Financial Crisis

Liquidity, Public and Private

A week ago, Mark Carney, chairman of the Financial Stability Board, warned of emerging global consequences of the escalating eurozone crisis.  The problem, he said, is contraction of global liquidity.

What he is worried about, apparently, is disruption of the global funding system as continental European banks retrench.  In normal times, these global banks serve as funding intermediaries, gathering short term funds from all ends of the earth at one price, and lending them on to other ends of the earth at a slightly higher price.  Trouble for these banks means trouble for global credit markets.

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Euro Summit Statement Explained

Okay, so here is the statement, but what does it mean?  Felix Salmon offers an unnamed advisor's flowchart.  Let's see if Money View thinking can do better.

Words are of limited help here (unless perhaps you are a Munchau!).  What is important is to understand the balance sheet relationships, and that takes a video.

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Margin Call--"Mama there's wolves in the house"

Jack Bauer comes to Wall Street, in the person of Sam Rogers, played by Kevin Spacey.  The thriller frame is achieved by compressing the slow motion train wreck of 2008 into only 24 hours.  (The time acceleration of the opening Manhattan shot foreshadows this compression, even as it pays homage to the opening shot of Inside Job.)  See reviews here and here. Read more

China's Ministry of Railways debt: Three ways out of the mess

A huge debt of RMB 2.1 trillion (330 billion USD) as well as serious funding problems—how will the Ministry of Railways handle it? Or more precisely, how will the behind-the-scenes decision-maker, China’s central government deal with this issue? We think there are three ways out of the debt mess.

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China Ministry of Railways Debt

On September 21, almost two months after the July 23 Wenzhou high-speed train crash, the announcement of an investigation progress was eventually placed on Xinhua.net. However, neither the cause of the accident nor a timetable to make that public was revealed. Aside from the crash details, there’s one more thing that Chinese government anxiously wants to hide from the public eye: the debt issue of Ministry of Railways (MoR).

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First Liquidity, then Solvency

First ECB, then EFSF

Tightening money market conditions in Europe have now claimed their first victim, Dexia, and in so doing shifted the focus of policymakers from sovereign debt to banking recapitalization.  But it is just a change in approach; the underlying problem remains the same.

The demise of Dexia should remind everyone that liquidity kills you quick.  In this regard, Trichet's reminder that no European bank should worry about liquidity is reassuring, or should be anyway.

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Lords of Finance Redux

Forget the G7, Watch the C5

Martin Wolf endorses Adam Posen's call for quantitative easing at the Bank of England, and then goes one better, calling for direct monetary finance of government spending, i.e. helicopter money. Read more

Twisting in the Wind

While waiting for TALF

Bernanke did everything he could last week, short of a QE3 expansion of the Fed’s balance sheet, but apparently the market was expecting more.   A creature of habit, the market was fixated on the balance sheet that has done the global heavy lifting since Lehman, rather than on the balance sheets that are poised to do the heavy lifting now, namely the other central banks that jointly announced unlimited dollar lending last week, especially the ECB. Read more

Gerald Epstein - Banks: How Big Is too Big?

About the Interview

We all know it: The financial sector is bloated and banks are too big to fail. But just how bloated is it, and how much should it be shrunk? Gerald Epstein and his collaborator James Crotty use both micro and macro data to deliver the numbers. They build on James Tobin's concept of functional efficiency to separate the financial sector's beneficial activities (mobilizing savings, financing investment, and reducing risk) from its socially inefficient activities (gambling, and distorting the political process). An empirical study that is full of institutional detail and addresses the elephant in the room: big banks and regulatory capture -- this is new economic thinking. Read more

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Bazooka

Understanding QE3

Liquidity is not a problem within the Eurozone, insisted European Central Bank president Trichet last Monday.  But the markets didn’t believe him.  The question now is whether the announcement last Thursday of a coordinated central bank intervention—by the ECB and also the Swiss National Bank, Bank of Japan, Bank of England, and the Fed--gives more reason to believe.  Read more