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Archive for August, 2007
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Plender of the Financial Times on Whether this is Liquidity or a Credit Solvency Crisis
John Plender, the thoughtful Financial Times commentator, weighs in today on whether the current turmoil in financial market is due to illiquidity or insolvency. My views on this are well known. But increasingly a number of other commentators are also presenting the view that we are facing now serious credit and financial distress – not [...]
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The Credit Crunch in Financial Markets Remains Severe
Here are some of the latest headlines from Bloomberg suggesting that the turmoil in financial and credit market is still severe and persisting: Stocks in U.S. Fall, Led by Miners, Manufacturers: Home Depot Shares Drop Commercial Paper Outstanding Has Biggest Weekly Drop Since November 2000 Banks Worldwide Have $891 Billion at Risk [...]
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Roubini Interview on CNBC
Here is the link to parts of my video interview with CNBC World last night. The main points I conveyed were the same as my blog item on Monday: i.e. the Fed actions on Friday have been so far ineffective and the investors’ panic and rush to the safety is in full swing. The credit [...]
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Friday’s Fed Action is Not Easing the Liquidity and Credit Crunch: Investors’ Risk Aversion Is in Full Swing
Friday’s Fed action might have provided a short term boost to equity markets. But today is Monday and there is a new drumbeat of bad credit news that is adding to the investors’ panic: markets are not convinced that the discount rate cut by the Fed and the easing bias in the FOMC statement will [...]
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How the Friday “Bernanke Put” Slammed Holders of “Put Options” Betting on a Market Fall
Whether the surprise discount rate cut and FOMC easing bias last Friday is the first example of a moral-hazard related “Bernanke Put” is being widely discussed. But it was certainly the case that the Fed action sharply hurt those who had bought “put” options on the S&P that were expiring last Friday almost immediately after [...]
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The Forthcoming Fed Rate Cuts May Not Prevent a US Hard Landing
The Fed finally acknowledged today the risk of a serious US economic slowdown given the current financial and credit markets turmoil. More important than the symbolic 50bps cut in the discount rate was the move – in today’s FOMC statement – from the semi-neutral bias of the last few months (“semi” as inflation was still [...]
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The Fed Has Already Cut the Fed Funds Rate…to 4.79%
Today Thursday’s late market rally – after a sharp plunge of stock markets during the day – was certainly supported by the repeated rumors of an emergency FOMC meeting to cut the Fed Funds rate and stem the bloodshed in financial and credit markets. But the reality is that the Fed has already cut this [...]
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Current Market Turmoil: Non-Priceable Knightian “Uncertainty” Rather Than Priceable Market “Risk”
Economists distinguish between “Risk” and “Uncertainty”: the former can be priced by financial markets while the latter cannot. The distinction between the two was made by the famous economist Frank H. Knight in his seminal book, Risk, Uncertainty, and Profit (1921). In brief, “Risk is present when future events occur with measurable probability” while “Uncertainty [...]
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Signs of Weakening Real Consumption in the U.S.
This blog has been arguing for a while that the saving-less and debt burdened consumer is under strain and that consumption growth – already weak at 1.3% in Q2 – will further slow down in the rest of the year. There are several real and financial headwinds against consumption: falling home prices that are reducing [...]
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The Moral Hazard Effects of Recent Central Banks’ Liquidity Injections
The massive injections of liquidity by the ECB, Fed and other central banks have continued today. Whenever there is a seizure of liquidity in financial markets central banks face a tradeoff: they are the only potential providers of lender of last resort support to the financial system and thus the only ones to be able [...]
