Tue 2010-08-03 14:34 EDT

Rajiv Sethi: The Economics of Hyman Minsky [2009-12-03]

There has been a resurgence of interest in the economic writings of Hyman Minsky over the past few years, and for good reason...Minsky's theoretical framework combines a cash-flow approach to investment with a theory of financial instability...expectations of financial tranquility are self-falsifying. Stability, as Minsky liked to put it, is itself destabilizing...An essential feature of Minsky's financial instability hypothesis is that a long period of sustained stability gives rise to changes in financial practices which are not conducive to the persistence of stable growth...A sustained period of stability gives rise to optimistic expectations and a rise in speculative financing...if a large number of investments which are prompted by the availability of speculative finance are found to be inept, so that immediate cash flows are significantly lower than expected, then the need for short-term refinancing becomes acute while at the same time banks are less willing to roll over existing debt. A sharp rise in short-term interest rates occurs which can lead to present value reversals, a rush towards liquidity, a plunge in the prices of illiquid assets, both real and financial, and a corresponding drop in new investments...described as a credit crunch, a state of financial distress, or a financial crisis...

2009-12-03; economic; Hyman Minsky; Rajiv Sethi.

naked capitalism Tue 2010-06-01 20:06 EDT

When Will Europe Have Its Wile E. Coyote Moment?

...The current program instead is ultimately about protecting Eurobanks from losses, and is destined to fail. John Mauldin, in his newsletters, has been featuring the work of Rob Parenteau, as featured first here on Naked Capitalism (and a source of much reader ire): that deleveraging the public sector and the private sector at the same time is impossible absent a big rise in exports. Pretty much every major economy is on a ``reduce government debt'' campaign. Many are also on a ``deleverage the private sector'' program too (which is warranted, given the amount of profligate lending that occurred). The problem, however, is that these states can't all increase exports, particularly to the degree sought...Rob Parenteau drew out the implications in an earlier post: ``...if households and businesses in the peripheral nations stubbornly defend their current net saving positions [continue to reduce debt levels], the attempt at fiscal retrenchment will be thwarted by a deflationary drop in nominal GDP. ''...This feels like 2007 all over again, with the authorities insistent that Things Will Be Fine, when a realistic assessment suggests the reverse.

Europe; naked capitalism; Wile E. Coyote Moment.

Mon 2010-05-24 10:11 EDT

Hussman Funds - Weekly Market Comment: Don't Mess with Aunt Minnie - May 24, 2010

John P. Hussman

...Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications....Treasury Secretary Eddie Haskell/Timothy Geithner has scheduled a trip to Europe this week to urge European leaders "to pay better attention to potential market reactions to policy moves, and to accelerate the European rescue program." This promises to be a fiasco. What could European leaders possibly find more arrogant than to be lectured on bailout policy - not simply by the U.S., but specifically by a one-trick pony bureaucrat whose chief trick is the ability to smoothly talk the language of prudence while simultaneously pillaging the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?...Providing Greece (and possibly some of its neighbors) a graceful exit from the Euro requires greater courage but lower ultimate cost - particularly to the citizens of Greece itself - than a policy of forcing heavy austerity, dislocations, and internal deflation within Greece. The effect of austerity policies will be to damage the revenue side of the Grecian economy enough to leave the deficits little changed in any event. One would like to go back a decade in time and choose different policies that would have allowed Greece to maintain the Maastricht deficit limitations, but it is far too late to push a full-grown genie back into an itty-bitty bottle...

2010; 24; Aunt Minnie; Hussman Funds; Mess; weekly market comments.

naked capitalism Thu 2010-04-01 19:57 EDT

Top ten reasons you know China has a financial bubble on its hands

Edward Harrison

Edward Chancellor, author of the seminal book on financial speculation and manias ``Devil Take The Hindmost,'' is now turning his eyes to China. He sees a number of red flags which point to excess in China...The trouble is that China today exhibits many of the characteristics of great speculative manias. The aim of this paper is to describe the common features of some of the great historical bubbles and outline China's current vulnerability...Is China in a bubble blow-off top like Japan post-Plaza accord? I say yes. I believe anyone who thinks this will not end badly is in for a rude awakening.

Financial bubble; handing; know China; naked capitalism; reasons; Top.

New Deal 2.0 Sat 2010-02-27 22:55 EST

GSE Losses As Shadow Bailout

Roosevelt Institute Fellow Mike Konczal

...As the private sector started to dump housing and housing bonds quickly in 2007 and 2008, government officials made sure that the GSEs would be capable of absorbing these bad loans...This constitutes one part of many ``shadow bailouts'' according to Roosevelt Institute senior fellows Rob Johnson and Tom Ferguson; this argument, and the graph above, is from their Too Big to Bail: The `Paulson Put,' Presidential Politics, and the Global Financial Meltdown Part II paper. (In Part I, they argue that the Federal Home Loan Bank System was also used in a similar manner.) Astute readers will notice that the action of government officials using public funding sources to provide makeshift backstops for losses of the banking sector to clear the balance sheets of toxic assets to ``unlock the frozen credit market'', without having to go to Congress for funding, was also a central feature of Geithner's PPIP plan, with FDIC stepping up to the plate once the GSEs went bust...

0; GSE losses; new dealing 2; Shadow Bailout.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

Debtor's prison Mon 2009-12-21 20:17 EST

Transitioning to a Global Credit Regime Part I

MAAA

...this is the first in a series of posts that will aim to discuss and dissect the more likely nature, features and requirements of the global monetary and debt system that will emerge once the current one disintegrates. To be clear, we define the current system as consisting of fiat sovereign currencies collaterized by sovereign (and now private) debt, primarily from the US. It is precisely this system that we have come to believe is unsustainable and will eventually crash in what many people call the Dollar Event Horizon (DEH). What emerges after DEH must therefore not be of a sovereign nature, but of a global one; of that we are certain.

Debtor s Prison; Global Credit Regime Part; transition.

Credit Writedowns Mon 2009-10-26 09:20 EDT

Warren: The middle class ``became the turkey at the thanksgiving dinner"

Below is a YouTube clip featuring Elizabeth Warren, the chair of Congress' oversight panel of TARP (the Troubled Asset relief Program), the bailout started by Hank Paulson and passed by Congress. In it she talks about her fears regarding the lack of real regulatory reform in the world of finance and how this is setting [...]

became; credit writedowns; middle class; Thanksgiving dinner; Turkey; Warren.

Tue 2009-10-06 21:14 EDT

TraderFeed: Featured Book Look: Dear Mr. Buffett by Janet Tavakoli

Only when the tide goes out do you discover who's been swimming naked," Warren Buffett once observed. Janet Tavakoli's book Dear Mr. Buffett is less about the Oracle From Omaha than the various naked swimmers in the recent financial markets. The essence of her argument is that the recent financial turmoil is not the result of unpredictable black swan events; rather, it is the consequence of out and out malfeasance on the part of those who take risk and those who are charged with regulating it.

Featured Book Look; Janet Tavakoli; Mr. Buffett; TraderFeed.

Tue 2009-09-29 11:39 EDT

The Health Care Deceit

Paul Craig Roberts, CounterPunch

...The health care bill is not about health care. It is about protecting and increasing the profits of the insurance companies. The main feature of the health care bill is the ``individual mandate,'' which requires everyone in America to buy health insurance. Senate Finance Committee chairman Max Baucus (D-Mont), a recipient of millions in contributions over his career from the insurance industry, proposes to impose up to a $3,800 fine on Americans who fail to purchase health insurance...The telltale part of Obama's speech was the applause in response to his pledge that ``I will not sign a plan that adds one dime to our deficits.'' Yet, Obama and his fellow politicians have no hesitation to add trillions of dollars to the deficit in order to fund wars...t was the war in Afghanistan, not health care, that President Obama declared to be a ``necessity.''

Health Care Deceit.

naked capitalism Tue 2009-09-22 13:02 EDT

Bank of America: 40% of Junk Bonds to Default by 2013

With more than half the corporate bonds rated junk, thanks to highly-levered takeovers, it wasn't hard to imagine that a protracted economic bad spell could lead to a lot of defaults...the novel feature of the binge of late-cycle merger loans, ``cov lite'' deals, will make the damage worse...the odds of a successful [re]structuring are lower, and more companies will wind up liquidating. Thus not only will defaults reach new post-war highs, but recoveries are likely to be lower.

2013; 40; America; bank; default; junk bonds; naked capitalism.

Fri 2009-01-16 00:00 EST

Why US Dollar Investments Are A Ticking Time Bomb - Contrarian Stock Market Investing News - Featuring Bargain Stocks

Why US Dollar Investments Are A Ticking Time Bomb, by Manraaj Singh; China likely to sell large chunk of US dollar reserves

Contrarian Stock Market Investing News; dollars invest; Featuring Bargain Stocks; ticking time bomb.

Sun 2008-11-23 00:00 EST

Untitled

ten rare lectures featured in "The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend", by Janet Lowe

untitled.

Fri 2005-07-01 00:00 EDT

News & Features | All classed up and nowhere to go

News & Features | All classed up and nowhere to go (NYT class-in-america critique by Chris Lehman)

classes; features; Go; news.