Is “Financial Innovation” Good for Bank Profitability?

Below is our latest commentary on bank profitability. Thanks to an inquiry by David Cox at Deloitte, we took a hard look at the risk-adjusted profits of the largest US banks and the results are disturbing, both in terms of the falling economic value added of this group of banks and the decreasing diversity among […]

Don’t Mention The War!

From The Guardian, February 2003, media mogul Rupert Murdoch, stalwart cheerleader for Mr Bush and Mr Blair and their war of choice in Iraq, provides a reminder of just how misguided our political leaders and opinion formers were regarding the economic implications of war: “The greatest thing to come out of [the Iraq war] for […]

Intervention bluffs

This was the kind of week that gets economists ecstatic. Yeah yeah, we had Hillary conceding (yawn)… or “Sex and the City—The Movie” breaking records at the box office, trouncing even “Indiana Jones” (horror!). But no, it wasn’t a bunch of female celebs that got economists on their toes. Instead, it was two austere gentlemen […]

Cuomo Rewards the Rating Agencies:

Please refer to important disclosures at the end of this report. In reviewing the agreement between New York State Attorney General and the NRSROs (credit rating agencies with governmentally outsourced authorities) we are struck by the reality that his agreement does little to advance fundamental changes in rating processes and rewards the rating agencies with […]

Reforming the Welfare State – Reagan and Obama

In Britain a national election lasts just three weeks and spending by each candidate is strictly capped. Campaigning between elections is not permitted. Accepting so much as a hotel stay from a lobbyist is a resigning offence. As a result, our news is full of the American campaigns to make up for the deficit in […]

WaMu, Wachovia and the High Cost of Subprime

Working from the offices of the New York Fed Bank, the Fed orchestrated a bailout of LTCM by private-sector banks. LTCM had earlier rejected a bailout offer from Goldman Sachs, AIG and Berkshire Hathaway. Greenspan could not or would not tell Congress the details of the bailout, apparently because the nation’s central bank produced no […]

Consumer Squeeze

This was no love at first sight. It took me eight months after the launch of the iPhone to be talked into joining the world of “Phonies.” Launched (almost presciently) right before the subprime crisis hit last summer, the iPhone for me captured the essence of an era soon to end: Carefree, contented, insatiable.Then, one […]

Structured Finance: the Unknown Ideal

The last six months have brought American finance to the edge of the abyss. Mortals who, not so long ago, had seemingly achieved demiurge deal-making status are now experiencing their Götterdammerung. A single question now poses and imposes itself: what will the next six months reveal about our financial understanding? As always, only two possibilities […]

Get The Balance (Sheet) Right!

Something for nothing is always a pretty good trade. Federal Reserve Chairman Ben Bernanke seems to have realized this hence his letter to House of Representatives Speaker Nancy Pelosi on May 13th requesting that the introduction of payment of interest on bank reserves, legislated to begin in October 2011, be bought forward with immediate effect. […]