“Zapatero is not a good driver. It’s like a boat, which in calm waters steers fine, but when it gets bumpy, they are not prepared.” The same could be said for many of the world’s C-level leaders, so it’s perhaps not surprising that both companies and countries are finding out the hard way that credit can dry up when the sea gets choppy…

The markets whipsawed in volatile trading last week as war was waged over key technical levels in the Dow (10,000) and S&P (1050). The backdrop was bitter sweet: trouble among the perennial sick men of Europe (Portugal, Italy, Ireland, Greece and Spain) on the one hand, and upbeat earnings in Corporate America on the other. With all the uncertainty over the short-term trajectory of the economy, it would be tough to fault political leaders for at least preaching that the glass is still half full. That said, it’s almost criminal for the Secretary of the Treasury to tell the American people — on their holiest of sporting days — that…

A perennial hot ticket on the lecture circuit at economic clubs and grad schools around the planet, Paul Volcker’s influence is finally starting to resonate where it counts: at both ends of Pennsylvania Avenue. As his testimony in front of the Senate Banking Committee looms, the broader premise of a more responsible financial services sector pursuing sustainable, profitable growth needs to get out in clear journalistic prose from a messenger untarnished by the last 18 months of political and economic triage. This Sunday NYTimes op-ed attempts to do just that, despite the complexity of the topic. Unfortunately, it falls a little short for those either too stubborn or greedy to…

“America’s mainstream religious denominations used to teach the faithful that they would be rewarded in the afterlife. But over the past generation, a different strain of Christian faith has proliferated—one that promises to make believers rich in the here and now. Known as the prosperity gospel, and claiming tens of millions of adherents, it fosters risk-taking and intense material optimism. It pumped air into the housing bubble. And one year into the worst downturn since the Depression, it’s still going strong.”

As rare proof that not all ex-Goldman bankers are great vampire squids wrapped around the face of humanity, Bank of Canada Governor Mark Carney turns his gaze toward households as the holidays approach with some keen macro observations and their implications for micro decision-making. Though the central bank recently raised flags about Canadian household finances and talk of a real estate bubble has begun to resurface, this public address seems measured both in its observations and its conclusions, and reflects well on the current poster child of responsible 21st century monetary governance…

For all its flaws, one of the great strengths of the American political system is the degree to which competing perspectives fight to the death in Washington’s marketplace of ideas. A perfect example is the recent exchange between Senate Banking Committee member (and Baseball Hall of Famer) Jim Bunning and his monetary nemesis Fed Chairman Bernanke on the eve of a controversial re-nomination…

Commentators often question how recent events in global capital markets could possibly sneak up on the world’s leading economists and policymakers. One possible explanation begins with the premise that the average citizen is reasonably unaware of even the most basic financial and economic concepts – like fractional reserve banking and the time value of money. As a result, generations of otherwise sophisticated individuals have grown up trusting that our economic plumbing and the individuals who manage it are fundamentally sound.

Much like the shifting partisan politics which rules Washington in 2- to 4-year cycles, stewardship of the Federal Reserve has ebbed and flowed between neo-Keynsians and Austrians since the birth of American central banking nearly 90 years ago. Two of the Fed’s greatest leaders and keenest minds have crafted American monetary policy for most of the last three decades, and yet they couldn’t be more different.

This is their story.

Humanity is rarely more receptive to change than during the depths of a crisis. At various times, war, famine, and financial paralysis have offered societies around the world an opportunity to revisit their fundamental character. But just as political, economic, and social systems are descending toward chaos, a current of optimism emerges – if only for a moment. The second derivative inflects, like the speed of a car just before a crash. Avoiding Armageddon — or at least pushing it back — releases a shockwave of positive sentiment. Green shoots emerge and reformists are branded as meddling fools who almost ruined a good thing. Stability returns, trust is restored, and the economy springs back to life…

Exploring the recent economic “upheaval” through the lens of history helps in at least two ways: 1) it assures us that humanity has faced similar dangers in the past and somehow lived to tell the tale, and 2) it suggests that the same entrepreneurial instincts that led us into trouble (yet again) also hold the key to restoring stability and growth. This speech by the President of the World Bank highlights a series of events that presaged the crisis — like the “emergence” of emerging economies, the popularity of leveraged finance, and growing imbalances of trade — focusing less on the outcome and more on the decades of unbridled expansion that inspired it…

A comprehensive if somewhat subjective view of the two years since the credit crisis first broke, direct from the horse’s mouth. Perhaps more interesting than any insider account of the Fed’s frantic response to the meltdown of the banking system is the degree to which the Chairman was concerned with the human impact of his macroeconomic policy-making…

As capital markets continue to increase in scale and scope, there is a natural tendency to believe that they have also become more accurate at valuation. Scores of “rational” investors acting in their own self-interest, based on their own proprietary information along with anything publicly available, make their best guess about the value of a particular security – from a simple common share of IBM to a bet on the amount of rainfall next April. Those who believe the future looks bright will buy, and those who think better days are behind will sell.

As speculative euphoria once again grips financial markets and investors emerge from their fallout shelters in search of higher yield, it is entirely possible that we failed to learn anything from the last 12-18 months of market volatility. After the markets bottomed out on March 9, our valuation anchors were rebased. Could our economic prospects really be that grim? Could all that leverage – all that cash – simply vanish from the financial system overnight? Of course not, went the refrain, and the markets have since pared back almost half of their 2008 losses during one of the largest bear market rallies since the 1930s.

Another entertaining piece of journalism by Michael Lewis, this time reporting from the nucleus of the financial crisis. The premise? Buried deep within the world’s largest insurance company lay the other side of the global bet on real estate and perpetual growth. Lewis interviewed the FP traders accused of underwriting the risky default swaps that nearly destroyed the world economy while siphoning-off juicy bonuses from the comfort of their gated Connecticut suburbs. What he turned up was a far bigger fish and an interesting chorus

Armchair financial quarterbacks would do well to tune out the mass media every so often and tune into the real global dialogue on the nature of the recent crisis and our prospects for a sustainable recovery. It is no coincidence that those whose perspective is truly global consider the fundamental nature of our modern political economy in terms of decades not days, systems not statistics, and welfare not wealth.

In this speech, given just weeks before the March 2008 arranged marriage of Bear Stearns and JPMorgan, this banker to central bankers dissects the credit crisis of 2007 and calls attention to dangerous fault-lines that presaged the apocalyptic deleveraging of the next 18 months…

An interesting piece of analysis via TBP about rising gas prices crowding out retail and industrial consumption. The premise is sound but fails to acknowledge the already stimulative effect of a $2.50 decline in prices from their 2008 peak…

Noted financial blogger Barry Ritholtz comments on macroeconomic housekeeping, the unexplored links between shrinking demand and credit-starved supply, and support for commodities and commodity-linked markets/currencies once institutional capital resumes its existential search for yield…

In the midst of a global financial pandemic, private enterprise finds itself under the public microscope yet again — as it did during the 1930s after a century of unbridled growth and later in the 1970s after decades of stifling regulatory oversight. With this 21st century changing of the guard, the theoretical bases for free market capitalism are now under academic and legislative review. At the heart of the debate is the accuracy of the economic models taught to college students around the planet as though they were immutable physical laws.

While many observers are still consumed by the economic complexities of the financial crisis, historians have been busy making predictions about the ominous geopolitical implications of a destabilized global economy, rising unemployment, falling incomes, and swelling ethnic tensions. Much like its individual citizens, countries in the aggregate tend to retrench in the face of uncertainty about the future, and that could lead to some dangerously myopic decision-making in the months and years ahead…

“The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: ‘This is the cause!’ ”
— Leo Tolstoy, War and Peace, Book IV, Part 2, Chapter 1, first paragraph