MetaFilter posts tagged with creditcrisis

The Economist: The World in 2010

goodnewsfortheinsane — Sat, 14 Nov 2009 17:09:43 -0800

In 2010, Obama will have a miserable year, NATO may lose in Afghanistan, the UK gets a regime change, China needs to chill, India's factories will overtake its farms, Europe risks becoming an irrelevant museum, the stimulus will need an exit strategy, the G20 will see a challenge from the "G2", African football will unite Korea, conflict over natural resources will grow, Sarkozy will be unloved and unrivalled, the kids will come together to solve the world's problems (because their elders are unable), technology will grow ever more ubiquitous, we'll all charge our phones via USB, MBAs will be uncool, the Space Shuttle will be put to rest, and Somalia will be the worst country in the world. And so the Tens begin.

The Economist: The World in 2010. Previously: 2009, 2008, 2007. How did we do last time around? Guest contributions: President of the European Commission José Manuel Barroso lines up Europe's priorities President of Russia Dmitry Medvedev argues for dialogue and cooperation President of the Maldives Mohamed Nasheed wants his island nation to remain above water President of Indonesia Susilo Bambang Yudhoyono would like for Islam and the West to live in harmony President of South Africa Jacob Zuma says Africa should rise to the occasion Director-General of the World Health Organisation Margaret Chan predicts the development of the flu pandemic Managing director of the International Monetary Fund Dominique Strauss-Kahn explains how to prevent another crisis CEO of Yahoo! Carol Bartz believes business leaders should tap into the information flood Chairman of HSBC Stephen Green argues that the financial sector should welcome emerging economies CEO of Fiat Group and Chrysler Group Sergio Marchionne thinks greener cars require bolder action CEO/CTO of SpaceX Elon Musk says the private sector should handle space travel

Mostly Bloody Awful?

jouke — Tue, 28 Apr 2009 08:57:25 -0800

On the role of MBA-based management culture in the current credit-crisis. Downloadable audio and transcript of a radio show that presents some strong opinions on MBA oriented management culture. Most notable amongst the people interviewed is Henry Mintzberg.

Ten principles for a Black Swan-proof world

jouke — Thu, 09 Apr 2009 00:36:04 -0800

Ten principles for a Black Swan-proof world By Nassim Nicholas Taleb in FT.

Should creation of money stay in private hands?

woodblock100 — Mon, 09 Mar 2009 01:11:03 -0800

Professor and economist Richard Werner proposes a solution for the current banking crisis, under which "... national debt and interest liabilities will not increase, but credit creation will." He begins by giving a rather novel perspective on some basics: "It is a little-known fact that there is no such thing as a 'bank loan.' Banks do not lend money. 'Lending' refers to transferring control of the lent object to the borrower. If I lend you my car, I can't at the same time drive in it. That's not what banks do when they issue a 'bank loan.' Instead, they are allowed by the current regulatory framework to create new money out of nothing--which is called 'credit creation.' The collective decisions of commercial bank staff thus determine how much money is created, who gets the newly created money and for what purpose." His proposal involves the issuance of 'United States Notes', such as the ones President John F. Kennedy authorized to be issued in 1963.

The Grand Experiment

troy — Fri, 19 Dec 2008 17:01:31 -0800

History Repeats Itself in Different Hues -- a readable Q&A data dump comparing the economics and policy responses of 1990s Japan and current events

Synthetic CDO's: tsunami event when major bankruptcies reaches 9 (currently 6)

stbalbach — Mon, 01 Dec 2008 19:54:52 -0800

Synthetic CDO's are complex little known financial instruments (insurance contracts) that are on the brink of triggering "the most colossal rights issue in the history of the world, all at once .. mandatory." If, out of a list of several hundred major companies, any nine go bankrupt, the CDO's are in default, which would mean a mass transfer of cash (real money) from unsuspecting investors around the world goes into the banking system. How much? Nobody knows, but it’s many trillions. Banks will be flush with cash, perhaps ending the credit crisis, while many investors (individuals, charities, municipalities) will be wiped out. Alternatively, the triggering of default on the trillions of synthetic CDOs could be a disaster that tips the world from recession into depression. Nobody knows, but it won’t be a small event. Thus far the count is six: three Icelandic banks, Countrywide, Lehman and Bear Stearns.

The Economist: The World in 2009

goodnewsfortheinsane — Thu, 27 Nov 2008 19:00:30 -0800

In 2009, a remarkably gifted politician, confronting a remarkably difficult set of challenges, will have to learn to say "No we can't", Guantánamo will prove a moral minefield, economic recovery will be invisible to the naked eye, governments must prepare for the day they stop financial guarantees, we will judge our commitment to sustainability, scientists should research the causes of religion, we will all be potential online paparazzi, English will have more words than any other language (but it's meaningless), Afghanistan will see a surge of Western (read: American) troops, Iran will continue its nuclear quest while diplomacy lies in shambles, the sea floor is the new frontier, we should rethink aging, (non-)voters will continue to thwart the European project -- but cheap travel will continue to buoy it -- though it has some unfinished business to attend to, and a Nordic defence bond will blossom.

The Economist: The World in 2009. Previously: 2008, 2007. How did we do last time around? And what will we probably be wrong about this time? Guest contributions: President of Brazil Luiz Inácio Lula da Silva seeks greater international cooperation and sees a growing global role for the larger emerging economies. Queen of Jordan Rania calls for education reform. Prime Minister of Australia Kevin Rudd calls upon mid-size powers to be creative and effective with their influence. Prime Minister of Spain José Luis Rodríguez Zapatero emphasizes the importance of transparency and solidarity in Europe. Prime Minister of Ukraine Yulia Tymoshenko, wedged between Russia and the EU, cites historical precedent. Former Secretary of State of the United States, Nobel Peace Prize laureate Henry Kissinger argues America will be less powerful, but will still be the essential nation in creating a new world order. Mayor Boris Johnson of London argues against over-regulation. Elections to watch: Brazil, Chile, European Parliament, Germany, Indonesia, Israel, Japan. Also: Russia will enter its first real difficult years under Putin, Brown might not make it, we won't ban nukes but we can pretend, Ontario will receive economic help from other provinces, Australians will grow ever more thirsty, and Britain needs to make stuff again. World in 2009 blog.

I Am Not a Whiner

Xurando — Mon, 17 Nov 2008 09:37:55 -0800

Phil Gramm is unrepentent. "Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers". "Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets." “This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

Don't watch the Dow. Here’s the number that really captures the financial crisis [TED spread]

stbalbach — Mon, 13 Oct 2008 20:51:17 -0800

The Dow went up today.. don't watch the Dow. Here’s the number that really captures the financial crisis [TED spread]. Bloomberg TED spread, chart. Understanding the TED spread. NPR 12-minute interview explains the TED spread (audio). Previously on MeFi (comments).

Stochastic cascades, credit contagion, and large portfolio losses

geoff. — Tue, 30 Sep 2008 08:14:11 -0800

"In the limit of an infinite economy, the number of initial downgrades is Poisson distributed. This captures the idea that the shock initially affects only a small number of firms. Nonetheless, the distribution of the total number of defaults has slowly decaying tails ... A firm might well be able to absorb its shock, but it might not be able to absorb both the shock and the resulting deterioration in the average rating. The initial downgrades may thus trigger additional defaults that, in turn, further deteriorate the average rating, and so on. In a large economy, this cascade can be described by a branching process." Ulrich Horst, Journal of Economic Behavior & Organization, 2007. (Internet supplement!) More from Hurst on his website, this is the best description of the credit crisis I have yet to come across. Here's part of the conclusion: "We characterized the tail behavior of the distribution of aggregate portfolio losses. If the interaction between firms are too strong, then aggregate losses turned out to be heavy-tailed even if individual losses are thin-tailed. This illustrates that counterparty relationships are in fact an additional source of intrinsic risk that should be accounted for. However, the risk can be considerably reduced if the firms’ financial standing is measured on a finer scale. In the limiting case of continuous adjustments, the additional risk is simply specified by the size of the external shock." The solution to bad models? More models!

Mortgaging America

ornate insect — Thu, 05 Jun 2008 11:15:54 -0800

America's for sale. Just ask Treasury Secretary Henry Paulson. With the U.S. economy in shambles, Paulson just spent four days touring the Middle East, hat in hand, looking for investors to bail us out. Specifically, on Monday, Paulson met with heads of the Abu Dhabi Investment Authority, the world's largest "sovereign wealth fund" with roughly $875 billion in assets, and encouraged them to buy American businesses. Mortgaging America by Eric J. Weiner (LA Times Op Ed) What are Sovereign Wealth Funds? According to the article: "Sovereign wealth funds, or SWFs, basically are mutual funds that invest the excess capital generated by a region or country. The first one was established by Kuwait when it still was a British territory. After World War II, as Kuwait was negotiating independence, its leader, Sheik Abdullah al Salem al Sabah, asked the British to help him create a fund that would invest the nation's oil profits. The Kuwait Investment Board, which eventually became the Kuwait Investment Authority, today has about $250 billion in assets and is one of the largest sovereign wealth funds in the world.... (snip) In 1990, the funds held just $500 billion in assets combined. Today, that figure is about $3.5 trillion. For comparison purposes, that's more than all of the assets controlled by all of the hedge funds in the world. And by 2012, the figure will be at least $10 trillion, according to estimates by the International Monetary Fund...." A congressional task force on soverign wealth funds (SWFs) will will speak at a Capitol Hill briefing sponsored by the National Council on U.S.-Arab Relations today, and "one of the goals of the task force is to avoid 'any unforeseen political reactions to their investments.'" This is critical, because, according to this article, "the Kuwait Investment Authority has said it might raise its stakes in Citigroup and Merrill Lynch, signalling a vote of confidence in US investing. [It may be Lehman Bros. that needs the cash infusion, however.] Kuwait’s statements in London could indicate that Gulf sovereign funds are convinced that protectionist rhetoric in the US won’t jeopardise their investments." [Emphasis added]. The WSJ has quoted Paulson as saying that the U.S. would like to "benefit from sovereign-wealth-fund investments," provided that a set of "credible best practices" is followed by such funds: "Among some sovereign-wealth-fund managers, our initiative has raised concerns that we are trying to limit the scope of their activities or release privileged information," Mr. Paulson said. "In fact, our purpose is just the opposite. We are trying to quell calls for restrictions by urging sovereign-wealth funds to endorse best practices to create a dynamic rise to the top and help allay concerns about opacity and systemic risks," he added. Meanwhile, Harvard economist and former IMF economist Kenneth Rogoff wonders if it makes sense "for...Paulson to be touring the Middle East supporting the region's hard dollar exchange-rate pegs, while the Bush administration simultaneously blasts Asian countries for not letting their currencies appreciate faster against the dollar?," and suggests "the US should be supporting the International Monetary Fund's behind-the-scenes efforts to promote de-linking of oil currencies and the dollar." Also meanwhile, "Worries about the health of the U.S. financial system, on the decline since mid-March, have snapped back as investors brace for more big loan losses at Lehman Brothers and other large investment banks..." Worries about the Credit Default Swap (CDS) Market remain, as well as about record home foreclosure levels. Banks are very hesitant to loan right now, and "US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets." Some argue that the economic ripple effect from the credit crisis is far from over: "What began with the repackaging of subprime loans into AAA rated securities is unraveling on Main Street, wreaking havoc with businesses and lives far from New York, as house prices continue to fall and foreclosures rise. That, in turn, means more bad news for banks...."

Soros: Financial crisis as bad as the Great Depression

stbalbach — Mon, 28 Apr 2008 10:09:29 -0800

The Financial Crisis: An Interview with George Soros. "We are in the midst of a financial crisis the likes of which we haven't seen since the Great Depression." (video, April 4)