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…

Stopping the spread of financial contagion is deceptively similar to plugging a ruptured deep-sea oil well: the cost is epic, the risk of failure is catastrophic, and expectations of success may be more hopeful than realistic. Recent efforts to address both crises share so many elements that a few tweaks to the following report on the Gulf catastrophe also freakishly describes efforts by the Eurozone to head off the risk of cascading sovereign defaults…

Churchill argued that democracy is the worst form of government, except for all the others. With capitalism now falling under similar fire, modern politicians, businesspeople and academics are once again questioning both the failures of free markets and the failures of government. As pundits gather on either side of the debate — casting blame and contempt across the regulatory divide — one often overlooked explanation for all the recent chaos is the time-honored tendency for human society to self-destruct. Behavioral economists and psychologists are having a field day watching our worst decision-making biases play themselves out in political and capital markets.

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.

“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…

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 listen or too impatient to digest his astute commentary on …

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 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.

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…

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.

Few economists now doubt that private household spending and corporate investment will rescue the economy on their own. The debate now lies in the scale and scope of the government’s intervention, as the only institution with the access to capital, macroeconomic scope, and investment horizon needed to jump-start the labor market, keep production cycles from seizing up, and create the necessary conditions for manageable lending and spending to resume.

Scientists and market commentators have long been aware of the susceptibility of the markets to any single investment philosophy. The rise of early program trading contributed to the historic one-day loss of nearly 23% on Black Monday in 1987. Recent experiments with risk securitization may cost trillions of borrowed dollars to unwind and decades to fully digest.

Assuming that our lot in life is simply a function of hard work, acquired skills, and a bit of good luck, the only real difference between liberals and conservatives is the degree to which we believe that those who fall on hard times – for whatever reason beyond their control – deserve a helping hand. How we publicly spend on that assistance is not only a question of socio-political philosophy, but also a matter of practical statecraft. Whether “leveling the playing field” or simply “setting the rules of the game”, pharohs, kings, and presidents have all made use of their regulatory oversight with varying degrees of success. This piece in the Boston Review by noted macroeconomist Dean Baker explores the …

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…

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 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…

See below for yet another in a series of elaborate digital frauds. Somewhat surprising is the considerable improvement in grammar and argument – it may even have been written by a native English speaker. Not surprising is the use of a decade old framework – the Nigerian 419 scheme – to lure unsuspecting Westerners into providing key banking information in exchange for a share in a large and unattributed overseas estate. The “four one nine” comes from the section in the Nigerian penal code which deals with such frauds. To hear Der Spiegel tell it: “A 419 is a mass crime, a money generator, and could aptly be described as the use of globalized methods as revenge by the losers …

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…

It isn’t everyday that mega-corporations act outside of their own financial interest. It simply isn’t in their design. But suppose that it was possible to expand profitability by reducing environmental impact, sourcing sustainable products, and pushing “green” across an entire supply chain. Such is the latest logic out of Bentonville, Arkansas, where the world’s largest retailer and private sector employer is taking a decidedly new approach to the age-old challenge of perpetual corporate growth, and blazing a profit- and eco-friendly trail for other industrial titans to follow…

An excerpt from the mid-term “problem set” in ENR-302…
3. The country of Xanadu is dependent of the use of domestically produced methanol for 100% of its energy needs. The price of methanol is set by a competitive market and the fuel is priced at $2.50 per gallon. Two large companies supply 80% of the market and each has costs of $1.50 per gallon. The opposition party and most of the national labor unions argue that these two companies are making obscene profits. They demand that the President place a mandatory price cap of $2.00 on the price of methanol to prevent “this abuse of market power.”
Assume that the elasticity of demand is 0.4 and the elasticity of supply is …