CERF Blog

Declining underwriting standards for mortgage loans played a major role in the housing boom and bust that culminated in the financial crisis of 2007-2009.  During the housing boom in the years preceding the crisis, housing prices were rising rapidly and nearly all loans, irrespective of underwriting standards, performed well.  In part due to this strong… Read more

Winners of the 2013 Nobel Prize in Economics are three professors – Eugene Fama, Robert Shiller and Lars Peter Hansen – who collectively pushed forward economists’ understanding of asset prices.  Fama invented the efficient market hypothesis (EMH) which says that liquid asset markets like stock markets are efficient in the sense that relevant information is… Read more

This article was written by Bill Watkins and previously published on New Geography on November 12, 2013. Jerry Brown is supposed to be a different kind of politician: well informed, smart, slick, and skilled. While he has had some missteps, he’s always bounced back. His savvy smarts have allowed him to have a fantastically successful… Read more

The key to sustainable wealth is to tie your level of consumption spending to the product of your total wealth (including financial wealth and human capital, or the present value of future net income) and the after-tax real rate of return.  If you do this, the affluence that you enjoy in your youth, due to… Read more

The preliminary estimate of United States third quarter economic growth was released today. The growth number is 2.8 percent, stronger than any of the three quarters prior. The quarter 2 growth rate was 2.5 percent, and the quarter 3 result beat our forecast of 1.3 percent. This was despite slowdowns in the growth of consumption… Read more

One of the major components of the 2010 Dodd-Frank financial reform bill (The Dodd-Frank Act) is the Volcker Rule that is designed to prevent banks from engaging in proprietary (or “prop”) trading, or in acquiring or sponsoring a hedge fund or private equity fund.  Prop trading has been defined to be “engaging as a principal… Read more

My favorite economics chart shows income divided by population (this is income per person) on the vertical axis and time on the horizontal axis.  The time line runs from prehistoric times to the modern era (from, say 1000 BC to 2000).  The line in the chart is basically flat at an income per person of… Read more

I have written several essays lately on various aspects of what I call the Sustainable Financial Plan (SFP).  My colleague at CLU, Bill Watkins, suggests that I produce a simplified version of these essays that is targeted for young people (I think this is Bill’s nice way of saying that the original essays were indecipherable). … Read more

Dan Hamilton & Sean Liu As expected, China’s 2013 second quarter economic growth slowed, recording 7.6 percent compared with 7.7 percent in quarter 1. This data was released July 15th. This is a real growth rate that is a comparison with the same quarter in the prior year. China’s government provides a production-side breakdown of… Read more

The U.S. Bureau of Economic Analysis (BEA) released their annual comprehensive revision of the national income and product accounts on Wednesday, July 31. Most of the Financial news websites focused primarily on the first estimate of the second quarter of 2013, which was that economic growth was 1.7 percent. The analysis that was presented was… Read more

In a prior blog I have discussed the components of building a sustainable financial plan.  There were two key steps:  first, take into account your “human capital” which is the present value of your estimated future income stream.  Your total wealth is the sum of this human capital and your net financial capital (assets less… Read more

How much debt is it reasonable for individuals to undertake?  I propose two criteria for answering this question.  First, you must be able to service the debt.  Second, the debt should be “productive” in the sense that the benefits of the activity being financed are greater than the cost of the debt.  These criteria can… Read more

When I worked for the Fed, there were televisions in our building’s gym, and they were always tuned to a financial channel. We joked about how the talking heads had an explanation for every market move. Then one day, someone told the truth. He said something along the lines of “we don’t know why the… Read more

Mistakes In 2012, Federal Reserve Chairman Ben Bernanke1 gave a speech on the importance of financial education.  People commonly make financial mistakes such as saving too little, taking on too much debt, holding too little life insurance, making bad investment decisions and paying excessive fees that are unnecessary.  The consequences of these mistakes can be… Read more

Previously Published in the Orange County Register on May 20. The headline read, “USC steals 2 star brain researchers from UCLA.” But there is much more to the story than what was in the article, which presented the event as a coup in a simple cross-town rivalry between two great universities. The real story is… Read more