FT.com / Markets / Insight - ‘Flash crash’ delivers clear messages: "Equity markets in the US remain the largest and most liquid in the world, and during the 2008 crisis seemed to be the only segment of our financial system that functioned unimpaired. Yet in less than 20 minutes on May 6th, confidence in our market system was significantly damaged.
Hours after the market’s wild ride, thousands of trades on electronic exchanges were cancelled on a somewhat arbitrary basis, leaving investors questioning the integrity of the marketplace. What is more, the search for a cause has not revealed specific triggers, but instead highlighted challenges with the fragmented nature of US markets."
This is not the first time this has happened in the world. Australia's interest rates futures market had its own version of the flash crash on 25 July 2007 for very similar reasons. The court judgement on the case brought by some traders against the Sydney Futures Exchange who thought the cancellation of some trades was "on a somewhat arbitrary basis" will be delivered at 10:15 on 28 May 2010.
Thursday, May 27, 2010
Case Shiller Index
In May's Case shiller Index release house prices in the 12 cities that didn't have a boom (the slowest house price increase over 2001-2005). The prices keep going down for these cities. This can't be good.
Wednesday, May 26, 2010
This time is actually different
The following paragraph from Eggertsson is important for those quoting Romer and Romer and, even more importantly, Reinhart and Rogoff. This time may actually be different! I'll take the analysis with a large grain of salt, as to solve even an approximation to his basic equations he invokes Ricardian Equivalence. My main point I draw from this is that conclusions do differ when interest rates are at zero.
The contractionary effects of labor and capital tax cuts are special to the peculiar environment
created by zero interest rates. This point is illustrated by a numerical example in Table 1. It
shows the "multipliers" of cuts in labor taxes and of increasing government spending; several
other multipliers are also discussed in the paper. The multipliers summarize by how much output
decreases/increases if the government cuts tax rates by 1 percent or increases government spending
by 1 percent (as a fraction of GDP). At positive interest rates, a labor tax cut is expansionary,
as the literature has emphasized in the past. But at zero interest rates, it flips signs and tax cuts
become contractionary. Meanwhile, the multiplier of government spending not only stays positive
at zero interest rates, but becomes almost eight times larger. This illustrates that empirical work
on the effect of fiscal policy based on data from the post-WWII period, such as the much cited
and important work of Romer and Romer (2008), may not be directly applicable for assessing
the effect of fiscal policy on output today. Interest rates are always positive in their sample, as
in most other empirical research on this topic. To infer the effects of fiscal policy at zero interest
rates, then, we can rely on experience only to a limited extent . Reasonably grounded theory may
be a better benchmark with all the obvious weaknesses such inference entails, since the inference
will never be any more reliable than the model assumed.
The contractionary effects of labor and capital tax cuts are special to the peculiar environment
created by zero interest rates. This point is illustrated by a numerical example in Table 1. It
shows the "multipliers" of cuts in labor taxes and of increasing government spending; several
other multipliers are also discussed in the paper. The multipliers summarize by how much output
decreases/increases if the government cuts tax rates by 1 percent or increases government spending
by 1 percent (as a fraction of GDP). At positive interest rates, a labor tax cut is expansionary,
as the literature has emphasized in the past. But at zero interest rates, it flips signs and tax cuts
become contractionary. Meanwhile, the multiplier of government spending not only stays positive
at zero interest rates, but becomes almost eight times larger. This illustrates that empirical work
on the effect of fiscal policy based on data from the post-WWII period, such as the much cited
and important work of Romer and Romer (2008), may not be directly applicable for assessing
the effect of fiscal policy on output today. Interest rates are always positive in their sample, as
in most other empirical research on this topic. To infer the effects of fiscal policy at zero interest
rates, then, we can rely on experience only to a limited extent . Reasonably grounded theory may
be a better benchmark with all the obvious weaknesses such inference entails, since the inference
will never be any more reliable than the model assumed.
Tuesday, May 18, 2010
DvD Insights - Corporate Credit Default Swaps and Non-Dealer Trading Volume @ RiskCenter: A Financial Risk Management Media Company
DvD Insights - Corporate Credit Default Swaps and Non-Dealer Trading Volume @ RiskCenter: A Financial Risk Management Media Company:
Hmmm! There's not too much real activity out there. As van Deventer warns, keep your hands firmly on your wallet.
Hmmm! There's not too much real activity out there. As van Deventer warns, keep your hands firmly on your wallet.
billy blog » Blog Archive » Naked Keynesianism
billy blog » Blog Archive » Naked Keynesianism: "Naked Keynesianism"
There's the beginning of a good discussion in the commentary to this blog. How much of the institutions surrounding government spending are necessary to keep the political and economic machinery running smoothly? And, more to the point, how can we start to change the level of discourse so that we can move the debate on to better ground i.e. MMT.
There's the beginning of a good discussion in the commentary to this blog. How much of the institutions surrounding government spending are necessary to keep the political and economic machinery running smoothly? And, more to the point, how can we start to change the level of discourse so that we can move the debate on to better ground i.e. MMT.
Tuesday, May 11, 2010
Friday, May 7, 2010
SSRN-The Shanxi Banks by Randall Morck, Fan Yang
Here's a little piece of insight into Chinese history.
SSRN-The Shanxi Banks by Randall Morck, Fan Yang: "The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance. Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers."
SSRN-The Shanxi Banks by Randall Morck, Fan Yang: "The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance. Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers."
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