Quotes of the day

Moody’s is skeptical about the No Bailout promises of Dodd-Frank. In particular, Moody’s doesn’t buy the FDIC’s claim that it can “resolve” large, complex financial institutions without risking a disorderly disruption in the marketplace. Which means that regulators would likely resort to a bailout when the chips are down. The higher credit ratings make it cheaper for the banks to borrow—which means that the US taxpayer is essentially subsidizing them with an implicit guarantee. This is worth billions to the banks.  It also means that the banks are likely less financially sound than their credit costs would make them appear to be—because bond buyers don’t have to be as vigilant about risks. In short, they’re our new Fannie Maes and Freddie Macs.--John Carney

Scott Sumner has made a big splash with his idea to “target the forecast of nominal gdp.” You can think of Scott as proposing what is currently a missing prediction market. The deeper way of understanding Scott’s proposal is to see money as missing a price and wanting to create a new way of pricing money, namely in terms of nominal gdp forecasts. Until money has the correct price, we won’t know the correct quantity of money or the correct time path for monetary policy. Scott of course was one of the early contributors to the NME literature and he and I once had a published exchange on related matters, way back when. We are now paying interest on reserves. Is Fischer Black’s claim true that, under these circumstances, the central bank cannot control the price level and the price level will be whatever people want it to be? Optimistic expectations will lead to lots of borrowing and rising prices, while pessimistic forecasts will lead to lower levels of borrowing and weaker inflationary pressures. I’m not so sure of this claim, but at the very least a) it is worth thinking about, b) it now gets debated a lot, and c) it really matters.--Tyler Cowen

So what would Q1 GDP have looked like if the government had used the government's own estimate of inflation for Q1 (5.7%), instead of 1.9%? Q1 GDP would have been -1.82%.--Henry Blodget

[Margaret Thatcher] took science subjects at school; she studied chemistry at Oxford, arriving during World War II and coming under the influence (and comment) of two excellent women scientists, Janet Vaughan and Dorothy Hodgkin. She did a fourth-year dissertation on X-ray crystallography of gramicidin just after the war. She then gathered four years' experience as a working industrial chemist, at British Xylonite Plastics and at Lyons. Second, my argument is that, having lived the life of a working research scientist, she had a quite different view of science from that of any other minister responsible for science. This is crucial in understanding her reaction to the proposals—associated with the Rothschild reforms of the early 1970s—to reinterpret aspects of science policy in market terms. Although she was strongly pressured by bodies such as the Royal Society to reaffirm the established place of science as a different kind of entity—one, at least at core, that was unsuitable to marketization—Thatcher took a different line.--Jon Agar

The cyber-warfare operation [Operation Cupcake] was launched by MI6 and GCHQ in an attempt to disrupt efforts by al-Qaeda in the Arabian Peninsular to recruit “lone-wolf” terrorists with a new English-language magazine, the Daily Telegraph understands. When followers tried to download the 67-page colour magazine, instead of instructions about how to “Make a bomb in the Kitchen of your Mom” by “The AQ Chef” they were greeted with garbled computer code. The code, which had been inserted into the original magazine by the British intelligence hackers, was actually a web page of recipes for “The Best Cupcakes in America” published by the Ellen DeGeneres chat show.--Duncan Gardham

IPOs are not all alike. In the lingo, they are sometimes “financing events” and they are sometimes “pricing events”. When IPOs are financing events, insiders are selling substantial fractions of their firms, trying to to divest their holdings or raise large sums for corporate purposes. When they are “pricing events” insiders are selling a small fraction of their shares in order to gain various benefits that come with being a public firm. In a “financing event”, when insiders are selling a lot of stock, the money left on the table from an IPO pop might amount to a substantial fraction of total equity value, too much money to be treated as a transaction cost. But in a “pricing event”, the money left on the table in a pop — the “opportunity cost of issuance” — may not be so large.--Steve Randy Waldman

Koreans still dominate the small-grocery business in New York; the Korean Produce Association estimates that they own 70 percent of the city’s stores. But their ranks are thinning as they face the same forces that threaten all sorts of mom-and-pop businesses: rising rents, increased competition from online and corporate rivals, and more scrutiny from city agencies that impose fines.--SAM DOLNICK

150 years ago today Stephen Douglas, the emanate Northern politician, died.  ... Douglas was called Little Giant, because although he was short, he was very important in politics. He was one of the most important senators in the 1850s, and was responsible for the passage of several important bills. Even though he was defeated by Lincoln, he later encouraged his supporters to support him. But Douglas died of typhoid today at the age of only 48. If Douglas had defeated Lincoln in the election, history would have taken a different term. The South probably would not have seceded, and if they did, Herschel V. Johnson, a Georgian who would have became president after Douglas's death, probably would have let them. There would have been no Civil War, and America would have been allowed to split in peace.--Joshua Horn

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