Satirists Clarke and Dawe do their best to explain the ongoing European sovereign debt crisis:
Category Archives: Financial Crisis
Assorted Links (5/25/2010)
Here’s a list of articles that I have been reading lately:
Hard Sell – WSJ.com
Source: online.wsj.com
“John Fund writes in The Wall Street Journal that ObamaCare appears more unpopular than ever.”
Chronicle of a Currency Crisis Foretold – Project Syndicate
Source: www.project-syndicate.org
“The crisis in Greece and the problems in Spain and Portugal have exposed the euro’s inherent flaws, and no amount of financial guarantees – much less rhetorical reassurance – from the EU can paper them over. While the euro is likely to survive the current crisis, not all of the eurozone’s current members may be there a year from now.”
Progressives, Jim Crow, and Selective Amnesia
Source: www.american.com
“The Rand Paul episode reveals a drastic misreading of history and of the government’s role in ending racial discrimination in this nation.”
America’s New Jobs Bill – WSJ.com
Source: online.wsj.com
“The Wall Street Journal dissects this week’s stimulus bill.”
Money Market Funds Missing from the Senate Bill – Regulating Wall Street
Source: w4.stern.nyu.edu
“Money market funds are the stepchild of finance. Even though they manage more than $4 trillion in assets, you won’t find them in the Senate’s financial reform bill from last Thursday. Is this justified?”
Not just their Big Fat Greek Funeral – Mark Steyn – Macleans.ca
Source: www2.macleans.ca
“As lazy, feckless, corrupt and violent as Greece undoubtedly is, it’s not that untypical…”
That’s Rich at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas.
Source: www.thebigquestions.com
“It’s now crystal clear what the Tea Party stands for, says Frank Rich midway through a column that makes it crystal clear what Frank Rich stands for, and it isn’t pretty.”
Stimulus Surprise: Companies Retrench When Government Spends – HBS Working Knowledge
Source: hbswk.hbs.edu “New research from Harvard Business School suggests that federal spending in states appears to cause local businesses to cut back rather than grow. A conversation with Joshua Coval.”
Game Theory TV – Freakonomics Blog – NYTimes.com
Source: freakonomics.blogs.nytimes.com “Game theory lessons on YouTube.”
Review & Outlook: The New Lords of Finance – WSJ.com
Source: online.wsj.com “The Wall Street Journal editorial page says that Congress’s financial reform is a marriage of Big Finance and Big Government.”
Roberts on the Crisis | EconTalk | Library of Economics and Liberty
Source: www.econtalk.org
“Russ Roberts, host of EconTalk, discusses his paper, “Gambling with Other People’s Money: How Perverted Incentives Created the Financial Crisis.” Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for imprudent lending. He also discusses U.S. housing policy, particularly the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac and how the government’s implicit guarantee of lenders to the GSE’s interacted with housing policy to increase housing prices. This in turn, Roberts argues, helped create the subprime market, created mainly by private investors. The episode closes with some of Roberts’s doubts about his narrative.”
Consumer Financial Protection–the Good, the Bad and the Ugly – Regulating Wall Street
Source: w4.stern.nyu.edu
“On Thursday the Senate passed its version of the financial reform bill, and the reconciliation process with the previously passed House bill will now begin. What are the implications for consumer protection? The similarities between the two bills in the area of consumer protection and more notable than their differences, but there are some distinctions to keep in mind and some troubling issues common to both bills. Consumer protection is a worthy goal, especially given some of the documented abuses leading up to and during the financial crisis, but bad regulation may be worse than under-regulation.”
Economic View – Greece May Not Be as Rich as It Looks – NYTimes.com
Source: www.nytimes.com
“Europe no longer pretends Greece is wealthy. Now the Continent acts as though Greece will quickly become wealthy enough to pay back ever-growing sums of debt.”
Assorted Links (4/8/2010)
Here’s a list of articles that I have been reading lately (organized by topic):
Economics and Public Policy
- Leslie Hook and Joseph Sternberg: Confessions of Two Unpaid Interns – WSJ.com
Source: online.wsj.com
“In The Wall Street Journal, Leslie Hook and Joseph Sternberg say that the Obama administration’s latest crusade, to prevent the use of unpaid interns, is a mistake that will harm opportunities for young men and women looking for a leg up in the work force.”
Source: online.wsj.com
“In The Wall Street Journal, Dan Henninger asks if Obama’s economic policies have sent the U.S. toward European levels of youth unemployment.” |
Source: caseymulligan.blogspot.com
“Labor unions are among President Obama’s political allies, and were actors in the story of the demise of General Motors. But I do not yet see much evidence that their influence on private-sector outcomes has become more significant.”
Economics and Culture
Source: online.wsj.com “While it’s unclear just how many Extreme Makeover families have run into financial difficulty, the show’s producers say they are aware of the problem and are making a change appropriate to current economic reality: downsizing.”
Source: online.wsj.com
“Some recipients of Extreme Makeover: Home Edition homes end up in trouble once the cameras leave town. Here are five family’s tales.” Source: www.reuters.com
FORT WASHINGTON, Md (Reuters) – By the time thousands of parishioners stream into the 3,000-seat Ebenezer AME Church on Easter Sunday, church leaders hope to have something else to celebrate: financial revival. Financial Crisis
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Health Care Reform
- Will the Individual Mandate Hold up in Court? — The American, A Magazine of Ideas
Source: www.american.com
“The healthcare insurance mandate is unconstitutional. But don’t expect the Supreme Court to rule it so.”
Justin Fox on the irrational market
I highly recommend viewing the 10 minute, 19 second video from the Tea with The Economist series entitled “Justin Fox on the irrational market”. Justin Fox is editor of the Harvard Business Review, and his most recent book is entitled “The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.”
Steven Landsburg’s review of Gary Gorton’s new book entitled “Slapped By the Invisible Hand: The Panic of 2007”
University of Rochester economist Steven Landsburg provides a nice summary of Yale professor Gary Gorton’s new book entitled “Slapped By the Invisible Hand: The Panic of 2007” (this book is available at http://bit.ly/9VCFB1). Drawing upon the metaphor of Frank Capra’s classic movie “It’s a Wonderful Life” (see http://us.imdb.com/title/tt0038650), Landsburg notes that “The great crisis of the past few years was just another bank run, pure and simple. The only difference is that this time the banks were non-traditional financial firms like Bear Stearns (as opposed to, say, the Bailey Building and Loan Association) and the depositors were large financial institutions like Fidelity (as opposed to the good citizens of Bedford Falls).”
Steven Landsburg's review of Gary Gorton's new book entitled "Slapped By the Invisible Hand: The Panic of 2007"
University of Rochester economist Steven Landsburg provides a nice summary of Yale professor Gary Gorton’s new book entitled “Slapped By the Invisible Hand: The Panic of 2007” (this book is available at http://bit.ly/9VCFB1). Drawing upon the metaphor of Frank Capra’s classic movie “It’s a Wonderful Life” (see http://us.imdb.com/title/tt0038650), Landsburg notes that “The great crisis of the past few years was just another bank run, pure and simple. The only difference is that this time the banks were non-traditional financial firms like Bear Stearns (as opposed to, say, the Bailey Building and Loan Association) and the depositors were large financial institutions like Fidelity (as opposed to the good citizens of Bedford Falls).”
]]>Questions and Answers About the Financial Crisis
From Tyler Cowen at Marginalrevolution.com:
“Gary Gorton has a new and excellent paper… called “Questions and Answers About the Financial Crisis.”…Gorton’s short paper is one of the best essays on the crisis so far.
For what it’s worth, I heartily agree with Tyler Cowen’s assessment of Gorton’s financial crisis FAQ…
“Paulson’s Gift”
Professors Veronesi and Zingales at the University of Chicago Booth School of Business have coauthored a new research paper entitled “Paulson’s Gift” which empirically calculates the costs and benefits of the US government’s October 2008 bailout of the financial sector of the US economy. Here’s the abstract from their paper:
“We calculate the costs and benefits of the largest ever U.S. Government intervention in the financial sector announced the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks’ financial claims by $131 billion at a taxpayers’ cost of $25 -$47 billions with a net benefit between $84bn and $107bn. By looking at the limited cross section we infer that this net benefit arises from a reduction in the probability of bankruptcy, which we estimate would destroy 22% of the enterprise value. The big winners of the plan were the three former investment banks and Citigroup, while the loser was JP Morgan.”
"Paulson's Gift"
Professors Veronesi and Zingales at the University of Chicago Booth School of Business have coauthored a new research paper entitled “Paulson’s Gift” which empirically calculates the costs and benefits of the US government’s October 2008 bailout of the financial sector of the US economy. Here’s the abstract from their paper:
]]>“We calculate the costs and benefits of the largest ever U.S. Government intervention in the financial sector announced the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks’ financial claims by $131 billion at a taxpayers’ cost of $25 -$47 billions with a net benefit between $84bn and $107bn. By looking at the limited cross section we infer that this net benefit arises from a reduction in the probability of bankruptcy, which we estimate would destroy 22% of the enterprise value. The big winners of the plan were the three former investment banks and Citigroup, while the loser was JP Morgan.”
The Minds Behind the Meltdown?
Today’s Wall Street Journal cites a forthcoming (February 2, 2010) book entitled “The Quants”, written by Scott Patterson, who also writes for the Journal. An excerpt from this book appears on WSJ.com today under the title “The Minds Behind the Meltdown”, with the (provocative and candidly, rather hyperbolic) subtitle: “How a swashbuckling breed of mathematicians and computer scientists nearly destroyed Wall Street”. Also, here’s a video interview concerning the book excerpt which appeared in today’s Journal:
I would like to offer, as an antidote to Patterson’s article and video, Steven Shreve’s October 2008 Forbes article entitled “Don’t Blame the Quants”. Steven Shreve is the Orion Hoch Professor of Mathematical Sciences at Carnegie Mellon University, where he has built one of the world’s leading quantitative finance educational programs. Professor Shreve notes that:
“It is easy … to point an accusing finger at the “quants” on Wall Street, that cadre of mathematics and physics Ph.D.s who crunch numbers in esoteric models. Without the quants, the complicated mortgage-backed securities that fueled the housing bubble and led to the freezing of credit might not have been created…To prevent a recurrence of financial crises, some call for a return to a simpler time, before derivative securities and the quants who analyze them–a time when investors bought stocks and bonds and little else. Such complaints miss the point (italics added for emphasis). When a bridge collapses, no one demands the abolition of civil engineering. One first determines if faulty engineering or shoddy construction caused the collapse. If engineering is to blame, the solution is better–not less–engineering. Furthermore, it would be preposterous to replace the bridge with a slower, less efficient ferry rather than to rebuild the bridge and overcome the obstacle.”
I completely agree with Professor Shreve’s perspective on the role played by “quants” during the financial crisis. The problem was not with the technology per se. Rather, the problem involves a combination of poor managerial judgment coupled with perverse managerial incentives. It is difficult to exercise sound judgment about financial engineering and risk management when top management views risk models as black boxes which exist for the purpose of printing money.