There has been a large increase in interest rates on government bonds. The focus has been on the supply of debt. An even more important factor is the size of the debt and the future size of the debt. The economic returns for holders of long duration U.S. debt do not look very good. The major holders of U.S. long term sovereign debt are the Federal Reserve, other central banks, insurance companies, commercial banks, and federal, state and local pension plans including the Social Security and Medicare funds. These entities hold U.S. debt for non-economic reasons. For instance, the Fed... Continue reading

These have been modified to account for changes in current conditions and the 2017 tax bill: Raise the corporate tax rate to 40% but allow deductions for all investments including purchases of the debt and equity of other entities and repurchase of the firm’s own debt; but not purchase of the company’s stock. This will encourage firms to retain earnings and give them a liquidity cushion to survive crises. They would still be vulnerable to takeover bids if they were being mismanaged. To the extent that firms are making distributions of earnings and thus incurring the corporate profits tax, the... Continue reading

This year's Economics Nobel Laureates, Michael Kremer, Esther Duflo and Abhijit Banerjee, have decided to donate their prize winnings to the Weiss Fund for Development Economics. I am humbled by their decision and look forward to seeing what we can accomplish together. 2019 Economics Laureates to Donate Nobel Prize Money to Next Generation of Economists Continue reading

I had a great conversation with Senator Mark Warner about his thoughts on regulation, long-term fiscal solvency, the Trump tax law, and the prospects for bipartisan cooperation. Senator Warner Interview-Weiss Continue reading

I was delighted to speak with Senator Tim Kaine and have a wide-ranging discussion on how his background has shaped his views, how to fix social security, and other economic policy issues. Continue reading

Columbia seems to have changed the location or removed the videos of my guest lectures for Bruce Greenwald's value investing class at Columbia Business School that I had linked to in previous posts, but here is a video of my 2010 lecture: https://www.youtube.com/watch?v=LQYUm7u0Q2c&index=8&list=PLjB1e8l3NtJ9m6iXkmgXyaOtG-dYrySDW Continue reading

My proposal for replacing the current income tax system with a progressive consumption tax: http://andrewweiss.typepad.com/main/replacing-the-income-tax-with-a-progressive-consumption-tax.html Continue reading

I discuss the minimum wage and other well intentioned policies with potentially harmful effects on the poor with my friend Glenn Loury on The Glenn Show at bloggingheads.tv: http://bloggingheads.tv/videos/29334?in=26:54&out=31:23 Continue reading

I recently spoke at the Sohn London Investment Conference, discussing Korean Non-Voting Shares. The Wall Street Journal and the Financial Times reported on the conference and my presentation. Here are some excerpts from the coverage: John Jannarone of The Wall Street Journal wrote, “Young gun hedge-fund analysts were awed Thursday by the long view of economist and investor Andrew Weiss. He was one of a slate of prominent investors who, for charity, presented trading ideas at the Sohn London Investment Conference.” Read the whole article here. Merryn Somerset Webb of The Financial Times wrote, “I think the most gripping talk... Continue reading

I recently posted more of my past commentaries on the economy and investing. You can find them under the 'Pages' heading on the right, or by following the links below: Bonds vs. Equities (April 2013) Future Returns and Past Performance (April 2013) Some Thoughts on Risk (May 2011) Hedge Fund Legislation (April 2010) Observations On Leverage and Hedging (May 2009) Thoughts On Quantitative Methods and Market Commentary (May 2008) How to Use Past Performance to Assess Risk (May 2007) Broad Overview of Macroeconomic Risks (May 2007) Continue reading

From the point of view of an investor, figuring out the risk from the balance sheet of a hedge fund (or other financial institutions that own derivatives) is a very difficult, if not impossible, endeavor. The U.S. Securities laws are premised on an assumption that by restricting investments in hedge funds to high net worth individuals they are only allowing sophisticated investors to invest, and that those sophisticated investors will be able to understand the risks of the hedge fund. Unfortunately, many if not most of the most successful and sophisticated hedge funds, make investments that are treated by accounting... Continue reading

2007 Lecture http://www7.gsb.columbia.edu/video/v/node/1299 2006 Lecture http://www7.gsb.columbia.edu/video/v/node/1307 Continue reading

Democrats don't fully appreciate how Governor Romney's experience in private equity qualifies him to address our fiscal woes. The Governor is expert at divesting enterprises of divisions that are damaging the bottom line and unloading such divisions at premium prices. Romney can do the same for the U.S. How would Romney apply the Bain approach to the fiscal woes of the U.S.? He would start by divesting us of the states of the Confederacy. These states collectively absorb far more resources than they contribute in tax dollars. Only Texas and North Carolina contribute more than they take, and we could... Continue reading

The move toward safety and liquidity also shows up in the premium investors are willing to pay for exposure to commercial properties in prime locations versus the prices investors are willing to pay for property in secondary markets. The prices of those properties have risen significantly relative to the prices in secondary markets. As a result, gross yields for properties in prime markets are roughly half the yields for properties in secondary markets. One mistake investors are making is to use independent appraisals of commercial real estate as unbiased estimates of the prices at which those properties would sell. Appraised... Continue reading

One major looming problem is the threat to bank solvency from the falls in asset prices. Falls in prices of residential real estate and the accompanying hardships have attracted considerable media coverage; less attention has been paid to the even more troubling falls in prices of commercial real estate. According to the Financial Times, $233 billion of commercial real estate loans were originated in 2007 while prices are down 42% from that date. Commercial real estate loans don't pay principal until they come due, and many of these loans had high loan to value ratios at origination. Consequently, an exceptionally... Continue reading

I had expected dramatic falls in the prices of commercial real estate. What I had not anticipated was the extent of the sovereign debt crisis, which has seriously impaired the ability of banks to finance purchases of commercial real estate. To get a feeling for the magnitude of the European sovereign debt crisis, it is currently cheaper to insure against a default of the sovereign debt of Malaysia, Indonesia, Mexico or the Philippines than of either France or Austria, the latter of which is rated AAA (of course in the light of recent events one can't help but be skeptical... Continue reading

There has been a lot of heat, and very little light, generated in discussions of stimulus packages. To some extent, the disagreement among economists stems from a technical issue called Ricardian equivalence. According to Ricardian equivalence, cuts in taxes or increases in transfer payments have no effect on aggregate demand. Because the recipients of the tax cuts will anticipate that their future taxes will rise by the same amount, they will thus offset the tax cut with increased savings. This idea is at odds with the standard Keynesian formulations, but is logically consistent and is not rejected by data from... Continue reading

The grand compromise: Couple a consumption tax with universal health care, rent vouchers and expanded food stamps to provide a social safety net. In addition, replace the estate tax with a highly progressive inheritance tax that heavily taxes recipients of gifts or inheritances worth more than $4 million. The inheritance tax would be designed to avoid the concentrations of wealth that might flow from a consumption tax. To avoid evasion of the consumption tax by individuals buying goods abroad we could renegotiate our trade agreements to allow countries to levy a consumption tax on individuals bringing in goods for their... Continue reading

Abstract/Summary The international economic crisis was caused by excessive complacency brought about by a long period of steady economic growth.. In almost all the developed countries for more than 20 years there were low fluctuations in quarterly growth rates as well as few quarters of negative economic growth. Economic stability was extrapolated forward and lead to falls in the perceived risk of corporate debt. This caused not only a dramatic contraction in the interest rate differential between high grade sovereign debt, and corporate debt; but also a relaxing of credit standards and loan covenants so that the historic data had... Continue reading

Banks have been accused of passing on their bad loans to the buyers of securitized debt, or of “persuading” the rating agencies to give unjustifiably favorable ratings to securitized debt. While this may be true, there is a less nefarious interpretation of what happened. Regulators decide how much equity coverage banks require based on the ratings of each individual security it holds. This regulatory regime does not reward diversification or penalize concentration. A bank holding a diversified portfolio of 100 B+ rated securities with exposures to many different industries will be required to have more equity backing it than would... Continue reading