Knowledge, Uncertainty, and the Paulson Plan

Like the crisis itself, the conversation surrounding the Paulson Plan has devolved into clichéd talking points, ideological posturing, and an utter inability to discuss the situation in an intelligent and coherent fashion. Financial and political pundits are either heralding the defeat of the plan or lamenting its demise as the trigger towards another depression. Thus […]

Beyond TARP

The Emergency Economic Stabilization Act of 2008 (EESA), which included the Troubled Assets Relief Program (TARP) as its core, has been voted down in the Congress. If one interprets this as a result of the Congress failing to act decisively, it is a bad news. But, given the problems of the TARP, this may be […]

The RTC or the RFC: Taxpayers as Involuntary Equity Investors

Do we need a “new RTC” as the U.S. Treasury is proposing—or something else? We believe that an alternative framework is needed. Its key elements should be two: recognition of systemic risk embedded in the illiquidity of mortgage-backed securities and capture of the upside of a rescue for taxpayers, not for banks and (former) investment […]

Libor Surges to Nearly 7% But US Stock Futures Rise on Bailout Bill Revival Hopes

Markets continue to be roiled by the upset of the effort to pass the touted Paulson bailout bill. As of this writing, the FTSE and Dj Stoxx 50 are up slightly, but money markets took a beating, the reaction worsened by end-of-quarter factors. From Bloomberg: The cost of borrowing in dollars overnight surged the most […]

Slovenia – Are Things Really As Good As They Look?

This post to accompany Manuel’s coverage of this weekend’s parliamentary elections focuses on one or two key issues – excessive inflation and the construction boom, and what to do about the problematic combination of the two. A much fuller examination of the main structural issues facing Slovenia’s economy can be found in my Slovenia is […]

The most important news of the month. Perhaps the year.

Summary:  The warnings continue from our foreign creditors, as they see the deeper significance of America’s financial crisis.  The post-WWII geopolitical regime is ending, and they are thinking about the future.  Through one of those peculiar episodes of blindness that shapes history, the more warnings America receives — the more indifferent we become to them.  […]

A Warranted Buy-In

A Warranted Buy-In Speaker Pelosi on Sunday finally figured out the right rhetoric to describe a good rescue plan for the financial system: It needs to be a buy-in, not a bailout. Unforunately, the Paulson/Frank/Dodd bill defeated on Monday might well have ended up being almost entirely bailout with only a token buy-in element. To […]

Understanding the TED spread

One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. The size of this gap presumably reflects some […]

Panic

When you see your neighbor carryin’ somethin’, Help him with his load, And don’t go mistaking Paradise For that home across the road. –Bob Dylan, “The Ballad of Frankie Lee and Judas Priest,” 1968 The credit crisis that followed the collapse of the housing bubble turned into a financial panic on Wednesday, September 17, 2008. […]

Gross domestic income and recessions

The “final” values for 2008:Q2 GDP released by the Bureau of Economic Analysis on Friday were more disappointing than the earlier estimates. Still, the 2.8% annual growth rate for real GDP that we’re now told characterized the second quarter doesn’t sound like a recession. Or does it? As we teach in any introductory macroeconomics course, […]

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