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Global Macro Channel: Latest Posts
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Finance & Markets
Bailout: It’s About Capital, Not Liquidity; Seeking Beta: Interview with Robert Arvanitis
The events of the past few weeks have been coming so fast and have inspired so much emotion and stress among all Americans, ourselves included, that it is time to step back from the heat of politics and refocus on the substance of risk and finance. That is, after all, why people read The IRA. We’re [...]
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Europe
Some Arguments against a European Fund to Bail out Troubled Banks
Some Arguments against a European Fund to Bail out Troubled Banks by Roel Beetsma University of Amsterdam, CEPR and CESifo As the details of Paulson’s rescue plan for troubled U.S. banks are being negotiated, some experts are now calling for Europe to set up a similar fund for helping banks that have become the [...]
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Finance & Markets
The Paulson Plan: A useful first step but nowhere near enough
The Paulson plan addresses market illiquidity…. The Paulson plan for using up to $700 bn of federal government money to buy up illiquid securities – mainly complex financial instruments such as asset-backed-securities, and in particular private label retail mortgage backed securities – represents an incomplete step towards dealing with the simplest part of the financial [...]
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Finance & Markets
New IMF Study of Banking Crises Contradicts Bailout Bill Premise and Details
The IMF just released a study that analyzed 124 banking crises, and I wish everyone in Congress (well, at least their staffers), the Treasury, and the Fed read the paper. It provides insight into what worked and didn’t work in past banking crises, and gives an idea of what we might expect from various policy [...]
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Finance & Markets
Revolting Economists
Economists are not famous for agreeing with each other. (“The First Law of Economists: For every economist, there exists an equal and opposite economist. Second Law: They’re both wrong.”) So it is striking that publicly expressed opinions among non-Wall-Street economists on the Paulson/Frank plan range basically from former-Wall-Streeter Henry Blodget’s “it stinks” to Luigi Zingales’s [...]
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Finance & Markets
The Deal
With the biggest gun at their heads imaginable — an economic meltdown just five weeks before many of them are up for reelection — members of Congress have just about agreed to the terms of the mother of all bailouts. They’ve also agreed to press two conditions — limits on executive salaries, and some sort [...]
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Global Macro
A solution to our financial crisis
I received quite a few critiques of my “provide analysis but no solutions” policy. So here are my recommendations, based on guesses about the course of events. Being neither an economist nor financial guru, this describes the broad policy actions I suspect are needed — but not the details. These measures are consistent with the posts I [...]
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Finance & Markets
Paulson Plan Compared with Kotlikoff-Mehrling Plan
Three possible pricing structures can be contemplated: distress prices (current), support prices, and normal prices (pre and post crisis). The table below shows the relationship between the price paid for the bond under the Paulson Plan and the price paid for the insurance under KM. In each case, the two prices add to 100. The [...]
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Finance & Markets
Fed Watch: Regardless of Bailout, US Economy Decelerating
Tim Duy: Regardless of Bailout, US Economy Decelerating, by Tim Duy: The US economy is limping through the second half of the year as the impact of this summer’s stimulus checks fades. The continued weakness, I suspect, will come as a shock to the public, who have now been essentially promised that their problems will [...]
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Finance & Markets
Let Bankruptcy Judges Make Bankruptcy Judgments
Commentary on the ongoing collapse of our financial house of cards seems mostly to be about the exact order in which particular cards were stacked against each other, and at precisely what angles. But the foundation of any financial system, where the first cards begin to be stacked, is the bankruptcy system. Which makes it [...]
