The crash actually followed a $2 trillion margin call by these four global banks on their prime brokerage clients and OTC counterparties – effectively a 30 per cent increase in required margin. It was the margin call that forced liquidation of global portfolios of all asset classes – and particularly the high quality, most liquid asset classes. . . . → Read More: Margin calls actually instigated the crash
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Dani Rodrik has an interesting take on the problems of globalization and economic integration: Democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full. . . . → Read More: World Economic Trilemma Paul Krugman in a blog post which refers to an article by Martin Wolf (which I cover below) says ominously: “the water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory.” . . . → Read More: European economic meltdown Martin Wolf made an interesting point in the Financial Times which I wanted to capture for later thought: Almost all of the money in a contemporary economy consists of the liabilities of financial institutions. In the eurozone, for example, currency in circulation is just 9 per cent of broad money (M3). What is Money? Just the liabilities of financial institutions. There have been many disparagers of the Federal Reserve and its control over the currency recently and there are also many Gold-Bugs in commodity land touting buying gold. I was wondering actually how any return to a non-fiat currency would take place. The US economy’s GDP released on Friday is approximately $14.872 billion according to the Bureau of Economic Analysis site. This was a sharp upward revision to a growth rate of 3.1 and knocked down commodity prices, including gold. Many of the Gold-Bug people decry the “fiat money” and the Federal Reserve, and would like to get rid of the Fed and return to a Gold Standard or a hard money standard. But, all the gold in Fort Knox, if allowed to underpin the dollar at current market values, would cover about 1.5% of the needs of the US economy. . . . → Read More: For all the gold in Fort Knox In an absurd manner the Obama administration has chosen with the passing of FATCA (Foreign Account Tax Comliance Act) to penalize almost ALL US Citizens living abroad while trying to close loopholes for tax cheats. This will of course have a profound long term negative effect on US export competitiveness, but the administration does not care. The penalties and the reporting requirements are . . . → Read More: Catch-22: Americans abroad have problems with local bank accounts Dr. Philip Neches has an analysis at the Huffington Post of the Bank of America (BAC) announcement that they will separate 1.3 million of their mortgages into a new entity. This is a “good bank / bad bank” strategy. Bank of America will now try to resolve the loans that it places in the bad bank at low impact on its own balance sheet. I wonder how it is going to do this. IF the entity becomes separate from BAC they could take out a short on it though… or they could securitize the entity in tranches and sell off the more toxic stuff to some idiots. If they could buy a AAA from some supine rating firm, then they could get a good price for the securities. Does this sound familiar? . . . → Read More: Legacy entity slieght of hand at Bank of America Pro Publica posts a nice article on the failure of the Administration to enact legislation enabling courts to modify the principal and terms of a primary residence mortgage in a bankruptcy. Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he’d fight for changes to bankruptcy laws to help homeowners—a tough approach that would force banks to modify . . . → Read More: Obama did not reach out to help homeowners Reading an interview with Gary Gorton of the Minneapolis Fed. (Hat tip to Naked Capitalism). He makes some interesting points regarding the securitization industry, its relationship with the repo market, how when collateral was deemed untrustworthy it led to hair-cutting and then full panic. Side comments on the need for new measurements to size the securitization industry, efforts to build the trust of . . . → Read More: Interview with Gary Gorton: new theory of debt, collateral, repo, crisis and regulation While Foreclosuregate grinds on and homeowners are put out of their homes its good to know that the Execs at Fannie and Freddie have more big paychecks coming at them. Fannie (FNMA) CEO Michael Williams and Freddie (FMCC) chief Charles Haldeman each stand to make some $6 million this year, going by company filings that broadly outline 2009 pay and 2010 guidelines. Using . . . → Read More: Fannie and Freddie Execs take home millions |
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