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Finance & Markets Channel: Latest Posts
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Finance & Markets
Acronyms
Markets remain edgy today, with SPX futures current trading down 2% from Monday’s limp close. Last week’s 11% intraday rally seems like a long time ago in a galaxy far, far away.
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Finance & Markets
Volcker warns how serious things have become
In a very downbeat assessment of the ability of financial and monetary stewards to deal with the most protracted financial crisis is some 75 years, Paul Volcker, the esteemed former Fed Chariman warned that the economic slump has spread in a way that greatly challenges the Obama administration’s ability to restore order.
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Finance & Markets
Expect little or nothing from meetings like the G20 – or the Obama Administration
Summary: Two bright lights shine amidst the torrent of bad economic news. First the G20 meeting. Second, President-Elect Obama’s new team at the Treasury Department. I suggest that we avoid disappointment by expecting little from either. We are far “off the map”, with little in history or economic theory to guide us. Only time and much work can reveal the path we should take. Politicians and the public will demand immediate solutions; quacks will provide them. -
Finance & Markets
Paulson: Fighting the Financial Crisis
Hank Paulson pats himself on the back: -
Finance & Markets
New Hope for Financial Economics: Interview with Bill Janeway
“NOTHING the Government does will work until they get rid of these nightmares. Letting credit default swaps (“CDS”) redefine insolvency as failure to post collateral means systemically critical counterparties such as Lehman Brothers or Bear are certain to fail once they wobble and, even worse, that there will be NOTHING LEFT for traditional creditors (including commercial paper) when they do. This has seized up the money markets, which no longer function without government assistance. This means the Government picks winners and losers, encourages investors NOT to underwrite and incents those “chosen” to sit on the money they can raise and keep credit velocity at zero. As long as CDS exist in bilateral form there is structural uncertainty in what it means to have a balance sheet. For everybody. CDS should be DOA.”
A reader of The IRA
“Political economy is not a science, it’s a clinical art, like medicine.” Eliot Janeway
As this issue of The IRA goes to press, we hear that the Obama camp is considering our friend and former Fed Chairman Paul Volcker as Treasury Secretary. The idea is to have Volcker lead the toxic waste cleanup for a year, so it is suggested, to be followed by New York Fed chief Tim Geithner.
Our advice to Chairman Volcker is to turn down this dubious honor. Paul Volcker has enormous credibility and judgment, but he does not have enough experience with and understanding of these financial markets to be effective, at least in our view.
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Finance & Markets
My Bet: Larry Summers will be Chosen Treasury Secretary
Everyone speculating on President-Elect Obama’s most likely choice for Secretary of the Treasury has the same two names: Larry Summers and Tim Geithner. I have known them for a long time, and worked with both in the Clinton Administration. Either one would be excellent. Geithner is now way ahead in the Intrade odds: 45% to 27% as of November 14. But my bet is that Obama will go with Summers. For one thing, Geithner is needed at the New York Fed, where he has been one of the key players managing the financial crisis.
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Finance & Markets
Slow Recovery of Labor Markets
How long will the recession last? I don’t know for sure, but we may be able to say something about how long labor markets will continue to struggle even after output growth begins to increase. The next two graphs show the unemployment rate and the employment to population ratio since 1948: -
Finance & Markets
The anomalous fed funds market
Some further thoughts on the bizarre behavior of the interest rate that used to be the core instrument of U.S. monetary policy.
First, a little background. The fed funds rate is the interest rate at which institutions lend their deposits held in accounts with the Federal Reserve to one another overnight. This is a market-determined interest rate which in normal times was quite sensitive to the quantity of these deposits that the Fed creates. For the last 20 years, U.S. monetary policy was primarily implemented by setting a target for the fed funds rate and changing the quantity of reserves available to the banking system so as to try to get the effective fed funds rate (a volume-weighted average of all the trades during a day) close to the desired target. -
Finance & Markets
Roubini’s Latest “Why Things Are Hopeless” List Hits New Record, 20 Items!
I have not made a formal tally of Roubini’s various lists of why the economy is going (and will continue to go) to hell in a handbasket, but recent sightings suggest his typical list is eight to twelve reasons.
However, in his latest missive, on the subject of why the consumer is toast, Roubini outdoes himself and comes up with twenty reasons. Oh, sorry, AT LEAST twenty reasons. I also don’t think I’ve ever read Roubini say his tally of woes was less than comprehensive.
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Finance & Markets
More on the changing operational face of monetary policy
This week I’m begging your forbearance as we take a bit of a detour into the operational weeds of monetary policy. The geek factor is high, I know, but there truly have been some historic changes afoot over the past months.
To review, effective Nov. 6—as noted in Wednesday’s blog post—the Federal Reserve unwrapped a new approach to its daily operations in overnight interbank markets (in which the federal funds rate is determined). Rather than sending you scurrying down the page, here’s the deal in a nutshell:
