Looking Backward, Looking Forward

By | 2017-11-09T07:31:27+00:00 November 9th, 2017|Global Market Update|

Have we learned anything? Sketches of Janus, Roman god of beginnings and endings. Source: Wikimedia Ten years ago the world experienced a series of financial cataclysms that resulted in the longest and deepest recession since the Great Depression. It started in August 2007, when BNP Paribas announced that they were suspending redemptions on three of their most aggressive real-estate-linked mutual funds. Real estate prices had been falling for over a year, and the market for many mortgage-backed securities was drying up. BNP couldn’t raise [...]

Financially (in)Secure?

By | 2017-10-31T05:16:24+00:00 October 31st, 2017|Global Market Update|

Is securitization good or bad? Photo: Kerstin Riemer. Source: Pixabay Securitization is a five-dollar word that leaves people scratching their heads. It’s been alternately described as the greatest financial innovation since double-entry accounting or as the worst banking product since the centralized call-center. Securitization is actually pretty simple: it takes ordinary bank loans and bundles them up into securities that can be sold to investors. It’s been around for over 150 years. During the California Gold Rush, the railroads boomed. Everyone was moving west. [...]

Reflections

By | 2017-10-18T07:35:39+00:00 October 18th, 2017|Global Market Update|

What have we learned from the last 10 years? S&P 500, log scale. Source: Bloomberg In October 2007 the stock market was reaching new highs – levels it did not reach again for another six years. We had begun to hear troubling news about foreign hedge funds and sub-prime mortgages, but those noises seemed like distant thunder on a summer day: of concern to those caught in the downpour, but local, isolated problems. Little did we know that the rumbling was actually the heavy [...]

A Regulatory Pendulum

By | 2017-07-17T12:21:28+00:00 February 21st, 2017|Global Market Update|

How much regulation do we need? Photo: Arnaud Clerget. Source: Wikipedia After the financial crisis, Congress enacted new regulations on the financial system. The concern was that big banks had gotten us into an awful mess through their reckless lending, so we needed to put new rules in place to make sure they never did that again. Dodd-Frank has been in effect for over six years now, and it’s reasonable to ask if anything has changed. The logic behind most regulation is simple: our [...]

The Dangers of Success

By | 2017-07-17T12:21:33+00:00 December 21st, 2016|Global Market Update|

The Dangers of Success What happened to “The Maestro”? Public Domain. Source: IMF Alan Greenspan chaired the Federal Reserve from 1987 to 2006. He’s a fascinating character: a mostly self-taught economist, a jazz clarinet player, a policy advisor and skilled political operator. He understood how political power ebbs and flows, and used that understanding to direct Fed policy for almost 30 years—an eternity in Washington. His greatest success came when he successfully intuited that productivity was growing much faster in the mid-‘90s than initially [...]

700 Billion Little Birds

By | 2017-07-17T12:21:41+00:00 October 4th, 2016|Global Market Update|

Could $700 billion create some moral challenges? Lady Justice. Source: Wikipedia In the midst of the financial crisis, Congress passed the TARP program—originally designed to buy troubled assets from banks, but actually used to provide additional capital to the banks. It didn’t buy CDOs-squared and mortgage-backed securities backed by NINJA-loans—mortgages to people with no income, no job, and no assets. Instead, the TARP program mostly bought preferred shares issued by banks, injecting capital directly into the banking system. Not every bank took TARP money. [...]

Reforming Money, Tightening Money

By | 2017-07-17T12:21:46+00:00 August 23rd, 2016|Global Market Update|

Are money markets doing the Fed’s job? Photo: Jon Sullivan. Source: Public Domain Images The Fed is in Jackson Hole this week, discussing how to design a monetary policy framework that enhances the global economy. Luminaries from all over the world will be there—from other global central bank leaders to politicians to academics. On Friday, Janet Yellen will speak, and she is expected to offer some hints as to how she—and by extension, the rest of the Fed—sees the economy, and where Fed policy [...]

A Few Quick Thoughts …

By | 2017-07-17T12:21:55+00:00 June 27th, 2016|Global Market Update|

In no particular order: Source: Econlib Scottish independence: the conventional wisdom is that Scotland will now have a referendum and vote to leave the UK and re-join the EU—even the Euro-zone. This will be messy. During the last Scottish independence vote, they wanted to immediately adopt the Euro, but Brussels said the Scots would have to apply like any other nation—a process that would take years. A new independence referendum must be authorized by the British—not Scottish—Parliament. They’re going to be pretty busy. I [...]

Bootleggers and Bankers

By | 2017-07-17T12:22:04+00:00 April 25th, 2016|Global Market Update|

Are banks out of control? Photo: Nightscream. Source: Wikimedia Many people are still hurting as a result the Financial Crisis. And there’s a lot to be upset about. By some measures upwards of $5 trillion in wealth was destroyed. The crisis triggered the Great Recession of 2008-9, and led to government bailouts and fiscal stimulus packages around the world. At the heart of the crisis was our overly complex banking system. Fundamentally, banking is pretty simple: move money from people who have it to [...]

Lehman Lessons

By | 2017-07-17T12:22:27+00:00 September 16th, 2015|Global Market Update|

Should the Government have let Lehman fail? Photo: David Shankbone. Source: Wikipedia CC BY-SA 3.0 Seven years ago Lehman Brothers filed for protection from creditors under Chapter 11 of the bankruptcy code. A last-minute deal to save the global investment bank had fallen through. In the immediate aftermath, Lehman bonds traded at 60—then 30—cents on the dollar; Barclays and Nomura purchased Lehman’s North American and global franchises, respectively. Thousands of employees packed up their desks and started looking for work. The plummeting value of [...]