Category: reason

Federal Reserve Promises a Trillion-Plus in Short Term Loans to Banks.

In an attempt to quell market and banking fears about coronavirus-related downturns, the New York branch of the Federal Reserve announced new plans today:

For the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities….

Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020.  Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule.  The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.

These “repo operations” mean that the Federal Reserve will be providing liquidity in the form of cash in exchange for securities, which the entities getting the money are supposed to purchase back later.

For the past few months, the Fed has been on a $60 billion plan of securities purchases, but that was mostly just short-term Treasury bills. It is expanding those schemes, per its statement today, “to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes.”

As the Wall Street Journal tallies, today’s “interventions lifted the overall amount of Fed temporary liquidity $119.1 billion to $361.5 billion, the most outstanding since the Fed began doing repos again in September after a decade-long break.” This is all in reaction to, as the New York Times reports, “reports from trading desks that many assets that are normally liquid—easy to buy and sell—were freezing up, with securities not trading widely. This was true of the bonds issued by municipalities and major corporations but, more curiously, also of Treasury bonds, normally the bedrock of the global financial system.”

In general this week, in everything from stocks to bonds, gold to crypto, the Times notes, “major financial players are experiencing a cash crunch, and are selling whatever they can as a result. That would help explain the seeming contradiction of assets that should go up in value in a time of economic peril instead falling in value.” That both stocks and bonds were falling this week put a big scare into the system.

Cynical populists might note that here, as so often, government’s quick big-money interventions seemed aimed more at comforting the wealthy and high-powered as opposed to easing the problems of the mass of low-income wage-earners, renters, or others who might be devastated by the shutdown in economic activity commensurate with the shutting down of most public gatherings that’s picking up speed this week.

That said, these repurchases function not as cash giveaways, but as loans that should be paid back. As CNBC explains, “Repos are short-term operations in which financial institutions provide high-quality collateral [in this case the wide variety of Treasuries and other securities] in exchange for cash reserves they use to operate.”

As Politico puts it, these new repos are meant to be “a crucial source of overnight funding for brokerage firms, hedge funds and other financial institutions.” The Fed hopes this new repo expansion will “ensure the proper functioning of the market for Treasuries, which influences all other credit markets.”

Scott Sumner of the Mercatus Center, who writes from a “market monetarist” perspective that roughly believes the Fed has been too tight in overall monetary policy since the 2008 crisis, says via email that today’s actions are “reactive, not proactive. Taken in isolation, they are probably beneficial. But the Fed needs to further ease monetary policy to assure that it achieves its policy goals, as set by Congress.”

At his blog, Sumner suggests bold moves for the Fed such as an instant end to paying interest on bank reserves, as that policy is contractionary at a time we don’t want contractionary monetary policy, and to straight-up purchase “as many Treasuries (and MBSs [morgage-backed securities]) right NOW as required to raised the expected price level two years from today to a level 4% higher than today. Not gradually; buy them NOW.” (Emphasis his.)

As Cato Institute monetary policy maven George Selgin says in an email today, despite the total amounts of money involved in the repos, it is properly seen as a series of “temporary short-term loan allotments [that] aren’t cumulative. It’s like me offering you $5 to be repaid next Thursday, and then offering to lend you the same amount then, and again the following week. At no point am I lending more than $5, and always for a short term.”

That said, Selgin also writes: “The question that remains to be answered is whether the Fed will also find it necessary to increase either the size or the duration of its ongoing, outright security purchases, which it so far plans to continue only through April. I should not be at all surprised to see an announcement sometime soon concerning such a decision.” Selgin’s larger-scale critique of the Fed’s ways of managing monetary policy over the past few years can be found here.

This means that any possible wind-down of assets the Fed owns since the quantitative easing days post-2008 crisis seems over. That failure to wind-down is criticized today from a Misesian perspective for “constantly favoring and bailing out bankers and other parts of the financial sector, [which means] the Fed has put all other sectors and industries at a disadvantage. As a nonfinancial enterprise, it’s hard to compete for investors and capital when the Fed has guaranteed that the financial sector will be bailed out no matter what.”

The Fed’s announcement had no immediate positive effects on stock market price plunges, with the Dow Jones Industrial Average down nearly 10 percent today.

For more background on the Fed’s asset holdings, see this 2014 Reason feature by Jeffrey Hummel, “How the Fed Got Huge,” assessing the economic dangers of the Federal Reserve being such a huge holder of financial assets.

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The Sad Lesson of Million-Gate

As Snopes (and lots of others) have reported:

On March 3, 2020, a Twitter user posted a message that claimed former New York City Mayor Michael Bloomberg could have given each American $1 million for the amount he spent on advertisements during his failed 2020 U.S. presidential candidacy:

The tweet reached a much larger audience a few days later when it was uncritically presented by MSNBC anchor Brian Williams and Mara Gay, a member of the The New York Times editorial board:

The problem, it seems to me, isn’t just that Williams and Gay made an arithmetical mistake; mistakes happen.

It’s that they didn’t have the basic math sense to realize that something was off. Agreeing with an assertion that $500 million split among 327 million Americans would be, say, $3 per person would be an arithmetical mistake; it shouldn’t be that hard to quickly realize that 500/327 is about 1.5 rather than about 3, but one can easily flub that.

But $1 million for each American should obviously be vastly more than $500 million. Likewise, $500 million split among 327 million should obviously be vastly less than $1 million. More broadly, just as a matter of common sense, given that the average American’s yearly income is somewhere under $100,000 (all of us should have a sense of that from ordinary life, even if we don’t know the exact number off the top of our heads), no one American is going to spend ten times the national GNP on a political campaign.

The point of basic numeracy, I think, isn’t that people should know their multiplication table or be able to do long division. It’s that people should have a rough understanding of numbers that they can drawn on in situations like this, to know what makes sense and what doesn’t. Sad to see that lacking here.

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Federal Reserve Promises a Trillion-Plus in Short Term Loans to Banks.

In an attempt to quell market and banking fears about coronavirus-related downturns, the New York branch of the Federal Reserve announced new plans today:

For the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities….

Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020.  Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule.  The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.

These “repo operations” mean that the Federal Reserve will be providing liquidity in the form of cash in exchange for securities, which the entities getting the money are supposed to purchase back later.

For the past few months, the Fed has been on a $60 billion plan of securities purchases, but that was mostly just short-term Treasury bills. It is expanding those schemes, per its statement today, “to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes.”

As the Wall Street Journal tallies, today’s “interventions lifted the overall amount of Fed temporary liquidity $119.1 billion to $361.5 billion, the most outstanding since the Fed began doing repos again in September after a decade-long break.” This is all in reaction to, as the New York Times reports, “reports from trading desks that many assets that are normally liquid—easy to buy and sell—were freezing up, with securities not trading widely. This was true of the bonds issued by municipalities and major corporations but, more curiously, also of Treasury bonds, normally the bedrock of the global financial system.”

In general this week, in everything from stocks to bonds, gold to crypto, the Times notes, “major financial players are experiencing a cash crunch, and are selling whatever they can as a result. That would help explain the seeming contradiction of assets that should go up in value in a time of economic peril instead falling in value.” That both stocks and bonds were falling this week put a big scare into the system.

Cynical populists might note that here, as so often, government’s quick big-money interventions seemed aimed more at comforting the wealthy and high-powered as opposed to easing the problems of the mass of low-income wage-earners, renters, or others who might be devastated by the shutdown in economic activity commensurate with the shutting down of most public gatherings that’s picking up speed this week.

That said, these repurchases function not as cash giveaways, but as loans that should be paid back. As CNBC explains, “Repos are short-term operations in which financial institutions provide high-quality collateral [in this case the wide variety of Treasuries and other securities] in exchange for cash reserves they use to operate.”

As Politico puts it, these new repos are meant to be “a crucial source of overnight funding for brokerage firms, hedge funds and other financial institutions.” The Fed hopes this new repo expansion will “ensure the proper functioning of the market for Treasuries, which influences all other credit markets.”

Scott Sumner of the Mercatus Center, who writes from a “market monetarist” perspective that roughly believes the Fed has been too tight in overall monetary policy since the 2008 crisis, says via email that today’s actions are “reactive, not proactive. Taken in isolation, they are probably beneficial. But the Fed needs to further ease monetary policy to assure that it achieves its policy goals, as set by Congress.”

At his blog, Sumner suggests bold moves for the Fed such as an instant end to paying interest on bank reserves, as that policy is contractionary at a time we don’t want contractionary monetary policy, and to straight-up purchase “as many Treasuries (and MBSs [morgage-backed securities]) right NOW as required to raised the expected price level two years from today to a level 4% higher than today. Not gradually; buy them NOW.” (Emphasis his.)

As Cato Institute monetary policy maven George Selgin says in an email today, despite the total amounts of money involved in the repos, it is properly seen as a series of “temporary short-term loan allotments [that] aren’t cumulative. It’s like me offering you $5 to be repaid next Thursday, and then offering to lend you the same amount then, and again the following week. At no point am I lending more than $5, and always for a short term.”

That said, Selgin also writes: “The question that remains to be answered is whether the Fed will also find it necessary to increase either the size or the duration of its ongoing, outright security purchases, which it so far plans to continue only through April. I should not be at all surprised to see an announcement sometime soon concerning such a decision.” Selgin’s larger-scale critique of the Fed’s ways of managing monetary policy over the past few years can be found here.

This means that any possible wind-down of assets the Fed owns since the quantitative easing days post-2008 crisis seems over. That failure to wind-down is criticized today from a Misesian perspective for “constantly favoring and bailing out bankers and other parts of the financial sector, [which means] the Fed has put all other sectors and industries at a disadvantage. As a nonfinancial enterprise, it’s hard to compete for investors and capital when the Fed has guaranteed that the financial sector will be bailed out no matter what.”

The Fed’s announcement had no immediate positive effects on stock market price plunges, with the Dow Jones Industrial Average down nearly 10 percent today.

For more background on the Fed’s asset holdings, see this 2014 Reason feature by Jeffrey Hummel, “How the Fed Got Huge,” assessing the economic dangers of the Federal Reserve being such a huge holder of financial assets.

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The Sad Lesson of Million-Gate

As Snopes (and lots of others) have reported:

On March 3, 2020, a Twitter user posted a message that claimed former New York City Mayor Michael Bloomberg could have given each American $1 million for the amount he spent on advertisements during his failed 2020 U.S. presidential candidacy:

The tweet reached a much larger audience a few days later when it was uncritically presented by MSNBC anchor Brian Williams and Mara Gay, a member of the The New York Times editorial board:

The problem, it seems to me, isn’t just that Williams and Gay made an arithmetical mistake; mistakes happen.

It’s that they didn’t have the basic math sense to realize that something was off. Agreeing with an assertion that $500 million split among 327 million Americans would be, say, $3 per person would be an arithmetical mistake; it shouldn’t be that hard to quickly realize that 500/327 is about 1.5 rather than about 3, but one can easily flub that.

But $1 million for each American should obviously be vastly more than $500 million. Likewise, $500 million split among 327 million should obviously be vastly less than $1 million. More broadly, just as a matter of common sense, given that the average American’s yearly income is somewhere under $100,000 (all of us should have a sense of that from ordinary life, even if we don’t know the exact number off the top of our heads), no one American is going to spend ten times the national GNP on a political campaign.

The point of basic numeracy, I think, isn’t that people should know their multiplication table or be able to do long division. It’s that people should have a rough understanding of numbers that they can drawn on in situations like this, to know what makes sense and what doesn’t. Sad to see that lacking here.

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The Supreme Court Will Close to the Public

Yesterday, I speculated that the Supreme Court may hold oral arguments without spectators. Today, the Supreme Court announced that it would close to public. Here is the announcement on the Court’s homepage:

Out of concern for the health and safety of the public and Supreme Court employees, the Supreme Court Building will be closed to the public from 4:30 p.m. on March 12, 2020, until further notice. The Building will remain open for official business, and case filing deadlines are not extended under Rule 30.1.

It isn’t clear if the Court will partially re-open on March 23 to hold oral arguments.

SCOTUSBlog notes that the Supreme Court shuttered in October 8, 1918 during the Spanish Flu outbreak. The Court resumed arguments in November 1918.

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Thoughts and Tips on Teaching with Zoom

Wednesday evening, the South Texas College of Law Houston announced that it would immediately halt all in-person classes. We had less than 24-hours to prepare for distance learning. This afternoon, I taught my first class using Zoom. This post will offer some thoughts and tips on the process.

1. Maintain normal appearances to preserve normalcy

My goal with distant learning is to preserve normalcy, as much as possible. Even though I was recording the session in my home office, I wore a suit and tie. I positioned my camera so there would be a neutral backdrop.

I encouraged my students to also attend class wearing the same sorts of clothes they would attend class with. Please, no pajamas, or worse. (One of my colleagues told me that in the past, a student dialed in from bed, and didn’t realize his camera was on). Students also should try to keep a neutral backdrop. This cleanliness is not always possible with different types of living arrangements. Zoom also students to use “virtual backgrounds.” The technology is sophisticated, and allows students to use any photograph as their backdrop. Use it.

You can see my YouTube Stream here. (I will not post the Zoom video, because I do not want to put my students’ video feeds online.).

 

2. Put on a show

Make the audio has high fidelity as possible. I use a Blue Snowball USB microphone, which costs about $70. The quality is much, much better than the standard earbuds that come with a phone. (You can see it to my left in the video.) Students will have a tough time following along. At least make the audio sound better.

Also, look directly at the camera. When you are reading at your notes, or glancing at another screen, your eyes drift around. This movement is very disconcerting. If you watch any effective television personality, he or she will have his eyes glued to the camera. I’ve practice this technique when I appear on TV hits. You should do the same. During the virtual class, I wasn’t able to look at my notes as much as I would have liked to. As a result, I had to commit my lecture to memory in ways I usually would not have to. We have to adjust.

3. Call on students in alphabetical order

In class, I usually call on students by going up and down the rows. I can usually call on 40-50 students in a given class. Other professors may select a select number of students who are “on call.” Some professors may call on students who raise their hands. Some professors use a random number generator, or pull cards from a deck.

My plan for Zoom: call on students in alphabetical order. I sent each student a copy of the roster. They know where they will appear. And I call on each student, starting with last-name “A” and finishing with last-name “Z.” I made through about 35 students in 90 minutes today.

At the outset of class, I mute everyone. (This muting avoid feedback). When I call on someone, I ask him or her to unmute. When you call on a student, “spotlight” or pin their video to the front. That way, classmates can see the student who is speaking. As you are talking with the student, manually switch between you (the professor) and the student. This back-and-forth creates something approximating a natural conversation. When they are done, I mute them and ask the next person to unmute himself or herself. (Zoom does not allow the host to unmute someone.)

Alphabetical ordering has a concrete benefit: students know when they are next. And this structure gives them time to get their mics and cameras ready. Random cold-calling will create problems. One related tip: ask students to register with their last names first. Smith, Bob, rather than Bob Smith. Last-name-first allows Zoom to easily sort people.

4. Avoid keeping the camera on screen-share mode for too long

I also discourage keeping the view on a screen-share the entire class. Students are used to watching video, and live interaction can keep people engaged. Looking at slides for 90 minutes will be tough to engage. Switch back and forth between scenes as much as possible. When I produced our videos for our ConLaw series, I tried to change scenes every 8-10 seconds or so. You should not be looking at the same scene for more than a sentence or two. This rapid change helps to promote engagement.

Easier said than done. I realize this sort of on-the-fly editing may not be feasible for most professors. I get it. Teaching online will require practice and flexibility. Maintaining the camera on the professor 90 minutes will get very, very boring.

5. Check the chat feature often

In Zoom, students can “raise their hands.” But others may more willing to type questions in the chat. Students are used to texting. Keep an eye on the chat window, and answer the questions in the same fashion as you would in class. Repeat it, so everyone knows what the question is. Then answer it. And ask the person, by name, if their question was answered. If not, you can call on them.

6. Virtual Office Hours

I haven’t done virtual office hours yet, but I plan to. My goal: keep the live room for an hour, and let people come and go as they need. Zoom also allows for private meetings. This may be helpful for confidential discussions.

7. Use Zoom to proctor final exams

Many students have asked about final exams. My strong, strong priority is that we return to classes by the end of the semester. But if not, Zoom can be used to proctor, and prevent cheating. That is, students will have to keep Zoom running while they take their exam. This presence ensures (to the extent possible) they are not asking others for help, or leaving the room. This solution is not perfect, but it helps to preserve some of the strictures of proctored exam taking.

I’ll post more thoughts as I teach more classes.

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The Supreme Court Will Close to the Public

Yesterday, I speculated that the Supreme Court may hold oral arguments without spectators. Today, the Supreme Court announced that it would close to public. Here is the announcement on the Court’s homepage:

Out of concern for the health and safety of the public and Supreme Court employees, the Supreme Court Building will be closed to the public from 4:30 p.m. on March 12, 2020, until further notice. The Building will remain open for official business, and case filing deadlines are not extended under Rule 30.1.

It isn’t clear if the Court will partially re-open on March 23 to hold oral arguments.

SCOTUSBlog notes that the Supreme Court shuttered in October 8, 1918 during the Spanish Flu outbreak. The Court resumed arguments in November 1918.

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via IFTTT

Thoughts and Tips on Teaching with Zoom

Wednesday evening, the South Texas College of Law Houston announced that it would immediately halt all in-person classes. We had less than 24-hours to prepare for distance learning. This afternoon, I taught my first class using Zoom. This post will offer some thoughts and tips on the process.

1. Maintain normal appearances to preserve normalcy

My goal with distant learning is to preserve normalcy, as much as possible. Even though I was recording the session in my home office, I wore a suit and tie. I positioned my camera so there would be a neutral backdrop.

I encouraged my students to also attend class wearing the same sorts of clothes they would attend class with. Please, no pajamas, or worse. (One of my colleagues told me that in the past, a student dialed in from bed, and didn’t realize his camera was on). Students also should try to keep a neutral backdrop. This cleanliness is not always possible with different types of living arrangements. Zoom also students to use “virtual backgrounds.” The technology is sophisticated, and allows students to use any photograph as their backdrop. Use it.

You can see my YouTube Stream here. (I will not post the Zoom video, because I do not want to put my students’ video feeds online.).

 

2. Put on a show

Make the audio has high fidelity as possible. I use a Blue Snowball USB microphone, which costs about $70. The quality is much, much better than the standard earbuds that come with a phone. (You can see it to my left in the video.) Students will have a tough time following along. At least make the audio sound better.

Also, look directly at the camera. When you are reading at your notes, or glancing at another screen, your eyes drift around. This movement is very disconcerting. If you watch any effective television personality, he or she will have his eyes glued to the camera. I’ve practice this technique when I appear on TV hits. You should do the same. During the virtual class, I wasn’t able to look at my notes as much as I would have liked to. As a result, I had to commit my lecture to memory in ways I usually would not have to. We have to adjust.

3. Call on students in alphabetical order

In class, I usually call on students by going up and down the rows. I can usually call on 40-50 students in a given class. Other professors may select a select number of students who are “on call.” Some professors may call on students who raise their hands. Some professors use a random number generator, or pull cards from a deck.

My plan for Zoom: call on students in alphabetical order. I sent each student a copy of the roster. They know where they will appear. And I call on each student, starting with last-name “A” and finishing with last-name “Z.” I made through about 35 students in 90 minutes today.

At the outset of class, I mute everyone. (This muting avoid feedback). When I call on someone, I ask him or her to unmute. When you call on a student, “spotlight” or pin their video to the front. That way, classmates can see the student who is speaking. As you are talking with the student, manually switch between you (the professor) and the student. This back-and-forth creates something approximating a natural conversation. When they are done, I mute them and ask the next person to unmute himself or herself. (Zoom does not allow the host to unmute someone.)

Alphabetical ordering has a concrete benefit: students know when they are next. And this structure gives them time to get their mics and cameras ready. Random cold-calling will create problems. One related tip: ask students to register with their last names first. Smith, Bob, rather than Bob Smith. Last-name-first allows Zoom to easily sort people.

4. Avoid keeping the camera on screen-share mode for too long

I also discourage keeping the view on a screen-share the entire class. Students are used to watching video, and live interaction can keep people engaged. Looking at slides for 90 minutes will be tough to engage. Switch back and forth between scenes as much as possible. When I produced our videos for our ConLaw series, I tried to change scenes every 8-10 seconds or so. You should not be looking at the same scene for more than a sentence or two. This rapid change helps to promote engagement.

Easier said than done. I realize this sort of on-the-fly editing may not be feasible for most professors. I get it. Teaching online will require practice and flexibility. Maintaining the camera on the professor 90 minutes will get very, very boring.

5. Check the chat feature often

In Zoom, students can “raise their hands.” But others may more willing to type questions in the chat. Students are used to texting. Keep an eye on the chat window, and answer the questions in the same fashion as you would in class. Repeat it, so everyone knows what the question is. Then answer it. And ask the person, by name, if their question was answered. If not, you can call on them.

6. Virtual Office Hours

I haven’t done virtual office hours yet, but I plan to. My goal: keep the live room for an hour, and let people come and go as they need. Zoom also allows for private meetings. This may be helpful for confidential discussions.

7. Use Zoom to proctor final exams

Many students have asked about final exams. My strong, strong priority is that we return to classes by the end of the semester. But if not, Zoom can be used to proctor, and prevent cheating. That is, students will have to keep Zoom running while they take their exam. This presence ensures (to the extent possible) they are not asking others for help, or leaving the room. This solution is not perfect, but it helps to preserve some of the strictures of proctored exam taking.

I’ll post more thoughts as I teach more classes.

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