naked capitalism Thu 2010-09-30 08:22 EDT

Why Backstopping Repo is a Bad Idea

The normally sound Gillian Tett of the Financial Times endorses an idea that is both dangerous and unnecessary, namely, government backstopping of the system of short-term collateralized lending called repo, for ``sale with agreement to repurchase.''...But the real problem is that the only securities that were once considered to be suitable were those of the very highest quality, namely Treasuries. The real problem is in widening the market beyond that. If you have absolutely impeccable collateral, you don't care if your counterparty goes belly up if you aren't at risk of losses on the assets you hold...the real problem is the use of low quality collateral...why would we possibly WANT a system that might down the road encourage the pledging of less than stellar instruments as repo?...we need to go back and look hard at why the need for repo has risen since 2001, and how much is related to legitimate activity. The fact that it grew much more rapidly than the economy overall suggests not...official efforts should proceed...to shrink the repo market (as we've recommended for a market that has contributed to the growth of repo, credit default swaps)...our efforts NOT to restrain banks leads to a tremendous tax on all of us...a banking industry that creates global crises is negative value added from a societal standpoint. It is purely extractive...

Backstopping Repo; Bad Ideas; naked capitalism.

The Economic Populist Mon 2010-09-20 19:16 EDT

"There Is No Economic Justification for Deficit Reduction" Galbraith to Deficit Commission

James K. Galbraith

...Your proceedings are clouded by illegitimacy. In this respect, there are four major issues. First, most of your meetings are secret, apart from two open sessions before this one, which were plainly for show. There is no justification for secret meetings on deficit reduction... Second, there is a question of leadership. A bipartisan commission should approach its task in a judicious, open-minded and dispassionate way...Senator Simpson has plainly shown that he lacks the temperament to do a fair and impartial job on this commission...Third, most members of the Commission are political leaders, not economists. With all respect for Alice Rivlin, with just one economist on board you are denied access to the professional arguments surrounding this highly controversial issue...Conflicts of interest constitute the fourth major problem. The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions...You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO's unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It's a lose-lose proposition, with no gainers except a few predatory funds, insurance companies, and such who would profit, for some time, from a chaotic private marketplace...

deficit Commission; deficit reduction; economic justification; economic populist; Galbraith.

Credit Writedowns Mon 2010-07-19 12:08 EDT

Misunderstanding Modern Monetary Theory

Paul Krugman wrote a post today regarding MMT called "I Would Do Anything For Stimulus, But I Won't Do That (Wonkish)." The gist of Krugman's post was to refute Modern Monetary Theory's view on money and deficits...Krugman's post mischaracterizes both MMT and Galbraith's statement...Krugman is trapped in a gold standard view of money as he assumes the government must issue bonds to fund itself. He forgets that we live in a fiat world...the problem for deficits is not national solvency but inflation and currency depreciation. That makes me worried about deficits. If that makes me an inflation hawk and anti-deficit, then so be it. Nevertheless, MMT does say the same thing about deficits, namely that they can lead to inflation. But MMT also says that inflation is not a problem when you have an enormous output gap from 17% underemployment. MMT proponents recommend deficit spending to close that gap. But you can't spend at will under MMT; eventually the output gap closes and inflation becomes a big problem...

credit writedowns; Misunderstanding Modern Monetary Theory.

winterspeak.com Sat 2010-05-22 14:02 EDT

Richard Koo, who is so close, is still wrong

winterspeak

...Richard Koo, who understands the situation in Japan (which is very very similar) quite well still makes suboptimal recommendations because he too does not understand how the financial system works...He's correct in saying that massive fiscal stimulus saved Japan. They really were on the brink of their Great Depression in the 80s, and have avoided it without going to War. This is good, but none of it was necessary, so really represents a massive failure. Koo thinks that the Govt is spending the money the private sector has saved. In fact, Govt spending is what is giving the private sector its savings! Government is not borrowing anything. Japan should really just massively slash taxes and fund its private sector. Let the balance sheets heal already! Koo does not talk about all the terrible malinvestment that the Governments fiscal spending did. The US should simply implement a payroll tax holiday until inflation starts to tick up. Right now, the US's savings desire is not as high as the Japanese's, but a double dip might get it closer. That just means the US will need even higher deficits. It took Japan 20 years to start getting comfortable with sufficiently large deficits. Now might be a good time to go long the Nikkei, actually.

closed; com; Richard Koo; Winterspeak; wrong.

zero hedge Thu 2010-05-13 17:50 EDT

Willem Buiter Issues His Most Dire Prediction Yet: Sees "Unprecedented" Fiscal Crises, US Debt Inflation And Fed Monetization

...we were very surprised when we read Willem Buiter's latest Global Economic View (recall that he works for Citi now). In it the strategist for the firm that defines the core of the establishment could not be more bearish. In fact, at first we thought that David Rosenberg had ghost written this...Buiter presents a game theory type analysis, which concludes that the US and other sovereigns will soon be forced into fiscal austerity. Among his critical observations (we recommend a careful read of the entire 68 pages), are that the US is highly polarized, and that the Fed, which is "the least independent of leading central banks" would be willing to implement "inflationary monetisation of public debt and deficits than other central banks." The next step of course would be hyperinflation. And Buiter sees America as the one country the most likely to follow this route. Most troublingly, Buiter predicts that a massive crisis is the only thing that can break the political gridlock in the US in order to fix the broken US fiscal situation...

debt inflated; dire predictions; Fed Monetizing; fiscal crises; see; unprecedented; Willem Buiter Issues; Zero Hedge.

Jesse's Café Américain Wed 2010-02-03 20:10 EST

Official World Gold Holdings

Jesse

...Is gold a bubble? As someone who has been a close observer of bubbles for the past ten years the data does not recommend that conclusion. And what makes me even more curious about this point of view is that the very people who for the most part denied the existence of the obvious bubbles in tech, housing, risk, banking and credit, even to the point of absurdity, who could not or would not see a bubble if it perched on the end of their nose, who are card carrying members of the international monied fraternity, are the most vocal in calling gold a bubble with emotional arguments lacking any fundamental data. What's up with that?

Jesse's Café Américain; Official World Gold Holdings.

zero hedge Tue 2010-01-05 19:26 EST

Roubini Blasts "The Barbarous Relic," Recommends Spam Over Gold

In a headline piece on roubini.com, Nouriel Roubini writes an extended article slamming both gold bugs, and the so-called gold bubble, which he believes is far too volatile, and which, contrary to ever increasing claims to the opposite, will likely not get to the mythical price of $2000/ounce, and instead will head lower. The argument presented, as is widely the case, boils down to the trifecta of i)gold having no industrial utility, ii) no intrinsic value (no associated cash flow streams) and iii) costing an arm and a leg to store. While Roubini's thesis is attractive on the surface (if somewhat Keynesian and thus often reiterated by mainstream Economists), we present some counter arguments to Roubini's thesis.

barbaric relic; gold; Recommends Spam; Roubini blast; Zero Hedge.

Mon 2009-12-21 18:29 EST

China's Economy: Decoupling from what? - Drorism*

One of the most popular memes repeated by mainstream media since the collapse of Lehman Brothers last year is the idea that China will manage to avoid the consequences economic downturn by shifting from an export-based economy to one based on local consumption...the "decoupling" theory proved to be false: The downturn in the developed world had a significant impact on China's economic well-being, causing a dramatic rise in unemployment and a sharp slowdown in economic growth...A new study published by Professor Hung Ho-fung...compares China's development path to that of other Asian economies, including Japan, Korea, Taiwan, Singapore, and Hong Kong. It provides a concise summary of political and economic events in East-Asia since World War II as well as some colorful predictions and recommendations...

China s Economy; decoupled; Drorism.

The Guardian World News Sun 2009-09-20 10:57 EDT

Sarkozy refuses to fret over GDP

Nicolas Sarkozy called for a "great revolution" in the way national wealth is measured today, throwing his weight behind a report which criticises "GDP fetishism" and prioritises quality of life over financial growth. Speaking days before the G20 summit in Pittsburgh, France's president urged the rest of the world to follow his example as he ordered a shake-up in research methods aimed at providing a more balanced reading of countries' performance. Endorsing the recommendations of a report given to him by Nobel prize winners Joseph Stiglitz and Amartya Sen, he said governments should do away with the "religion of statistics" in which financial prowess was the sole indicator of a country's state of health.

fret; GDP; Guardian World News; Sarkozy refuses.

Thu 2009-09-17 10:02 EDT

``No One Saw This Coming'': Understanding Financial Crisis Through Accounting Models - Munich RePEc Personal Archive

Dirk J. Bezemer

This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not. This study identifies core differences, traces their intellectual pedigrees, and includes case studies of both types of models. It so provides constructive recommendations on revising methods of financial stability assessment. Overall, the paper is a plea for research into the link between accounting concepts and practices and macro economic outcomes.

accounts model; comes; Munich RePEc Personal Archive; saw; Understanding Financial Crisis.

Jesse's Café Américain Sun 2009-09-13 12:32 EDT

Japan: The Triumph of Crony Corporatism Over the Individual

Jesse

The former Japanese Central Banker Toshiro Muto says that '"in principle equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market's reputation." Apparently in this case 'in principle' means 'theoretically, as is convenient," because Mr. Muto goes on to recommend that the Japanese Central Bank and government throw principles aside and buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

crony corporatism; individual; Japan; Jesse's Café Américain; triumph.

Jesse's Café Américain Thu 2009-08-20 16:46 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:44 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:42 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:36 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:35 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:34 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:29 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:26 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:25 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Jesse's Café Américain Thu 2009-08-20 16:17 EDT

The Next Wave of the Financial Crisis Is Coming (And Why)

Jesse

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine

comes; Financial Crisis; Jesse's Café Américain; wave.

Thu 2009-01-15 00:00 EST

Mish's Global Economic Trend Analysis: Goldman Recommends Credit Default Swaps Against NJ, CA, WI, FL, OH, MI, Others

CA; FL; Goldman Recommends Credit Default Swaps; mi; Mish's Global Economic Trend Analysis; NJ; Wi.

Mon 2008-09-08 00:00 EDT

The Institutional Risk Analyst: Paulson Begins Gradual Wind-Down of GSEs within Conservatorship

Paulson Begins Gradual Wind-Down of GSEs within Conservatorship, by Institutional Risk Analytics; ``Now that the Treasury at least partly has followed our recommendation and taken the GSEs off the table as a concern for the bond investors who hold trillions of dollars worth of GSE debt, the markets and the respective presidential candidates can focus on the next, more pressing challenge, namely helping to refloat the US banking system''

conservatorship; GSEs; Institutional Risk Analyst; Paulson Begins Gradual Wind.