Category Archives: The dismal science

Is The Bond Hangover Cure of Inflation Worse Than The Disease?

Uncharacteristically for an economist, Wolfgang Munchau questions the conventional remedy for the debt millstone: use inflation to trash its value in real terms. Bondholders so often get shafted that it’s a predictable outcome. But is it wise? Munchau argues that regardless, the piper must be paid. If the powers that be succeed in creating meaningful […]

Guest post: More thoughts on the fake recovery

Submitted by Edward Harrison of the site Credit Writedowns. A recent post I published on both Credit Writedowns and Naked Capitalism, “Both initial claims and continuing claims now pointing to recovery,” has left the impression that I am a wild-eyed bull – for which I have been duly smacked about the head. This is far […]

William Black Uses the "F" Word A Lot

William Black, in a lecture in Iceland, discusses how the role of fraud in the financial crisis has been virtually ignored when he contends it was a major factor, and is also overlooked in the regulation of financial institutions. He also argues that standard econometric models produces the worst possible when a financial bubble is […]

Are All Losses Created Equal?

Benjamin Friedman, in a review of George Akerlof and Robert Shiller’s Animal Spirits, makes an interesting observation: As in past financial declines, what is sorely missing in this discussion is attention to what function the financial system is supposed to perform in the economy and how well it has been doing it. Today attention is […]

Fed to Prop Up Commercial Real Estate Loan Pre Expected Implosion

The Fed never met a bubble it wasn’t keen to reflate. The latest wrinkle is that it is trying to learn from its old behavior, although most of us would disapprove of the lessons it has drawn. One of the cognitive biases in the readings of past crises is to attribute failure to official intervention, […]

Taleb Presentation on the Fourth Quadrant

Nassim Nicholas Taleb gave a presentation in New York yesterday which hews closely to a recent piece of his, although his talk did include some additional interesting charts and anecdotes. The article is worthwhile, and worth your attention, but let me highlight the two things I found most interesting. First was his “fourth quadrant” construct. […]

Stiglitz: Bank Plan Destined to Fail, Doomed By White House/Wall Street Ties

Big name economists continue their attacks on the Obama bank rescue programs. Yesterday Willem Buiter, one of Europe’s most highly respected macroeconomists, continued his salvos, contending that the funding was woefully inadequate to recapitalize or otherwise prop up financial firms. The longer the US delays winding up sick banks, the more time wasted and good […]

Adam Smith Warned Against Subprime Lending

One benefit of performing research is picking up interesting trivia. Adam Smith, in The Wealth of Nations, advocated usury laws (limits on interest rates) because they would promote lending to prudent borrowers and productive projects, which was better for society as a whole: The legal rate…ought not be much above the lowest market rate. If […]

Some Musings on Financial Innovation

There are two schools of thought on financial innovation. One is the mainstream view, repeated faithfully by a compliant media, that financial innovation is really really important and under no circumstances must be threatened. Then we have the Old Fart view, best represented by two men who by any standards ought to have retired by […]

Alan Greenspan’s Disingenuous Financial Times Comment

Alan Greenspan had a brief moment when he seemed capable of being redeemed, when he admitted before Congress that he was wrong about his assumptions that firms could regulate themselves. I have yet to see another central figure in the banking meltdown admit error. But he has now gone back to trying to salvage burnish […]

On Traders Behaving Badly and Cognitive Bias

The Jim Cramer chatter precipitated by his Daily Show appearance included some links to an infamous interview Cramer gave in 2007, where he discussed how he would, as a hedge fund manager, push the prices of stocks he was short down via the futures market. It was arguably a public admission of market manipulation. What […]

Is the Treasury Planning on a Near Term Recovery in Bank Stocks?

Reader M&M called my attention to a Bloomberg story I was really hoping to avoid, “U.S. Sets a Six-Month Deadline for New Bank Capital“. The opening: The government set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a mandatory review of their balance sheets. The regulators […]

"We Are Threatened by a Veritable Disaster"

I must confess to having read only a bit of economist Axel Leijonhufvud’s writings, but what I have seen, I have liked very much. Leijonhufvud’s current post at VoxEU does a very good job of looking at the economic mess the US is in and assesses policy options. It is a remarkably straightforward piece. Most […]