it - can reach the nearest exit and stop endangering the other traffic. Markets reacted ecstatically, which is ironic considering the central banks' implicit acknowledgement of urgency, bordering on panic.

Overheard at American Airlines

"The market immutably sets
The fares and the fuel in our jets,
But a bankruptcy filing
May turn back the dial in
Our benefits, pensions and debts."

AMR Corp has filed for Chapter 11 bankruptcy protection in an effort to bring its cost structure into line with that of the airline industry. The parent of American Airlines is the last of the big "legacy" carriers to restructure its balance sheet and compensation costs in court. Mindful of its proud, 91-year history, American had long avoided a judicial reorganization, but in an environment in which fares are driven by the lowest-cost competitor, the Fort Worth-based carrier's position became untenable.

Facebook IPO - The Inside Story

Mark Zuckerberg, known to be skeptical
Of the IPO stock market spectacle,
Expressed his unease
That I-banking fees
Could ever yield anything practical.

Countered one of the Facebook wise men of it:
"The S.E.C. tells us the 'when' of it;
As our ownership grows,
We'll have to disclose
Our finances, so let's reap the benefit."

The Wall Street Journal reports that Facebook is moving toward a possible $10 billion IPO, which would value the social networking company at $100 billion. CEO & founder Mark Zuckerberg has previously questioned both the value of an IPO and the role of investment banks in such a transaction. However, the SEC may force his hand; come April, the number of Facebook shareholders will have passed 500, the level at which US law requires companies to publish their financial results. At that point, Facebook would have all of the liability of a public company, so the board is evidently warming to the idea of its having the cash proceeds, as well.

Black Friday

When consumers queued up in a quorum,
To do as investors implore 'em,
They bought quite a bit
Of Holiday sh*t,
And forgot all their debts and decorum.

It's all over but the counting: Black Friday 2011 will go down as the all-time greatest, as sales rose 6.6% to a record $11.4 billion. Still, the salient facts suggest that, as the Zero Hedge blog put it, we are literally "shopping like there is no tomorrow." Both the savings rate and consumer credit continue to contract, leading one to question the sustainability of our one-day shopping surge. Curiously, the second-best Black Friday on record was that of 2008, suggesting that this day may not correlate to a vibrant US economy.
Meanwhile, the social networking analysis firm Mashwork analyzed 270,000 Black Friday related tweets to predict that:

• The greatest numbers would shop at Wal-Mart and Best Buy;
• 18% of all purchases would be computers or tablets;
• The iPad would outsell the Kindle Fire by 10-1;
• 46% of shoppers would be purchasing for themselves.

Need we say more?  (Hat tip to Barry Ritholtz.)

Lincoln's Thanksgiving Proclamation

"The Almighty, with merciful gaze
Looking past our iniquitous ways,
Has bountif'ly blessed,
As we all may attest
In a day of Thanksgiving and praise."

In 1863, with the nation ablaze in civil war, President Abraham Lincoln spoke movingly of

"these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, [to which] others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God... They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.
It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People."

It is worthwhile to read the entire proclamation as we come together to give thanks in a time of troubles, and remember the greater trials of our history. Happy Thanksgiving to all!

Overheard Somewhere in Rome

"The euro zone debt crisis, gen'rally,
Is more easily overcome fed'rally,
If those on the Rhine
Would say "Ja" and not "Nein"
To issuance jointly and sev'rally."

As the European debt crisis drags on with no end in sight, some trial balloonists at the European Commission are set to come out with a paper that explores the potential of bonds issued or guaranteed by all of the 17 euro zone members. One immediate obstacle is the resolute opposition of the Germans, who fear liability for the debts of spendthrift neighbors such as Italy. However, combined euro zone debt issuance would carry much more weight in the market than the European Financial Stability Facility (EFSF), which does not appear up to the task of stabilizing the market for Italian treasury bonds.

Not-So-Supercommittee

A supercommittee that tried
To conquer the party divide,
When it ground to a halt,
Found the other one's fault
Was the one thing that each could decide.

With a Monday deadline looming, the Congressional deficit-reduction supercommittee found itself unable to bridge the divide between the Republican and Democratic positions. Having apparently failed in their task of reducing the US federal deficit by $1.2 trillion over 10 years, there was nothing left for committee members to do but succeed at the "blame game." As a consequence, a "sequestration" process will be invoked, under which $1.2 trillion of automatic, across-the-board spending cuts will hit everything from defense to social programs. Is this perhaps the secret wish of the supercommittee members?

A Tale of Harvard & Yale

A fellow was telling a tale:
"Of the days when you'd win or you'd fail
In the gridiron game
When the summit of fame
Was the showdown of Harvard and Yale."

"The roar of the Ivy League crowd,
At the yardage denied or allowed,
Would resound at the goal
In the Field or the Bowl,
As the Crimson or Blue sang aloud."

"But the passage of time slowly went,
And Ivy League football was spent;"
Said this fellow: "At least
If we're not the Big East,
We can still be the top One Percent!"

Overheard in the MF Global Accounting Dept.

"In the annals of shame and ignominy
Of the modern financial economy,
A transgression may start
With a loss on the part
Of a sure-fire thing, not uncommonly."

The New York Times reports that the notorious $600 million of MF Global customers' funds "may no longer be simply missing. It may be gone." Regulators and FBI agents who have worked around the clock to recover the funds now believe that they were used not to margin customers' trades, but to pay off the firm's trading losses. Futures brokers routinely use customers' cash to earn income for themselves, but always back such operations with collateral such as Treasury notes. MF Global now appears to have used up this buffer and simply taken the cash to plug the gaps in its can't-miss $6.3 billion European bond position. This is a shock to the futures trading community, which up to now has believed that its deposits were safely segregated.

Dim Sum Debt

The market for bonds in renminbi
Heretofore has been traded quite thinly,
Though it's possible, thanks
To the world's central banks,
For yuan to be all that it kin be.

The Wall Street Journal reports that bankers pushing for the development of the offshore market for yuan-denominated bonds - so-called "dim sum" bonds - have homed in on a new target group: central banks and sovereign wealth funds. The appeal to many such institutions may be the diversification of their foreign reserves away from US dollars. Though the current outstanding dim sum debt is a paltry CN¥198 billion ($31 billion), larger issues such as this past August's CN¥15 billion ($2.3 billion) notes of the Chinese Finance Ministry have begun to expand the market beyond small investors.

It's Buffett's Move

Berkshire Hathaway drove the price higher
When its IBM deal hit the wire,
So the charge could be made
Of an insider trade,
Since Buffett knew he was the buyer.

In a case of self-fulfilling prophecy, Berkshire Hathaway's purchase of 5.4% of IBM for $10.7 billion prompted a 12% surge in the technology services company's share price once it became public. Although large purchases of public shares must normally be disclosed in 13F filings, the SEC grants about 60 confidentiality waivers every quarter, allowing investors to accumulate shares without driving their prices up. For his part, Mr. Buffett has overcome his fear of tech companies by recognizing in IBM an entrenched service provider with a protective "moat" against would-be competitors. Notwithstanding new highs in the share price, Mr. Buffett believes that, for IBM, the best is yet to come.
Hat tip to... somebody on Twitter for the insider trading joke, and apologies for forgetting who it was.

Who Falls First?

Economists smartly conversed to,
Of three downturns, determine the worst two:
Those of debt uncontrolled
In the New World and Old,
Or of that which exports to the first two?

Writing in the Wall Street Journal, Ian Bremmer and Nouriel Roubini try to analyze, among Europe, China and the USA, whose economy has it the worst. They note that, in all three cases, "kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier." Their unsurprising conclusion is that Europe will fall first and hardest due to the severity of its debt crisis. America and China may not indulge in schadenfreude, however, as both would see their exports to Europe reduced.

Under One Roof

Said an old man who found his domain full
Of his grown, jobless kids: "Though it's painful,
If you must lay about,
Then I'm crowding you out
Of the market for jobs that are gainful."

The ties that bind are tighter than ever when the economy is tight. The Wall Street Journal reports that 59% of parents recently provided financial assistance to their grown, out-of-school children. Of all adults between 25 and 34, 5.9 million now live with their parents, up from 4.7 million before the recession. Paradoxically, older workers who may be putting off retirement - in part to help support their unemployed progeny - may be crowding younger workers out of the job market, says journalist Joanne Lublin.

From Deep Pool to Bottomless Pit

When volume and confidence rise up,
Investors approvingly size up
The debt of a nation
In great circulation;
Less so when liquidity dries up.

Now that the Athenian contagion has spread to Rome, the thing that made Italy's sovereign debt so attractive - namely, the shear amount of it - has become a focal point for investor fears and issuer nightmares. At €1.9 trillion ($(2.6 trillion), Italy ranks behind only the USA, UK, Germany and France in the league table of sovereign debt. As the Wall Street Journal noted, big investors felt comfortable with Italian bonds, despite the country's 120% debt-to-GDP ratio, because they knew they could always sell their position. Suddenly, this is no longer true, and Rome must figure out how to roll over the next €300 million of maturing bonds, which the market now prices at over 7%.

Cheer Up

Said the company manager, Russo:
"I'd be bullish if only I knew so,
But in times of distress,
I hate to profess
We'll expand, though we really may do so."

Small businesses say they aren't hiring, yet they keep adding workers.

That's the paradox examined by Kelly Evans, the Wall Street Journal's Ahead of the Tape reporter. As shown in the chart, employment at small companies (50 or fewer employees) has grown by 6.5% since 2001, and such firms have added net new jobs in each of the last five months. On the other hand, the National Federation of Independent Business "optimism index" has averaged below 90, a level associated with a downturn, for the last two years. Although the October index has just come in at 90.2 - the highest since June - only 3% of small business owners told the NFIB that they intend to hire in the next three months. What would explain the gap between the gloomy talk and the more confident walk?

Choose Your Course Wisely

Said the head of a fine university:
"My friends, it's a time of adversity.
You must learn a career
That the money spent here
Will be more of a blessing than curse," said he.

Whether occupying Wall Street or just their old room at home, today's college graduates are beset by record un- and underemployment, as well as overindebtedness. For those anxious undergraduates trying to set the best course in difficult waters, the Census Department has provided a compass of sorts. Its 2010 employment survey (via the Wall Street Journal) breaks down the jobless rates and salary ranges by 173 different majors. Among the hardest hit? Psychology majors; while those who studied pharmacology do quite well providing their anxiety medication.

Fannie, Freddie, Financial Crisis

A party that needn't be named
Made GSEs chiefly to blame
For the mortgage collapse,
Though inquisitive chaps
Say the data don't back up this claim.

Writing in The Big Picture blog, Roosevelt Institute fellow Mike Konczal brings out the data to refute the oft-heard claim that the cause of the mortgage crisis was Congress' pushing Fannie Mae and Freddie Mac to make imprudent loans. Among the key facts:

• More than 83% of subprime loans issued to 2006 were from private firms, and went into the private label securitization market. 
• From 2002-2005, the GSEs (government-sponsored enterprises, such as Fannie and Freddie) saw their share of US mortgage originations drop from 50% to 30%. 
• Before the crash, conservative think tanks such as the American Enterprise Institute were arguing that the GSEs were were blocking the issuance of subprime mortgages, by purchasing too few of them. 

Liquidators Liquidated?

There's many a bold innovation
That may end up in sad liquidation,
When its marketing might
Would seem to invite
A bigger, upstart imitation.

Though it once brought the deal-hunting pros out,
Filene's, like a candle that blows out,
Couldn't counter attacks
From Marshall's and Maxx,
And is headed for one final close-out.

The news that discount retailer Syms filed for Chapter 11 was made more poignant by the fact that its subsidiary, Filene's Basement, originated the off-price liquidation business at its Boston department store in 1909. This was a second trip to bankruptcy court for Filene's Basement, which was auctioned off to Syms two years ago. The original bargain-basement legend enjoyed great customer loyalty for decades, but found it hard to compete with the influx of larger competitors such as TJX (owner of TJ Maxx and Marshalls) and Ross Stores.

Overheard at the G-20 in Cannes

"Monsieur Président," said Premier Hu,
"If the Greeks carry on as they do,
We would scarcely esteem
Your stability scheme,
Or the chance of financing it, too."

When President Nicolas Sarkozy, host of this week's G-20 summit in Cannes, met Premier Hu Jintao for dinner, he would have hoped to wine and dine the Chinese leader into backing the European Financial Stability Facility (EFSF) with some of his country's $3 trillion in foreign reserves. Instead, the entire project has been thrown into doubt by Prime Minister George Papandreou's call for a Greek referendum on his country's bailout. Alarmed that the referendum is likely to fail, European leaders have responded with an ultimatum, in the words of Chancellor Angela Merkel: "Does Greece want to remain part of the euro zone or not?"

MF = Money is Fungible

Said the Feds, in a stern admonition,
At a broker's insolvent petition:
"We place our reliance
That money of clients
Is far from your trading position."

Commodity broker MF Global filed for Chapter 11 bankruptcy on Monday, after weekend in talks with potential acquirers fell through. Due diligence inquiries revealed a $900 million discrepancy in the amount of customer funds on hand, inviting due diligence of a different sort from the FBI. The case of MF Global, in which leveraged bets on European sovereign bonds did not turn out as hoped, highlights once again the necessity of the industry's avowedly strict segregation of customer funds. Clients may be wiped out, but only because of their own bad bets. Against those of the firm, they are federally insured.

The Nightmare Before Hallowe'en

A snowstorm of great volatility,
In knocking down poles of utility,
Made courageous hearts rend
Among those who depend
On the 'Net for their earnings ability.

The northeastern US was hit by a freakishly early snowstorm that knocked out electric power to 2.7 million people including Dr. Goose, in whose town Hallowe'en "trick-or-treating" was officially postponed as a result. For those of us who depend on the internet to do our jobs, the loss of power came as a rude push back into the 19th century. Even the bankruptcy of commodity broker MF Global became a side note in the elemental struggle to reconnect. It is hoped that the reader will understand the break in the regular posting of these Limericks Économiques.

A Greek Bondholder's New Haircut

To lessen the shame and defeat in it,
A bailout's got something to sweeten it,
So there's little regret
To sign away debt,
If, in any case, one would have eaten it.

Led by France and Germany, the euro zone has crafted the framework of an agreement to avoid a Greek default and provide a mechanism to stabilize the finances of its other overly indebted members. The announcement was greeted favorably by global equity markets, in spite of the provision that writes off 50% of Greece's foreign debt; proof that a certain loss is preferred to a general uncertainty. The "sweetener" in this case is an expanded European Financial Stability Facility, which is to be leveraged from €446 billion to €1 trillion. Such leverage would eventually require the participation of cash-rich outsiders such as China, but that is a crisis for another day.

An Allegedly Well-Placed Tipper

A Goldman director named Gupta
Was looked upta but turned out corrupta;
He tipped from inside,
Said the Feds, who then tried
To disrupt that which Gupta was upta.

Federal prosecutors have indicted Goldman Sachs director Rajat Gupta on charges of engaging in an insider trading scheme with hedge fund manager Raj Rajaratnam, who has already been convicted. In a novel twist, the prosecution acknowledges that Mr. Gupta did not directly profit from the tips he provided on Goldman Sachs and P&G (of which he is also a director); rather, Mr. Gupta's motivation was seen to be the cultivation of influence and favor with his far richer friend, with whom he also invested. For his part, Mr. Gupta found it serendipitous that his indictment coincided with Diwali, the Indian "Festival of Lights" and start of the new year, as he felt that this would offer a measure of divine protection.
Regardless of the outcome of this case, may all those kindling the festival lights have a Happy Diwali and a prosperous New Year!

Obama Harps on his Refi Program

"Since Congress won't do as they oughta
For folks who have homes underwater,
As Lender-in-Chief, I
Will back ev'ry refi
Allowed by executive order."

With an eye toward the 2012 election, President Obama has evidently decided that half measures taken on one's own are better than whole measures frustrated by House Republicans. Thus, the Administration announced with great fanfare a loosening of restrictions on its HARP (Home Affordable Refinance Program), which would actually benefit only one out of eleven underwater homeowners. For those mortgagors with loans taken out before May 2009 and guaranteed by Fannie Mae or Freddie Mac, the new HARP will allow a refi at any loan-to-value ratio, doing away with the former 125% limit. Indications are however that only about a million homeowners qualify for this "expanded" program, and it does not appear that the pace of refinancing will pick up, so the most telling impact of the new HARP may be on the campaign trail, when the President runs against the "do-nothing Congress."

Wage Index Report

The data on wages disclose
That the specter of joblessness grows,
Except for the few
Making mega-bucks, who,
In their number, substantially rose.

The Social Security Administration released its Wage Statistics for 2010, and - with one glaring exception - they tell a sorry tale.   Journalist and author David Cay Johnston crunched the numbers and found that

There were fewer jobs and they paid less last year except at the very top, where the number of people making more than $1 million increased by 20 percent over 2009. The median paycheck — half made more, half less — fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999. The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

Hat tip to Barry Ritholtz, who notes the obvious statistical underpinning for the Occupy Wall Street movement.

Crowded Out by MasterCard

The thing that is most in the way
Of a really robust USA
Is the mountain of debt
On consumers who let
All their spending get carried away.

Joe Weisenthal points out in the Business Insider that the biggest impediment to American employment growth is a lack of demand for goods, which can be traced back to the enormous household debt burden (see graph). Though declining, it is still too high. The only ways around this problem are to develop more exports or substitute government spending until consumers get back on their feet. In a much-maligned conclusion, Weisenthal determines that, far from "getting in the way," government is failing to do its part.

Atlas Shrunk

If the strong want to lift up the weak,
As the Germans and French would the Greek,
It is best if such acts
Do not overly tax
The Teutonic or Gallic physique.

Plans to support the public finances of Europe's peripheral nations have been thrown into fresh doubt by the news that France's Aaa rating from Moody's is under pressure.  The rating agency's French analyst, Alexander Kockerbeck, noted that France has "a lot of additional risks we did not have in the past," pointing to "developments in the euro zone."  The €440 billion European Financial Stability Facility is designed to let the triple-A countries guarantee some of the debts of the shakier ones.  If France is downgraded, then the EFSF must either do without the €158 billion French participation, or accept a double-A rating.  Germany may be bracing for a heavier burden.

The Ideal Rate

"The taxation of capital gains,"
Said a student of John Maynard Keynes,
"Would ideally fall
Between 'nothing at all'
And the rate at which Buffett complains."

Writing in the Wall Street Journal on the "Three Policies That Gave Us the [Steve] Jobs Economy," Amity Shlaes cites the slashing of the capital gains rate from a confiscatory 49% to 25% in 1978. Building on this evidence, she reaches the silly conclusion that "taxes on capital should always be lowered, and dramatically." One might just as easily conclude that, because a diet improved one's physique, that mealtime portions should always be dramatically lowered, too. But what is the correct capital gains rate? Undoubtedly, it lies between encouragement of wild speculation and discouragement of capital formation.

To The Point

America's unequal strata,
As confirmed by definitive data,
Have made it quite plain,
On Wall Street and Main,
That something is deeply the matta.

Insider Trading: Is It Bad?

If A buys a company share
From B, who remains unaware
Of the info that A
May not give away,
Well then, this is rather unfair.

The sentencing of hedge fund manager Raj Rajaratnam to 11 years in prison for his insider trading conviction highlights once again the seriousness of this offense in the US legal system and, for some, revives the debate over whether it should be so.  Mr. Rajaratnam, who will soon rub shoulders with Bernie Madoff in the Butner, NC federal prison, used a network of experts in selected industries to "find an edge" in his investments.  Such experts really comprised a network of well-placed tipsters, US Attorney Preet Bharara convinced a Manhattan jury.  To those who would argue that insider trading is a victimless crime, one could point out that every inside trade has a counterparty unaware of the underlying material, non-public information, who is thus cheated out of the full value of the traded stock; in Mr. Rajaratnam's case, the defrauded values were in the millions.

Taxed to the Nines

Said Cain: "With this tax plan of mine,
Your taxation is fair, flat and fine!"
(But it opens the door
For a VAT on the poor);
Said the Right and the Left: "Nein, nein, nein!"

With Herman Cain's rise in polls of Republican Presidential primary voters, his "9-9-9" tax plan is getting a closer look. The early findings have both progressive and conservative analysts sounding like hordes of angry Germans. Anti-tax groups such as Freedom Works point out that Cain's 9% national sales tax (and elements of his 9% corporate tax) could act as a Trojan Horse for a larger and much less transparent value-added tax. Meanwhile, the Think Progress blog concludes that Cain's 9% flat income tax, combined with the sales tax and the elimination of taxes on capital gains and inheritances, would dramatically shift the tax burden downward to the poor and the middle class.

Message From Slovakia

"'Ere a bailout our nation commits to,
Some cold perspiration befits you,
As this saga has shown
That our currency zone
Is prone to financial jiu jitsu."

Well played, Slovakia. This tiny outpost of New Europe now holds the fate of the €440 billion European Financial Stability Facility (EFSF) in its hands. As the last of the 17-member euro zone to take up the ratification of the EFSF, Slovakia roiled the waters Tuesday when its divided parliament voted No. Even though a majority of the Slovak parties support the stability framework in principle, the question is caught up in parliamentary maneuvering, with the government evidently headed for a no-confidence vote. In the meantime, France and Germany can only sweat it out, as they test the limits of their persuasive powers.

And the Nobel Goes To...

The committee bestowed some respect
On the science of cause and effect
With a new Nobel prize
For a couple of guys
Who proved that it's hard to project.

The 2011 Sveriges Riksbank Economics Prize in Memory of Alfred Nobel has been awarded to two Americans who have done pioneering work on the effects of government policy on the macroeconomy. Thomas Sargent of NYU and Christopher Sims of Princeton (pictured right above and below respectively), who were classmates at Harvard and now teach a course together at Princeton, have worked mostly separately and often disagree; the Nobel committee felt that their different approaches were complementary. Mr. Sargent developed complex models to predict the behavior of the economy, while Mr. Sims is skeptical of such models and has focused on direct analysis of economic data.

European Financial Stability Negotiations

Said Merkel, "On this I agree
With Monsieur Président Sarkozy:
There's a pretty good chance
Of a downgrade for France
And political fallout for me."

Against the backdrop of the failure of the French-Belgian bank Dexia, French President Nicholas Sarkozy met with German Chancellor Angela Merkel on Sunday to resolve their differences over the path to European financial stability. The two announced to the press that a deal would be struck by the end of the month, meaning that agreement is still a long way off. France would like its banks to have access to the European Financial Stability Facility for capital support, but Germany - the biggest contributor to the EFSF - would face domestic political unrest. The Germans, for their part, would like troubled banks to draw on private or national capital sources, but France might face a downgrade if it tried to shore up its banks on its own. A Franco-German agreement is key to resolving the Greco-Italo-Hispano debt crisis that grips Europe.

Harvard Nobel Prize in Economics Prediction Pool

A man of conviction who needs
To declare which economist leads
May wager a bet
On the one who will get
That prize given out by the Swedes.

Nobel Prize season is upon us: on Monday, October 10, the winner(s) of the 2011 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel will be announced in Stockholm. That means that once again it's time for the Nobel Prize in Economics Pool, sponsored by Harvard University. The self-described "world's most accurate prediction market" invites economists far and wide to wager a dollar on the name of each predicted winner. Although practitioners of the Dismal Science failed to predict last year's winners, Thomson Reuters has stepped in with a handy handicapping sheet. Don't delay - entries must be received in Cambridge MA before 11:59 PM this Sunday night!

Oktobernomics

Said a sturdy Oktoberfest waiter,
Dressed up in his Hosen of Leder:
"Is this best-ever year
For consumption of beer
A good or a bad indicator?"

Organizers of the Munich Oktoberfest reported that 6.9 million visitors drank a record 7.5 million liters (2 million gallons) of beer this year.  (Many readers may not be aware that the annual festival actually runs from September 17 to October 3.)  Hungry quaffers ate hundreds of thousands of roast chickens, 118 oxen and miles of sausage as well.   Is all this record-breaking revelry a positive indicator for Europe, or are crisis-weary Germans simply drowning their sorrows in Löwenbräu? One sign of a new frugality amidst the excess: the Münchener Polizei reported fewer brawls in which beer steins (or Maßkrüge, in the local vernacular) were broken over someone's head.