Monthly Archives: February 2008

The Bernanke Tightrope Fantasy

Jim Hamilton, in his latest post at Econbrowser, uses as a point of departure the oft-invoked image that Bernanke is walking a tightrope between inflation and recession. Because Hamilton is a Serious Economist, he has to be measured and fact based, which sometimes means he can’t be as pointed as I suspect he might like […]

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Did Mark-to-Market Accounting Create the Credit Bubble?

Paul Davies, in “True impact of mark-to-market accounting in the credit crisis,” discusses a paper by Tobias Adrian of the New York Fed and Hyun Song Shin of Princeton University that claim that mark-to-market accounting play a direct, perhaps central role in the credit bubble, and that it works just as dramatically in reverse. Once […]

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"Chairman Greenspan’s Legacy"

Harvard Professor of Political Economy has penned a prototypic New York Review of Books essay on Alan Greenspan’s The Age of Turbulence. That means no snarkiness. What would likely disappoint readers of this blog is that Friedman thinks that Greenspan acquitted himself well in managing monetary policy; he argues that growth was weak after 2001 […]

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Links Leap Year Day

London’s edge over New York eroded Financial Times. Treasury’s Paulson Says He Favors a `Strong Dollar‘ Bloomberg. How he can say this with a straight face is beyond me. Facing Default, Some Walk Out on New Homes New York Times and Borrowers Abandon Mortgages as Prices Drop Wall Street Journal. Long form treatments of the […]

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Is the US Following in Japan’s Footsteps?

Many observers have noted that the US is unwilling to take its medicine. In the Asian financial markets crisis of 1997, nations with large current account deficits and domestic asset bubbles saw their prosperity unravel as asset prices collapsed, leading to borrowers defaults, a contraction of credit which spiraled into a crunch, and withdrawal of […]

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Did the Rating Agencies Push the Monolines Into the Structured Finance Business?

A dirty little secret of the bond insurer mess is that the rating agencies not only aided and abetted their ill-fated entry into the structured finance business but apparently prodded them in that direction. Although I had been given this tidbit before, I hadn’t gotten independent verification, but it now comes via a report in […]

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"Turmoil reveals the inadequacy of Basel II"

This comment in the Financial Times by Harald Benink and George Kaufman, discusses a major shortcoming in Basel II, the new bank capital standards promulgated by the Bank of International Settlements, namely, that banks can use their own risk models to set minimum capital levels. That procedure allows them to tell the regulators how much […]

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Paulson Says No Go on Housing Bailouts

Treasury Secretary Hank Paulson has thrown a bucket of cold water on a number of proposals being floated in Washington to rescue troubled borrowers via the explicit use of public funds, such as the idea of reviving the 1933 Home Owner’s Loan Corporation to buy underwater mortgages and renegotiate them. In some respects, Paulson’s tough […]

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Auction Rate Securities: Manipulated From the Get-Go?

DealBreaker does some serious reporting today, informing us that some traders have told them that the failed auction rate securities market was always dependent on stabilization by dealers. For anyone who has worked in the securities industry, the term “stabilization” pregnant with regulatory significance. Stabilization, as defined by the SEC, is …transactions for the purpose […]

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Links 2/28/08

Climate change threatens existence, Eskimo lawsuit says CNN Indexed The Big Picture. Funny The IRS Throws Down the Gauntlet on Executive Comp CFO US efforts to scuttle Iran-UAE ties fail Asia Times Poll: Taxpayers Not Planning To Spend Rebates Huffington Post

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World Water, Visualized

Clever, but also surprising (at least for those of us who don’t ponder these matters deeply). Hat tip Gristmill: Left: All the water in the world (1.4087 billion cubic kilometres of it) including sea water, ice, lakes, rivers, ground water, clouds, etc. Right: All the air in the atmosphere (5140 trillion tonnes of it) gathered […]

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Surprise! Investors Don’t Buy MBIA AAA Rating

Bloomberg tells us that the credit default swaps market does not see MBIA as anything remotely resembling an AAA: Moody’s Investors Service and Standard & Poor’s say MBIA Inc. has enough capital to withstand losses and justify its AAA rating. MBIA’s debt investors aren’t so convinced. Credit-default swaps indicating the risk that Armonk, New York-based […]

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Martin Wolf: "The government can rescue the economy"

Martin Wolf, in “Why Washington’s rescue cannot end crisis story,” tells us, push come to shove, the government can bail us out of our economic mess, but it would be unwise to stop there. Wolf argues that substantial steps need to be taken to rein in a financial sector that is beyond the understanding of […]

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