Make Banks Safe Again

By | 2017-07-17T12:21:22+00:00 April 12th, 2017|Global Market Update|

Are the big banks finally safe? Picture: New York Fed The Financial Crisis put bank safety and soundness fully in view. The serial bailouts or failures of Bear Stearns, AIG, Fannie and Freddie, Lehman, Merrill, and Washington Mutual put the global economy at risk. The problem was systemic: all the big banks were affected, because investors weren’t certain where their money would be safe. Bank stocks fell about 70%, and yields on their bonds rose about 4%. When this happens, banks cut back on [...]

A Brief History of Bubbles

By | 2017-07-17T12:21:40+00:00 October 17th, 2016|Global Market Update|

What’s wrong with bubbles? Photo: Michelle DiNocola. Source: Morguefile Sir John Templeton once famously noted that the four most expensive words in the English language are, “This time it’s different.” It’s easy to get caught up in the excitement of the moment, to believe that the latest innovation will lead to a new era. But human nature doesn’t change. That’s why it’s so fascinating. Before the first documented financial bubble—the tulip crisis in 17th century Holland—there were other markets that were manipulated and distorted. [...]

The New Capital

By | 2017-07-17T12:22:59+00:00 April 16th, 2015|Global Market Update|

What’s causing capital income to grow? Source: Pixabay Ever since Thomas Piketty’s Capital in the Twenty First Century came out last year, economists have been discussing the role of capital income in the economy. The debate centered on Piketty’s simple but profound formula, r > g. That is, the rate of return on capital—r—is greater than the growth of the economy: g. […]

On Capital and Fairness

By | 2014-05-19T10:57:51+00:00 May 19th, 2014|Global Market Update|

“That’s not fair!” That’s our instinctive reaction when we see people without skill, talent, or hard work get ahead, seemingly at the expense of everyone else. It’s why we root for the gritty underdog in sports contests. And it’s why Thomas Piketty’s recent critique of growing inequality in our economy strikes a chord. Piketty looked the real net worth of 65-74 year olds in 1990 and 2010 (from a Fed survey) and found that it had grown by 2.8% per year over these three [...]

Lehman Lessons (Part 1)

By | 2013-09-11T09:49:25+00:00 September 11th, 2013|Global Market Update|

It's been five years. Have we learned anything? Five years ago Lehman Brothers filed for Chapter 11 in the largest bankruptcy filing ever. The bank was insolvent, and couldn't meet the huge demands for funds coming from customers, lenders, and investors. In the aftermath of its bankruptcy, the global financial infrastructure was stressed almost to the breaking point. There was a real risk that hundreds of millions of workers worldwide could see their paychecks bounce. Congressional inquiries and more than 300 books have identified [...]

Capital Thinking

By | 2012-05-21T06:26:44+00:00 May 21st, 2012|Global Market Update, New Markets|

What are capital controls, and why do countries have them?Capital controls are restrictions on money flows. Countries enact them to control the flow of cash into and out of their economy. They can take the form of alternative exchange rates, market regulation, and sometimes outright prohibitions. Most countries have some kinds of rules around money flows. In the US, we regulate cash movements into and out of the country, and we take special note of large cash transactions by bank customers, primarily to fight [...]