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Finance: stocks, options, etc.
A Category Archive (299 entries)
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November 19, 2008
Finance: stocks, options, etc.
Arnold Kling
Yesterday evening, I attended a panel discussion on the financial crisis. The ground rules were that the discussion was off the record, which I will interpret as allowing me to comment on the content of the discussion, without disclosing who... MORE
November 18, 2008
Finance: stocks, options, etc.
Arnold Kling
According to the Wall Street Journal real-time economics blog, A Factiva search of the top 50 newspapers in the U.S. returns 268 stories referring to a housing or real-estate bubble in 2003. In 2004 that number increases to 369 and... MORE
Finance: stocks, options, etc.
Arnold Kling
from Andrew Lo. The functional approach to studying financial institutions and regulation begins with the observation that there are six functions of the financial system--a payments system, a pooling mechanism for undertaking large-scale investments, resource transfer across time and space,... MORE
November 17, 2008
Finance: stocks, options, etc.
Arnold Kling
He talks with Russ Roberts, who asks skeptical questions. Selgin thinks that one can have sound unregulated, uninsured banking without reserve requirements of 100 percent. He thinks that bank owners need to have significant capital at risk. Once upon a... MORE
November 16, 2008
Finance: stocks, options, etc.
Arnold Kling
It occurs to me that one way to think of people's views on financial regulatory reform is to treat people as using one or more of the following three metaphors: 1. Machismo Those who are driven by this metaphor think... MORE
Finance: stocks, options, etc.
Arnold Kling
The Washington Post gives a generous portion of its Sunday editorial section to Eliot Spitzer. Today's balkanized regulatory framework for financial services no longer matches in any way the needs of a fully integrated global financial system. The divisions of... MORE
November 15, 2008
Finance: stocks, options, etc.
Arnold Kling
I have argued that credit default swaps are fatally flawed because there is no natural seller. One commenter on this post asked, then, Has Arnold gone into detail on why CDSs exist? I understand his point that they have no... MORE
November 14, 2008
Finance: stocks, options, etc.
Arnold Kling
I have been invited to speak for ten minutes on the financial crisis. As you will see below, I do not agree so much with President Bush (via Mankiw). Unlike the President, I see no benefit in putting credit default... MORE
November 13, 2008
Finance: stocks, options, etc.
Arnold Kling
James Kwak of Baseline Scenario wrote, The problems in the U.S. housing market were not themselves big enough to generate the current financial crisis... without any fundamental changes, the markets decided that AIG might be at risk, and the fear... MORE
Finance: stocks, options, etc.
Bryan Caplan
From John Cochrane:The standard portfolio rule says that your stock percentage should rise with the expected return (stocks and bonds) divided by squared return volatility. So, if you were happy with a 50/50 portfolio with an expected return of 7%... MORE
Finance: stocks, options, etc.
Arnold Kling
Consider two propositions: 1. Market failure is inevitable. 2. Government failure is inevitable. In talking about the financial crisis, I believe that to speak the truth one has to accept both propositions. Most people prefer narrative, which either explicitly or... MORE
November 12, 2008
Finance: stocks, options, etc.
Arnold Kling
The Associated Press reports, Under the law, companies facing shortfalls must bring their plans up to full funding over the next seven years. Those that fall short will be forced to take steps such as freezing the accrual of new... MORE
Finance: stocks, options, etc.
Arnold Kling
Self-recommending, as Tyler would say. Lewis profiles someone who bet against subprime loans. Although you really must drop everything to go read the whole thing, here is one tidbit: Next, the baby nurse he'd hired back in 1997 to take... MORE
November 11, 2008
Finance: stocks, options, etc.
Arnold Kling
Megan McArdle writes Money is weird. Finance is weird. There is no other industry that is, first, so tightly coupled, and second, severely affects every other industry in the country. She Is trying to ward off cognitive dissonance over the... MORE
Finance: stocks, options, etc.
Arnold Kling
Below are various links, including some that pertain to AIG. The government is eventually planning to sell the normal insurance lines of AIG. The proceeds from those sales then can be used to fund losses on the credit default swaps... MORE
November 10, 2008
Finance: stocks, options, etc.
Bryan Caplan
Nouriel Roubini says the market will fall another 20-25%, and advocates a bailout for U.S. automakers. In fact, while he recognizes a line-drawing problem, he seems to favor a bailout for any firm that involves "systemic" risk.I wonder: If I... MORE
Finance: stocks, options, etc.
Arnold Kling
From Freddie Mac. Lots of interesting stuff there, including a breakdown that says that over 15 percent of some of their riskiest loans are non-owner-occupied. See pl. 30. However, it is not clear that they have all of the risk... MORE
Finance: stocks, options, etc.
Arnold Kling
Russ Roberts and I talk. We start with credit default swaps, and that may be a bit hard to follow. Then we get into broader issues of what I call the housing industrial policy and the purpose of the various... MORE
November 7, 2008
Finance: stocks, options, etc.
Arnold Kling
One of the reasons that I am worried about the economy is that I am seeing such a high ratio of sweeping proposals to hard facts. [UPDATE: At this discussion of the role of the Community Reinvestment Act in the... MORE
November 5, 2008
Finance: stocks, options, etc.
Arnold Kling
A banana republic is a country where government obligations swamp total wealth. In a typical banana republic, wealthy individuals race to move their savings overseas to safe havens. Those who fail to do so will suffer from taxation, inflation, and... MORE
November 4, 2008
Finance: stocks, options, etc.
Arnold Kling
Uwe Reinhardt writes, Iceland's problem, like that of the rest of the world, is rooted in the unquestioned belief in the free market doctrine that swept the world during the past two decades...Iceland's liberal government thought it was safe to... MORE
November 3, 2008
Austrian Economics
Arnold Kling
Walter Block, arguing against Bryan, says that fractional reserve banking is fraudulent. There is some chance that when you make your deposit you will not get your money back, and instead someone else will have taken title to it. Therefore,... MORE
Finance: stocks, options, etc.
Arnold Kling
So many teach-ins. The one at Yale School of Management builds up to an interesting argument in the last half hour over mark-to-market accounting. In all of the teach-ins I've seen, this one generates the most actual debate. The link... MORE
Economic Education
Arnold Kling
Tyler Cowen writes, The consulting incomes of finance economists will fall and fewer talented people will go into finance. Speaking fees will fall since fewer economists will give talks at hedge funds. The relative status of macroeconomists will rise and... MORE
November 1, 2008
Finance: stocks, options, etc.
Arnold Kling
Robert Shiller complains about groupthink among policymakers. He means that they didn't heed his warnings of a housing bubble. My complaint is about the groupthink that says we really, really must revive the mortgage securities industry. Instead, I suggest thinking... MORE
October 31, 2008
Finance: stocks, options, etc.
Arnold Kling
Lots of big names at a Berkeley symposium on housing finance, including Ben Bernanke. Reportedly, Bernanke focused on the need to rework the government guarantee of mortgage securities. I really believe that is wrong. Moreover, he knows less about it... MORE
Finance: stocks, options, etc.
Arnold Kling
It is interesting to go back and read of the papers delivered at a Fed conference in Jackson Hole in 2007. Tanta was on top of them.... MORE
Finance: stocks, options, etc.
Arnold Kling
The New York Times has a story about borrowers who worry that they are hurting themselves by paying their mortgages and perhaps missing out on a bailout. "If the government says, 'Prove that you can't afford your house and we'll... MORE
October 30, 2008
Finance: stocks, options, etc.
Arnold Kling
Joshua D. Coval, Jakob W. Jurek, and Erik Stafford write, First, the securities' credit ratings provided a downward biased view of their actual default risks, since they were based on the credit ratings agencies' naïve extrapolation of the favorable economic... MORE
Finance: stocks, options, etc.
Arnold Kling
One word I never see in the press coverage of the housing crisis is "speculator." Whether it is yet another silly economist's op-ed* or a front-page story, the press talks about distressed homeowners, not the people with second and third... MORE
October 29, 2008
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong says I am wrong about his views of Greenspan. I now think he was wrong not to move aggressively to curb the housing bubble of the 2000s. But I think all in all he did a very good... MORE
October 28, 2008
Finance: stocks, options, etc.
Arnold Kling
The Kellogg School (Northwestern University's Business School) has a sort of blog, featuring several professors there. One of them, my former grad school classmate Bob McDonald, is the author of a definitive textbook on derivatives. In one post, he writes,... MORE
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, The current financial crisis has its roots in Greenspan's decision to keep interest rates very low in 2002 and 2003 to head off the danger of a deflation-induced double-dip recession, and his subsequent decision that the costs... MORE
October 26, 2008
Finance: stocks, options, etc.
Arnold Kling
Why is the U.S. dollar strengthening, given the crisis that is taking place here? I remember that Steve Roach once used the metaphor of the tallest pygmy to explain how the strength of the dollar. Maybe once again we are... MORE
October 24, 2008
Finance: stocks, options, etc.
Bryan Caplan
Tyler has often said that his co-blogger Alex Tabarrok is the best truth-tracker in our lunch posse. Alas, Tyler fails to take his own assessment seriously. See their exchange on the myths of the credit "crisis":Phase 1. Alex summarizes the... MORE
Finance: stocks, options, etc.
Arnold Kling
Megan McArdle has written about the evil man theory (also here). The key to a narrative of evil is that someone knew. Early in the crisis, we were hearing that banks knew that the loans they were making were headed... MORE
October 23, 2008
Finance: stocks, options, etc.
Arnold Kling
In an ongoing dialog with Mencius Moldbug, I changed from my favorite fruit tree metaphor.... MORE
Finance: stocks, options, etc.
Arnold Kling
He writes, I always wonder if the people making the decisions actually had these thoughts, i.e. if they explicitly made decisions based upon the assumption that there was a large possibility of a bailout if they blew things up. Do... MORE
Finance: stocks, options, etc.
Arnold Kling
The Hill Reports, An independent financial oversight committee should be established to examine what led to the economic meltdown, House Republicans on the Oversight and Government Reform Committee said Wednesday. The National Journal's Congress Daily (subscription required) reports, Democratic leadership... MORE
Macroeconomics
Arnold Kling
It comes from Olivier Blanchard. a largely shared vision both of fluctuations and of methodology has emerged. Not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and... MORE
October 22, 2008
Austrian Economics
Arnold Kling
In response to my post on the porn that is modern macro, readers naturally asked me for alternatives.... MORE
Finance: stocks, options, etc.
Arnold Kling
I am shocked at the behavior of my fellow economists during this crisis. They are claiming to know much more than they do about causes and solutions. Rather than trying to understand and explain what is going on, they are... MORE
October 21, 2008
Finance: stocks, options, etc.
Arnold Kling
My earlier post left people confused. Let me give an example to clarify my model of financial intermediation with no information asymmetries.... MORE
Finance: stocks, options, etc.
Arnold Kling
An interesting dialog between Dani Rodrik and Steve Randy Waldman. Some excerpts from the latter: The purpose of a financial system is to solve a collective optimization problem whose solution we cannot guess a priori. If we are very sure... MORE
October 20, 2008
Finance: stocks, options, etc.
Arnold Kling
This post returns to the deep topic of banking theory. I am very unhappy with the state of banking theory in economics. People make very strong empirical claims about what they call the risk-taking process based on shallow thinking about... MORE
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen has a new variation of the too-big-to-fail story. He quotes Anna Schwartz to the effect that insolvent banks need to be shut down. Tyler replies This is almost certainly true if the number of "problem banks" is sufficiently... MORE
Finance: stocks, options, etc.
Arnold Kling
Hans-Werner Sinn writes, The lack of equity resulted largely from the concept of "limited liability," which provided an incentive for excessive leveraging. Earnings left inside a financial institution can easily be lost in turbulent times. Only earnings taken out in... MORE
Finance: stocks, options, etc.
Arnold Kling
In The Washington Post. when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance.... MORE
October 19, 2008
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen invokes Fischer Black. in his 1991 book, "Business Cycles and Equilibrium," and his 1995 work, "Exploring General Equilibrium," he argued that major business downturns could be caused by a combination of excess risk-taking and simple bad luck. If... MORE
October 16, 2008
Finance: stocks, options, etc.
Arnold Kling
It's not a good idea to try to interpret stock market moves as if they were rational. It's also not a good idea to refer to the U.S. Treasury Secretary as "Mussolini." I'll consolidate both of these ideas in this... MORE
October 15, 2008
Finance: stocks, options, etc.
Arnold Kling
Tyler keeps wondering whether the bailout (or "bank recapitalization") is going to work. He is asking the wrong questions. Whether the economy needs a "plan," or whether the plan will help the markets, is beside the point. The plan serves... MORE
Finance: stocks, options, etc.
Arnold Kling
Today's Washington Post gives us the inside story of how some regulators sought to put derivatives under and exchange. They met with resistance from other regulators. It is all very entertaining, but at the end of the day, an organized... MORE
October 14, 2008
Finance: stocks, options, etc.
Arnold Kling
Below is the longest blog post ever. It contains the "written remarks" that extend my fantasy testimony. Update: I will have to revise this to take a more conservative view of the proportion of investor loans. A reader sent me... MORE
Finance: stocks, options, etc.
Arnold Kling
The amazing Mark Thoma has already read everything in the links below. The rest of you could benefit from reading my excerpts and commentary.... MORE
October 13, 2008
Finance: stocks, options, etc.
Arnold Kling
Imagine an announcer came on TV and said, "Welcome to the 2008 Bank Telethon. You've heard all the horror stories. Now, with the holiday season approaching, I know you'll want to reach deep into your pockets to lend a hand."... MORE
Energy, Environment, Resources
Arnold Kling
I would love to see this question asked at a Presidential debate: If half of the troubled mortgage loans are for non-owner-occupied homes, that is for houses owned by speculators, do your proposals still make sense? My understanding is that... MORE
Finance: stocks, options, etc.
Arnold Kling
One suggestion that often crops up is to create an exchange for derivatives, such as credit default swaps. In my view, this probably would solve the problem of counterparty risk. However, the more important problem, systemic risk, would be left... MORE
October 12, 2008
Finance: stocks, options, etc.
Arnold Kling
I am in the process of writing expanded fantasy testimony. Below are what I call "oral remarks." I am also working on some support material that I call "written remarks." My goal in writing this is primarily therapeutic. There is... MORE
Finance: stocks, options, etc.
Arnold Kling
The myth is that mortgage securitization reflects the genius of Wall Street. The reality is that it reflects the stupidity of the way that regulatory capital requirements are calculated. The market for low-risk loans is dominated by Freddie and Fannie... MORE
October 9, 2008
Finance: stocks, options, etc.
Bryan Caplan
It looks like I have two takers in the comments: Michael K and Steve Roth. To seal the deal, I just need you guys to email me and give me enough info so I can identify you "in real life"... MORE
October 7, 2008
Finance: stocks, options, etc.
Bryan Caplan
I'm locked and loaded to bet on the bailout. My muse is none another than H.R. 1424, section 134:SEC. 134. RECOUPMENT.Upon the expiration of the 5-year period beginning upon the date of the enactment of this Act, the Director of... MORE
Finance: stocks, options, etc.
Arnold Kling
I did not care for Paul Romer's claim that realists support the Paulson plan, while model-addicted fundamentalists oppose it. In my view, there are realistic reasons to oppose the Paulson plan. First, many "realists" say that we need to boost... MORE
Austrian Economics
Arnold Kling
Mencius Moldbug sent an email asking me to comment on this post, and we have been corresponding back and forth. I should say that monetary theory gives me a headache.... MORE
October 6, 2008
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen puts a lot of the blame for the financial crisis on leverage. He links to Robert Frank, who writes, In financial markets, asset bubbles cause real trouble when investors can borrow freely to expand their holdings. To... MORE
October 3, 2008
Finance: stocks, options, etc.
Arnold Kling
No major newspaper would run any op-ed from me. I gave up and sent one to American.com, which you can see here. The bottom line: The financial bailout isn't as bad as Main Street thinks. It's worse. I think... MORE
Finance: stocks, options, etc.
Arnold Kling
The Washington Post tries to explain them. So far, I think that I am the only commentator who has offered a theory of how credit default swaps create systemic risk. I'm not saying that I'm the only person with... MORE
Finance: stocks, options, etc.
Arnold Kling
Russ Roberts writes, Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize... MORE
October 2, 2008
Finance: stocks, options, etc.
Arnold Kling
The Daily Telegraph reports, We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that... MORE
Finance: stocks, options, etc.
Arnold Kling
I'll try liveblogging. Here is a transcript. For what Rogoff was thinking the other day, see this op-ed. (We exchanged emails briefly on Saturday. He mentioned he was writing something, and it sounds like he's shifted a bit between then... MORE
Finance: stocks, options, etc.
Arnold Kling
First, read Tyler Cowen's post of the same title. 1. Causes In hindsight, I think that the crisis was caused by a) creation of the secondary mortgage market (50 percent) b) low down payment mortgages (30 percent) c) the "suits... MORE
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen endorses the idea of recapitalizing banks using government-issued "net worth certificates." He has links to more explanation. Steven Pearlstein disagrees. Many academic economists argue that if taxpayers are going to rescue the financial system, their money should be... MORE
September 30, 2008
Finance: stocks, options, etc.
Bryan Caplan
A few years ago, I was tormented by an aggressive broker who kept calling me at 6 AM to sell me stocks. I always hung up on him; but even when I was slamming down the phone, I could still... MORE
September 29, 2008
Finance: stocks, options, etc.
Arnold Kling
1. During the crash of 1929, the gossip sheet Variety ran a famous headline, "Wall Street Lays an Egg." In those days, that was what you said about a show that the audience hated. If things keep going the way... MORE
September 28, 2008
Finance: stocks, options, etc.
Arnold Kling
He favors the bailout. Without in any way impugning his motives, let me state the impact on Warren Buffett personally if the bailout is enacted. Think of the mortgage securities market as the World Series of Poker. In fact, a... MORE
Finance: stocks, options, etc.
Arnold Kling
I look like a cornered criminal, but this episode of Free Will gives me good exposure to explain how we got where we are today. Find out why Will Wilkinson considers Arnold Kling "The most sober crackhead I've ever met."... MORE
Finance: stocks, options, etc.
Arnold Kling
1. I read in the paper that Nancy Pelosi said they were going to post the legislation on the Web 24 hours before they voted on it. That means it should be up by now, right? Anyone know where to... MORE
Finance: stocks, options, etc.
Arnold Kling
For a different and important perspective on the financial crisis, I want to draw your attention to Robert Merton's remarks at Thursday's Harvard forum, linked to here. The Nobel Laureate begins with a back-of-the-envelope calculation. Data suggest that between June... MORE
September 27, 2008
Finance: stocks, options, etc.
Arnold Kling
Harvard put together a faculty roundtable on the financial crisis. Thanks to Alex Tabarrok for the pointer. I skipped over much of it to listen to the three last panelists. Greg Mankiw (starts about minute 44) said that chapter 26... MORE
Economic Education
Arnold Kling
What macroeconomic theory says that we run the risk of a Depression if we don't have a bailout? Try to come up with an argument that is either already in a textbook or that you would put in a textbook.... MORE
Finance: stocks, options, etc.
Arnold Kling
Five B-school professors from the University of Chicago write, we believe that it might be even better if the Treasury plan was divided into two components -- a plan to "liquify" certain moribund markets, thus allowing financial institutions to sell... MORE
Finance: stocks, options, etc.
Arnold Kling
Greg Mankiw gets an email from Robert Shimer, who writes, looking back over the last 13 months, it should be clear that the Fed and Treasury have repeatedly underestimated the extent of the problem. In such an environment, the distributed... MORE
Finance: stocks, options, etc.
Arnold Kling
William R. Cline writes, The challenge is for the Federal Reserve and Treasury to develop internal reference prices applicable to each rating class and vintage of mortgage-backed securities that reflects reasonable medium-term values. These should be based on default probabilities... MORE
September 26, 2008
Finance: stocks, options, etc.
Arnold Kling
With so much riding on the pending bailout, I would ask Congress to hold a hearing this weekend, with two people testifying: Ben Bernanke and Roger Cole. Cole is head of the Federal Reserve's Division of Bank Supervision and Regulation,... MORE
Finance: stocks, options, etc.
Arnold Kling
They propose that all holders of private mortgage securities get together and form an insurance fund to guarantee their values. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance. As... MORE
Finance: stocks, options, etc.
Bryan Caplan
It's easy to explain why financial markets like the bail-out - it's a big transfer from tax-payers to investors. But Arnold points out that the market liked Nixon's price controls, too: "In 1971, the market gave a huge thumbs-up to... MORE
Finance: stocks, options, etc.
Arnold Kling
Ben Bernanke and I went to the same graduate school. We're on opposite sides of the bailout issue. My joke is that one of us is on crack, and it's probably me. My more serious answer is in this Cato... MORE
Finance: stocks, options, etc.
Arnold Kling
For not doing a bailout: 1. We don't need to bail out Wall Street to protect Main Street. All we have to do is make sure that sound borrowers, especially small businesses, have access to credit. Banks can do the... MORE
Finance: stocks, options, etc.
Arnold Kling
As I continue to be in demand in obscure alternative media, I appeared on another radio program this morning. I was asked to comment on the proposal by the Congressional Republicans to create an insurance fund for mortgage securities. My... MORE
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen joins the club calling for lower capital requirements. At least, that is what I think he is doing by referring to a paper by Kashyap, Rajan, and Stein. Tyler writes, Their phrase "recapitalization as a public good" should... MORE
Finance: stocks, options, etc.
Arnold Kling
This morning, I realized why people think you can make money holding mortgage securities to maturity. They think that these securities are bonds. In reality, they are (or include) short option positions.... MORE
September 25, 2008
Finance: stocks, options, etc.
Arnold Kling
Hear I am on the radio. I start at about minute 5:30. There is a little back and forth including other guests before they finish with me near the end. Late this afternoon, Bill Niskanen of Cato and I met... MORE
Finance: stocks, options, etc.
Arnold Kling
I found this story too depressing to finish. It says that we have a bipartisan agreement on a bailout, and I read only as far as the proud quotes from Chris Dodd and Barney Frank. The unemployment rate is 6.1... MORE
Finance: stocks, options, etc.
Bryan Caplan
My conjecture: If Paulson's bail-out were funded by a permanent tax increase sufficient to raise $700B in present value terms, it wouldn't stand a chance. The minimal public outcry, therefore, hinges on "debt illusion" - the mistaken view that debts,... MORE
Finance: stocks, options, etc.
Arnold Kling
I will elaborate on the following points. 1. Today's economy differs from that of the 1930's. Then, it may be that the financial sector may have contributed to the downturn elsewhere. Today, the financial sector is the downturn. 2. The... MORE
September 24, 2008
Finance: stocks, options, etc.
Arnold Kling
Depends who you ask. Robert Higgs says no. Commercial and industrial loans of all commercial banks, which are reported monthly, have grown rapidly. The most recent report, for August 2008, shows outstanding loans of $1,514 billion, an all-time high. This... MORE
Finance: stocks, options, etc.
Arnold Kling
I will update this post as new items merit attention. First, my latest essay opens, I am concerned that the bailout might be the cause of the problem that it purports to solve. I am re-using Karl Kraus' famous quip... MORE
Finance: stocks, options, etc.
Arnold Kling
From The PBS News Hour on September 23: JEFFREY BROWN: Let me ask you, stay with you. One of the issues that we heard raised in the hearing was the question of whether anybody can fairly value the bad assets... MORE
September 23, 2008
Finance: stocks, options, etc.
Arnold Kling
A long list. Thanks to Alex Tabarrok for the pointer. UPDATE: two more, one pro and one con... MORE
Finance: stocks, options, etc.
Bryan Caplan
Just when I was starting to feel disillusioned in my profession, the Stiglitz/DeLong/Edlin edited Economists' Voice lashes out against the Paulson bail-out. Just let me add: If we've learned anything from the Iraq War, it's that it's a good idea... MORE
Finance: stocks, options, etc.
Arnold Kling
Mark Thoma writes, Now I just have to figure out how the "hold to maturity" price is to be determined, and how purchasing at that price minimizes losses. Suppose that you owe $110,000 on your mortgage, due in one payment... MORE
Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal has the prepared testimony of Ben Bernanke and Henry Paulson. Neither one spells out exactly what sorts of financial institutions are in difficulty and how that difficulty translates into problems elsewhere in the economy. Neither prepared... MORE
Finance: stocks, options, etc.
Arnold Kling
Anil Kashyap and Jeremy Stein ask whether the purpose of the Paulson plan is to buy good assets cheap or buy bad assets dear. When a strong leader offers a solution to a crisis, you're not supposed to ask those... MORE
Finance: stocks, options, etc.
Arnold Kling
Many people, including Mark Thoma (also here) are interested in the question of whether it was private markets or government regulators who got us into this mess. My answer is, "yes." There were delusions on both sides. In the private... MORE
September 22, 2008
Finance: stocks, options, etc.
Arnold Kling
On many occasions, including my Cato paper, I have suggested that we can solve the problem by reducing capital requirements for banks on an interim basis. Nobody seems to be listening to this idea, or even discussing it. It has... MORE
September 21, 2008
Finance: stocks, options, etc.
Arnold Kling
Concerning the $700 billion bailout proposal, Brad DeLong writes, I beg the Democrats in congress: write a bill that makes sense. I probably should have warned you to put your coffee down first. Now that you're finished guffawing, here's my... MORE
Finance: stocks, options, etc.
Arnold Kling
Dear Ben, The Wall Street Journal reports, "If it doesn't pass, then heaven help us all," responded Mr. Paulson He is referring to legislation to authorize the next round of bailout activity by the Treasury, with rules, methods and accountability... MORE
September 20, 2008
Finance: stocks, options, etc.
Arnold Kling
What is financial systemic risk? How do derivatives and leverage figure in? What should be done about it?... MORE
Finance: stocks, options, etc.
Arnold Kling
Who was asleep while financial markets ran amok? On Freddie and Fannie, the Bush Administration says, not us. Read the whole timeline. Greg Mankiw, who is mentioned in the statement, provided the pointer. Is Henry Paulson a hero? Not to... MORE
September 19, 2008
Finance: stocks, options, etc.
Arnold Kling
A Treasury Department press release offers a statement from Secretary Paulson. The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off... MORE
Finance: stocks, options, etc.
Bryan Caplan
When someone predicts imminent financial doom, economists almost always taunt him, "If you're right, why don't you sell short?" If recent events prove anything, it's that short-selling is easier said than done. If we wanted advance warning of financial troubles,... MORE
Finance: stocks, options, etc.
Arnold Kling
A bunch of thoughts: 1. On the new Resolution Trust Corporation, several people agree with me that it is nothing like the old RTC, echoing what I wrote ages ago Wednesday. The old RTC got handed to it the assets... MORE
September 18, 2008
Finance: stocks, options, etc.
Arnold Kling
According to this story: One way the agency reportedly under discussion could work is by setting up bulk auctions to buy mortgage debt from financial institutions. The auctions would be for set dollar amount purchases. Companies that want to offload... MORE
Finance: stocks, options, etc.
Arnold Kling
From Doug Diamond and Anil Kashyap. Self-recommending, as Tyler would say. Diamond's paper "Financial intermediation and delegated monitoring," is the technical version of what I tried to describe earlier today. They point out that financial firms are tightening up. One... MORE
Finance: stocks, options, etc.
Arnold Kling
What is short-selling? How can short-selling destroy a good company?... MORE
Finance: stocks, options, etc.
Arnold Kling
When I wrote that financial intermediation inherently replaces transparency with trust some people found that comment enigmatic. So I'll elaborate. Suppose I have some savings, and I would like to invest them. I would like a nice return, but I... MORE
Finance: stocks, options, etc.
Arnold Kling
Edmund L. Andrews writes, As recently as last summer, the central bank’s entire vault of reserves — about $800 billion at the time — was in Treasury securities. By last week, the Fed’s holdings of unencumbered Treasuries had dwindled to... MORE
September 17, 2008
Finance: stocks, options, etc.
Arnold Kling
Bloomberg interviews William Poole. Bloomberg doesn't permalink their video interviews, so I just linked to the page where I found it. It's not necessarily worth watching the whole thing. The essential message is that he doesn't like leverage. He even... MORE
Finance: stocks, options, etc.
Arnold Kling
Lawrence B. Lindsey writes, Many assets are highly illiquid and the institutions that hold them, such as banks, are in the business of providing liquidity to the economy and holding such assets as collateral. Making those assets "mark to market"... MORE
September 16, 2008
Finance: stocks, options, etc.
Arnold Kling
I'll get to current events in a moment. First, Bob Shiller writes, Consider investors in Fannie and Freddie bonds. While the US government never officially promised to bail them out, it did create a special agency, the Office of Federal... MORE
Finance: stocks, options, etc.
Arnold Kling
Megan McArdle writes, our regulatory model still works on the assumption that the technocrats can figure out what is safe, and then let the public buy it, and nothing will ever go wrong. Oh, maybe it's not working that way... MORE
Finance: stocks, options, etc.
Arnold Kling
The highly quotable Nassim Taleb has a new essay. In some situations, you can be extremely wrong and be fine, in others you can be slightly wrong and explode. If you are leveraged, errors blow you up; if you are... MORE
September 15, 2008
Finance: stocks, options, etc.
Arnold Kling
Kind of a mixed day on Wall Street. Dow down 500. Indexes down about 4-1/2 percent. The market stayed open. Right now, it feels to me like the second round of our fantasy baseball auction.... MORE
Finance: stocks, options, etc.
Arnold Kling
The Shadow Financial Regulatory Committee, that is. They meet quarterly, under the auspices of the American Enterprise Institute, and their latest meeting took place while the real financial regulators were deciding to let Lehman walk the plank. Today, shortly after... MORE
Finance: stocks, options, etc.
Arnold Kling
Floyd Norris writes (see the 10:10 AM post), It may sound foolish to see an encouraging sign in the fact financial stocks are only down about 3.5 percent so far today. But it is encouraging. I don't think he's foolish... MORE
Finance: stocks, options, etc.
Arnold Kling
The latest econtalk podcast. The housing bubble and the subprime crisis are the theme. Around minute 40, Roberts asks if this really is a crisis. Shiller starts to answer, and he sort of explains why he thinks the Bear Stearns... MORE
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, If the Federal Reserve thought that Wall Street would have a big impact on Main Street--a bigger impact than they thought it would have last week--they would have cut interest rates tonight rather than just agreed to... MORE
September 14, 2008
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