Ally settlement may be a boon for ResCap bondholders http://t.co/JhCOEJg4z1
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United States Channel: Latest Posts
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Finance & Markets
Trepidation About Quantitative Easing, Version 2.0
The Fed made official its move to quantitative easing today, and said it will take no prisoners until it has lowered rates and credit spreads further:
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Finance & Markets
Off-balance Sheet Accounting and Monetary Policy Ineffectiveness
Monetary policy effectiveness relies crucially on banks’ willingness to lend, which all agree is now sorely lacking. The important consideration, however, is why? The fact of the matter is that, without adequately transparent financial measures investors and banks alike will not allocate funds to any borrower. With over fifteen times “off-balance sheet” exposures as “on-balance sheet” exposures in US commercial banks and the demonstrated possibility for those “off-balance sheet” items to unexpectedly come back “on-balance sheet” in times of distress, investors and banks are loathe to lend and will remain so until the absurdity of “off-” and “on-balance sheet” distinctions is put to rest.
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Europe
U.K. central bank does not follow Fed to ZIRP
The U.S. Dollar got more bad news today when the Bank of England (BoE) decided to not follow the U.S. Federal Reserve’s lead to a Zero Interest Rate Policy (ZIRP). The BoE was seen as the most likely to follow in the Fed’s footsteps as i suffers from the same debilitating economic problems a popped housing bubble and record writedowns followed by job losses, a lack of consumption, and economic stagnation. Most importantly, U.K. banks simply are not lending. But that does not mean they want to follow the U.S. to zero.
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Finance & Markets
Quantitative easing
Today’s announcement from the Federal Reserve marks the end of the road for Plan A (fighting the recession by lowering interest rates), and the beginning of … what?
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Finance & Markets
And Now Deflation
Consumer prices fell by 1.7 percent last month, according to the Bureau of Labor Statistics. That’s the steepest drop in 61 years. Why? Because producers and sellers have discovered that consumers have just about stopped buying. The only way producers and sellers can shrink their inventories and pay their bills is to slash their prices low enough to get some consumers to buy. Automakers with acres of unsold cars are giving deep discounts. Retailers with piles of Christmas goods are holding “40-percent-off” sales. Cable-TV operators are cutting monthly fees.
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Emerging Markets
Rapid and large liquidity funding for emerging markets
One can blame the G7 for incompetent financial supervision, but few would criticise them for the rapid and decisive action taken by their central banks and fiscal authorities after the crisis materialised.
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Finance & Markets
Rethinking Our Inheritance
Recently the Financial Economists Roundtable (FER) posted a summary of their thinking in July 2008 on Reforming the Role of Statistical Rating Organizations [SROs] in the Securitization Process.[1] The FER is a group of senior financial economists who advance the study of finance and frame current policy debates.[2] I read their statement in the Dec. 2 issue of RGE Monitor. Like the SEC reform proposal released about the same time, the FER statement inspired no comments of passion or controversy. That is a shame, because unlike the SEC proposal, the FER statement comes close to the heart of the matter and deserves a thoughtful response, or at the very least some controversy. So, from the practitioner’s view, let me play devil’s advocate. FER’s key conclusions are that they—
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The Wilder View
Paulson gets what he originally wanted…
It looks like Paulson will get what he originally wanted: no limitations on executive pay. The markets found another loophole, from the Washington Post:
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Finance & Markets
Painful Reckonings
It’s no secret that risk premia have taken wing in recent months, as our chart below illustrates. Nor is it any mystery as to the cause. Prices have slumped like a rock in a lake, and that’s boosted trailing yields and interest rates to the sky. What’s less obvious is if it’s time to avail oneself of the relatively rich offerings.
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Finance & Markets
Destroying houses in order to boost home prices
Summary: an economist joins FM in suggests that homes might be destroyed in order to stabilize home prices. Inaction means that market forces — abandonment — will result in this harsh solution, but in an irrational and unnecessarily damaging way. Of course, Americans of our time rely on hope and folly as our preferred solutions.
