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Me Too! Look Ma, I can Earn a Positive Interest Spread with Fed Funds Near Zero and Bernanke Stomping on the Yield Curve! It’s gonna be OK, Really!
Highlights - The near daily announcements over the past two weeks, by money-center banks and finance companies, that they are making money this year on an operating income basis, have become borderline irresponsible relative to continued deterioration in value of the assets on their balance sheets and the continuing impact of a worsening recession. [...]
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The Housing Affordability and Stability Plan
Today’s announcement of aid to homeowners in order to reduce, or at least forestall, a rising wave of home foreclosures is welcome news for those able to benefit from the new initiative, as well as for the troubled US housing sector. There are both positive and negative attributes to the plan, which we have outlined below. On balance, however, the plan is a positive first step in stabilizing America’s housing market.
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Financial Stability Plan – Instant Comment
There is much to be admired in the Financial Stability Plan unveiled by Treasury Secretary Tim Geithner in his presentation this morning. His measured approach, although still lacking in detail, demonstrates a coolness under fire and his having stepped back to examine the forest while others are tangled amongst the trees.
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Stimulus Bill and Banking Crisis – Out of the Frying Pan and Into the Fire?
Further to our report of last week entitled “Inauguration, Aggregation and Aggravation,” we wanted to follow up on this week’s events in Washington regarding economic stimulus and the banking crisis.
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Inauguration, Aggregation and Aggravation
On the occasion of President Obama’s inauguration, we are publishing pieces on the two elements of the economy that we believe require the most urgent attention by the incoming administration – the unemployment crisis and, in this report, repair of the banking system.
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Unhappy Days are Near Again
On the occasion of President Obama’s inauguration, we are publishing pieces on the two elements of the economy that we believe require the most urgent attention by the incoming administration – the repair of the banking system and, in this report, the unemployment crisis.
Highlights
- Much has been written on the similarities between the economic afflictions of the present day and those of the Great Depression. A frequent refrain sung in such contrasts references unemployment rates of the earlier era, followed immediately by the happy verse “of course, we don’t see anything near those levels today.”
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Mandatory Mortgage Modifications and the U.S. Constitution
Highlights
- The Bush administration’s failure to articulate or enact a comprehensive solution to the enormous debt overhang homeowners face is rooted not only in free-market ideology, but also in fundamental constitutional law and case history dating back to the Great Depression.
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The Freedom Recovery Plan for Distressed Borrowers and Impaired Lenders
Overview
With the passage of the Emergency Economic Stabilization Act of 2008 (“EESA”), the twin housing and mortgage crises have now forced the government to directly battle, with massive financial intervention, the systemic implications for our banking (and shadow-banking) institutions. Notwithstanding the magnitude of government support that EESA will bring to the resolution of the credit and banking crises, the financial and social implications arising from the housing bubble, for homeowners and the broader economy, require the consideration of additional unconventional solutions that are not inconsistent with the rubric of our system of laws and property rights. Such solutions must also place less reliance on direct intervention from a heavily extended government (and its taxpayers). The Freedom Recovery Plan (the “Plan”) is a structured package of government and private-sector measures that amount to a national “workout” of the residential real estate elements of the overall crisis in the capital markets. The housing sector’s ongoing meltdown presents unique challenges that were not front and center in prior boom and bust cycles. Accordingly, special actions are necessary to limit the damage to vast population segments and the knock-on effects of such damage to our normally resilient financial sector and economy. That such actions should endeavor to maximize the role of the private sector should be self-evident to those with lingering concerns about the total costs to which the government has already committed.
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Dense Smoke on the Horizon
Let’s take a step back. We are all becoming so focused on the individual policy “trees” of the continuing crisis that its time to take a broader look at the forest. The forest, regretably, is burning – and localized, helicopter-ed water drops aren’t sufficient and are taking too long to get to the source of [...]
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Falling Back to a New Redoubt
Overview The new line in the sand drawn by the U.S. Treasury and Federal Reserve after this week’s collapse of Lehman Brothers held successfully—for two whole days. Notwithstanding Treasury Secretary Henry Paulson’s unambiguous statement that he never even considered, and will not consider, crossing the line (again) into the uncharted territory of moral hazards and [...]
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Thomas Grennes
Thoughts From Across the Atlantic
Thomas Grennes is a professor of economics at the North Carolina State University and a former visiting faculty member at the Stockholm School of Economics in Riga. His research has dealt with various aspects of international economics, including open economy macroeconomics, international finance, and international trade in agricultural products. Recent research topics have included macroeconomic aspects of the Great Moderation, offshore outsourcing, sovereign wealth funds, and the relationship between government debt and economic growth. Earlier work dealt with emerging market issues in the Baltic countries and Russia and trade and macro policies in Sub-Saharan Africa. Economic history topics include the Columbian Exchange of plants and animals, the effects on food markets of introducing mechanical refrigeration, and the integration of Tsarist Russia into the world grain market. When he is not involved in economics, he enjoys mountain hiking.
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