The equity/credit market divergence continues. Bloomberg reports that money market rates in Europe are rising, suggesting increased pressure in the interbank funding market: Money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning. The three-month London interbank offered rate, or Libor, for […]
Read more...John Dizard in “Disquiet on the western front of the credit world,” discusses the politics of the credit crisis, depicting two opposed absolutist camps: those who’d have everyone take their lumps now, no matter how bad they turn out to be, versus those who think preventing a nasty recession is all-important, even if it means […]
Read more...Willem Buiter reads two reports issued on the Northern Rock meltdown, and in his Olympian style, finds them wanting. While Northern Rock was a British crisis, its character was similar to those faced by a host of US and European institutions. The Rock held long-dated assets that it funded in short-term markets, a routine banking […]
Read more...We have said that Countrywide is an institution that has deliberately operated on the edge of the law. Apparently we’ve been far too charitable in our views. The federal bankruptcy trustees in Florida, Georgia, and Ohio have decided to take on Countrywide for a persistent practice of attempting to lard up the amount owed by […]
Read more...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 […]
Read more...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 […]
Read more...The Financial Times today reports that sales of asset backed securities and related debt could easily reach $100 billion in 2008 between the winding up of SIVs and forced selling by the occasional ABS hedge fund player hitting the wall. Note that some, perhaps many, of these players do not have much latitude in the […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...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 […]
Read more...Notice that this article in Arabian Business chose to put a provocative headline on this Reuters story. Qatar’s stance, at least in public, that it is holding off on US banks for now, is consistent with other reports of Gulf State sovereign wealth funds having cooled to US banks’ fundraising efforts. But note also that, […]
Read more...First, let’s start with a general premise: if a borrower has a reasonable ability to service his mortgage (and “reasonable” is in the eye of the beholder, but one has to assume it better be north of 50% of a “fair” rate) it’s better to renegotiate and keep him in place. Now that we have […]
Read more...There has been a fair bit of discussion on the Web about the Fed’s Term Auction Facility, including some concern that the TAF was enabling banks to post lower-quality collateral than they might otherwise (we had observed previously that the collateral permitted and the haircuts applied are the same as for the discount window). Surprisingly, […]
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