CBO finds that:

* The current economic situation is quite fragile, largely as a result of the difficulties in mortgage markets and other financial markets. Much of that fragility arises from falling house prices, which affect consumers through their housing wealth and lenders through their loss of collateral. It is exacerbated by the growing complexity of financial instruments and entities, which may make it difficult for participants to know what risks they are assuming, and by the leverage of both borrowers and financial market intermediaries, which means that it is difficult to prevent liquidity and solvency problems from spreading throughout the financial markets.
* Foreclosures are an expensive way to resolve delinquencies. A large number of foreclosures is also likely to reduce the demand for houses, as potential purchasers conclude it would be better to wait until prices stop falling. Thus, excessive foreclosures could trigger a downward spiral of house prices that could take them below what would be justified on the basis of normal relationships to income and production costs. Such a downward spiral would exacerbate the problems in the financial markets, and by reducing household wealth, could reduce consumption spending, increasing the likelihood and severity of a recession. While actions could be taken to limit the risk of such a downward spiral in housing prices, it is not feasible for policy interventions to stabilize house prices at current levels since such prices are strongly influenced by the significant inventory of unoccupied houses for sale.
* Significant impediments stand in the way of private market resolution of the difficulties in the mortgage market. In order for large numbers of mortgages to be restructured, procedures must be developed to secure the agreement of the institutions that hold second mortgages. Because most mortgages are securitized, resolution procedures also have to respect the limits of securitizing agreements. Without committing resources, the Congress could provide a standard for mortgage restructuring that might assist agreement among the first- and second-lien holders and simplify the decisions lenders have to make. Legislation could also change the treatment of mortgages in bankruptcy, which would help borrowers and might increase the pressure on lenders to voluntarily restructure loans outside of bankruptcy; such a change, however, might also lead to higher interest rates on future mortgages.
* Direct federal provision or guaranteeing of credit to mortgage markets could help avoid foreclosures and ease the downward pressure on house prices, helping the market to adjust in an orderly manner. It would also shift part of the cost of mortgage losses from current lenders and investors to taxpayers. Most of the proposals under discussion involve modest federal subsidies and would probably affect several hundred thousand homeowners.

Policy Options for the Housing and Financial Markets

The internet bellwether has reported fewer clicks on its ads. The billion-dollar question is what that means.

Will Google Earnings Save Tech?

I'm largely tired of opinion -- my own included. I am, however, increasingly fascinated with capturing and incorporating useful, alternative data sources from the edge. You see some of that beginning to happen via Twitter (and I'm advising an interesting company doing work here), but there are all sorts of opportunities at the confluence of unstructured data, companies like QL9 and Kirix, webcams and video analytics, and, yes, blogs.

While I've long incorporated meta-data from blogs in my thinking, I want to make it more explicit. I want blogs about data, sites that reshape and repurpose data as their central purpose. Sort of like a Bespoke with an API, to use one example, but there are lots of others. Bring 'em on.

Paul Kedrosky: Bring on the Data Blogs

What determines open source project success? In this study, we investigate the impact of network social capital - the benefits open source developers secure from their memberships in a developer collaboration network - on open source project success. We focus on one specific type of success as measured by the productivity of open source project team. Specific hypotheses are developed and tested on a longitudinal panel of 2378 projects hosted at Sourceforge. We find that network social capital is not equally accessible to or appropriated by all projects. Our main results are (1) teams with greater internal cohesion are more successful, (2) external cohesion (cohesion among the external contacts of a team) has an inverse U-shaped relationship with the project's success; moderate levels of external cohesion are the best for a project's success, rather than very low or very high levels of this variable, (3) the technological diversity of a contact also has the greatest benefit when it is neither too low nor too high, and (4) the number of direct and indirect external contacts are positively correlated with a project's success with the effect of the number of direct contacts being moderated by the number of indirect contacts. These results are robust to a number of control variables and alternate model specifications. Several theoretical and managerial implications are provided.

Network Effects: The Influence of Structural Social Capital on Open Source Project Success

The World Economic Outlook (WEO) presents the IMF staff's analysis and projections of economic developments at the global level, in major country groups (classified by region, stage of development, etc.), and in many individual countries. It focuses on major economic policy issues as well as on the analysis of economic developments and prospects. It is usually prepared twice a year, as documentation for meetings of the International Monetary and Financial Committee, and forms the main instrument of the IMF's global surveillance activities.

IMF World Economic Outlook (WEO) - Housing and the Business Cycle, April 2008

That's what this proposed iPod tax in the UK amounts to. The official line of bullshit is that the ability to copy CDs into digital formats (they call it "format shifting") represents a "value" for which the record companies are not being adequately compensated.

The reality, however, is simply that these dirty scumbag musicians and their filthy swindler record companies figure they don't have enough money already so they want to take a slice of the money I'm getting for my iPods. As if they have anything to do with the design and manufacture of iPods. No. Of course they don't. We design them. We write the software. We run the store. We source the parts and manufacture the iPods and sell them. Nonetheless these assholes want my money because people play their music on my devices. What up with that? Do the makers of TV shows go around saying they want a slice of every television that gets sold?

The Secret Diary of Steve Jobs: I am so friggin sick of music companies trying to steal my money

Google as economic indicator. The latest search advertising numbers are out, and while Google continues to bomb their competition, their year on year growth rates are off dramatically for the second month in a row.

The Roving Eye: Macroeconomic Clicks, Mobile Web - Immobile Carriers, Cable Scams & Warranties Too!

I think the most important thing a person in charge of a large company can work on is sociology -- designing the social structure of the company. It's the sociology that determines who gets hired, what their life is like, how much freedom they have, what sorts of things they work on, etc. Clearly these structures determine an enormous amount about the corporation. And yet, strikingly, I've never heard of a single corporation that has a high-level group devoted to studying and improving them.

Slaves of Some Dead Sociologist

Umair Haque wrote recently that the reason there aren't more Googles is that most startups get bought before they can change the world.

Google, despite serious interest from Microsoft and Yahoo—what must have seemed like lucrative interest at the time—didn't sell out. Google might simply have been nothing but Yahoo's or MSN's search box.

Why isn't it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better.

This has a nice sound to it, but it isn't true.

Why There Aren't More Googles

A weak dollar, rising fuel prices, and a global recession are all conspiring to undermine the cost advantage of offshoring. Oh, and then there's those pesky rising wages in places like the Pearl River Delta and Bangalore. The world really is flat... as BusinessWeek reports:

Duke University professor Arie Lewin estimates that the benefit of doing business, from a labor-cost point of view, in such locales as Bangalore, India, will disappear for some companies in three to four years.

Last week, we saw that a similar trend is undermining China's manufacturing advantage (also in BW):

A new Chinese labor law that took effect on Jan. 1 has significantly raised costs in an already tight labor market. Soaring commodity and energy prices, as well as Beijing's cancellation of preferential policies for exporters, have hammered manufacturers. The appreciation of the Chinese currency has shrunk already razor-thin margins, pushed thousands of manufacturers to the edge of bankruptcy, and threatened China's role as the preeminent exporter of low-priced goods.

Looks like the world really is flat - but not in terms of how much it costs to access labor in developing countries. Rather, things are starting to cost the same regardless of where you do it.

The World... Now Flatter Than Even Tom Friedman Ever Imagined