-Wallison criticizing Consumer Protection federal agencies http://www.aei.org/issue/100011
Wednesday, March 16, 2011
Rating Agencies and Consumer protection
-Levy and Peart on Rating agencies as experts that induced the bubble http://reason.com/archives/2008/09/30/an-expert-induced-bubble
Mark to Market, FDIC, and CDS
Hummel on Mark-to-Market http://hnn.us/blogs/entries/65177.html.
Hummel on CDS http://hnn.us/blogs/entries/49791.html
Hummel on deposit insurance http://hnn.us/blogs/entries/61782.html
All these posts are related to the financial crisis.
Sunday, December 21, 2008
Free trade rapidly becoming an endangered species?
This week the economist writes about a growing concern regarding the safety of free trade around the world. With calls throughout the world calling for greater government regulation in result of the current crisis, protectionist trade policies are rapidly becoming more popular. This is terrible news, especially to nations who have widely relied on exports to increase economic growth (i.e. China, Germany, Japan). The precedent of isolationism has been proven and widely promoted as a false hope to nations seeking an advantage. The Economist provides the incident of the infamous Smoot Hawley Tariff Act of the 1930's, which caused massive destruction to employment and a massive price increase of foreign goods. With many firms and consumers reeling from the crisis, the last thing needed is an impact on prices and employment. With the rapid political shift in attitude within governments around the world , it is a dangerous conception that free trade will be pushed aside in favor of more mercantilist policies. http://www.economist.com/opinion/displaystory.cfm?story_id=12815617
Saturday, December 6, 2008
Deficits and Debt
As the government contemplates pushing the budget deficit for 2009 to nearly a trillion dollars, the question of who will or even who can buy that debt is being asked in an article by The Economist.
Government bonds are well known for their value as stable investments, even if not known for being otherwise large-returning investments. But as more governments run deficits and are financing it with debt, will there be a glut, driving returns even lower?
The model they point to is japan, where for nearly 20 years investors have taken government debt despite it returning an even lower amount than US debt is presently. But this option is unlikely as the primary market for this was not foreign investors.
The US, it looks right now, may not have to be too concerned. With the entire world facing challenges, the American dollar has actually risen against major currencies, while previously strong currencies such as the pound, have lost value. But there may still be a need for domestic purchasing of government bonds, a more realistic event if central banks continue to lower rates and make government bonds more attractive investments comparatively.
The real issue they see, is in economic recovery, which will likely come well before any return to balanced budgets, meaning that then government debt will be competing against more competitive investments, making running deficits at that point more expensive.
Government bonds are well known for their value as stable investments, even if not known for being otherwise large-returning investments. But as more governments run deficits and are financing it with debt, will there be a glut, driving returns even lower?
The model they point to is japan, where for nearly 20 years investors have taken government debt despite it returning an even lower amount than US debt is presently. But this option is unlikely as the primary market for this was not foreign investors.
The US, it looks right now, may not have to be too concerned. With the entire world facing challenges, the American dollar has actually risen against major currencies, while previously strong currencies such as the pound, have lost value. But there may still be a need for domestic purchasing of government bonds, a more realistic event if central banks continue to lower rates and make government bonds more attractive investments comparatively.
The real issue they see, is in economic recovery, which will likely come well before any return to balanced budgets, meaning that then government debt will be competing against more competitive investments, making running deficits at that point more expensive.
Housing Prices Still The Problem
In an article for National Journal, the challenge of an economic recovery is linked directly to the still pressing need for stability in the housing market.
The article praises the action that the government is taken, there are definite criticisms with how slowly they came around to begin and the nature of what they've done, but they have certainly not been timid or idle once they began.
But the article believes that for all the attempts to stabilize banks and infuse liquidity, they have not focused enough on where the problem began - the housing market. The effort to modify loans in order to allow people to stay in them and avoid foreclosure has not been nearly wide enough, in part the author feels, because companies are paid for foreclosing, but not for arranging modifications.
The notion that there is a floor in the housing market, the article says is misleading one. Home prices will fall as far as the economy falls, there is no fixed floor. As the banking crisis is linked to recession in the economy, the circle of unemployment and home foreclosures will continue.
There are ideas to break this cycle. They include incentives for refinancing by mortgage companies, offering money to banks that modify loans for those facing foreclosure. The concern is that this could encourage more people who are close to default, costing the program more, but this seems to be less costly overall than a wave of foreclosures which has so far left banks unable to survive.
The article praises the action that the government is taken, there are definite criticisms with how slowly they came around to begin and the nature of what they've done, but they have certainly not been timid or idle once they began.
But the article believes that for all the attempts to stabilize banks and infuse liquidity, they have not focused enough on where the problem began - the housing market. The effort to modify loans in order to allow people to stay in them and avoid foreclosure has not been nearly wide enough, in part the author feels, because companies are paid for foreclosing, but not for arranging modifications.
The notion that there is a floor in the housing market, the article says is misleading one. Home prices will fall as far as the economy falls, there is no fixed floor. As the banking crisis is linked to recession in the economy, the circle of unemployment and home foreclosures will continue.
There are ideas to break this cycle. They include incentives for refinancing by mortgage companies, offering money to banks that modify loans for those facing foreclosure. The concern is that this could encourage more people who are close to default, costing the program more, but this seems to be less costly overall than a wave of foreclosures which has so far left banks unable to survive.
Sweden's Bank Bailout
There was a banking crisis in Sweden during the 90's which has many parallels to the current crisis, even if not nearly the same in size.
In the Swedish crisis there was a great amount of assets being described as 'toxic,' much like the assets that banks around the world are holding today. In both situations, the response was to guarantee banks and to make liquidity a priority.
The difference was that the swedish created 'bad banks' to take ownership of non-performing assets and then manages them to restore their value. This idea had begun early during the US crisis under Indymac, with the focus being on mortgage loans - where most of the distressed loans are. But this idea goes beyond restructuring loans while they are still a part of these companies, it involves separating them so that the original bank can start to function again. The loans were then dealt with by that separate company
Complexity is a bigger issue with the current crisis, and so is pricing the assets. In the swedish situation both banks, good and bad, were owned by the state. The US government has taken an investment in some of the banks, but does own or run any.
The article is in favor of doing more to separate out the bad assets, which the treasury supposedly is trying to do, but while in sweden private investment lagged for several years, they believe the current US crisis is trying to make the capacity for new private investment a focus.
In the Swedish crisis there was a great amount of assets being described as 'toxic,' much like the assets that banks around the world are holding today. In both situations, the response was to guarantee banks and to make liquidity a priority.
The difference was that the swedish created 'bad banks' to take ownership of non-performing assets and then manages them to restore their value. This idea had begun early during the US crisis under Indymac, with the focus being on mortgage loans - where most of the distressed loans are. But this idea goes beyond restructuring loans while they are still a part of these companies, it involves separating them so that the original bank can start to function again. The loans were then dealt with by that separate company
Complexity is a bigger issue with the current crisis, and so is pricing the assets. In the swedish situation both banks, good and bad, were owned by the state. The US government has taken an investment in some of the banks, but does own or run any.
The article is in favor of doing more to separate out the bad assets, which the treasury supposedly is trying to do, but while in sweden private investment lagged for several years, they believe the current US crisis is trying to make the capacity for new private investment a focus.
Job Losses Worst Since '74
Job Losses Worst Since '74. The Wall Street Journal reported that according to US Dept. Of Labor statistics, the country lost 533,000 jobs in November. Also, they revised the September losses up from 284,000 to 403,000 jobs, potentially indicating that the November numbers could end up being worse and passing the '74 mark of 602,000 jobs lost in a single month.
But they note that there is some reason for optimism, the US economy is 75% larger, so the jobs lost, while rivaling those months in size do not nearly have the scope in today's economy that they did then. Also, in the last 5 recessions, the US lost about 2% from its peak workforce, which would translate to "only" another 900,000 jobs. They are imagining the unemployment to rise into mid-2009 before it stabilizes.
But the job loss is amid a struggling banking and credit market. People who've lost savings and home values are now facing unemployment. The wsj believes that the credit and economy will rebound at some point in the second half of 2009, but in the meantime people are facing a bleak unemployment.
But they note that there is some reason for optimism, the US economy is 75% larger, so the jobs lost, while rivaling those months in size do not nearly have the scope in today's economy that they did then. Also, in the last 5 recessions, the US lost about 2% from its peak workforce, which would translate to "only" another 900,000 jobs. They are imagining the unemployment to rise into mid-2009 before it stabilizes.
But the job loss is amid a struggling banking and credit market. People who've lost savings and home values are now facing unemployment. The wsj believes that the credit and economy will rebound at some point in the second half of 2009, but in the meantime people are facing a bleak unemployment.
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