Economics, finance

Yes, Prime Minister?

More Krugman – Moment of Truth –

“Let’s talk about where we are right now.

The current crisis started with a burst housing bubble, which led to widespread mortgage defaults, and hence to large losses at many financial institutions. That initial shock was compounded by secondary effects, as lack of capital forced banks to pull back, leading to further declines in the prices of assets, leading to more losses, and so on — a vicious circle of “deleveraging.” Pervasive loss of trust in banks, including on the part of other banks, reinforced the vicious circle.

The downward spiral accelerated post-Lehman. Money markets, already troubled, effectively shut down — one line currently making the rounds is that the only things anyone wants to buy right now are Treasury bills and bottled water.

The response to this downward spiral on the part of the world’s two great monetary powers — the United States, on one side, and the 15 nations that use the euro, on the other — has been woefully inadequate.

What should be done? The United States and Europe should just say “Yes, prime minister.” The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort.”

Economics, finance

For every DOWnside, there’s an upside.

With the DJIA falling below 9000 points today, it’s reassuring to know that, right?
Paul Krugman, in his Blog at the NY Times
reminds us that

“[o]n a separate note, one good thing is that there haven’t been any reports of people on Wall Street jumping out of windows. That’s because the windows in modern office buildings don’t open.

He’s had a busy day commenting, find the rest here. Including a link to a 38-page pdf-file full of recommendations from economists to policy makers ahead of the upcoming summit season. It’s been published by voxeu, edited by Barry Eichengreen and Richard Baldwin and it’s aptly called “Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis“. Let’s hope some of the people representing out jobs and savings at these talks will actually read it.

Economics, finance, US Politics, USA

Paul Krugman agrees…

in the NYTimes after the US House of Representatives voted “no” on the Wall Street bailout plan. He’s right of course, that “flip-flopping” on issues like this in the way it happened isn’t exactly a sign of a well functioning representative democracy. On the other hand, it’s also true that this vote is a sign that Congress still matters, even if it needed a figure with 11 zeros to balk at the administration. So, does that make the US a Banana Republic as Krugman argues? I think the decision on that is still out – after all, the bailout plan would/will have distributive consequences that would have/will make made the US income structure even more reminiscent of a classic Banana Republic.

Paul Krugman – OK, we are a banana republic

Economics, finance

World Markets: Another One Of Those Days.

It’s another one of those days for global stock markets. To honor the occasion, I thought about linking to one of my favorite management articles of all times, that appeared in the McKinsey Quaterly right before the first dot-com crash in 2000 and is called “Valuing dot-coms” even though the subtitle is far better: “Discounted Cash-Flow Analysis Without Cash-Flow”. Alas, what was available back than without a cash-flow is now only available to premium users, or about USD 150 per annum… now that may be an interesting analogy to the current US housing market.

Be that as it may, here’s a great way to stay updated: the global markets page of the NYT business section makes excellent use of available web technology to visualize a lot of information.

Economics, finance

Die Rolle der Rating-Agenturen unter der Lupe

So eine Krise (hier die auf den internationalen Kreditmärkten) hat ja oft auch heilsame Effekte. So berichtet Spiegel Online, daß nun eine der bedeutendsten, aber überaus intransparententen Variablen der globalen Finanzwirtschaft zumindest mal ein wenig näher betrachtet wird –

“Zu spät, zu nachlässig, zu zaghaft: EU-Kommission und US-Politiker machen die großen Rating-Agenturen für die Kreditkrise und den Kurssturz an den Börsen verantwortlich. Sie hätten riskante Fonds geschont, Investoren nicht gewarnt – jetzt drohen Ermittlungen.”