QuoteOriginally posted by: PaulHas anyone seen the Treasury model of the UK economy? (Or any country for that matter.) I saw a hard copy in a library about 10 years ago. It had 700 equations! (I can't remember if they were linear or nonlinear, but what fun if they were nonlinear!) Just think how many parameters there would be! Most of them unobservable! Any (applied) mathematician is going to laugh at this and tell you to strip it down to five or six equations, the most important ones, then you have a chance of getting something meaningful out, otherwise it'll just be noise or chaos.You might be considering this from the perspective of wanting predictive value. I think Social Account Matrices are normally used to inform policy making. I have heard that the City of Boston (?) long ago developed an SAM to try to find a way out of a fiscal crisis, and through it was able to decide that eliminating rent control was the single thing they might do that would relieve most of their problems. (They decided they couldn't do it, but still ...) Five or six equations won't get you to that sort of a conclusion. Hopefully people understand that these models are laden with errors and omissions, but a blurry and distorted picture is usually better than none at all. The predictive value is no doubt crap due to all of the errors and omissions, but if there is at least some truth to the models they might still be useful -- consider the number of variables you might want to know when driving your car as opposed to the number of variables your mechanic might want to know when figuring out what's wrong with it.

QuoteOriginally posted by: MarsdenI think the Fed did well to cut just 75 basis points when the market was expecting 100. It gives the message that there is a limit to how far the Fed will go, and that the market is going to have to figure out some things on its own. People tend to dawdle when they expect the cavalry to arrive and bail them out.so you're suggesting that the last meeting went something like this:Vice Chairman Kohn:>> We need to drastically cut rates in a desperate attempt to resolve the mess we've createdChairman Bernanke:>> That's what they're expecting us to do

Bernanke's Fed revolution: Dramatic expansion of roleQuoteThey have basically polluted the world with dollars," says Dan North, U.S. chief economist for Euler Hermes, a unit of Allianz Group (AZ) that insures accounts receivables. "It lays the foundation for inflation and another asset bubble later on."

there continue to be worrying consequences of the bear stearns bail-out:there is a significant risk that banks will take on excessive risk because they know if things go south, they can get the Feds to bail them out.Fed Leaders Ponder an Expanded MissionQuoteIn the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street.With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks.Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world."This will redefine the Fed's role," said Charles Geisst, a Manhattan College finance professor who wrote a history of Wall Street. "We have to realize that central banking now takes into its orbit everything in the financial system in one way or another. Whether we like it or not, they've recreated the financial universe."Major investment banks might be willing to take on more risk, assuming that the Fed will be there to bail them out if the bets go wrong. But Fed leaders, during those crucial meetings two weeks ago, concluded that because the rescue caused huge losses for Bear Stearns shareholders, other banks would not want to risk that outcome.More worrisome, in the view of top Fed officials: The parties that do business with investment banks might be less careful about monitoring whether the bank will be able to honor obscure financial contracts if they assume the Fed will back up those contracts. That would eliminate a key form of self-regulation for investment banks.

And who supplies the Fed? The taxpayer. So the Fed is effectively making the average taxpayer (who has absolutely nothing to do with the fraud engaged in by these greedy managers at Investment banks with their big bonuses) responsible for bailing said managers out? So the same greedy Managers are no longer accountable for their dishonesty. Great. I predict a riot. The Fed should have let that bank fail and sent the Managers to jail - just like Enron.