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Martin Lowy  

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  • Misleading Productivity Measures: We Really Are Better Off [View article]
    Nice examples. Thanks.
    Jul 25, 2015. 08:52 AM | 1 Like Like |Link to Comment
  • The AIG Court Of Claims Decision Likely Is Not The Last Word [View article]
    I believe there are theories both ways. But I have not investigated all the possibilities.
    Jul 20, 2015. 08:03 AM | Likes Like |Link to Comment
  • Dear Mr. Draghi, Here Is A Way To Break The Bank-Sovereign Negative Feedback Loop [View article]
    You are correct that the senior-junior model has possibilities, I think.

    But please do not overlook the fact that as a counterparty, the ECB can (and must) perform on the reverse repo at its maturity (that, is give back the cash) regardless of the performance of the repoed security. thus the repoed security becomes riskless even though on its own it may have risk.
    Jul 20, 2015. 08:01 AM | Likes Like |Link to Comment
  • The Banking System: Where Is The Cash And Where Is The Lending [View article]
    I think if you look at smaller CB B/S historically, you will find a lot of commercial RE loans. Usually, this is because to make local loans that are secured, real estate often is the only game in town. As you know, this works fine on the upside but does not work on the downside.
    Jul 19, 2015. 09:10 AM | 1 Like Like |Link to Comment
  • Dear Mr. Draghi, Here Is A Way To Break The Bank-Sovereign Negative Feedback Loop [View article]
    Some commenters have wondered what government bonds I am taking about the ECB offering for repo. The ECB's QE program, begun in March 2015, calls for purchases of 60 billion euro worth of bonds per month. It began as just government bonds but now includes some government owned companies. Already, the most recent ECB balance sheet showed 216 billion euro worth of bonds that appear to have been purchased under the program. As this cache of bonds continues to grow, the ECB could offer banks reverse repos of up to the entire portfolio. This is the reverse of LTRO, where the cash flowed to the banks and the collateral to the ECB.
    Jul 18, 2015. 04:56 PM | 1 Like Like |Link to Comment
  • The AIG Court Of Claims Decision Likely Is Not The Last Word [View article]
    I understand that there are theories under which AIG would have to end up paying a judgement against the government. But I am not an expert on that, so please look elsewhere for that answer.
    Jul 18, 2015. 04:39 PM | 1 Like Like |Link to Comment
  • Dear Mr. Draghi, Here Is A Way To Break The Bank-Sovereign Negative Feedback Loop [View article]
    Sorry, guys, this has nothing to do with Greece. And it has nothing to do with deposits in banks. It has to do with creating conditions under which banks need not be tied to their sovereigns in the future. ECB reverse repos are like sovereign bonds created by a different means.
    Jul 18, 2015. 01:30 PM | 1 Like Like |Link to Comment
  • The AIG Court Of Claims Decision Likely Is Not The Last Word [View article]
    I do not know which way it will go. I just think there is little about the decision that really is fact-based and that there are numerous close issues of law.
    Jul 16, 2015. 02:32 PM | Likes Like |Link to Comment
  • Setting Up Greece To Fail Is Bad For Europe [View article]
    There are several parts to the statement you quote. Some are easy to demonstrate, others not so easy. Flush with cash--just look at the B/S growth. Due to the effective guarantee by the government--basically logic. You had banks with little capital that we're able to attract cheap funding all over the world--U.S. case in point through the MMFs that would have lent only believing the banks were TBTF--withdrew the funding when the balloon went up, thereby leading to the Fed's rescue swap lines. Unencumbered by meaningful capital requirements: Basel II was an invitation to arbitrage without capital. In many cases, 7 bp was all they needed.The large amounts they lent cannot be disputed. I showed some of them. Terms: The terms (enabled by the lack of capital requirements) made credit cheap for non-creditworthy borrowers. Caveat, however: The terms were enabled by the chicanery of U.S., European and Japanese banks in creating the RMBS and derivative CDOs with the cooperation of the rating agencies. Remember what Michael Lewis's protagonist said about the last place he could sell those CDOs: Dusseldorf.

    Not proof, i grant, but I hope this little explanation helps.
    Jul 16, 2015. 08:15 AM | Likes Like |Link to Comment
  • The Federal Reserve Cannot Produce More Growth [View article]
    John why do you call this a kind of funk? (Keynes might have said semi-slump.) The growth is slow but relatively steady, part of that is a lack of growth of the workforce, you project the growth to continue for an historic period of time. What is wrong with that, as opposed to boom and bust?

    But I agree that the occasion should cause policy to look to the longer term--and particularly competitiveness of our people (which creates productivity). My new book, The Education Solution: Restoring Prosperity, Reducing Inequality, is about how to do that. For some details, see the-education-solution...
    Jul 10, 2015. 08:41 AM | Likes Like |Link to Comment
  • There's Something Wrong With The World Today And It's 1995 [View article]
    That may be, But if the Fed does not put risk-based capital requirements outside FIN 46, the banks would not guarantee the ABCP and SIV liabilities (capital charge too high). Without the bank guarantees (called liquidity backstops or whatever), the market would not have bought the short-term securities (they would have seemed too risky, and they were). Maybe the risks would have been taken using some other mechanism. But with the leeway given by the regulators, German and American--were on the hook when the SIVs and other SPVs imploded, and it was the banks, not the investors, who had to create the liquidity and be subject to losses on the underlying assets.
    Jun 29, 2015. 09:59 AM | Likes Like |Link to Comment
  • Anecdotes On Eurodollar 'Money Supply'; Part 2 [View article]
    Mr. Snider, I do try to understand what you are saying (I think it may be quite important), but I still am having difficulty.

    Would it be constructive to suggest that you are saying that "capital", broadly understood, is the real "money"? I would rather not call it money because that seems confusing. But we could say it is the real determinant of the degree of leverage in the system. Capital in modern finance, however, is a chameleon. The math determines what it is in normal times. When abnormal times come, the math changes, and the supply of capital shrinks, which in turn requires that the risk profile of the B/S be shrunk.

    There also may be other kinds of capital, as you note. E.g., Nobel Prize winners on the payroll are a form of capital. You can get leverage/credit without mathematical capital if you are believed to have mathematical genius.

    But at bottom, the observation looks to me like saying that capital is key to the creation of risk. Capital and risk may be defined various ways. Most of them involve math, whether VaR or something else, but they are the limiting forces.

    Going forward, it appears that the world is becoming more demanding regarding capital. This is particularly true of banks subject to CCAR. Will risk migrate to somewhere else where capital gets less scrutiny?

    Is my description making sense to you?
    Jun 28, 2015. 10:21 AM | Likes Like |Link to Comment
  • There's Something Wrong With The World Today And It's 1995 [View article]
    This is very interesting. I have read it a couple of times. But there seem to me to be a few leaps. Perhaps they seem not like leaps to cognoscenti, but they look like leaps to me. One of them is the statement about risk management using VAR and Basel in 1995. My recollection is that in 1995 we still had Basel I. The big banks were starting to clamor for Basel II--and they won eventually, but not until 2001(?).

    I do see the argument for 1995 for various reasons. But an argument for 1999 also can be made. 1995-1999 was a period of high productivity gains and a high return to skills. (See Baudry, Green and Sand.) 1999 was the start of the euro.

    My charts of European bank dollar assets show a big upsurge beginning in 1999. My graph does not seem to want to copy into this space. Suffice it to say that they increased from about $1 trillion to $4 trillion by 2007. I assume that is what you mean by the Eurodollar economy. Yes, that inflow from Europe (basically a round trip, often via MMFs but also via those bastards called ABCP and SIVs) pumped up the housing boom. With that I agree.

    BTW I call ABCP and SIVs bastards because they were illegitimate offspring of the U.S. regulators nullifying FIN 46 for risk-based capital rules.

    The Fed did have to bail out the European banks with swap lines in 2007-2009. And the Transatlantic Banking Glut (as I have called it) seems to be over.

    What caused it? Essentially, i believe, European banks were said to be safe--that is, their governments stood behind them. That proved to be the case. So they were able to borrow globally. And, due to Basel II, they were able to buy high-rated debt with almost no capital cushion and, therefore, a practically infinite theoretical ROE despite thin spreads.

    Are we talking about the same things in different languages?
    Jun 27, 2015. 02:08 PM | 1 Like Like |Link to Comment
  • The SEC's Tick-Size Experiment: Impact On Small Caps And High-Frequency Trading [View article]
    Good article, thank you.
    Jun 19, 2015. 08:40 AM | 2 Likes Like |Link to Comment
  • The Bailouts Of 2007-2009 [View article]
    Interesting data, thank you.

    One point: Supporting Fannie and Freddie was not really voluntary. That is, although their bonds do not officially carry the full faith and credit of the U.S., the world treats them as if they do. Default on those bonds simply was not a thinkable result.
    Jun 15, 2015. 09:30 AM | Likes Like |Link to Comment
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