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Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party - WSJ.com
Mr. Rajan also argued that because banks were holding a portion of the credit securities they created on their books, if those securities ran into trouble, the banking system itself would be at risk. Banks would lose confidence in one another, he said: "The interbank market could freeze up, and one could well have a full-blown financial crisis."
Two years later, that's essentially what happened.
Regulation and the financial crisis
In a new ASI briefing paper – The Financial Crisis: Is Regulation Cure or Cause? – Tim Ambler examines demands for financial stability and security though increased regulation. The question the paper poses is whether existing regulation mitigated the 2008 financial crisis, had no impact, or exacerbated it. Answering this question is the key to deciding how we respond to the crisis.
In defence of credit-default swaps | The great untangling | The Economist
Last month JPMorgan’s Blythe Masters, one of the market’s founders, urged regulators to distinguish between tools and their users: “Tools that transfer risk can also increase systemic risk if major counterparties fail to manage their exposures properly.”
Big bail-outs unlikely to stop the rot | ft.com
Other credit crises in developed economies over the past 30 years have followed a similar path. In general, bank stocks have tended to trough only after real estate prices have returned to fair value.
avoid government interference to solve credit crisis
It is difficult to gauge when financial market upheaval will finally come to an end. However, as long as policymakers steer clear of tax hikes, tight money, and protectionism, the economy should remain resilient.
FT.com / Credit bubble - FBI eyes big business in mortgage fraud probe
Federal investigators are homing in on 19 “large corporations” – including investment banks, credit rating agencies, accounting firms and hedge funds – as part of a broad probe into mortgage fraud.
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Federal investigators are homing in on 19 “large corporations” – including investment banks, credit rating agencies, accounting firms and hedge funds – as part of a broad probe into mortgage fraud.
FT.com / World / US & Canada - Canada looks to rein in bank liquidity
Aside from the validity of the decision to reduce availability of liquidity to Canadian Banks, I am fascinated by the comment that Canada "largely excaped the meltdown". Arguably it was relatively less in Canada, but with losses of somewhere close to $10 billion, and the subsequent lockdown on new investment by Canadian Banks, one has to question the reasonablness of that statemen.
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He noted in an interview with the Financial Times that liquidity stress in Canadian markets was much less than in the US or Europe. Canada has also largely escaped the meltdown in the US subprime mortgage market.
It’s Hard to Thaw a Frozen Market - New York Times
"Market prices have been drained of their informational value and thus don’t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills."
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Market prices have been drained of their informational value and thus don’t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills.
Beyond the Banking Crisis: A Strategy Crisis - Harvard Business Online's Umair Haque
Fascinating analysis suggesting a fundamental shift is occurring in banking. Umair writes in the HBR.
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Let’s begin with a quick explanation from the ever-incisive Tyler Cowen. He notes:
"What is distinctive today is the drying up of market liquidity — the inability to buy and sell financial assets — caused by a lack of good information about asset values...Market prices have been drained of their informational value."
FT.com / World / US & Canada - Bush and Brown in push to deal with crisis
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George W. Bush, US president, and Gordon Brown, UK prime minister, have agreed to step up co-operation over the crisis in financial markets. They are setting up a joint working group which will develop plans to monitor and regulate the banking system.
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