Economic Institutions

A Money View of the FCIC Report: Part One

When the survival constraint bites

Financial Times article being discussed:  US Panel’s Report Reflects Partisan Rift (Jan 30, 2011)

If you can’t roll your funding as it comes due, you are dead. That is what Hyman Minsky called “the survival constraint."

From this point of view, the crisis looks like a series of ratchet steps down into the abyss, as the survival constraint shifted from one player to another—fail or bail? —until essentially the entire financial system was on life support provided by the only entity that does not face a survival constraint, the Fed. 

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Inside Job II

And the nomination for best Perp Walk goes to...

Today’s Financial Times’ articles: “Goldman president warns on bank rules” (Jan 26), “Financial crisis report to blame Wall Street” (Jan 26), “US Crisis Inquiry Points to Widespread Failures” (Jan 27)

Now comes the Financial Crisis Inquiry Commission report, the sequel to Oscar nominee “Inside Job”, the movie. Once again, all the players are here. Once again, a morality tale: “lax risk management, distortive bonuses, predatory lending, and insufficient regulation.” Once again, essentially a sub-prime credit fuelled housing bubble story, with leverage and derivatives as a putative amplification mechanism.

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Inside Job

And the nominees for Best Documentary are…

Today’s Financial Times articles: “Popcorn and Wine at ‘Inside Job’” (Jan 15, 2011) “Hollywood’s Credit Crunched” (Oct 9, 2010)

If you haven’t seen “Inside Job”, you must. As an analysis of the crisis, it just scratches the surface, but even those scratches do immense public service by arousing us to dig deeper and find out more.

It is a beautifully made film, and that is no small part of its appeal. The soaring opening sequence on Iceland tells you immediately that you are in the hands of an artist, and by the time the camera zooms in on Manhattan, you are hooked. Suspending disbelief, you give yourself over to the magic of the theater.

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Can CDS be exchange traded?

Today’s Financial Times article: Report to highlight alleged conflicts of interest in Goldman’s dealings (Jan 12, 2011), Goldman’s pieties insult our intelligence (Jan 13, 2011)

In the second article, Sebastian Mallaby reminds us: “After one vain attempt to explain market making at a belligerent Senate hearing, Goldman’s boss, Lloyd Blankfein, gave up.” Let’s try to do better than Blankfein was able.

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The New Federal Reserve

GFC Finance as War Finance

Today’s Financial Times article: The strange death of the technocracy (Jan 5, 2011)

The editors write:

“Perhaps the most important development of the financial and economic crisis is that technocrats are losing control over policy debates to the populists….The Fed is perhaps the obvious target. The insurrectionists object to the notion of fiat (or government-made) money. On both left and right there is fundamental opposition to the coupling of private banking with the federal government that managed the entire response to the financial crisis"

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Non-US banks gain from Fed crisis fund

Why is this a surprise?

Today's Financial Time's article: Non-US banks gain from Fed crisis fund (Dec 27)

We know that, after the collapse of Lehman and AIG in September 2008, the Fed’s liquidity swap facility with other central banks swelled quickly to about $600 billion. The whole point of that facility was to provide dollar funding to non-US banks. The foreign central banks simply served to channel the funds.

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Good Article About INET in the San Francisco Chronicle

Recently, the San Francisco Chronicle ran a story on the front page of its business section about INET and its recent grant to UC Berkeley’s Economic History Laboratory. From the article: Read more

"Inside Job" Insights Into Corruption in Academia

In INET's Exclusive Interview With Charles Ferguson, the Director of the Acclaimed Documentary Film "Inside Job" Talks About How the Failure of Both Political Parties Led to the Financial Crisis, About the Pervasive Corruption in Academic Economics Programs, and About His Hope for the Future

While he was shooting the film “Inside Job,” director Charles Ferguson had an opportunity to talk with many top academics and economists, asking them tough questions about how the economics field contributed to the financial crisis. Their answers were surprising.

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Soros in the Financial Times: Avoiding a Bleak Future for the Euro

In a recent piece in the Financial Times, George Soros makes the case that, to avoid a bleak future for the euro and the European Union in general, Europe should take steps to recapitalize banks before bailing out member states. In the piece, Soros discusses issues that INET is very interested in exploring further, such as the idea that flaws in macroeconomic theory helped lead to the financial crisis of 2008. Read more

2011 and Beyond: What's Ahead for the Global Economy? INET Advisors Help Answer

As we ease into the end of the year, many economists are looking to 2011 and beyond, as the world moves out of a financial crisis and into unknown territory. Read more