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23 Sep 09

Bank of America $4 Billion, Taxpayers $425 Million « The Baseline Scenario

James Kwak on what those deals from 6 months between big banks and government actually look like ... not nice for taxpayers

baselinescenario.com/...-billion-taxpayers-425-million - Preview

crash

Roboticise the banks (Harold James, Proj Synd)

  • Traditionally, banks were “black boxes,” in which operations were concealed from customers. The bank knew more about where its money went than its depositors and creditors did. Investment banks gave advice to corporations on mergers and acquisitions, but also issued securities and conducted their own proprietary trading. While so-called “Chinese walls” separated these activities, in practice market participants assumed some degree of leakage, and expected better returns from dealing with big banks, with their multifaceted, international operations. Thus, each counterparty in these transactions assumed that they were getting something special from the accumulated insights that the bank had acquired from its other branches of business, insights that derived fundamentally from permanent conflicts of interest.

Risk vs. ambiguity (Shiller, Proj Synd)

  • The work of Duke neuroscientists Scott Huettel and Michael Platt has shown, through functional magnetic resonance imaging experiments, that “decision making under ambiguity does not represent a special, more complex case of risky decision making; instead, these two forms of uncertainty are supported by distinct mechanisms.” In other words, different parts of the brain and emotional pathways are involved when ambiguity is present.
04 Sep 09

The story of the failure of economics in 2000 words (Paul Krugman NYT)

  • How Did Economists Get It So Wrong?
  • H. L. Mencken: “There is always an easy solution to every human problem — neat, plausible and wrong.”

Tha madness and badness of modern finance (Simon Johnson, MIT economist)


  • What happened to the global economy and what we can do about it

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    What Is Finance, Really?

16 Jul 09

Behavioural financial regulation (Vox)

  • Behavioural financial regulation
15 Jul 09

FT.com / Markets / Insight - Insight: A flawed model is preserved

  • the crazy habit of running the banking system as an off-balance sheet vehicle of the public sector
  • There is in fact evidence that many large corporations are not so keen on the big bank model. After consultation with its members, the Association of Corporate Treasurers told the UK’s Turner Review that companies generally did not need super-large banks. It said that while there could be minor conveniences in dealing with a very large bank providing a good range of service across the globe, this was not usually the key selection criterion.

Wolf - pessimistic about recovery and about lessons learned (Ft.com)

  • Those who expect a swift return to the business-as-usual of 2006 are fantasists. A slow and difficult recovery, dominated by de-leveraging and deflationary risks, is the most likely prospect. Fiscal deficits will remain huge for years. The alternatives – liquidation of excess debt via either a burst of inflation or mass bankruptcy – will not be permitted. The persistently high unemployment and low growth may even threaten globalisation itself.
08 Jul 09

Design banking to be run by idiots, because it is (John Kay, ft.com)

  • Warren Buffett’s: invest only in businesses that an idiot can run, because sooner or later an idiot will.
  • Great and enduringly successful organisations are not stages on which geniuses can strut. They are structures that make the most of the ordinary talents of ordinary people.
06 Jul 09

Goldman, Barclays - back to securitisation as if it's 2007 (Nakedcapitalism)

  • Goldman and Barclays are out touting old structured credit technology, apparently collateralized debt obligations, and claim they have been tamed and repurposed and are now virtuous.
16 Jun 09

De Long: Why interest rates are not soaring despite massive increases in supply of bonds (A Socratic Dialogue)

  • Sokrates: We will see. Keynesian--or maybe I should say Hicksian--economists would say that bond prices/interest rates and spending/income levels are the two quantities that together adjust to jointly clear the bond and the money markets, to satisfy both loanable funds and liquidity preference equilibrium; that sometimes the principal movement is in interest rates; that sometimes the principal movement is in spending levels; and that right now it is likely that spending will adjust by much more than interest rates.
03 Jun 09

Mandy goes to learn Colbertism from Sarko (ft.com)

  • Lord Mandelson, UK business secretary, is among those who have been trying to find out. The former European Union trade commissioner visited Paris this year in search of inspiration for a new industrial strategy for Britain. “We don’t have the same strategic goals and objective-setting by government,” he told the Financial Times, expressing interest in the incentives France offered and the way it organised its supply chain. Officials from the US, Australia and a host of other countries have also travelled to Paris in recent weeks in search of answers to their industrial dilemmas.

Europe will have to wait for US spending to start growing again (Wolf, ft.com)

  • The likely answer is that demand will be driven by unsustainable fiscal expansions in post-bubble economies. The unlikely answer is that private demand will pick up in creditworthy economies, particularly Germany. In the absence of either, Europe will wait for the US to spend itself back into (temporary) vigour. It is a sad picture, whatever the “green shoots” may seem to show.
23 May 09

Morality tale of the banking crisis. LRB · John Lanchester: It’s Finished

  • ‘RBS is a responsible company. We carry out rigorous research so that we can be confident we know the issues that are most important to our stakeholders and we take practical steps to respond to what they tell us. Then occasionally, we blow all that shit off, fire up some crystal meth, and throw money around with such crazed abandon that it helps destroy the public finances of the world’s fifth biggest economy.’ See if you can guess which of those sentences is not in the report.
  • Put problem one and problem two together, and we have the current situation, in which the big banks are completely untransparent but also too big to fail. That is a catastrophic formula. We (the taxpaying we) have no choice but to keep them in business, and yet no real idea what’s going on inside them.
  • 4 more annotations...
20 May 09

Bail-out and expense entitlement will invite revolution (John Kay, ft.com)

  • When the New Economy bubble burst in 2000, enough money was pumped into the system to sustain the establishment and pacify the population. Minor courtiers were executed but the essential power structure remained. But, as Louis XVI learnt as the guillotine fell, the longer reform is delayed, the bloodier the revolution. And the more unsettled and chaotic would be the eventual outcome for us all.
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