Global Macro Channel: Latest Posts
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Emerging Markets
Can Europe take care of its own financial crisis?
Europe’s new crisis plan will hopefully stop the panic. This column explores the remaining issues – the sharing the burden of transnational bank losses and restarting the inter-bank lending market. It suggests a technical change to the guarantees that would produce a better result.
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Finance & Markets
The U.S. Financial Crisis: A Misunderstanding of the Top Causes
As I read the daily news, listen to politicians, and chat with my colleagues in the teachers’ lounge, it really seems that almost everyone believes that mortgage defaults and delinquencies are the reason we are in this financial mess characterized by frozen credit markets and downward spiraling stock markets. To my way of looking at the economic world, saying that rising mortgage payment defaults and delinquencies [...]
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Finance & Markets
Can We Please get Real Relief and Reform Already?
The problem in markets right now is uncertainty and the now-common government interventions are creating more uncertainty. While investors in the US and abroad try to value residential mortgage backed security and collateralized debt obligations and many, many, other failed structured finance investments based on financial fundamentals, each day’s new government programs and subjective bank [...]
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Finance & Markets
Getting healthy banks to buy troubled ones
The G7 and Eurozone meetings have raised hopes of expedient recapitalization of several banking sectors with the use of public funds. Such recapitalization is rightly aimed at shoring up equity base of the highly leveraged banks whose capital is essentially eroded, and of better-capitalized banks whose equity base has suffered too due to a spillover [...]
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Finance & Markets
Reserve Accumulation And Financial Stability
Since the early 1990s, central banks in many emerging markets and developing countries have accumulated foreign reserves at an unprecedented rate. The macroeconomic impact of these official flows has been profound and they have contributed significantly to global imbalances. Providing an explanation for these trends remains a major puzzle in international macroeconomics, and prevailing theories based on trade or debt deliver poor empirical performance. We argue that part of this great reserve accumulation is a response to the threat of financial instability in the context of rapidly expanding financial systems, increasingly mobile capital, and exchange rate objectives. The recent turbulence in global financial markets supports this view.
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Asia
Save the TARP
Given the unprecedented credit market turmoil and central bank interventions of recent days, the US government’s mammoth $700bn Troubled Asset Relief Program (TARP), approved with great haste and huge expectations just a few days prior, is already looking like a sideshow. If the Federal Reserve is to return to being a lender of last resort, [...]
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Emerging Markets
Why government responses need to be comprehensive and coordinated
The Lehman Brothers story has shown two things – banks cannot be simply allowed to go bankrupt and a piecemeal approach will not bring banking systems back into minimal functioning condition. The lesson is that there will have to be a bailout. The contagion from the US to Europe and now to most other parts [...]
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Finance & Markets
Scary Story: Global Stock Declines and the Baby Boom
In the past decade or so, an economist asked to tell a horror story over toasted marshmallows at a cookout would not have conjured up empty McMansions haunted by subprime ghosts (though in retrospect that would have been a pretty good tale). Instead, among friends if the mood was right, we might say to each [...]
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Finance & Markets
Reason With The Messenger; Don’t Shoot Him: Value Accounting, Risk Management And Financial System Resilience
The U.S. Economic Emergency Act of 2008 allows the SEC to suspend mark-to-market accounting rules. But a blanket suspension would be counter-productive. Crises are times when uncertainty quickly turns to panic. Now is not the time to increase uncertainty by changing accounting standards. This article proposes an alternative: mark-to-funding. The Economic Emergency Act of 2008 [...]
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Europe
Time to Congratulate the European Banks?
Now that the global debt crisis has destroyed many of the more respected and venerable institutions on Wall Street, and has caused more damage and dislocation to the wholesale financing industry than anything experienced in seventy-five years, the question is “what next?”. Lehman Brothers and Bear Stearns have disappeared, Merrill Lynch and Wachovia were forced [...]
