If there’s any doubt remaining among global power-brokers that short-term foreign policy objectives are fundamentally flawed, recent events in the Levant have provided ample evidence. Such tribal conflict has played out in the Garden of Eden since northern Neanderthals and southern proto-human colonies first crossed paths during the last major Ice Age. Since that time, control over the region has changed hands a number of times, from Semetic tribes to Egyptian pharaohs to Roman Catholics to Muslim traders to Christian crusaders to Muslim Turks, and so forth. For every fence that was built and every line that was drawn, rivals always built a bigger ladder or dug a deeper tunnel. And so the feud was passed from generation to generation, …

For those still convinced that the Federal Reserve is the lynchpin in some grander economic conspiracy, this brief history of central banking in America should put some of your doubts to rest…
Myth #1: The Federal Reserve Act of 1913 was crafted by Wall Street bankers and a few senators in a secret meeting.
On the Georgian resort hideaway of Jekyll Island (which has some excellent golf courses, by the way), there once met a coalition of Wall Street bankers and U.S. senators.  

This brief history of regal extortion draws some parallels to today’s “sinister” Federal Reserve, though the links are less tenuous than Dr. Hoye and others often suggest…

As the Annus Horribilis finally comes to an end, many forecasters in the policy and financial communities have been left licking their wounds. This effort from Moises Naim and his team at Foreign Policy tries to capture the best of the worst and is certainly worth a look…

This time series from Robert Shiller puts recent house price fluctuations and their associated derivatives in an important historical perspective…

Prescient words from Lebanese poet Khalil Gibran in 1934…
Pity the nation that wears a cloth it does not weave,
eats a bread it does not harvest,
and drinks a wine that flows not from its own wine-press.
Pity the nation that acclaims the bully as hero,
and that deems the glittering conqueror bountiful.
Pity the nation that despises a passion in its dream,
yet submits in its awakening.

Economist John Kenneth Galbraith once noted that the financial memory is limited to 20 or 30 years. Author Mark Twain once suggested that history might not repeat itself but certainly rhymes. Together, these two simple observations may help to explain why so many of our structural crises are simply echoes of previous human folly…

Over-the-counter gambling on the markets has been around much longer than modern derivatives pundits would have you believe. The New York Times was warning against “casino capitalism” as early as 1905, when side bets on market movements were both commonplace and unregulated, and won the attention of an American government still swaggering after its victory over the mega-trust companies of the late 19th century. The following 60 Minutes segment discusses both the nature of CDS instruments and how they’ve become just as dangerous today as they were in the “bucket rooms” or gambling houses of the 1920s…

With all eyes on traditional residential mortgages, analysts are now looking for clues in related asset classes for any signs of recessionary contagion. In his weekly review of the U.S. economy, Nouriel Roubini highlights the vulnerability of commercial mortgage back securities – which typically lag their residential cousins by 2 years – as well as plunging retail sales, a worsening inventory cycle, and the soaring fiscal deficit…

Faith in the underlying mechanics of portfolio theory and market efficiency has certainly contributed to humanity’s recent leap forward in wealth, productivity, private innovation, and global integration. But that same numerology has since crippled our aging financial system and triggered the worst global recession in nearly a century. Perhaps it’s time to reassess the value – and the logic – of bleeding edge finance.
As Professor Janeway points out in the following interview, treating securities like molecules, subject to the same variable distributions, “random walks”, differential equations, and reductionist math simply compounds the short-sighted actions of a few scientists-turned-gamblers. Not only does it greatly overstate the predictive power of econometric analysis, but it also understates the tremendous dangers of financial engineering. …

“Despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression…” This advice from the Harvard Economic Society on November 2, 1929 illustrates that unbridled optimism in the capital markets was just as dangerous 80 years ago as it is today. Modern financial crises aren’t simply failures of regulatory oversight or inherent structural weakness. They’re a combination of the cyclicality of human behavior, the dangers of unbridled leverage, increased speculation by unsophisticated investors, and our complete lack of financial memory beyond 20 or 30 years.

Currently the envy of Hank Paulson and virtually every Finance Minister around the globe, Jim Flaherty describes how the world’s leading middle-power managed to side-step most of the financial devastation that’s haunting global financial markets, and what the world can learn from its sure-footed path…

As institutions around the world tighten their belts in response to the coming economic storm, we can only glimpse from their preparations the full breadth and depth of of “The Great Correction” and the many ways capital markets dictate the rules in our daily lives…

While the world comes to terms with yesterday’s historic call for change, Nouriel Roubini and his team have pulled together a laundry list of the many great challenges that lie ahead…

Few people will escape from this crisis with enough reputability to scream “I told you so” at the top of their lungs like hedge fund neophyte Andrew Lahde. In this epilogue to his one year experiment in asset management – during which time his fund returned 866% betting on the subprime collapse – he rails on the industry, its myopic leadership, the vice of greed, and even the virtues of a little green plant…

As finance ministers from around the world congregate in Washington D.C. this weekend, various “solutions” will be floated that either compliment, contradict, or completely ignore America’s best efforts to fix its broken banking system. Coordination will be critical to preventing a protracted global recession, and Paulson and Bernanke’s ambitious plan – as examined below by a pair of Senior Fellows from the Brookings Institution – will either be the first step toward rational intrabank lending, or the final nail in the coffin of deregulated financial services…

Words of cautious wisdom from the celebrated biographer of risk, back in November of 2007…
Crazy Little Thing Called Risk
By PETER L. BERNSTEIN
BACK when I was managing other people’s money, I had a client, a doctor, who enjoyed giving away money to his daughters. He was lucky, because an extended bull market was under way with only minor interruptions. The more he gave away, the more the market replaced what he had parted with. As generosity appeared to be a cost-free form of recreation, he considered the whole thing a riskless enterprise.

“Spectacular episodes in financial history” come about more often than we might expect, and certainly more often than we remember. Harvard economist John Kenneth Galbraith wrote a brilliant primer on financial speculation in the early 1990s, suggesting that our memory for financial disaster was far more limited than our intelligence might otherwise suggest:

As Canadians flock to the polls later this month, quietly supplying 22% of America’s oil and 13% of its natural gas, its neighbours to the south have barely noticed. Cross-border oil flows are inevitable – given that America controls of a mere 2% of the world’s reserves and consumes almost 25% of supply – and securing its long-term petroleum assumes the full participation of Alberta’s carbon-rich tar sands and the off-shore bounty at Hibernia. Even Governor Palin’s Wildlife Reserve is virtually useless without passage by pipe across Canada’s Western provinces. Given the importance of “Securing America’s Energy Future” during a twin election year, it’s surprising that talk hasn’t returned to NAFTA, cleaner energy, or agricultural subsidies. Then again, maybe it isn’t…