News from the front

I'm honestly amazed by Hank Paulson. He has been going around to the press since mid-January and has been talking about the risks to the economy. According to the Guardian, Paulson has said, "I still believe that we are going to continue to grow, although at a slower pace for a while, but the risk is very much to the downside and the risks are primarily housing." This would have been something to have said like 8 months ago or maybe a year and a half ago when housing started showing its decline. More than that, though, I'm curious as to how he thinks about risk. He's obviously not thinking about standard deviation, a traditional measure of how risky an asset is. Standard deviation is not biased to one side or another it is a statistical fact (he might have meant that these figures are increasing, but then he should have said risk is increasing). Furthermore, Value at Risk or the size of losses in worst case scenarios could not be what he is thinking of since they are necessarily always concerned with the downside. I guess I use a pretty common-people conception of risk that is different from Paulson's. There's really no one definition of risk, but courtesy of Frank Knight I know that risk is quantifiable. I know that risk is somehow related to the probability of a loss (or downside deviation from the mean) and the size of that loss. But I'm just not sure how risk could ever not be on the downside. I'm pretty sure that he's not talking about risk, but he is talking about where he thinks the economy in general will be going and saying risks are on the downside (repeatedly to the media) for pure rhetorical reasons.

The Economic Stimulus plan passed Congress last night. I'm pretty sure I'm going to receive some money. I'm pretty sure that it's going to be bad for this country. I'm pretty sure I'm still going to cash the check anyway.

Antitrust regulators are also going after the Nymex/CME deal. The Justice Department is opposed to having the financial futures exchanges controlling or owning their own clearing operations. Typically, antitrust regulators are sticking up for the consumers who get fleeced by prices too high. Most futures contracts have notional values in the hundreds of thousands of dollars and a lot of good brokerage firms don't let you open a futures trading account without sufficient experience. These markets have fierce competition and the people who participate in them have ample means to compete with any exchange if they wanted to. There are plenty of markets where they just block trade equities. It is absurd if the market is just defined as the futures exchanges. Any exchange or ECN could compete in this market and any Investment Bank could start their own if the structure were really fleecing them.

Great opinion piece in the WSJ about McCain's VEEP options. I've heard abunch about Mark Sanford from South Carolina (who would be much better for the economy as President than any of the frontrunners) and I'm glad WSJ put him on their short list. I'm just concerned if he might be too principled for McCain. Sanford could at least run in 2012 by himself.