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Global Macro Channel: Latest Posts
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Finance & Markets
Housing Prices: How Far to Go until Bottom?
I’ll just take the market’s view here; using the futures prices from the CME (via ino.com), prices will fall about another 16% from June (or 17% in log terms): Figure 1: Log Case-Shiller 10 city price index, (red), CME futures prices (red squares), and CPI adjusted SP Case-Shiller 10 city price index (dark blue). CPI-All [...]
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Global Macro
A vital but widely misunderstood aspect of our financial crisis
Summary: an analysis of the core problem in the US housing market, a problem often ignored by analysts. The years from 1929 to 1933 were, for America, a succession of breaking idols and abandoned faiths, some of them the notions of willful children, some deeply ingrained in the character of the nation. — The Years [...]
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Global Macro
The Mystery of Capital Flows
Economists, or at least this one, spend quite a lot of time in trying to understand what drives capital flows and what impact they have on growth and welfare. I started writing this column last Friday but then had to hunker down,” as Texans say, for hurricane Ike. We lost power along with lots of [...]
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Global Macro
Essential steps to surviving the current crisis
The seriousness of our situation becomes clearer by reading the analysis that fills the airwaves, print media, and the Internet. Most of it is wrong, as the full extent of it is too vast to see. This post attempts to show put events in a larger context, and consider how to fight our way thorough [...]
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Finance & Markets
Why Paulson is wrong
When a profitable company is hit by a very large liability, as was the case in 1985 when Texaco lost a $12 billion court case against Pennzoil, the solution is not to have the government buy its assets at inflated prices – the solution is Chapter 11. In Chapter 11, companies with a solid underlying [...]
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Finance & Markets
Crack Addicts and Bubble Markets
Here we go again, bailing out firms while placing no constraints on the behavior that necessitated the bailout in the first place. While Paulson hounds Congress to act in haste, we are now at least a year-and-a-half into the crisis: you would think the Fed and Treasury would have devised a rational contingency plan by [...]
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Finance & Markets
Why Paulson is (maybe) right
First of all, let me state clearly my position. Banks have made huge mistakes. Even though many serious economists (the likes of Robert Shiller and Nouriel Roubini) had warned for years – not months – that the credit boom and the housing price bubble would end up in tears, bankers superbly closed their ears and [...]
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Global Macro
A new sitrep, as we move into phase 3 of the financial crisis
Summary: In response to the growing financial crisis, the government at last takes large-scale measures to stop the rip. These move us ever farther from a free-market system, towards an increasingly centralized and government-dominated economy. Taken in haste, we will have a long-time to consider the wisdom of these steps. Few things so effectively panic [...]
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Global Macro
Moral Hazard Misconception – Part 2
Given the dramatic recent events, I can’t help revisiting my old posting. I am even more convinced than then, that had the US Treasury sent an unequivocal signal that it was not going to tolerate speculative attacks — including punishing shortsellers along the lines of Hong Kong’s stock market intervention during the late 1990s (see:http://econ-www.mit.edu/files/180) [...]
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Finance & Markets
Paulson bailout
Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke– it is hard to overstate just how scary this week’s developments in financial markets could be. Prior to the establishment of the Federal Reserve in 1913, the United States would periodically [...]
