The Econonaut

Listen to this 'Talk of the Nation' topic

"Earth to Planet Money! Earth to Planet Money! Do you copy?!"

The Econonaut, Adam Davidson, NPR's international business and economics correspondent, orbiting 'round the third rock from the Sun, will join us, as he does most Tuesdays, to tell us what the hell is happening on Wall Streetto take your questions about the economy.

An aside: A few minutes ago, I was watching CNBC. Seven — count 'em: seven — talking heads were on the screen at the same time, offering their two — collectively fourteen — cents about the markets. It was mesmerizing. Really. Between them, the two scrolling tickers at the bottom of the screen, the other scrolling ticker above their heads, and the crude oil Chiron, I got lost. What is happening?

What questions do you have for the Econonaut? If we don't get to them during the show, he's going to field more during his podcast. You can pose them — and post them — here, too.

Comments

 

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Does your listenership remember the sit-com "Good Times?" The United States has become the ghetto-set of the Good Times show, and the theme song is playing.."temporary layoffs" "easy credit rip-offs" But this time the easy credit rip-offs were provided by "prestigious" formerly regulated banks. I hate to say it, but we are one terror attack and or one war with Iran or Pakistan away from being a third world country.

Sent by Mo | 2:51 PM | 9-16-2008

Why were these companies allowed to become "too big to fail"? One would think that this consideration would be part of anti-trust approval.

In addition, with the acquisitions to prevent bankruptcies, are the resulting companies becoming "too big to fail"? In the desire to prevent turmoil now, are we setting ourselves up for trouble later?

Sent by Amanda | 2:52 PM | 9-16-2008

I thought the definition of moral hazard would be correct when the econonaut started out "when the decision makers take risk and get rewarded....." but then he switched blame to the people who didn't make the decisions nor get the reward.

The people who made the deals for the risky mortgages and risky bonds and bogus bond ratings got rewards for doing stupid things, in some cases in commissions and in other cases bonuses, without putting anything at risk, are the ones that present the moral hazard.

The people who filed the reports with the SEC and reported to stockholders that they had led the company to great profits, without saying that they had done so by taking big risks with the stockholders' assets and the capital of the bond holders are the moral hazard.

All the workers on commission, all the executives getting bonuses, and even the executives who were fired with the golden parachutes, all those who created all the risky house of cards, walked away from the disaster with their pockets full, and that is the moral hazard.

Now the "bailout" of these firms is dealing with the moral hazard of politicians making policy that puts the assets of We the People at risk, and who merely lose their job in the next election, and maybe get blamed for the problem, so having created the crisis, they bail out the people harmed by their policies, in this case, the people who depend on the credit market to do business, and the home owners who need to sell their houses but can't because no buyer can get a loan to pay for the house, even if they have a good job and good credit.

The lack of transparency in the ratings of bonds and the quality of the assets backing bonds has turned low risk bonds into uncertain risk which is translated into high risk, and thus a bond that will be paid off 99.99% of the time because it is a solid government agency with tax authority and a need for long term operating credit, is priced in the market as if it had a 50% chance of defaulting, and at that price, no one can afford to sell, so it become illiquid. The econonaut has argued that the people who bought these high quality low risk bonds expecting to sell them at face value have created a moral hazard because they believe that markets should work rationally, and anyone who makes the market work rationally, like the Federal government backing buying those bonds, is transferring high risk of making a very low risk investment to the government when other players in the market have done very risky things to cause the markets to fail.

In other words, the econonaut is arguing that keeping the market working rationally is creating the moral hazard of people using the market expecting that the market will keep working rationally.

If you buy into the reasoning of the econonaut to its logical conclusion, the only way to avoid the risk you are depending on the government bailing you out from a moral hazard is to avoid the market, and as money is an instrument of faith, avoiding money all together.

In other words, the moral hazard free economy is one based on barter of real goods and services, and no fiat securities like money, bonds, loans, stocks, options.

Sent by michael pettengill | 3:11 PM | 9-16-2008

You're right, Adam Davidson, you are going to get a lot of email about your hesitance to say that tax rate cuts in an economy such as we are in now actually RAISES revenue, instead of reducing it. And it goes way, way back instead of that "20" year period you mentioned.

C'mon, admit it! The Laffer Curve works. And with the most up-to-date Census data, none other than Arthur Laffer himself shows more evidence than ever before in yesterday's WSJ:

http://online.wsj.com/article/SB122143692536934297.html

Sent by Mark Hotchkiss, Boulder, Colorado | 3:17 PM | 9-16-2008

I tracked two main causes for the recent problems in the financial markets. The first occurred years ago when all of the banks started engaging in the practice of "Stated Income Lending" combined with lending up to 120% on a property's value. The second started over the last few months when China began pulling money out of the big institutions such as Fannie and Freddie. The easy money dried up.

When China pulled money out of Fannie and Freddie all the talking heads said it was not a material or relevant move, but two weeks later the two companies collapsed.

We now owe China so much money that every American's taxes for the first part of each year goes to pay them interest on our debt. China also has large savings as a nation and is a creditor nation.

Our nation has no savings and instead runs on a deficit every year. I recommend that each state and the national government have a trust established that only disburses the income and we invest three percent of our total tax revenue into it every year. The benefit will be for the generations to come who enjoy not being a debtor nation.

We should also consider the options for spending the bail out money for these firms. I know Americans will be better off with 20 to 100 billion dollars going to wind and solar power that it will be shoring up the failed system. Think of 100 billion dollars being spent in Michigan to start a new industry.

Do you know who is responsible for relaxing lending rules to permit "Stated Income Lending", when he did it and who he works for now? Clue 1: He called us a "nation of whiners" in a "mental recession". To him, this week is simply a mental melt down.

Sent by Christopher M. Brown | 3:26 PM | 9-16-2008

Dear Neal,
Adam Davidson sounds like a dope, unsure about what he is talking about, hedging, 'umhing', 'you knowing' etc. He doesn't want to give advice and then he gives advice! Geez. He doesn't sound professional.His performance was disappointing.

Sent by Paul L. Hovsepian | 3:03 AM | 9-17-2008

Stockholders of Lehman, etc., should consider selling their stock,instead of holding, to obtain a capital loss. This loss might be the only value remaining.

Sent by Bill Sikkenga | 8:25 AM | 9-17-2008

Where is the jail? So what if bankers at all levels are responsible? Who says you can't send thousands of bankers to Jail? If these were black guys who ripped off people on the street there would be no question. Look at Martha Stewart, she went to jail for a crime that had far less effect, was it gender and her self made career as style maven? And Phil Gramm (and wife), who played a key role in this and Enron, costing the nation billions, yet he almost became a significant member of the McCain cabinet. Where's the jail? Is it race and gender that keeps everyone so afraid to seriously broach the issue?

Sent by Paul Tominac | 12:42 PM | 9-17-2008