Category Archives: Doomsday scenarios

AIG Bailout Trial Bombshell I: Paulson Rejected Chinese Offer to Invest “More Than the Total Amount of Money Required”

Hank Greenberg may have a case after all.

Exclusive: How Private Debt Strangles Growth, Stokes Financial Crises, and Increases Inequality

Yves here. Richard Vague has been kind enough to allow us to feature an extract from his recent book, The Next Economic Disaster: Why It’s Coming and How to Avoid It. I first met Richard several years ago at the Atlantic Economy Summit. If my memory serves me correctly, he was then taken with the conventional view that debt was a dampener to growth…meaning government debt. The issue of what caused our economic malaise and what to do about it troubled him enough to lead him to make his own study, and he has come to reject the neoliberal view that government debt is problem and must therefore be contained.

This view implies, as many readers have pointed out, that the great lost opportunity of the crisis was restructuring mortgage debt. That would also have allowed housing prices to reset to levels in line with consumer incomes. Vague also mentions a less-widely-commeneted on debt explosion prior to the crisis, that of business debt. One big contributor was an explosion in takeover debt for private equity transactions. Indeed, a lot of experts were concerned about a blowup due to the difficulty of refinancing these deals in the 2012-2014 time horizon. But ZIRP and QE produced enormous hunger among investors for any type of asset with non-trivial yield, so the Fed enabled the deal barons to refinance on the cheap.

Too Big to Be Saved: Systemic Risk Alive and Well in Europe

With the recent Global Crisis, the interest in systemic risk and the interconnection between financial institutions has increased. This column investigates the case of European financial firms, where several factors can jeopardise a firm’s financial health. Using data since 2000 to evaluate the firms’ systemic risk, the authors find that for certain countries, the cost to rescue the riskiest domestic banks is too high. They might be considered too big to be saved.

Who Wins in the Financial Casino?

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:

We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino

Here’s my thought/question: is there a house?

The common wisdom is that the ‘house wins’ in casinos.

So, who or what was really the ‘house’?

The Deficit Disaster That Never Was

Some older readers might recall that during 2010-2013 politicians and the media manifested great anxiety over the unmanageable level of the deficit and a disastrously high public debt. So how has that movie ended?

The Scottish Independence Vote: Views From a Distant Half-Scot

No-one’s quite sure what Scotland is, nor what independence is, but they’re all for it anyway, or against it.

Are Advanced Economies Mature Enough to Handle No Growth?

Economists occasionally point out that societies generally move to the right during periods of sustained low growth and economic stress. Yet left-leaning advocates of low or even no growth policies rarely acknowledge the conflict between their antipathy towards growth and the sort of social values they like to see prevail. While some “the end of growth is nigh” types are simply expressing doubt that 20th century rates of increase can be attained in an era of resource scarcity, others see a low-growth future as attractive, even virtuous, with smaller, more autonomous, more cohesive communities.

Ilargi: The Black Swan Of Scotland

Yves here. The way that England’s leaders, as well as pundits and investors generally, failed to recognize that Scotland really could vote for secession, is even more significant than it seems, and as Ilargi tells us below, it’s plenty significant. As NC readers have noted, the fact that Scots have swung in favor of secession is certain to embolden other separatists. But at least as important is why events have reached this juncture.

Nomi Prins on the Credit Derivatives Systemic Risk Bomb

Yves here. Former Goldman managing director turned journalist Nomi Prins spoke on RT about unresolved systemic risk issues, most importantly, credit derivatives.

Mathew D. Rose: Merkel’s Götterdämmerung, Victory in Ukraine and Draghi’s Old Trick

Yves here. Mathew’s post describes the political and ideological dynamics that continue to drive failed austerity policies in Europe. But even more important, it also explains why Europe, and German leaders in particular, have fallen in line with the US and are escalating the conflict with Russia over Ukraine. As we’ve discussed, they’ve convinced themselves that Russia will suffer from the economic sanctions imposed by the US and EU before Russia can play its energy card. And some analysts further believe that Russia would not dare restrict gas supplies to Europe, that it cannot afford to lose the income.

Blogs Review: The Forever Recession

As the recovery takes hold in the US, Europe appears stuck in a never-ending slump. With the ECB systematically undershooting its inflation target and recent signs that inflation expectations could become de-anchored, the bulk of commentators in the blogosphere are again calling for more monetary actions. Noticeably, some have completely lost hope in the ability of the European institutions to turn this situation around and are now calling for countries to simply break away from the EMU trap.

Is the West Risking Financial Blowback From Sanctions on Russia?

The spectacle of insanely authoritarian policing in Ferguson, as well as media jitters over ISIS and ongoing reports of action in Gaza and Ukraine, has shifted attention a bit away from simply lousy economic results from Europe. That fragility could play in a nasty way into blowback from sanctions against Russia.

Ebola is an Economic Black Swan

Yves here. I might step down the headline claim to “Ebola could be an economic black swan” but otherwise the depressing point is well taken.

“A Financial Casino Would Be a Step Up From What We Have”

This is a terrific and very accessible interview with Boston College professor Ed Kane, who is a long-standing critic of the failure to rein in financial firms that feed at the taxpayer trough. At one point in the talk, Kane and his interviewer Marshall Auerback discuss how casinos are well aware of the fact that the house can lose and they monitor gamblers intensively to make sure that no one is engaging is sleight of hand. Thus if we treated our banking system like the financial casino that it has become, we’d be much better off than we are now.

Ilargi: Follow The Money All The Way To The Next War

The prospect of unnecessary war has focused Ilargi’s mind. He starts with an important article in Handlesblatt that a record number of NC readers flagged, then turns to an issue we’ve focused on: what is the evidence behind US claims of Russian responsibility for the downing of MH17? After Colin Powell’s Iraq WMD canard, it’s remarkable that anyone accepts “trust me” from American officials, but remarkably, that’s where things stand.

One excuse offered for the failure of the US to support its claims is that the military apparatus does not want to expose its information-gathering capabilities. But there’s another, more obvious reason.