Regulators should stop shooting the messengers 19 Sep 2008 Shortselling is essential to financial markets. Governments bear ultimate responsibility for most bubbles, by facilitating bankers greed. Shortsellers perform the invaluable function of identifying systemic rot after they burst.
Toxic Relief Fund won’t be a panacea 19 Sep 2008 Markets jumped for joy at the prospect that Uncle Sam will absorb banks illiquid securities. But even if that happens and it will expensive and rife with moral hazard it probably won t stop the wave of deleveraging. That might require a cruise missile rather than a bazooka.
Giant US bailout would run into politics 19 Sep 2008 Investors like the sound of a big government fund to absorb bad financial assets at taxpayers expense. But one model the RTC of the 1990s called for a fiscally disciplined approach and nonpartisan management. It also took 6 months to set up, without an intervening election.
Short-selling bans court trouble 19 Sep 2008 Truly predatory investors will find myriad ways to circumvent the rules. But legitimate shortsellers longshort investment funds, options market makers, bank risk managers and many others will face significant problems. The bans could further destabilise the fragile system.
Insuring money market funds is a bad idea 19 Sep 2008 The US plan to insure the funds without overseeing them could encourage unwise risk taking. And the Fed s plan to lend to banks seeking to purchase commercial paper from the money market funds adds insult to injury.
Morgan Stanley’s desperation dating needs chaperone 18 Sep 2008 It looks like John Mack's firm, and maybe WaMu too, need to find partners pronto. But their courtships could make rivals like JPMorgan jealous enough to jump in and spoil the romance. The Fed and the Treasury might have to step in as chaperones to prevent bloody catfights.
Borrowing confirms bailout reality for US budget 17 Sep 2008 The US Treasury is now borrowing specifically to fund bailouts. The nonpartisan Congressional Budget Office already thinks the GSEs should be in the US government s budget. Presumably the same applies to AIG. The White House may disagree, but its resistance isn t tenable.
Kremlin clueless on markets 17 Sep 2008 Putin and Medvedev don t like the freefall of Moscow s bourses, but their commandeconomy responses suggest they don't understand how financial markets work. With oil surpluses heading south and Russia s reputation sinking, their attempts at meddling can only make things worse.
Fed rate cuts would address the wrong problem 15 Sep 2008 Real US interest rates remain negative. Tempting as it might be amid a market maelstrom, cutting them would risk destabilising the economy further and stoking inflation. The Fed is already providing liquidity to the banking system. It doesn t need lower rates to do it.
Dear Leader’s demise might lead to Korean unification 10 Sep 2008 That may be a ways off, but South Korea should consider how to avoid Germany s missteps. Korea could avoid this by allowing low North Korean wage rates to attract investment. But it would be a lengthy process and might impoverish lowskill South Koreans.
Market right to cast gimlet eye on US credit 10 Sep 2008 Default risk, even after taking responsibility for the GSEs $5.4 trillion of liabilities, remains miniscule. But credit traders think the US is now less of a sure thing. They re right to be sceptical the US could have to pony up more than it hopes to save the mortgage giants.
Fannie and Freddie Q&A 8 Sep 2008 The nearnationalisation of the Fannie Mae and Freddie Mac raises some basic questions. Richard Beales and Edward Hadas ask and answer them.
New Fannie and Freddie bosses look good on paper 8 Sep 2008 Herb Allison and David Moffett bring fresh blood and some muchneeded financial and organisational nous to the ailing mortgage giants. Good though that is, the US government is now calling the shots. That reduces the role of the chiefs to heavily supervised caretakers.
GSE bailout turns tables on CDS players 8 Sep 2008 Selling default insurance on Fannie and Freddie once looked brave. But it turned out to be a winning bet. The bailout has triggered the contracts, but a lot of the GSE debt still trades around face value. Protection sellers have earned premiums and shouldered little risk.
Paulson’s bazooka hits target with precision 7 Sep 2008 The nationalisation of Fannie and Freddie hits some right notes. The CEOs are ousted, equity and preferred holders are hosed and the businesses run off. This should help stabilise US housing. But it leaves the inevitable task of dismantling the GSEs to a future administration.
It’s still the economy, stupid 5 Sep 2008 The jump in US unemployment to a fiveyear high of 6.1% underlines that the November 4 presidential election is likely, for many, to be about the economy rather than nebulous values or even national security. Data due in the meantime are unlikely to be pretty.
Alaska’s oil and welfare state are keys to Palin’s success 4 Sep 2008 The nominee for vice president s strong fiscal record wasn t hard to achieve 2008 revenues were 40% above forecast, making budgeting easy. Yet Alaska still gets far more from the feds than it pays. Even resourcerich Hugo Chavez gets by without such largesse.
McCain needs to realise economics isn’t boring 2 Sep 2008 A successful McCain presidency would focus its foreign policy on major trading partners, use economic means to assist foreign policy goals, cut public spending and reform corporate tax. Oh, and return to traditional GOP monetary policy. Here are five ideas for change.
Fukuda departure bodes ill for Japan’s economy 2 Sep 2008 The exPM tried to restrain public spending and wanted to balance the budget by 2011. But the catcalls that greeted his modest stimulus package last week made his position untenable. With the spending barons back in control, Japan s economy and credit could suffer.
Foreign snub of GSE debt has silver lining for US 2 Sep 2008 Overseas investors are paring their holdings of Fannie and Freddie debt, despite the US government s backing of the GSEs. But erstwhile buyers appear to be ploughing funds into US Treasury bonds instead, helping to keep rates low, thereby benefitting the world s biggest debtor.