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Book Review: Getting Off Track by John B. Taylor

an excellent read

Simon Johnson - May 2009 - Atlantic

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time...

www.theatlantic.com/do...

Emerging Markets: The New Spenders of the 21st Century

An excellent blog for China is run by Michael Pettis - a current article includes a discussion of consumption and related challenges:

Should China raise wages?

There is a very interesting graph on page 14 of the World Bank’s December 2008 Quarterly Update on China. I am not smart enough to figure out how to reproduce the graph but I will describe it. It shows private consumption and wage share in China as a function of China’s GDP, from 1993 to 2007. From 1993 to 1996, wages rose from 50% of GDP to 54%. During that same period private consumption rose from 47% to 49% of GDP.

Both remained more or less stable for the next three years
mpettis.com/2008/11/sh.../

Is the Fed Taking a Step Toward Explicit Quantitative Easing?

Another very good article over at RgeMonitor on Quantitative Easing by Edward Harrison

www.rgemonitor.com/fin...

Geithner!

Yves Smith of NakedCapitalism on Guithner (2007)

www.nakedcapitalism.co...

Sunday, March 25, 2007
New York Fed President Timothy Geithner's Not-So-Reassuring Speech


Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week ("Credit Markets Innovations and Their Implications") it should be reassuring.

So why did this speech bother me? It wasn't as if Geithner was overselling his case. He described both the risks (more credit issuance outside the banking system; more debt held by institutions with a propensity to trade rather than buy and hold) and the benefits (greater range of product, better pricing of risk, more diversified portfolios among investors) and thus deemed financial innovation to be a plus.

Perhaps I have an eye for problems, but I saw in Geithner's straight-up-the-center description plenty of cause for worry. First, banks, the financial institutions that are most closely regulated, hold only 15% of the "nonfarm nonfinancial" debt outstanding (remember financial institutions do lend to each other, so that is excluded). By contrast, hedge funds are becoming increasingly important players, and their investing operations are unregulated, unsupervised, and largely unreported. So while the Fed has good information about what its banks are doing, and can send in extra examiners when warranted, it has no idea what is up with the biggest players in the credit markets...

Geithner!

A speech by Timothy Geithner from March 23, 2007 (about the time the credit crisis began)

Credit Markets Innovations and Their Implications

"The past few years have seen remarkable changes in credit markets, and this is a good time to take stock of what we know about those developments and their implications.

The latest wave of credit market innovations has elicited some concerns about their implications for the stability of the financial system, concerns similar to those associated with earlier periods of rapid change in financial markets. Will the most recent credit market innovations amplify credit cycles, contributing to "excessive" lending in times of relative stability, and then magnify the contraction in credit that follows? Will they introduce greater volatility in financial markets? Will they create greater risk of systemic financial crisis?

These concerns have been heightened in some quarters by the problems currently being experienced in the subprime mortgage sector. It will take some time before the full implications are understood and the full impact can be assessed. As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole.

Indeed, economic theory and recent practical experience offer some reassurance against both these specific concerns and more general worries about the implications of credit market innovations for the performance of the financial system..."

www.newyorkfed.org/new...

(Ben Bernanke could not have said it better)

Wednesday Outlook: Commodities, Emerging Markets

I posted this yesterday but if you missed it here is a clip from Tuesday AM featuring a CNBC guest crossing the line by mentioning the PPT. They freaked out.

www.cnbc.com/id/158402...

Tuesday Outlook: Commodities, Emerging Markets

The very best CNBC clip ever - with a guest commentator (Scott Nations of Fortress Trading) speaking out loud for their (hundreds) of viewers the acronym "PPT". The talking heads went into panic mode as did the other guest commentator Mickey Levy of Bank of America. Even the great Santelli cleverly denied its existence while the always pleasant Becky Quick distanced CNBC from Scott Nation's assertions. I somehow think he will be black listed.

www.cnbc.com/id/158402...

Thursday Outlook: Commodities, Emerging Markets

Roubini Says `Panic' May Force Market Shutdown (Update2)

By Alexis Xydias and Camilla Hall

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said.

www.bloomberg.com/apps...

Wednesday Outlook: Commodities, Emerging Markets

Mr. Fry - SA needs to give you a dedicated link for faster navigation - hopefully they pay you well.

With respect to the Lehman settlement there is a lot of discussion of the true cost. Below is a press release from the ISDA suggesting it's a $6 bn hit.

Another perspective was offered in an October 15 article by Elisa Parisi-Capone, an economist who writes for www.rgemonitor.com (one of best if not the best finanical / economic sites on the net)

ISDA press release:

"The cash settlement deadline for Lehman is today, October 21. Based on industry estimates, a total of $6bn to $8bn is expected to have changed hands by close of business. This is approximately 1% to 2% of the $400 billion in CDS trades referencing Lehman and does not account for the effects of collateral, which will further reduce the payment amounts.

“Today’s settlement demonstrates that the industry infrastructure for CDS clearly works,” said Mr. Pickel. "ISDA and its members have developed a robust legal and operational framework "

www.isda.org/press/pre...
______________________...

RGEmonitor.com article by Elisa Parisi-Capone

Lehman CDS Payout On October 21: $360bn or $6bn?

"So far, among dealer banks and AIG the CDS fallout from Lehman’s default amounts to around $200bn already."

www.rgemonitor.com/eco...

G-7: Nothing New

Thanks for the education Getridofthem - GDP is indeed silly - much better to be a student of the Great Depression like uhh what his name Ben somthing... do you have plans for the bank holiday??

G-7: Nothing New

I got the 12 T Number from the article referenced in my post here is the quote --

"Created by the Hoover administration and expanded by the New Deal, the RFC's investments in American companies, mostly financial institutions, totaled $50 billion. Adjusted for the change in the Consumer Price Index since 1933, this is about $800 billion--but adjusted for the growth in nominal gross domestic product, it would be about $12 trillion.


The most important element of RFC operations to address the nationwide financial collapse was its ability to invest in equity capital in the form of preferred stock, the same as the current British plan. More than 6,000 financial institutions, including many of the principal banks of the day, were the recipients of RFC investments."

G-7: Nothing New

Looking at the coming week consideration needs to be given not only to the G7 / IMF / G20 / Capital Injection and technical upsides but also to other issues weighing on the market such as: the far reaching imapct of CDS / Lehman auction fallout, margin calls, redemptions, hedge implosions, a devastated US consumer, currency upheaval, commodity collapse, US political future, changing political dynamic e.g. Moscow - Riyadh - Beijing - emerging markets instability etc... If only I could find my rose colored glasses and my long lost friend Pollyanna...

G-7: Nothing New

-->Getridofthemnow-

Only problem is that the 1930's RFC $50B is a tad shy of its monetary equivalent today; Try $12 T which is a tad shy of Hanks $700 B

www.rgemonitor.com/fin...

Friday Outlook: Commodities, Emerging Markets

"The markets are as oversold as they can get" - Most crashes are preceded by oversold conditions. But when we get the reversal today or Monday it will be the trading opportunity of a lifetime (unless it's different this time)

Fannie and Freddie Did Not Cause This Crisis

SA you need to start editing posts and articles for partisan political crap or perhaps sell yourselves to HuffingtonPost or something -- that aside on the subject of Fannie and Freddie, a pretty good article from today's Sunday New York Times:

www.nytimes.com/2008/1...

And to keep them honest and balanced, a pretty good article from the same New York Times circa September 1999:

query.nytimes.com/gst/...