A Stubborn Mule’s Perspective

The Joint Economic Committee is a standing committee of the US Congress is charged with reporting on US economic conditions. Needless to say, the Committee is making a close study of the financial turmoil triggered by the collapse in US house prices and rising delinquency rates among “sub-prime” borrowers. Recently Alex J. Pollock gave testimony to the Committee entitled “Regulatory Implications of the Housing and Mortgage Bubble and Bust”. Read the rest of this entry »

Our four year-old, Henry, has become a devotee of what he calls “little lego” and will spend hours assembling and dis-assembling his mixer truck. However, the pieces are very small and, despite constant parental efforts to ensure everything is carefully packed away, there was always a risk that something would go missing.

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A Financial Times story has been doing the email rounds in the markets over the last couple of days that points to a colossal stuff-up on the part of the financial ratings agency Moody’s. It seems that a programming error in the model they used to rate “Constant Proportion Debt Obligations” (CPDOs) meant that they assigned a rating of AAA to billions of dollars of securities which they should have rated A+, a whole four notches lower! To make matters worse, FT claims that when Moody’s found the error, they tweaked their rating methodology so that they wouldn’t have to lower the ratings. Shortly afterwards, of course, the credit bubble burst and the price of CPDOs collapsed. Whoops!

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Until recently, I’d never given much thought to the fact that whenever I buy my lunch at the deli behind my office building, I always get the same sandwich (chicken, avocado, cheese, tomato and lettuce on multi-grain, in case you were wondering). Then I started reading Dan Ariely’s book Predictably Irrational and realised that I’d been “self-herding”.

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Inflation in Australia has been running well outside the 2-3% range targeted by the Reserve Bank of Australia—the most recent figure was 4.3% for the 12 months to March 2008—which is why interest rates have been on the rise for the last couple of years. So what has been driving prices up in Australia? One useful way to get a sense of what has been happening is to use a type of chart known as a treemap (sometimes called a “Map of the Market”). These charts tend to be pretty busy, but can be a great way to explore a rich set of data.

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