A Bank is a Bank

Tehran, Iran (Nov. 2006)
Originally uploaded by M.Mortazavi

A bank is a bank no matter where it lives.

It does roughly the same thing everywhere.

Economizing and Strategizing

So, here I go, testing this Weblog system . . .

Oliver Williamson, the great contemporary economist, notes that there has been too much focus on triangles formed by supply-demand curves, i.e. on strategizing, and not enough attention on the larger rectangles, i.e. on economizing. A good place to read about this is in his book of essays on transaction cost economics, Mechanisms of Governance.

Time and Transactions

Tehran Bazaar (August, 2006)
Originally uploaded by M.Mortazavi

In each minutes, a tremendously large number of transactions are carried out.

Only economies that improve the volume and value of such transactions per quanta of time and resources used will survive well in crisis.

Fear in the Minds

I find this paragraph from a Financial Times editorial published today telling a big story:

It would be pointless, foolish and wrong to try and fix the dollar at its current level. Markets are the best way to determine exchange rates, and on a trade-weighted basis it is far from clear that the dollar has overshot its fair value. But what intervention might do is slow the decline, by putting fear in the minds of momentum investors who are selling short on margin.

Transaction and Transportation

Tehran Metro (2005)
Originally uploaded by M.Mortazavi

Social stability comes about when society organizes itself to reduce all kinds of transaction costs.

In modern, large cities, transportation cost contributes, perhaps more than many other specific costs, to transaction costs.

Many transactions require people to be brought together or brought to specific locations.

Looking, Buying, Selling

Tehran Bazar (2005)
Originally uploaded by M.Mortazavi

Some look.

But Some will always buy.

And that will be enough.

Choices

Friday Bazar, Tehran (2005)
Originally uploaded by M.Mortazavi

He sells watches and waits.

The customer looks, and he looks at the customer, and wonders:

He is a real one, likely to buy, likely to make a choice.

He sells watches when he is free, and then goes back to one of his three or four other jobs.

From Mortgages to a Morass

This weekend Financial Times carried a picture of people queued to withdraw cash from Northern Rock. Several articles discussed the run on the bank. This morning, The Wall Street Journal reports that "British government will guarantee all existing deposits at troubled bank Northern Rock PLC, U.K. Chancellor of the Exchequer Alistair Darling."

Diffusion of Financial Crisis among Economic Neighbors

In the last several months, as the credit crisis has rippled from the U.S. to Europe and back, I'm reminder of other historical examples:

Princes, abbots, bishops, even the Holy Roman Emperor debased the subsidiary coinage used in daily transactions (but not gold and silver coin of large denominations) by raising the denomination of existing monies, substituting baser for good metal, or reducing its weight, in order to extract more seignorage in the absence of effective tax systems and capital markets--this to prepare for the Thirty Years' War, which broke out in 1618. Debasement was limited at first to one's own territory. It was then found that one could do better by taking bad coins across the border of neighboring principalities and exchanging them for good with ignorant common people, bringing back the good coins and debasing them again. The territorial unit on which the original injury had been inflicted would debase its own coins in defense and turn to other neighbors to make good its losses and build its war chest. More and more mints were established. Debasement accelerated in hyper-fashion until a halt was called after the subsidiary coins became practically worthless, and children played with them in the street, much as recounted in Leo Tolstoy's short story, "Ivan the Fool."

Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crisis, 4th edition, p. 121, John Wiley and Sons, Inc., New York (2000)

The Unraveling in Small Turns

Hal Weitzman reports from New York:

Countrywide, the beleaguered mortgage group, prompted an early plunge in stocks by saying it would have to draw on $11.5bn of credit and an official reports showed new homebuilding dropped to a 10-year low while building permits were at an 11-year low in July.

. . . “While Fed officials are proceeding as if the calamity has yet to occur, it would appear that some in the market believe the calamity is simply yet to be fully appreciated,” said analysts at Interactive Brokers.

. . . Nerves were not soothed by the Federal Reserve pumping more liquidity into the system on Thursday morning. The New York Fed announced an overnight repurchase agreement worth $12bn and a 14-day repurchase worth $5bn, while signalling that it expected to make similar repurchases on a more regular basis over the coming days.

. . . An hour before the opening bell, the Commerce Department released a gloomy report on US housing starts, showing that construction of new homes last month dropped to its lowest level in 10 years. The figures underlined the woes that have beset the homebuilding and mortgage sectors in recent weeks.

Lender of Last Resort

As of late last week, central banks in the EU, the US, Japan and Canada have begun claiming their mantle as a lender of last resort, pumping lubricating liquidity into financial markets (at least some $120B of it) to put a break on an impending credit crunch. The coming weeks will reveal more. (John Authers speaks about it here. He calls it "very dangerous times" and speaks of a potential "melt-down" and hopes that this injection of liquidity can push back the tide of "bad news.")

California Property Tax Laws, Time to Catch Up

With the collapse of the sub-prime mortgage back securities, and the reverberations in other other mortgage back securities, it might be time to sell and buy homes. However, as the prices continue to be high, developing an understanding of California tax laws might be necessary. Some resources follow:

1. California Board of Equalization
2. California Counties (Counties have detailed property tax break downs and much more.)
3. County Assessors
4. Clerks to the Board of Supervisors
5. Recorder Clerks' Offices
6. County Treasurers and Tax Collectors

Property taxes can be a huge burden when houses are traded at higher and higher prices. Of course property tax collectors like that.