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Capitalism these days does not resemble the ‘free markets’ model of it that is often conceptualised by its critics on the left. All economies have substantial public sectors – in Australia, for example, government absorbs about 1/3 of output produced. Therefore it is best to refer to ‘mixed economies’ which have dominant private sectors [...] One of the refreshing incidental features of the current financial crisis is that many economists are displaying uncharacteristic humility. They don’t know what is happening and they know that they don’t know. Humble pie is also being eaten by supporters of theories that our real savings performance has been boosted by capital gains on the [...] This is an amazing interview with Soros. A fan of markets he nevertheless sees deregulated financial markets as delivering a biased reflection of reality that generates booms, busts and bubbles. The reason – too much credit, too much leveraging. Free market fundamentalism is just as misguided an ideology as socialism. Soros sees the current [...] I glanced at the All Ordinaries at 10-25 am today and the index had fallen just under 6% in 25 minutes. This is fearful stuff. Last night the S&P on Wall Street fell 9% the biggest decline since 1987. Oil prices have hit a low of $75-90. The fear is that the US [...] John Quiggin seems enthusiastic about the prospects for more ‘utopian’ society with government-controlled major banks. As much as I am deeply concerned with the very recent claims of imminent global financial peril I do not share his enthusiasm for this at all. Governments might well wish shore up the capital base of large banks in Europe or [...] This quote from the Times Online just about says it all: ‘Interest rates across the world were slashed yesterday as central banks took unprecedented emergency action in an effort to contain the worst economic threat since the Great Depression….. ….The extraordinary level of coordination was designed to demonstrate resolve in the face of financial panic but [...] Since May the all Ordinaries index of Australian stock prices has declined from 6000 to about 4400 which is a decline of about 25%. The value of the Australian dollar has over the same period fallen from about 0.98 US cents to a low today of just under 70 cents. This is a decline of [...] The bailout approved by the US House of Representatives. In this second attempt to pass the bill – ansd after more than a usual amount of pork – many Republicans shifted their vote in favour of the bill. Still a majority of Republicans did not. Wall Street soars (Update: Subsequently falls heavily). America is happy (Update: Subsequently [...] I am in Queensland at the 37th Australian Conference of Economists. I learnt early this morning about the House of Representatives rejection of the Bush bailout package with the consequent 7% fall in the Dow Jones and, as I write this, the Australian stock market has fallen by a bit less than 5% in response. The [...] Are hedge funds the next class of financial institutions to start collapsing? They face record demands for redemptions and are highly geared. Their share prices are taking a hammering. Who would want to invest in them these days? High fees and lots of gearing like sub-prime mortgages are acceptible when asset prices are increasing since investors can [...] Swan implements Turnbulls’s policy. Yes, the Australian government will buy home mortgages – an amazing backflip involving $4b. OK, so no-one really knows what they are doing in the current volatile situation but sometimes the low-brows in the government’s benches might consider opposition suggestions. Anyway imitation is the sincerest form of flattery. After criticising [...] Some big names in finance and economics here. Hat tip to Gregory Mankiw whose posts I am grabbing a lot lately. The last signatory on the list of eminents is Luigi Zingales who has a fascinating article in The Economist’s Voice, Why Paulson is Wrong, which suggests how the crisis should be handled. I excerpt [...] Peter Drysdale over at East Asia Forum exposits claims by historian Harold James that only action by China can rescue the global economy from US financial ineptitude. Indeed, to James, China is the US of the 1920s and 1930s. China should become the anchor of the modern international financial system. James’ argument: ‘China is today’s America…When the 1920s [...] The US Government debt will rise to $11.3 trillion with the proposed $700 billion bailout of troubled mortgages now before Congress. That amounts to $37,098 of public debt per citizen. To say the US financial system is stressed is to understate the issue. The question is whether foreigners will come to demand higher interest rates on [...] This is a clear Q&A style discussion of the current financial upheaval. David Brooks comments on the kneejerk reregulation response that is becoming the new fashion. Meanwhile today’s surge on stock markets around the world apparently reflects moves by Congress and the US Treasury to buy back at deep discounts the remaining mortgage bad debt in the [...] Bear Stearns, Lehman Bros, Fannie Mae and Freddie Mac receiving public bailouts or failing and yes even the venerable Merrill Lynch being flogged for a pittance. And insurer AIG seems to need about $40 billion to survive. AIG is a big insurer in Australia with 500 employees. In the UK Hbos looks threatened by the collapse of Lehman. The [...] A joke in Washington these days goes like this: “What’s the difference between Enron and Fannie Mae? Answer: The guys at Enron have been convicted.” (WSJ as part of a potted history) The US will intervene to lend to Fannie May and Freddy Mac – by far the biggest home lenders in the [...] These types of headlines amaze me: ‘The Australian dollar has open higher as the US dollar weakened on world political tensions after Iran test-fired 9 missiles overnight’. Its an obvious point – my obvious point for the day – but we do live in one world. As global share markets moved sharply lower yesterday (a fall of 7.1% in the all ods), Australia’s Treasurer Wayne Swan moved to reassure investors. After hearing Wayne I slept easier last night. Moreover the market obviously responded well to the sage words of the Labor Party’s economics guru – it bounced backed 4.3% today. Swan’s [...] The losses associated with the sub-prime crisis are now being estimated to be US$500b. Lenders are now being overly careful about who they lend to (‘shutting the gate after the horse has bolted’) and generating talk of a US ‘liquidity trap’ that prevents credit market transactions occurring even though official interest rates are set low. [...] |
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