A timely and frightening exploration of the causes and consequences of the emerging foreclosure mess. This close cousin of the earlier sub-prime mortgage debacle provides even more evidence of the financial industry’s hubris and inescapable self-interest.
As the saying goes: garbage in, garbage out…

As Canadians sparred over fake lakes, budget-busting security, and the global capitalist conspiracy, the world’s twenty most influential leaders convened in Toronto this past June to negotiate a response to the worst financial crisis in generations. At issue was an age old debate between two economic philosophies: stimulus as a life vest versus stimulus as a straitjacket. The pro-life camp was championed by consumerist America and its global supply chain. The pro-restraint camp was led by conservative Germany and its regional demand chain. At risk were millions of jobs, trillions in debt, and quite possibly the fate of our modern political economy.

Armies of bulls and bears are camped out on either side of the great debate over the future of the global economy. Armed with the latest statistics and plenty of financial incentive, both sides are engaged in massive media campaigns to rally anyone left on the fence — principally retail investors who were either burned in the great collapse of 2008-09 or sat out the fast and furious rally over the past 14 months. As the rhetoric heats up, it becomes increasingly difficult to choose sides. A careful examination of these competing wagers provides a more holistic perspective for anyone brave enough to join the fight.

Mr. Dollar testified before the Financial Crisis Inquiry Commission today about the challenges of a self-regulating market and the dangers that lie ahead. While his belief in free market capitalism remains unshaken, Greenspan’s warnings about the key attributes that should underpin a stable banking system — adequate capitalization, liquidity, and regulatory oversight — cast a surprising shot across the bow of modern banking giants who have grown a little too comfortable with their bailout blanket and artificially low interest rates.

As ideological battles are waged over the benefits of free markets, the challenges of financial regulation, the inefficiency of policymaking, and the design of a sustainable path forward, pundits often attack one another without a fundamental understanding of the mechanics of our modern financial system. This primer helps to explain the unique roles that banks and capital markets play in the efficient (and sometimes painfully inefficient) functioning of of modern society. While it won’t settle any debates, it certainly reminds us how little we may know about the way the economy works…

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.

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…

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…

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.

Contagion could be used to describe much of the activity in the capital markets over the last 40 years, as global financial flows have accelerated, trade and capital barriers have disappeared, regulatory oversight has diminished, and financial innovation has made the packaging and sale of securities as easy as ordering a Big Mac combo. From defaults on recycled petrodollars in the early 1980s, to the Mexican peso crisis in 1994, to the “Asian Contagion” in 1997-98, and most recently the Great Collapse of 2008, what began as sanity checks on asset values and risk metrics quickly evolved into stampedes of herding capital feeling to higher ground.

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…

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…

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 financial institutions continue to navel gaze in the aftermath of the credit crisis, confidence in their ability to self-regulate continues to decline. With little trust in their assets, their markets, or even their peers, these global banking titans have sworn off their independence and, like disenchanted teens, are returning home to be cared for by risk-averse, populist policy-makers and their never-ending pool of taxpayers’ dough. The danger here is that both sides are still reacting to deeds already done, and nobody has yet proposed a solution to avoid similar financial chaos going forward. With threats to global income in the order of nearly a trillion dollars, whoever ultimately grabs this hot potato better have pretty thick skin…

We’ll probably never know how close we came to systemic financial collapse this March, but if anyone had any idea about the scale and scope of the global credit crisis, it was this ragtag collection of Wall Street rainmakers who gathered by phone last Sunday to rescue the world…

With international markets still reeling from the “sub-prime meltdown” and investors already bracing for the next financial quake, it’s good to know that some of the world’s economic shepherds are well aware of the wolves on the horizon, however unprepared they might be to fight back. Unlike their more political and rhetorical peers, enlightened stewardship from the IMF and its sister organizations may be the global macro-economy’s only hope against the coming valuation storm, as risk quietly shifts from sophisticated financial institutions into the hands of the unsuspecting Everyman…