Monthly Archives: August 2007

Larry Summers’ Unanswered Questions

Today, in a comment at the Financial Times, “This is where Freddie and Fannie step in” (subscription required), Harvard’s Larry Summers argued that the subprime crisis highlights three questions. Most commentators focused on the one question he not only posed but answered, namely, what role government should play in aiding the flow of credit to […]

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Bear Liquidation May Create New Woes for Hedge Funds

Bloomberg tells us a judge is questioning the legal domicile of the failed Bear funds for bankruptcy purposes: A federal judge refused to grant permanent protection from U.S. lawsuits for Bear Stearns Cos.’ two bankrupt hedge funds, questioning whether the Cayman Islands should be the principal site of their liquidation. U.S. Bankruptcy Judge Burton Lifland […]

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Extreme Measures II: Gillian Tett at the Financial Times

Recently, we’ve noticed a new theme among economics writers: Extreme Measures. Commentators have looked toward the end of the road we are on and fear it leads to a precipice. Hence the calls for radical course correction. Paul Krugman and Bill Gross of Pimco, each of whom proposed large scale rescues of homeowners at risk […]

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Willem Buiter on How Central Bankers Are Co-Opted

A reader pointed me to Willem Buiter’s blog, and it is a real find. For those who haven’t heard about him, he (along with Anne Siber) has proposed a rethinking of central bankers’ roles in times of crisis, arguing that they should serve as market makers of the last resort. One reason to read Buiter, […]

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Jim Grant on the Subprime Crisis

Jim Grant, a Wall Street fixture via his “Grant’s Interest Rate Observer,” a newsletter that provides probing, skeptical, and literate commentary on the credit markets, has a very good op-ed piece in today’s New York Times. Grant takes a big swipe at the US regulatory policy, depicting it as privatizing the profits of banking and […]

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Extreme Measures I: Bill Gross at Pimco

We’ve noticed a new theme among economics writers: Extreme Measures. Commentators have suddenly looked into the abyss, either of the depth of the US subprime/housing problem or the progressing credit crunch that has already caused a seize up in the money markets, and are proposing radical courses of action. Our first sighting was Paul Krugman, […]

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Dispelling the Myth of Low Unemployment

Doing some weekend catch-up, and a reader pointed me to a very good post by Barry Ritholtz, which confirms something I’ve believed but haven’t gone to the trouble to prove, namely, that unemployment is much higher than the government releases would have one believe. Full disclosure: I’m skeptical of quite a few government stats: GDP […]

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Fed Acts More Directly to Shore Up Battered Asset-Backed Commercial Paper Market

For those of you who have been following the turmoil in the money markets, the problem stems from a near-complete repudiation of asset-backed commercial paper, which constitutes roughly half of commercial paper outstandings. The reason for the concern is most asset-backed CP has mortgages as collateral, and some of those mortgages may be (hold your […]

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Thinking the Unthinkable: Regulating the Brave New World of Finance

Earlier this week, I sought to frame the prevailing views of what the supervising adults, namely central bankers, should do about the turmoil in the financial markets. They break down into four groups (names of representative spokesmen included): The keep the party going types (Jim Cramer and his less histrionic brethren) who argue that markets […]

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Central Bank Efforts to Stabilize Money Markets May Not Be Working

An update from Bloomberg tells us that commercial paper outstandings fell 4.2% in a week, which suggests the efforts of central bankers to restore confidence in that market, and particularly in asset backed commercial paper, may not be adequate. 4.2% may not sound like much of a drop until you do some quick and dirty […]

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Special Situation: Lehman Subprime Unit Shutdown

The securities industry is highly cyclical, and like the markets they trade in, Wall Street firms are prone to overshoot and undershoot. Executives cut too deeply in downturns, resolve not to repeat that mistake when they rebuild staffs in recoveries, keep hiring even when markets look overheated, and then repeat. To illustrate how extreme these […]

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