Crisis and Bailout - Updated

29 settembre 2008 david k. levine e michele boldrin

This is the third part of 1000 Alitalia in one shot ... I have a "new" coauthor and we have managed to find some data that leave us rather puzzled about the whole thing. In fact, we are still working on the more controversial (really controversial) data and their implications, so stay tuned as it may be more "fun" than we would like it to be. Because everyone is busy making urgent proposals (while Bush, Paulson, Bernanke and Congress are busy ignoring them and playing politics or serving vested interests) we also throw in our two cents on the topic "urgent measures". The only one we really advocate being "stay calm, think, do not panic, do not rush ... talk softly but carry a big stick ...". Apparently no one is staying calm, so disaster may really fall upon us.

Questa sarebbe la terza parte di 1000 Alitalia in one shot... Ho un coautore di lusso e, visto l'evolversi degli eventi, abbiamoprovato a fare due conti a mano. I dati più interessanti, ma anche più controversi, continuiamo a guardarli e riguardarli per essere sicuri di quanto andremo dicendo. Non c'è fretta, arriverà anche quell'articolo e temo che qualcuno concluderà che siamo diventati decisamente e per sempre "pazzi" ... amen, ci abbiamo fatto il callo. Poiché tutti si affannano a dire la loro sul da farsi immediato (mentre Bush, Paulson, Bernanke ed il Congresso li ignorano olimpicamente) diciamo anche noi la nostra, per quel che vale, sulle "misure urgenti". Come con l'articolo precedente, non ho trovato il tempo per tradurlo in italiano. Mi scuso.

Everyone knows that the United States faces a serious financial crisis and that the Administration is asking for an astoundingly large sum of money to fix the problem. Fewer may know what economists think about the crisis. Most academic economists - the economists who do not work for companies likely to benefit from the bailout, nor for the President - are opposed to this plan. This large group of experts has wide ranging political opinions, and includes democrats, republicans, and most likely some libertarians. So: why is there a crisis, what is this plan, and why are a large number of academic economists opposed to it?

We might start by asking how we got where we are today. The basic fact is that the housing market boomed and has now gone bust. As a consequence, a vast amount of financial securities, written on the expectations that the bust would never come, are now worth little. Was this a bubble, the natural working of the market, or was it a creation of government policy? Or, more probably, all three? Certainly there is a great deal of evidence that both the boom and the bust in the housing market were encouraged by government policy. The chart below shows an index of housing prices (the Case-Shiller Composite-10), and the short term nominal interest rate, the Fed Funds rate (multiplied by 10), which is set primarily by the Federal Reserve. Beginning right after 9-11-2001, the Fed Funds rate was very low in comparison to the earlier period. These low interest rates meant that money could be lent cheaply in the short-term, helping to fuel a lending boom in the mortgage market through the use of Adjustable Rate Mortgages (ARMs). The boom was also encouraged by lax supervision of the two government sponsored secondary mortgage lenders, Fannie Mae and Freddie Mac. These large Government Sponsored Enterprises (GSEs) bought nearly half the mortgages in the country from the banks that originated them, and resold them to investors as Mortgage Backed Securities (MBSs). Other, private, investment banks performed similar functions by creating, issuing and trading similar, unregulated, securities, such as Collateralized Debt Obbligations (CDOs), Collateralized Mortgage Obbligations (CMOs), Real Estate Mortgage Investment Conduits (REMICs) and so on. The total outstanding value, as of the end of 2007, of these kinds of securities is in the order of $6 trillion (http://www.sifma.org/research/statistics/statistics.html).

While not the only culprits, Fannie Mae and Freddie Mac were certainly, and by far, the two largest players in this market. With support from Congress they encouraged banks to make high risk loans with low teaser interest rates and little or no down payment. The Bush administration, repeatedly proposed greater oversight of the two GSEs, and was continually rebuffed by both Republican and Democratic Congresses. Private investment banks, and banks of any kind, also played an important role in the financing of the housing bubble and in the creation of MBSs of various kinds. The favorable lending rates on the short term market (at least until well into 2005) allowed banks to borrow cheap and lend, at a substantially higher rates, in the form of (long term) house mortgages that would, right after, be securitized and distributed through the financial system. Then, after several years of the housing boom, the Federal Reserve concluded that it had made a mistake setting interest rates so low and started to raise them. This suddenly took the fuel out of a car that was going full speed, sending an increasing number of borrowers into default and leading to the rapidly falling housing prices seen in the graph.

Next we should ask: what is the connection between the fall in housing prices and the difficulties in which banks find themselves? A homeowner typically borrows the money to purchase a home from a bank. For example, a purchaser might make a 20% down payment, and borrow the other 80% from a bank. If the price of the house were then to fall by 40% the homeowner would find themselves "upside down", owing more money on their house than the house is worth. If the homeowner wished to move, or fell on difficult financial times, they might choose to stop paying their mortgage, possibly by declaring bankruptcy, in which case the bank will foreclose the mortgage taking ownership of the house. That leaves the bank with a house less than the value of the loan, so the bank loses money. What are the losses suffered by banks as a result? At the beginning of the year, Standard & Poor's estimated that losses might exceed $265 billion.

To see how such a number might be computed, we start with market value of the US stock of civilian housing at the peak of the housing market. This occurred in the end of 2005 when the value of houses was roughly $21 trillion dollars. About half of that is mortgaged making the value of mortgage loans around $11 trillion dollars. As of now, the average foreclosure rate, the ratio between the value of unpaid mortgages on foreclosed houses, and the value of all mortgages is slightly below 3%. Against $11 trillion in loans, that means about $300 billion in bad loans. Of course even in good times there are bad mortgages: for example between 2000 and 2006 while the housing market was booming, the rate was about 1.5%, meaning that even if times were good there would be about $150 billion in bad loans. In addition, while the banks lose money because of foreclosures, they end up with the houses, so to figure the actual losses, we should subtract the resale value of the houses they end up owning. This would mean that losses beyond the ordinary might be as low as, say $50 billion or even less. On the other hand banks also lose money not only because of foreclosures but because they choose to renegotiate loans rather than foreclose. For example, Washington Mutual before it failed, had set aside $2 billion for mortgage "workouts" meaning negotiating more favorable terms for the borrowers. In addition it is not only actual losses that matter, but, since a mortgage runs for 10-30 years, future losses matter a great deal. These future losses may occur either because some people who are upside down and have not currently walked away from their mortgage may choose to do so in the future, or because the housing market may fall even further.

Although the future is unknowable, we can get an idea of how important future losses might be by examining how much equity home owners have in their homes. Owners with negative equity are a threat to walk away from their mortgages. Owners with low equity may have negative equity in the future if prices fall further. The chart below shows how much equity homeowners had in their homes at the end of 2006. Roughly 10% are upside down, with another 5% having equity of less than 5%. Given the substantial fall in housing prices since the end of 2006, that means that about 15% of all loans could be in negative territory, a considerably higher figure than the 3% who have already defaulted. (An exact calculation is difficult, because changes in houses prices in different parts of the country are extremely varied.) If we figure that on average the negative loans are about 10% below the average value of the mortgage, and recognize that a bank seizing a house significantly lowers the value of the house, we might estimate that about 3% of total mortgage debt represents a loss to the financial sector, or multiplying by $11 trillion, there are about $330 billion in losses. Another way to get at this, is to observe that if the housing market declines and homeowners that are upside down default on their loans, the financial sector will then absorb up to about 15% of those losses. Since the housing market has fallen about 20% from the peak, this also gives losses to the financial sector of about $330 billion. These numbers are similar to those of Standard & Poor's. However, if housing prices were to fall another 20%, potential losses could then approach $660 billion. So we see that while actual losses are not so large - on the order of $50 billion or less - future losses could approach the $700 billion being proposed in the bailout plan.

  Where did all the money go?     The next thing to understand is how an entire financial superstructure was built on the shaky foundation of bad mortgage loans. In order to spread the risk of a single lender defaulting, many mortgages are packaged together as a single mortgage backed security that is then sold to investors. However, even a mortgage backed security is risky - for example, if the entire market falls - so these are further subdivided into tranches, with the riskier tranches being required to suffer losses before the safer tranches do. The key step consists in acquiring insurance, in one form or another, on these tranches, which allows them to be traded in the market and used as collateral for further borrowing. Various instruments can, and are, used for this purpose but Credit Default Swaps (CDSs) are by far the most common. The market for CDSs is now estimated to be $63 trillion, although not all of that involves mortgage backed securities. The point to be noticed is that the total value of outstanding mortgages is $11 trillion (and that includes lots of old and safe mortgages not in need of insurance), while the value of insurance contracts written on them is about five times as large. In fact, if the available estimate of $6 trillion for the total outstanding face value of all kinds of MBSs is correct, the ratio between the two nominal outstanding values (the actual amount insured and the one we would expect to be in need of insurance) is ten, which is a pretty large number. Clearly, Mortgage Backed Securities (MBSs), CDOs and so on, were used as collateral for lots of additional borrowing; further, either those securities were over-insured a great deal or insurance contracts were actually used for the opposite purpose, that is to say to take bets that increased the risk of existing MBSs' portfolios. Be it as it may, and lacking further information one cannot really say, the insurance offered by CDSs and similar derivative contracts was certainly a key instrument in this process that turned the value of U.S. mortgaged houses into the foundation of a particularly large and complicated castle of cards. That explains why, as the value of those houses is dropping the whole castle of cards threatens to crumble. If you would like to read more details about the problem, Diamond and Kashyap have a good writeup. ' There is a puzzling, truly puzzling, aspect of this story and it is the following. Apparently everything is due to the fall in house prices cascading through a chain of financial contracts. Nevertheless, if this chain of contracts was of the "normal" type - i.e. B lends A $100 and receives a piece of paper (IOU1) the collateral of which is the house worth $120. C lends B $100 and receives a piece of paper (IOU2) transferring the collateral. D lends C $100 and receives a piece of paper (IOU3) transferring the collateral ... and so on - there could not be the risk of a systemic disaster. This is because, when the price of the house A bought drops to $80, so that A defaults on her mortgage, B recovers $80 from the sale of the house, which it uses to (partially) satisfy its IOU2 with C that does the same with his IOU3 with D ... etcetera, until we end up with Z who is the actual lender/investor in the house A bought. Because Z is the one that, ultimately, invested his savings in the house, Z loses $20, while all the other intermediate parts in the credit-chain cancel out assets and liabilities nominally worth $100 and "pass on" the $80 traveling from A to Z. No disaster here.

The story does not change if, somewhere in the chain, we insert a party that buys insurance against the risk that the house will drop in value. So, for example,

let C enter into a CDS with C' such that C' will pay C $100 in case B cannot pay its dues to C, while C will transfer to C' whatever payment it receives from B in that case. Assume C' asks for an upfront premium of $10 for such an insurance contract, corresponding to her assessment of the chances that the house A bought drops below $100 in value. Then, C' collects the $10 a fraction of which, together with those from many similar $10, she stores as a capital reserve. Should C' further secure herself by entering into similar "normal" insurance contracts, it is easy to see that what we are going to describe next becomes longer but does not change in substance. Assume, as before that A defaults on IOU1 because the house price drops to $80. Then B seizes the house and recovers $80, which are passed over to C who hands them out to C'. The latter takes the (fraction of) the $10 premium from her reserves (say $5) and, if it had calculated its probabilities correctly, it takes other three $5 bills from similar contracts that did not default (i.e. each one had a probability of 1/4 of defaulting) and hands over $100 to C. From then on the $100 travels forward, all the way to Z who, in this case, does not lose anything because C had bought insurance (and D knew, as did E, F ...). In this story, at worst, it is C' that suffers a loss, and this takes place if either C' did not compute correctly the probability of default or, which is the same, it consumed the full premium instead of saving a portion. In any case, no matter how stupid or lazy C' was, the total systemic loss is of $20, like before!

We could continue with more complicated examples, but one thing should be clear: either everyone got completely confused AND the actual drop in value of the US housing stock is a lot larger than the one we computed above OR something else happened. Here is why: simple back of the envelope calculations (report details?) show that the accumulated capital losses suffered by Bear and Sterns, Lehman, Washington Mutual, Wachovia and UBS (all losses that can clearly and directly attributed to mortgage related securities) since October 2007 substantially exceed $330 billion. Hence, either those five banks were the owner of the practical totality of "bad MBSs" (in which case: hurray, the worst is over and the future is bright) or there is something else that keeps preventing the rest of the banking system from functioning properly. What could be the something else? Short of taking "dark matter" seriously, we can think of only one hypothesis, which is the following.

Financial institutions of all kinds used derivative contracts to enter into reciprocal bets that (1) went against the wind - i.e. those that owned MBS also bet that interest rates would not increase, so that when they did they lost twice: first on the mortgage and then on the interest rate derivative; (2) were "insured" (in the sense of assessing creditworthiness of the counterparts) by collateral assets that were, in a way or another, linked to MBSs - hence when those payments were due the collaterals had also dropped in value and the creditworthiness was gone out of the window; (3) were for amounts that substantially exceeded the net worth of the overall system, i.e. the total capitalization of a large chunk

- if not the entire - US banking industry; and, finally, (4) no one knows who owns/owes what, so that anyone can be a possibly defaulting counterpart in any short term lending/borrowing arrangement. We are not sure (meaning; we do not have a theorem stating that) how many of these four conditions should simultaneously occur to imply systemic collapse but our hunch is that, in practical circumstances, any three of them would do.

Now, this is not good news on the one hand, and important news on the other. It is not good news because, if that were the case, we would be facing major regulatory and supervisory

failure at a scale never seen before in the post-WWII US financial sector. It is important news because, were that the case, we would know what to do. Unfortunately, and hic sunt leones, the data publicly available does not allow us to make any inference either way. As of now, all we can frankly register is a huge puzzle: where have all the money gone? '   Problems and Solutions  

What is the problem that we now face? Some banks have made bad choices, as have some homeowners. So also have some automobile firms, people that have borrowed on their credit cards, made unwise marriages, and so forth. The government has not promised to bail any of them out, and if it did, it would encourage even more irresponsible behavior in the future. What is special about banking? The problem in banking is the possibility of cascading failures, that the failure of bad banks may drag down the good banks, leaving nobody to lend money to businesses, home-buyers and all the other people that who would like to borrow. One might fear that it would also deprive people with money deposited in banks of their savings, but the Federal Government does guarantee those deposits, at least up to a limit, so if a bank fails as Washington Mutual just did, the government will step in to pay the depositors. The problem of cascading failures is, nevertheless, potentially serious.

A simple example will illustrate the problem: I borrow $1 million from Michele and lend it to you. You invest the million unwisely and lose it all, declaring bankruptcy. That means I don't get repaid. How am I to repay Michele the million I borrowed from him? One possibility is that I can't, that I also go bankrupt, and so your bankruptcy causes me to go bankrupt. That is what is meant by a cascading failure, when one bankruptcy forces another. However, perhaps I own mortgage backed securities. It may be that these are good securities representing money lent to people who can and will repay, or bad securities representing money lent to people who cannot repay, just as you cannot. In the latter case, if my securities are bad, then I am insolvent, and I should go bankrupt. But it may simply be that I am illiquid, meaning that while the securities are sufficient to pay off the money I owe to Michele, I cannot readily cash them in to raise the funds to repay him.

This is where the "lemons" problem comes in. Potential buyers of my securities know that my securities may be good or bad, but without a lot of time, effort, and money, they cannot easily tell which is the case. I, on the other hand, know whether my securities are good or bad. So a potential buyer will charge a price based on the average quality of securities for sale. If both good and bad securities are for sale, they will offer to pay an average of the price of good securities and bad securities. The lemons problem is that if my securities are bad, I am very happy to accept that price, while if my securities are good, I am not so delighted to sell. In other words more bad securities will be offered for sale than good; that in turn further lowers the prices buyers will be willing to pay, further driving down the quality of securities for sale. In the worst case I can only sell my securities, good or bad, for the value of the lowest quality securities possible. This means I might have to go bankrupt, even though I hold securities adequate to pay my debts, simply because buyers cannot tell that my securities are really good. We would prefer that the banking system not collapse because the bad securities have driven out the good.

What is the solution? One is for the government to step in and buy securities, as proposed in the bailout plan before Congress. It is hard to know the consequences of this without knowing how the government will determine the price is pays for securities. One possibility is that it simply offers to buy a certain number of securities of a given risk class to whoever will sell it to them at the lowest price. What happens depend on whether all securities that are bid are identical in risk or not. If they are Larry Ausubel and Peter Cramton explained how they can be efficiently valued in an auction. If they are not, then if the government pays, say, $30 per security, it can be fairly confident that it will only get securities worth less than that with the taxholder responsible for the difference. Notice that the ones who reap the rewards are the holders of bad securities who sell to the government at what is for them a premium price. Those who made bad decision are rewarded, those who made good decisions are not. In effect in order to keep the bad banks from driving out the good we rescue the bad banks.

There are many alternative schemes to the one proposed by Treasury.

  1. Require banks to raise more capital. To do so the current shareholders and executives will have to relinquish some power and allow either foreign banks or foreign investors to enter as shareholders and have a say in the management of the bank. This requirement forces banks sell off their risky securities to be replaced with safer securities such as Treasury Bills. Forcing everyone to sell faces the same lemons problem that is faced by the Treasury scheme, except that now the losses are borne by the good banks rather than the taxpayer.
  2. Forgive debt in exchange for equity. That is those who are owed money by the bank are required to accept instead a share of the firms stock. This gets around the lemons problem because it does not force banks to liquidate good or bad securities. The cost of the scheme falls on the bond-holders: however, if the banks go bankrupt, they will be on the hook anyway. Zingales argues that debt forgiveness schemes have worked for resolving financial crises in the past.
  3. Buy foreclosed houses for the value of the mortgage. Although the actual cost of the Treasury plan is difficult to compute, since it is hard to know the value of securities we will wind up owning for $700 billion, this we know will cost $150 billion as of now. If we act quickly, therefore preventing the house prices from dropping much farther, that may be it. An important benefit of this approach is that it avoids the lemons problem entirely. A drawback is that it does not do anything about securities that are in trouble due to the possibility of future losses rather than present losses. It also leaves the government owning houses rather than securities, and houses are less easy to handle than securities.
  4. Force an orderly winding down of the housing based derivative market. It is likely at this point that a large fraction of the contracts currently alive have turned into empty gambles, in which one party is unable to pay. Markets are already operating in this direction as the number of outstanding CDSs suggest, but the process might be aided by an impartial arbiter.

The sky is not falling, and will not fall

Yes: there can be cascading bank failures and that is a bad thing. But it does not happen instantly, not tomorrow, not next week, not next month. Here is a graph of bank failures during the Great Depression which we supposedly face again if we don't approve the bailout plan immediately.

This is taken from a publication of the Federal Reserve Board. The point of the graph is simple: the banking system didn't fail all at once during at the beginning of the Great Depression: there was a continuing series of bank failures stretching over more than three years. And it bears emphasis: at the beginning of the Great Depression the Federal Reserve did exactly the wrong thing: it failed to provide liquidity to the system and allowed the money supply to contract. It is the documentation of this in the Monetary History of the United States for which Milton Friedman and Anna J. Schwartz are justly famed. At the moment the Federal Reserve has been carefully, and largely quietly, doing what it is supposed to do - namely exactly the opposite of what it did at the beginning of the Great Depression.

Looking at more recent times in the early years of this century Argentina suffered a dramatic banking crisis leading to a default on the public debt. For a few months this forced a nearly complete shutdown of the national banking system. Bailout or no, nobody is predicting such a dramatic collapse in the U.S. The effect of the banking collapse in Argentina can be seen in the per capita Gross Domestic Product (GDP, a measure of income, measured in Purchasing Power Parity units) show below

2005 $14,024.26
2004 $14,161.54
2003 $14,298.07
2002 $14,435.93
2001 $14,578.37
2000 $14,728.00
1999 $14,885.85

The crisis occurred at the end of 2001, and during 2002. As can be seen it did not have much effect on GDP. While per capita income fell in Argentina pretty much continuously due to various poor economic policies, the fall was not especially aggravated by having banks closed for several months.

The bottom line, in the immediate future, is this. The Federal Reserve Bank and its sister agencies such as the Federal Deposit Insurance Corporation (FDIC) already have strong tools against a cascading failure of the banking system. They has been using those tools, including advancing credit to banks through the discount window, insuring deposits, and selectively allowing institutions to fail. We have seen isolated bank failures. There will be more in the future. We have not seen good banks fail, nor have we seen cascading failures. We have been given no reason to think anything of the sort is imminent. It is sad to say that despite this the U.S. Government is in a state of panic. Supposedly knowledgeable government officials talk as ATMs might stop working and firms will not be able to meet their payrolls. This is utter nonsense. To debunk the obvious: Washington Mutual failed Thursday night. Washington Mutual ATM cards continue to function as usual. Individual and corporate bank accounts are federally insured up to $100,000 per bank. The normal process of bank closure does not prevent bank customers from accessing their funds. As to payroll: We do not doubt that some firms of various sizes are going to fail to meet payroll and go bankrupt next week. It is likely that a few of them would have been able to survive if credit was more widely available at the moment. But most firms do not meet payroll by short-term borrowing. The fact that banks are reluctant to lend to each other does not have much impact on their ability to make short term loans to customers. And so on.

No objective reading of data we have access to indicates anything near as bad as the claims that are being made. It may be that eventually more intervention than the Federal Reserve and Treasury can do without Congressional action will be needed. However, this is not a natural calamity or a war where there will be large and irreparable harm if we do not act immediately. There is adequate time for the public, the Congress, the Treasury and Federal Reserve to think through the alternatives carefully, to monitor the situation with equal care, and if necessary intervene in markets in a way that makes sense.

Public officials, especially the Chairman of the Federal Reserve Board have an obligation to explain these facts and reassure people that they are not in danger of a catastrophic collapse. It is rather unfortunate, then, the opposite seems to be occurring. For example, on September 24 Ben Bernanke declared in front of Congress:

All told, real gross domestic product is likely to expand at a pace appreciably below its potential rate in the second half of this year and then to gradually pick up as financial markets return to more-normal functioning and the housing contraction runs its course. Given the extraordinary circumstances, greater-than-normal uncertainty surrounds any forecast of the pace of activity. In particular, the intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth. The downside risks to the outlook thus remain a significant concern [...] Over time, a number of factors should promote the return of our economy to higher levels of employment and sustainable growth with price stability, including the stimulus being provided by monetary policy, lower oil and commodity prices, increasing stability in the mortgage and housing markets, and the natural recuperative powers of our economy. However, stabilization of our financial system is an essential precondition for economic recovery. I urge the Congress to act quickly to address the grave threats to financial stability that we currently face. For its part, the Federal Open Market Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Roughly speaking he said "things are not too bad, but gradually getting worse, and you better act quickly to give us $700 billion to fix it." The conclusion does not seem to follow. It is not surprising that people imagine that there is far more catastrophic information that he is not telling us. If the Federal Reserve Bank and Treasury in fact have information that things are worse than Bernanke reported they should tell us what it is. Otherwise they should stand up and make it clear that doomsday is not around the corner.

Days like the day of St. Michele of 2008 are not good for anyone and a certain degree of transparency from the Federal Reserve could spare us, at least, part of it.

108 commenti (espandi tutti)

Only by understanding why the failure of a bank to make good on its
derivative contracts may, possibly, cause a systemic failure (as
opposed to the failure of that bank and the enrichment of another) we
will be able to answer the really important policy question: what
should be done to prevent similar disasters from happening in the
future?

From what I understand, the most immediate fear is the freezing of the money markets: as banks don't trust each other, they tend to decline requests of temporary credit positions (hence the escalating interbank rates, which, separately, also worsen the predicament of variable-rate mortgage owners, making the real estate prices drop faster etc.). That alone can bring the whole financial system to a standstill, even without anybody actually losing money. Consider that the interbank money flows (credit aside) are staggering: in 2005 only Fedwire processed payments for USD 2.1 trillion a day, and flows through CHIPS (used mostly for international payments) are probably of the same order of magnitude. Perhaps some sort of government guarantee against risks of counterparty default could help here, although it's hard to engineer it in a way that can't be misused by cunning financial institutions... For example, recently the ECB had to clampdown on abuses of its collateralized credit facility by banks who were allegedly taking advantage from it as a magic converter of newly-produced lemons into cash...

Dagospia cita Libero Mercato:

La mina derivati negli enti locali sta per esplodere e il ministro dell'Economia, Giulio Tremonti, si affida alla Ragioneria dello Stato. Gli sceriffi dei conti pubblici, guidati da Manlio Canzio, hanno passato al setaccio una valanga di contratti di swap sottoscritti dai comuni con le banche nel 2007, quando ai city manager era ancora possibile "giocare" con la finanza spericolata.

Una indagine assai accurata, al termine della quale il Dipartimento di via Venti Settembre ha rilevato una raffica di irregolarità nelle operazioni finanziarie degli enti. Di qui la decisione di mettere nell'angolo le banche - spesso accusate di speculare sulle difficoltà finanziarie di comuni, province e regioni - costringendole ad annullare le operazioni più pericolose.

...

È stata messa in piedi, perciò, una task force dalla Ragioneria e dal Tesoro (direzione debito pubblico). Il gruppo di esperti ha messo sotto la lente di ingrandimento accordi e operazioni realizzate lo scorso anno e ha avviato un confronto con le principali banche attive nel campo della finanza locale.

«Dalle prime risposte pervenute è emersa la disponibilità da parte delle società che hanno proposto le operazioni di swap a modificare quelle cosiddette illegittime» si legge nel dossier di 178 pagine della Ragioneria. Le correzioni riguarderanno, in sostanza, le condizioni e opazioni più pericolose infilate dalle banche nei contratti , ma in violazione del giro di vite messo sul piatto dall'ex ministro dell'Economia, Tommaso Padoa-Schioppa.

If
federal taxpayer money must be spent now, due to the theory that urgent
action is needed to avert the fear that the government is ignoring the
matter, we recommend using it to buy the foreclosed on houses, at the
face value of the loans impending on them.

I don't think this is going to be as easy as it may seem, for several reasons: the US governement would suddenly become the biggest real estate agency in the world, without having any infrastructure on its support. They would have to evaluate, mantain, advertise and rent thousands of houses across all states and once they'd manage to rent them out they would have to mantain them when needed (as all landlords do). I see how that can be costly. Add to it the fact that many of the houses in foreclosure are simply bad properties in bad neighborhood  (remember the profile of the people who bought them on the first place) so much that newspaper are rich of stories of diffuse house-squatting. Now, I am not saying that all houses are being squatted of course but I fear that most foreclosing houses are not just good enough to recover their market price, having being bought in a bubble or even not good enough to be rented at a fair (for the taxpayer) price.

So, I think it is wise to go to the root, as you said, but I am afraid this solution does not guarantee any better investment and it is going to be very costly on the long run, possibly much more than 700 billions.

What about moving just one step above and buy the bad loans, instead. Better than buying their corresponding derivatives for the same principle, but physically easier to deal with.

Agreed, but is there any evidence the federal government has any comparative advantage at managing all kinds of complicated securities? Because THAT is the alternative.

As for housing management, there are indeed, across the US and also in Madison, both Federal, State and local housing management agencies that could get involved in the process. Their track record is far from perfect, agree. But the track record of our financial overseers and regulators is not better!

I should insist that this is a proposal made under the strong assumption that we MUST spend federal money NOW, assumption I do not share. Forcing recapitalization and forcing the un-doing of the outstanding derivative positions, while beginning to debate the whole regulation issue, would, our view, be enough. 

Finally, the data do NOT, currently, suggest that this would cost more than the financial bailout. They suggest it would cost less. How do you reach the conclusion it would cost more, I have no idea.  

Finally, the data do NOT, currently, suggest that this would cost more
than the financial bailout. They suggest it would cost less. How do you
reach the conclusion it would cost more, I have no idea.

I came with those predictions with a quick back-of-the-napkin sum assuming the financial bailout would bring some profit but, well, you are right on this. When it comes to costs, as of now, nothing really can be said about anything. Those 700b may turn out to be more or to be less, we simply don't know. They may have some return, they may actually bring a lot gain: all in the air. Buying the houses or the loan would have at least two advantages: economically, it might be slightly easier to actually forecast the income; politically, it is going to be a measure WAY preferred by the people. It is clear that the american people simply don't want to give money to WS, no matter what the alternative would turn out to be.This is actually interesting from my point of view because it is a clear sign of a class conflict. It seems, after all, that although US americans are really familiar with and favorable to the concept of free market, still cannot stand some of the basic principles behind it (namely, someone  is going to be way richer than you without, apparently, deserving so).

 

It is clear that the american people simply don't want to give money to
WS, no matter what the alternative would turn out to be. This is
actually interesting from my point of view because it is a clear sign
of a class conflict. It seems, after all, that although US americans
are really familiar with and favorable to the concept of free market,
still cannot stand some of the basic principles behind it (namely,
someone  is going to be way richer than you without, apparently,
deserving so).

I agree, but I would not speak of "class conflict", more of "despise" (or even "hatred", if you like, but that's a strong word around here) for a certain interest group, lobby, circle of privilegied people or whatever you want to call it. The American people do not seem to have any problem with, say, software venture capitalists or other entrepreneurs making lots of money.

The American people may resent, for example, that while the Fed Funds Rate was, in the middle 2000s, a lot lower than the ECB reference rate, mortgage rates offered here, even to the best borrowers, were a good 200 basis points higher than those offered in Europe to similar clients ... not a sign of great banking sector's efficiency, in spite of salaries that are substantially higher than in Europe.

In other words - for reasons that should not be too hard to understand in the light of the last two asset bubbles and of whatever happened from 1997 onward - the voters do resent and reject the idea of giving money, without conditions attached, to people on Wall Street. 

Now, the unfortunate part is that - because of the panic situation bad policies and even poorer management of the crisis have now created - they will end up doing it nevertheless sometime soon. The one today was a Phyrric victory, if there ever was one.

hidden variable

chemist 29/9/2008 - 17:36

I found the following statement both a stimulating and frustrating one :

either, contrary to what the news reports suggest, the losses are not due to derivative contracts but to something else (what, we cannot imagine though) or the actual losses in the value of outstanding mortgages are substantially larger than those revealed by the official data. There is no evidence whatsoever that either of these two hypotheses correspond to the facts

Being not an economist, I venture to ask: is there any chance that, due to some kind of smart multiplicative mechanism, the actual value of mortgages has been used as a basis to produce a larger amount of "value"?

Me too, really. It is frustrating not to be able to find the data, because the banks do nor reveal them, and the Fed neither.

Yes, I believe that is what happened and I believe the "value" so created was used to skim off the fat, leaving only a castle of paper behind. But the complete opaque information available allows one to only conjecture, and keep investigating.

Yes, I believe that is what happened and I believe the "value" so
created was used to skim off the fat, leaving only a castle of paper
behind. But the complete opaque information available allows one to
only conjecture, and keep investigating.

There's been much talk about the "shadow banking system", expression coined last year by Pimco's Paul McCulley in this article to indicate the complex of SIV's and similar unregulated entities. This was indeed the liquidity-equivalent of "dark matter" in astrophysics: something that can't be seen directly, but is sensed through effects equivalent to ordinary matter's. In our case, those effects were mass creation of cheap credit, which added a massive amount of extra liquidity to the financial system (also because, being those entities unregulated, they were not subject to reserve requirements and capital adequacy ratios), in times when conventional credit was already expanded by the FED's low interest rates policy.

According to this article of Novemeber 2007 by Pimco's Bill Gross, the FED initially was not exactly on the ball:

What we are witnessing is essentially the breakdown of our modern-day
banking system, a complex of leveraged lending so hard to understand
that Federal Reserve chairman Ben Bernanke required a face-to-face
refresher course from hedge fund managers in mid-August.

intanto oggi, anche prima del voto negativo della camera sul piano paulson, sono "fallite" 4 banche. 3 in europa.

I cannot comment on the core of the article, and some of you know why. But there is one point that I can comment upon: the role of monetary policy in generating the house price boom. in this and other article in nfa it is taken as a given that "there is a great deal of evidence that both the boom and bust in the stock market were encouraged by government [that is, monetary: my comment] policy". To me, the plot shown in the article does not amount to much evidence: both house prices and the fed funds rate are endougenous variable (the fed responds to inflation, output, and other stuff), so the fact that we experienced a boom in house prices and low interest rates at the same time is no evidence of causation. In a paper with Chris Otrok at UVA (JME 2008, http://www.newyorkfed.org/research/economists/delnegro/wp0524.pdf, and I am embarassed to quote my own research) we looked at whether the exogenous component of policy -- that is, deviation from the "usual" (or historical) policy rule -- is responsible for the house price boom. Our answer is by and large no (btw, we wrote this in the spring 2005). Now, you may not like the methodology, and perhaps for good reasons. You may say that the problem lies precisely in the policy rule followed by the fed. In general the issue is by no means settled: I look forward to more work on this topic, which is obviously important to central banks. But to my knowledge there are not many other pieces of empirical work addressing the issue (at least until recencently -- pls let me know if I am wrong). The bottom line is that I am not aware of this "overwhelming evidence" that the fed caused the house price boom.

 

(scusate la mancanza di traduzione)

Grazie Marco. E' facile farsi prendere da convinzioni. Io ho sempre pensato che fosse ovvio che monetary policy fosse responsabile in qualche modo e forma (magari altri hanno evidenza per supportare il claim, ma io, devo ammettere lo ho sempre trovato essenzialmente self-evident - e non conosco evidenza a favore). Ma fa bene essere contraddetti con evidenza. Fa tenere i piedi per terra se non necessariamente cambiare idea. Mi leggo il paper volentieri. Grazie.

Hmm, a VAR, yeah.

Small question: how do you define a "usual - or historical - policy rule" if the sample under consideration has no less than two or three such rules?

Non sono sicuro di capire come funzioni, in pratica, il vostro controfattuale. A me viene molto più immediato ragionare come fa Taylor, qui:
http://www.stanford.edu/~johntayl/Housing%20and%20Monetary%20Policy--Taylor--Jackson%20Hole%202007.pdf
Hai modo di vedere cosa succede nel vostro modello, seguendo un approccio simile? Più in generale: pensi che abbia senso?

Grazie

Easy, easy. Ed un po' di, come dire, non so, non mi viene la parola giusta ... senso della misura? Ecco, qualcosa del genere.

In ogni caso, here are a few papers "proving" exactly the opposite of what you claim to have proved. Plenty more are easily available by searching the web ... 

As for what you have actually computed (modulo the methodology) you forgot a few things:

(1) the data set you use ends in early 2004, half way through the bubble;

(2) your impulse-response function (fig 9) and your own words (p 14) state the opposite of "no", i.e. there is an effect of monetary policy on the price of houses.

(3) You then qualify the "effect" as "small" (a very personal evaluation, at a minimum) through a particular counterfactual exercise that is highly debatable and, especially, does not address the MAIN issue raised here, and elsewhere, which is the appropriateness of the monetary policy rule adopted by the Fed. Given that you yourself recognize this fact in your paper and even in the comment, I wonder what the overall purpose of this comment was. Mentioning a paper that does NOT address the issue we are discussing here?

We can then discuss methodology, and why the methodology you use is neither appropriate to measure what you claim to measure nor, in particular, should allow you to draw the conclusions you  like to draw from it. But this requires time I do not have in this moment.

Moral, mostly for other commentators: read the paper before deciding it convinced you to change your mind. Otherwise you run the risk of pontificating without any factual basis to support the pontification.

P.S. Methodology: vedo che alcuni lettori hanno già individuato le basic issues finché io prendevo il caffé con mia moglie ... grande posto nFA!

Michele, Ja, Luigi, thank you for the comments. Just to set the language right: I never claimed to have "proven" anything. First, the small potatoes: from a methodological point of view Taylor and our paper run the same ("debatable") counterfactual as far as I see. The differences are in the details: Taylor uses house starts, Chris and I use OFHEO house prices. More important, Taylor takes "his" rule literally from an empirical point of view. Plenty of papers show that that that rule may work as a rough characterization of policy, but not so well in practice: the result is that Taylor gets a deviations from the rule (what's called a policy shock) that is somewhat bigger than what we get. (btw, Ja refererred to two or three rules. our paper's sample pretty much starts and ends with Greenspan. if that's the cunning methodogical comment Michele was referring to, good luck!) As to points (1) and (2) of Michele: (1) the published paper has one more year of sample, and (2) mon. policy shocks (deviations from the rule) seem to have an effect on house prices, but is just not large enough to explain the bulk of the house price boom -- but i guess people can interpret the results as they see fit.

Now to the big potato: The rule itself. Is there a paper providing evidence that the policy rule followed by the fed caused (or did not cause) the house price boom and bust? I look forward to such paper (seriously) but I have not seen it yet.

In conclusion, the evidence in terms of deviations from the rule is not, in my view, "overwhelming". The evidence in terms of the rule itself is just not there. I don't know ... where is the  "overwhelming evidence"? If you find it/provide it, I'll be the first to say that I've learned something.

Non capisco cosa hai in testa quando parli di "rule itself", a questo punto.

Luigi

Lo stesso di cui parla Michele al punto (3) della sua risposta. c'e' una "rule" che il policy maker segue, e ci sono "deviazioni" dalla rule (policy shocks), quando, che ne so, si alza con la luna storta o piu' generalmente prende in considerazione informazione non considerata dall'econometrico. quella proposta da Taylor e' una di queste rules.

Credo di aver capito. Non mi pare un buon approccio, però, se l'obiettivo è quello di analizzare un singolo case study; poter dire, oggi, Greenspan e Bernanke "hanno sbagliato" oppure "hanno fatto bene" (magari solo con riferimento al mercato immobiliare). I controfattuali sarebbero ancor più ferocemente discutibili, temo.

How do you engineer a perfect financial storm? We just witnessed how.

First: the Fed Chairman, the Secretary of the Treasury and the President (BPB, from now on) all go on TV stating that a great disgrace will fall upon the country should Congress not do X. X is, strangely, something that, prima facie, looks very advantageous for people and firms that one would not err too much by characterizing as "close" to BPB.

Second: neither BPB nor their associates, nor anyone supporting the plan X (in particular, not the "friends" that should receive advantages from it) explain what the danger is, how it works, what will cause what and how did we get to this. They insist on the matter being super urgent and dramatic, no discussion please, there is no time. Just to make things look even more dramatic, the future .5(President) suggests to suspend the presidential campaign in light of the national emergency ...

Third: during the week end the anxiety increases amid tense and obscure barganing. In the meanwhile, various proposals Y, Z, K, ... (all addressing the same issues as X but less favorable to the "friends") are dismissed outright. It is, BPB keep repeating, either X or nothing. Trust us, we know better.

Fourth: well, we just witnessed it today. In the midst of the panic caused by the refusal of Congress to just "buy X as is", the friends (and possibly also the foes, at this point) of BPB run for cover and the markets collapsed (silver lining: price of oil also did). Now the scare is complete, everybody is in panic, and no one understand what is going on and why, exactly.

Prediction: the plan will be forced down the throat of Congress between tonight and tomorrow. Now something really needs to be done, hence we will do X. The perfect storm, once again. These guys are skillful, that much I admit.

Agree on first and second. But well, third is not completely true. The plan is much better than the original - give me money and no questions please - that they tried. I am not sure I like the stock warrant provision that much, but this is also something BPB did not want. Even more so, I do not like the exec. compensation roof provision, but this also is in now, and certainly BPB and their friends do not like it (for different reasons than me). 

Also fourth, I am not sure. Stocks went down in Asia, Europe and then USA (in order), before  the information that the plan had not passed circulated.  

Prediction: the plan will pass and stocks will not recover much of the 8% loss of today.  

BTW, ecco come funzione una stampa semi-seria: il roll call del voto alla camera e' qui. Vi ricordate il casino in Italia quando Di Pietro aveva minacciato di mettere sul suo sito chi aveva votato per l'indulto? 

Avevo visto perché mi ero subito messo a cercare cosa aveva fatto il mio congressman, distretto NY1. Ha votato si come quasi tutta la delegazione dello stato di New York, credo perché nello stato esiste una alta concentrazione di occupazione nel settore finanziario.

Un esempio del genere è fondamentale per capire la differenza tra il sistema politico italiano e quello americano. Notate infatti come i due partiti siano spaccati; i dems sono in prevalenza a favore, ma con una grossa minoranza contrro, e per i reps le parti sono invertite. È un indice chiaro che ciascun congressman è più preoccupato di quello che pensano gli elettori del suo distretto piuttosto che i capi del partito. Saranno infatti tali elettori a sceglierlo, prima mediante primarie e poi al voto (che per il congresso è ogni due anni).

In Italia questo non succede perché gli incentivi sono completamente diversi. I candidati vengono scelti dai capi partito e ovviamente l'obbedienza ai capi diventa criterio cruciale. Come conseguenza, nella stragrande maggioranza dei voti il parlamentare vota come dice il partito. Non è purtroppo solo questione di regole elettorali, le norme sociali contano. Durante il periodo in cui in Italia 3/4 dei seggi erano assegnati con l'uninominale non si è sviluppata una cultura di ''accountability''. Gli elettori non si chiedevano cosa aveva fatto il deputato del proprio distretto, ma cosa avevano fatto i partiti. In parte perché l'informazione non veniva data, in parte perché non veniva chiesta.

Una precisazione: Di Pietro la lista di chi aveva votato contro l'indulto non minacciò solo di pubblicarla, la pubblicò effettivamente sul suo blog e noi la riprendemmo. Suscitò le ire di quel bell'esemplare di Bertinotti, allora presidente della Camera, che disse (udite, udite) che in questo modo i parlamentari erano meno liberi. Ne aveva parlato proprio Alberto su nFA.

e con cio' si prova che tu leggi piu' attentamente le cose che io scrivo di quanto non lo faccia io. o che c'ho una memoria di m...

Gli elettori non si chiedevano cosa aveva fatto il deputato del proprio
distretto, ma cosa avevano fatto i partiti. In parte perché
l'informazione non veniva data, in parte perché non veniva chiesta.

Ottimo commento, riprendo solo questa osservazione. Il problema e' chiaro la soluzione meno. Non e' stata soluzione introdurre l'uninominale per il 75% dei seggi, evidentemente.

Re: The perfect storm

30/9/2008 - 15:40

I'm not convinced they'll force the Congress to pass X, they were kicked in the arse so badly that they are going to change something for real. The structure of the plan was awesome (irony), it sounded like "gimme da money man, and dontcha bother me with questions"; it was even hilarious where it stated that the Treasury cannot be reviewed by any court or agency"... I believe the Representatives asked themselves "do they think this is Italy??".

I agree (not easy to me!) with Joe Stiglitz (here), apart from the last paragraph where he indulges in the usual anti-Bush rant ("spirit of excessive deregulation"? GWB? Did I miss something?).

Great post anyway, Michele, it's very sad being too busy to comment properly. Do you know if someone's trying to calculate liquidity effect on bank writedowns? I'm persuaded that part of the money disappeared only in banks' balance sheets (market value for Y is 70 even though the risk adjusted PV is worth 80).

Vince',

I always meant to ask you to explain this

Do you know if someone's trying to calculate liquidity effect on bank
writedowns? I'm persuaded that part of the money disappeared only in
banks' balance sheets (market value for Y is 70 even though the risk
adjusted PV is worth 80).

Non capisco bene cosa mi stai chiedendo ... di fare una stima dell'effetto depressivo sulla capitalizzazione (market value) di assets che sono venduti per fare liquidita' o marked to market in conditions of stress and artificially low demand? Se e' questo, ninguna idea come dicono a Madrid. Mai studiato il problema. Ma temo d'aver capito male la domanda.

Sorry, e' periodo di time crunching e la chiarezza ne risente. La seconda, low liquidity => wider spreads => MTM falls => losses => OMG I'm 50x leveraged! => your equity has been wiped out => congratulations, now you can file for bankruptcy!

Beh, questa è la teoria/paura di tutti, no? Non conosco nessuno che si sia preso il rischio di quantificare però ...

Quello che non capisco bene, in questo argomento, sono alcuni dettagli, diciamo così, tecnici.

Anzitutto, perché mai wider spreads dovrebbe sempre implicare che MTM falls per tutti? Sarà vero solo per coloro che hanno una certa composizione di portafoglio, credo. Perché dico questo? Beh, perché wider spreads vuol dire fondamentalmente che (certi, quelli più "rischiosi" dei T-bill) flussi di pagamenti futuri si scontano di più, insomma gli crescono i denominatori quindi cala il valore della somma. OK, ma se ho tanti di questi dal lato delle passività, non dovrebbe crescere il mio MTM? Insomma, dipenderà tutto dalla composizione di attività e passività, o no?

In particolare, assumendo un'azione "neutrale" della banca centrale (ossia che non aumenti né diminuisca intenzionalmente la liquidità del sistema) la quantità totale di strumenti liquidi presenti nel sistema rimarrà invariata. Ora, questi strumenti liquidi qualcuno deve averceli, no? Magari si rifiuta di prestarli ai tassi anteriori, magari vuole tanto di più o addirittura proprio non li presta. OK, ma gli spreads crecono, come abbiamo visto in questi giorni, non solo perché crescono i premi al rischio sugli strumenti meno liquidi ma anche perché calano gli yields su quelli considerati liquidi. Quindi, by the same token, le attività di chi ha questi strumenti in portafoglio (perché QUALCUNO deve averli) cresceranno, e con esse il loro MTM ... o no?

Dov'è che sbaglio? 

Beh, perché wider spreads vuol dire fondamentalmente che (certi, quelli più "rischiosi" dei T-bill) flussi di pagamenti futuri si scontano di più, insomma gli crescono i denominatori quindi cala il valore della somma. OK, ma se ho tanti di questi dal lato delle passività, non dovrebbe crescere il mio MTM? Insomma, dipenderà tutto dalla composizione di attività e passività, o no?

Come fai ad averli dal lato delle passivita'? Se li hai emessi, la discesa del loro valore di mercato significa che il mercato pensa che puoi andar fallito, quindi non e' poi una gran consolazione... Certo potresti ricomprarteli, ma chi si vuole separare dai liquidi di questi tempi? E se sono mortgage-backed, il loro calo di valore dipende da quello del mutuo, che a sua volta discende dalla caduta del prezzo delle case: un real asset che non e' sul lato "liabilities" di nessun bilancio. 

Come fai ad averli dal lato delle passività? Se li hai emessi, la
discesa del loro valore di mercato significa che il mercato pensa che
puoi andar fallito, quindi non è poi una gran consolazione..

Non è ovvio quanto dici, almeno nel contesto in cui si stava discutendo la questione con Vincenzo. Io ho interpretato la sua domanda come relativa al puro effetto della sola mancanza di liquidità sul valore di un'impresa, lasciando stare le case o meno e se i titoli con cui uno si finanzia siano o non siano MBS legati alle case. Possono essere corporate bonds, sui quali pure lo spread sale in periodi come questi, o commercial paper non asset backed ... il mio ragionamento si basa sulla banale osservazione che l'attivo di qualcuno è il passivo di qualcun altro, a meno che non sia capitale netto.

Io ho emesso dei titoli per raccogliere fondi che ora ho investito in questo e quello. Il mercato non ha deciso che IO devo andare fallito, il mercato ha deciso che in generale gli SPREADS di tutto quanto non sia, diciamo, T-Bills, sono saliti alla grande. Io ho emesso questi titoli per finanziarmi e se il mercato ora li valuta meno, li valuta meno in parte perché appartengono ad una certa classe di titoli (insomma, il lemons problem che sta alla radice di questa discussione) ma questo non vuol dire nulla su come ho investito quei soldi, magari li ho investiti bene (in T-bills, that would be funny, wouldn't it? :-)).

È vero che non possiedo io quei titoli, li possiede chi me li ha comprati e non posso venderli direttamente ma posso, per esempio, andare da chi ce li ha e dirgli: visto che valgono x% di quello che valevano e non riesci a venderli, te li compro io che li ho emessi ad un pelo di più di quanto il mercato li valuti. Mica sono liquidi, sono l'opposto di liquido in questo momento (nelle ipotesi che stiamo facendo). Questo dovrebbe migliorare il mio MTM, o no? 

Ho letto anche il seguito con Enzo e mi sa che ci stiamo avvitando - colpa mia che butto li' concetti al posto di spiegare. Riguardo alla questione 1, ovvero perché l'aumento dgli yield non ha effetto zero sul sistema, è perché l'effetto sul balance sheet è asimmetrico: sul lato attivo, ipotizzando che le securities siano tutte held for trading, si fa mark to market con impatto sull'income statement; dal lato passivo, book value equals PV of payments due DISCOUNTED AT THE ORIGINAL MARKET INTEREST RATE, that is, market rate at issuance. Quindi il valore delle tue passività ha un andamento prefissato: persino in caso di ristrutturazione del debito NON E' POSSIBILE riconoscere il gain nell'esercizio di rinegoziazione, ma si è tenuti ad ammortizzarlo sulla durata del prestito.

Quanto agli MTM gains sulle attività liquide, il problema è che sono quelle che hai venduto/stai vendendo dall'inizio della crisi per far fronte ai problemi di funding, quindi non so quanto le banche ne stiano beneficiando. Ma qui siamo nel campo delle opinioni quindi prendetemi con le molle. 

Condivido, infatti credo di essermi fatto il giro intorno pure io, mancando completamente l'asimmetria che indichi. Infatti mi son fatto casino da solo, perché a priori non è vero che dovrebbe avere effetto zero sul sistema finanziario neanche nel caso ideale (sotto l'ipotesi del quale lavoravo) in cui tutte le poste di passività ed attività di chiunque sono publicly traded (quindi uno può vendere le sue attività ed acquistare le sue passività come e quando vuole). La ragione per cui l'effetto non è neutro necessariamente è perché alcune passività non sono attività di un altro soggetto finanziario ma delle ... famiglie!

Infatti, la ricchezza netta deve essere, alla fine, detenuta dalle famiglie, quindi questa varia al variare degli yields, facendo variare le passività del sistema finanziario verso le famiglie ...

Complicato, e non ci ho mai pensato seriamente. Però qualcosa mi dice ancora che, almeno teoricamente, l'effetto netto sul sistema finanziario potrebbe andare either way. Non è che qualcuno conosce un teoremino al riguardo?

Nel caso specifico, comunque, vale quanto detto da Enzo in riferimento alle case: SE la variazioni degli spreads è dovuta al fatto che le case han perso valore e non arrivano i pagamenti dei mutui, that's it. Se hanno perso valore le banche, che ne possedevano una parte sostanziale via i mutui, sono più povere di quella parte ... e qui ricominciamo con la domanda da 700 miliardi: ma come fanno a perdere 2 trillioni se per il momento son calate solo di 200 miliardi? Ma questa e' un'altra storia.

    I agree (not easy to me!) with Joe Stiglitz (here), apart from the last paragraph where he indulges in the usual anti-Bush rant ("spirit of excessive deregulation"? GWB? Did I miss something?).


Yes, you missed these things , but on the other hand so did a whole slew of SEC regulators. Stiglitz is just repeating a common criticism of the Bush administration across the political spectrum, such as this one:

Drive to Deregulate

The commission’s decision effectively to outsource its oversight to the firms themselves fit squarely in the broader Washington culture of the last eight years under President Bush.

A similar closeness to industry and laissez-faire philosophy has driven a push for deregulation throughout the government, from the Consumer Product Safety Commission and the Environmental Protection Agency to worker safety and transportation agencies.

“It’s a fair criticism of the Bush administration that regulators have relied on many voluntary regulatory programs,” said Roderick M. Hills, a Republican who was chairman of the S.E.C. under President Gerald R. Ford. “The problem with such voluntary programs is that, as we’ve seen throughout history, they often don’t work.”

Sorry, I just don't get the point the journalist is making. I understand there was (until 2004) a stricter regulation on liquid assets to be held by banks to back liabilities from their brokering activities, and that limit has been lifted by the SEC. Anyway, the article is a too vague on former regulations and their effects, it states "leverage started to grow" but you academics teached me that correlation is not causality - you know that leverage is inversely correlated with yields so my first culprit would be the monetary policy, but let's go back to the point. I'd say Pres. Clinton was trying to deregulate the market when he repealed some provisions of the Glass-Steagall Act to improve competition among banks; on the contrary, if I look back at GWB's stance after Enron/WorldComm cases, he revealed himself for the "compassionate-capitalist" (=socialist) he is, don't you think?

you know that leverage is inversely correlated with yields so my first
culprit would be the monetary policy, but let's go back to the point.

eh eh eh ... sempre che finiamo per andare d'accordo, Vincenzo ex-Calvin!

Indeed, indeed, ma i nostri amici "keynesiani" continuano ad ignorare questo banale fatterello che sta alla radice di tutto. Ignorano anche che, as far as regulation is concerned, gli anni di GWB non sono per nulla diversi da quelli di Clinton e che, durante gli anni di quest'ultimo, dovemmo sobbarcarci le dot-com bubble and bust, con annessi megafallimenti. Anche quel disastro fu figlio di "deregulation" e di pessima politica monetaria della Fed, in reverse order. Siccome, però, quelle erano "solo" aziende industriali che occupavano dieci o venti volte il numero di persone occupate nelle investment banks che oggi stiamo salvando, ma non avevano Treasury e Fed in their pockets, quelle le lasciammo giustamente fallire tutte. Fu la famosa recessione del 2000-2001 ... come cambiano i tempi, no?

Qualche lettore (a cui risponderò più attentamente in futuro) mi ha chiesto perché critico sempre Joe Stiglitz. Ecco, per cose come questa lo critico. Metà dell'analisi è corretta, anzi brillante; poi finisce a schifio perché, dovendo difendere comunque le sue vacche sacre e proteggere le sue priors ideologiche (i.e. è sempre bene espandere l'offerta di moneta, è sempre bene inflazionare un po') finisce per scordarsi i fatti, avvitarsi e dire cose che non stanno in piedi. Esattamente per questo mi fa incazzare JS, da quando lo conosco: perché insulta la propria notevole intelligenza per continuare a soddisfare dei pregiudizi di parte che non hanno molto senso d'essere preservati. Pero' fanno vendere i libri, quindi sotto sotto lo capisco ... e lo invidio!

Sorry, I just don't get the point the journalist is making. I
understand there was (until 2004) a stricter regulation on liquid
assets to be held by banks to back liabilities from their brokering
activities, and that limit has been lifted by the SEC. Anyway, the
article is a too vague on former regulations and their effects, it
states "leverage started to grow" but you academics teached me that
correlation is not causality - you know that leverage is inversely
correlated with yields so my first culprit would be the monetary
policy, but let's go back to the point. I'd say Pres. Clinton was
trying to deregulate the market when he repealed some provisions of the
Glass-Steagall Act to improve competition among banks; on the contrary,
if I look back at GWB's stance after Enron/WorldComm cases, he revealed
himself for the "compassionate-capitalist" (=socialist) he is, don't
you think?

Nobody disputes that ultima facie it is a problem of monetary policy, it always is. The point is that when regulations already exists (Fannie and Freddie have been agency-regulated since 1993, even Thomas Sowell seems to have been forgetting that when making his latest rant) and you explicitly tell regulators and standards bodies to take a nap, you get a big mess.

It hasn't just happened for mortgages. It's a whole attitude of the administration. Which, rather than compassionate-capitalist - a misnomer is ever there was one - I'd call crony-capitalist (which ultimately equates to real socialism, as the socialist Eric Blair so brilliantly put into satire in Animal Farm).

The point to be noticed is
that the total value of outstanding mortgages is $11 trillion (and that
includes lots of old and safe mortgages not in need of insurance),
while the value of insurance contracts written on them is about five
times as large.

In an article on today's FT, George Magnus of UBS says that "Mortgages and mortgage-based securities account for $23,000bn of the $48,000bn of total debt owed by the financial and non-financial private sectors".  That is about twice as large as the $11tn you quote for mortgages alone.

I would highlight a couple of points that you have touched in your presentation, adding some stuff.

  • This time the burst of the "house bubble" is more dangerous than in the past because banks have dismissed many "safe lending" practices and have started to finance 100% or even more of the equity value or haven't checked properly the creditworthness of many borrowers. According to F. Giavazzi this behaviour has helped many more families to buy their own houses. Unfortunately,  the market is now showing the bill. In order to estimate the losses you have to take into account that forced sales by banks will provide less than current depreciated market value. In addition  "marginal houses" located in bad places or damaged by former owners will hardly retain any relevant value.
  • The practice of splitting ABSs into tranches (in order to fit different risk appetites and to maximize revenues) and the practice of repackaging seasoned bonds, possibly unsold, into newly backed securities has turned sour. Actually this has eventually decreased transparency and made difficult to assign to each tranche its expected loss (when the market mood has changed into negative). Credit risk spreads assigned to each bond have started to increase. Junior and riskier tranches have lost first. But they have quickly left the market for want of bidders. Then the problem has moved to senior tranches. Those who needed to reduce their portfolios were obliged to sell only the liquid senior tranches which started to depreciate. In this perspective it could make sense to devise some kind of reversal of tranches that, by putting together the former mortgage portfolios, will allow to look through them in a proper (usual) manner from a risk view.

The other big issue that I currently see is the "credit paradox". The fact that credit spreads on financials are now even bigger that those of other issuers. This is a situation that cannot go on for much time. A bank cannot lend money at a rate which is lower than the marginal rate it pays.

Un po' noioso Nouriel, no? Riesce a fare qualcos'altro, a parte immaginarsi la fine del mondo? E' di pessimo umore o e' andato short su tutto quello che si puo' "shortare"?

Not to shoot the messenger, ma credo che (in tempi di alta incertezza ed assoluta mancanza di trasparenza sia da parte delle banche private che delle autorità pubbliche, leggi Fed e Tesoro) questo continuo illustrare il grande panico lo fomenti e solleciti. Anche perché Nouriel non offre molti dati e ragionamenti, semplicemente indica vittime e descrive panici a venire.

Mah, suppongo questa cosa venda ma dubito aiuti molto a capire quanto succede, let alone fix it. A me sembra più pornografia che analisi economica. 

Ieri su cnn c'era una signora bionda che urlava "look at your 401k and call your representatives". ma urlava, letteralmente. dicono che la signora sia giornalista NYTimes e abbia scritto best sellers tipo, "how to retire and be happy and rich", quelle cose li'. 

nFA ora anche a Caterpillar su Radio2.

Se domani volete riascoltarlo, qui trovate il podcast:

http://www.radio.rai.it/radio2/podcast/lista.cfm?id=83

Dr. Doom

Marco Boleo 30/9/2008 - 17:20

http://rassegna.camera.it/chiosco_new/pagweb/immagineFrame.asp?comeFrom=search¤tArticle=JCHTX

http://rassegna.camera.it/chiosco_new/pagweb/immagineFrame.asp?comeFrom=search¤tArticle=JC33H

La Repubblica celebra i successi previsivi del nostro Auruspice.

Oggi invece intervista Samuelson

http://rassegna.camera.it/chiosco_new/pagweb/immagineFrame.asp?comeFrom=rassegna¤tArticle=JDWCK

e se fosse stato ancora in vita credo che avrebbero intervistato Galbraith.

Il Corriere, invece, intervista Thurow

http://rassegna.camera.it/chiosco_new/pagweb/immagineFrame.asp?comeFrom=rassegna¤tArticle=JDW0L

Nessun modello, nessuna analisi seria solo chiacchiere e ..ve lo avevo detto io...

totally agree.

we should appreciate the persistence tho'. One day the world will end and Roubini will able to say "told ya so".

Obama Proposes Increasing Federal Deposit Insurance to $250,000

It looks like a good idea to me. At the very least, it is the only one I heard so far aimed to control spreading of panic.  It seems that WaMu failure was triggered by people moving the part of their savings that was above the 100k FDIC insurance limit.

Which is why Neil Wallace would, correctly, disagree with both!

Populismo allo stato puro, andiamo male. 

Populismo allo stato puro, andiamo male. 

Perche'? E' un modo per evitare che si formino le file agli sportelli di average joes che vogliono ritirare i soldi da mettere nel materasso, no? Come successe che northern rock e washington mutual. Eviti che le banche diventino illiquide e cerchi di contrastare il contagio di panico. O lo dici perche' sono in 4 gatti ad avere piu' di 100.000?

What's wrong with increasing the insurance limit? Right now if I want to have insured deposits for a total of 250K I can do it very easily, I just have to open three accounts. I could do that in a couple of hours, maybe less. If the limit is increased I could have just one account. It saves on transaction costs. I don't think this will be particularly useful (transaction costs are small) and it will not do much to restore confidence, but I don't see any harm.

Now you need to open the three accounts in three different banks, which is the whole point. If you are allowed to put all your eggs in one basket, bank, and then forget about it the obvious moral hazard problem arises of depositors that do not monitor and discipline their banks. This would be the outcome of what Obama and McCain are proposing, which is damaging and populist at the same time (as it is frequently the case). 

Neil would argue that even 100K is too much, which is why depositors do not pay attention to what bank managers do with their money, thinking "I am insured" ...

Well, this is the standard argument against deposit insurance; the moral hazard cost is obvious, and the benefits in terms of reducing panic and bank runs are also obvious. Right now I don't see many people shouting that the cost is greater than the benefit (me, I dunno; just a guy who does theory).  But once we accept the idea of having serious deposit insurance I think the limit is quite silly. If I had $250K, with a limit of $100K I would choose randomly three banks, mostly by geographic vicinity, and split my deposits. Without the limit, I would choose randomly one bank. I don't see how this improves monitoring. If you really want me to spend time worrying about the solvency of my bank, something that to me at least is quite costly, the limit would have to be much, much lower, to the point of  eliminating insurance. And even so, in times of turmoil I think I would be better off taking the money out of the banking system rather than investigating the banks where I have deposits.

I don't see how this improves monitoring.

It improves the diversification of your assets, not monitoring.

Certainly, the limit should be $50K and the logic behind the insurance is purely one of redistribution and political economy, not efficiency.

It improves the diversification of your assets, not monitoring.

in this very moment that's not really what we need, though.  what we need are measure to

stay calm, think, do not panic, do not rush 

and this goes in that direction, so that's fine with me.

Also, it may (pointlessy, since I would be completely insured anyway) increase the diversification of my own deposits but not at the economywide level. If we all choose randomly and without monitoring the allocation of deposits should be the same in the aggregate. Without limit three guys put 250K in three banks, with the limit each guy puts 250K/3 in three banks. When choices are made randomly and independently and the number of depositors is large the final outcome is approximately the same.

Non sembra ci capiamo e la discussione sta diventando forse tediosa, anyhow I try one more time.

1) The point of diversification is to protect individual agents, one by one. Diversification protects you from diversifiable shocks; the "aggregate" or "average" agent is covered in any case (that's why the shocks are called diversifiabe ... aggregate ones are a different story). Because it is individual agents, not the aggregate or average one, that make political decisions, vote and complain, it is good to keep them happy, not the inexistent representative agent of JMK and many other ... :-) Bottom line: we care to give single individual incentives to diversify their portfolio.

2) I am not sure I understand the model of individual behavior that leads you to predict that all these allocations are random. Here's mine, in any case. It says that people put effort and time to monitor their agents (from banks to doctors) IF the system signals to them that effort has to be put and it may be worth it. In particular, when I am insured no matter what I do, the model says I do zero monitoring of every kind. Hence the value of signaling (and imposing, through small costs) that some effort should be made.

Finally, Giorgio, are you kidding? The fear we are facing is not that of a bank run (and let's not risk creating one just by talking about it every day ... a la Roubini, to be clear) but a very different one, a fear of holding/buying a lemon (i.e. a bad security). This is the fear paralizing the credit market and the liquidity market in particular, this is the fear that should be addressed (we have made precise proposals about WHAT to do ... I can get much more specific if it is worth it).

The Obama-McCain boutade about 250K FDIC insurance is (1) useless for this purpose; (2) pure electoral populism; (3) it sends the very wrong message, in fact the opposite message, to everyone. It says: do not worry, cheat, lie, ignore what is being done, be credulous, etcetera. Uncle Sam will bail you out! A causa di questo atteggiamento, post LTC and post dot-com, abbiamo avuto quello che abbiamo avuto. Time to stop it once and for all. Invece di promettere 250K FDIC insurance dovrebbero dirci come intendono riformare la regolazione e supervisione dei mercati finanziari, altro che balle! Francamente, il comportamento dei due in questa vicenda è imbarazzante, nessuna leadership, solo propaganda e caccia di voti del popolino impaurito e mal informato. Pessimo voto a entrambi.

Beh considerando che siamo ad un mese dalle elezioni e in una delle peggiori crisi della storia finanziaria, mi sembra che il grado di populismo sia piuttosto basso.

In secondo luogo, non mi sembra che le due cose siano incompatibili. Uno puo' tranquillamente proporre cosa ha intenzione di fare per evitare che una simile situazione capiti di nuovo e nel frattempo proporre qualcosa per evitare il panico tra i correntisti (che, secondo me, sta crescendo).

E dire che si alzerà il limite a 250K evita o riduce il panico!? Ma per favore, suvvia! Davvero vogliamo farci del male così?

Eppoi, le due cose forse non saranno incompatibili ma com'è che del che fare serio nessuno dei due parla? Com'è che sulle cose che contano non aprono bocca? Com'e' che nessuno esprime alcuna forma di leadership vera, sui contenuti di fondo?

Altro che mercati impazziti e belinate varie che si sentono in giro! Da quando e' iniziato (nel 2001) questo episodio è l'esempio migliore di un fallimento generalizzato della politica e dello stato. Da Fed a Sec a Tesoro a Congresso a Casa Bianca a would-be Casa Bianca, tutti sembrano fare il possibile perché le cose si aggravino e nessuno fa la propria parte. Tutti a promettere che stamperanno piu' soldi in futuro, niente altro!

Anche secondo me esageri. Sono politici and they are campaigning for an election in a month, what do you expect? Certo che cercano di acchiappare consensi con facili proposte populiste, chi non lo fa si disarma unilateralmente e perde le elezioni. Io e te possiamo essere anche dell'idea che è meglio perdere piuttosto che dir balle, ma chi la pensa così di solito non va lontano in politica.

Sul limite ai depositi, continuo a non vedere i grandi danni ad innalzarlo. Come ho detto fin dall'inizio è un aspetto molto minore, visto che de facto già adesso uno può avere depositi assicurati per ben più di 100K semplicemente aprendo conti multipli. Sul valore di segnale non so, mi pare poco rilevante. Dopo le elezioni presidenziali (e del congresso) si comincerà a discutere seriamente di come cambiare la regolamentazione dei mercati finanziari, prima no di sicuro. A quel punto credo proprio che si partirà da zero.

Tanto che son qua a ciarlare, fatemi notare che uno degli scenari di fine del mondo predetto da un intervento sul blog di Mankiw, in base al quale oggi 30 settembre le imprese non avrebbero avuto i soldi per pagare gli stipendi, non sembra essersi verificato, nonostante la bocciatura del piano. 

Io pero' vorrei sapere: chi e' che si tiene $249K, o anche $100K, in un conto bancario? Quanti sono i conti di queste dimensioni? Chiaro che a tali soggetti non danno il free checking a zero interessi e la felpa in regalo, ma mi sembra un po' folle non mettere tali somme in un money market che e' altrettanto liquido. 

Credo siano soprattutto medium-sized businesses e che succeda solo in momenti di picco, ma non cosi infrequentemente. Se hai 100 dipendenti e paghi ciascuno $2500 al mese, il giorno di paga devi avere sul checking 250K. Lo stesso succede se ti pagano una grossa commessa. Se la bancarotta ti becca proprio quel giorno sei fregato.

Ho sentito un po' di storie simili in Italia,  molto più in piccolo ovviamente, quando ci fu la tassa-lampo un tantum sui depositi (era il 6 per mille, ricordo giusto?). Restarono fregati quelli che avevano appena venduto la casa, quelli che avevano appena venduto i bot per sostenere le spese del matrimonio ed altri randomly chosen sfigati.

Io pero' vorrei sapere: chi e' che si tiene $249K, o anche $100K, in un
conto bancario? Quanti sono i conti di queste dimensioni? Chiaro che a
tali soggetti non danno il free checking a zero interessi e la felpa in
regalo, ma mi sembra un po' folle non mettere tali somme in un money
market che e' altrettanto liquido.

Suppongo che tu ti riferisca a money-market funds, non accounts (su cui la protezione FDIC c'e' sempre stata, mentre sui primi e' arrivata solo da pochi giorni dopo che c'era stata una marea di prelievi, e ancora senza molti dettagli sulle condizioni). Pero' non mi pare che i MMF rendano poi tanto di piu', anzi: da Bankrate vedo che certi MMA danno fino al 3.85% di interesse, mentre i migliori MMF arrivano a malapena al 2.5. Poi c'e' anche da dire che la protezione FDIC, con l'escamotage dei testamentary accounts, altrimenti detti P.O.D., e' espandibile a ben piu' di USD 100K per banca.

Fuori dall'America, i conti bancari convengono anche di piu': per esempio, Anglo Irish all'Isola di Man da' interessi generalmente superiori a LIBOR/EURIBOR (e ora ha anche protezione illimitata, cortesia del governo Irlandese).

Guys, I'm the only one that thinks an increase in the maximum amount of insured deposits, implemented in the middle of a financial crisis and after FED and the President said shit will be happening very soon in large amounts, may sound like a signal that government and FED see the probability of the event "shit" larger than few days ago? I would say, a LOT larger, if we more than double those limits... I am the only one that sees this as possibly causing bank runs, instead of trying to avoid them?

Guys, I'm the only one that thinks an increase in the maximum amount of
insured deposits, implemented in the middle of a financial crisis and
after FED and the President said shit will be happening very soon in
large amounts, may sound like a signal that government and FED see the
probability of the event "shit" larger than few days ago? I would say,
a LOT larger, if we more than double those limits... I am the only one
that sees this as possibly causing bank runs, instead of trying to
avoid them?

Of course this is a possible interpretation, and it may well be the intended one: also because it fits the style of an imperial administration used to ask for exceptional powers with the excuse of (allegedly) exceptional circumstances. Nevertheless, I believe that a temporary extension of deposit guarantees, better if without any limit as they did in Ireland, is the only way to prevent panic withdrawals. The reason is simple: for each individual depositor, participating in a bank run is the rational thing to do, as it amounts to a Pascal's wager: if nothing happens the withdrawal will have brought a very small loss (if any at all), but if the bank collapses the withdrawal will have been worth a lot of money. So, why should a depositor "stay calm": to be a civic-minded, patriotic citizen who believes what the government says? Come on :-)

Finally, Giorgio, are you kidding? The fear we are facing is not that of a bank run

On September 25, 2008, (the 119th anniversary of its founding), due to a massive 10-day bank run, the United States Office of Thrift Supervision (OTS) seized Washington Mutual Savings Bank from Washington Mutual, Inc. and placed it into the receivership of the Federal Deposit Insurance Corporation (FDIC). The FDIC sold the banking business to JPMorgan Chase; stripping the holding company of its banking assets but leaving it holding the bank's debt.[6][2] Washington Mutual, Inc. filed for Chapter 11 voluntary bankruptcy in Delaware, where it is incorporated, on September 26, 2008.[3][7]

Finally, Giorgio, are you kidding? The fear we are facing is not that of a bank run

On September 25, 2008, (the 119th anniversary of its founding), due to a massive 10-day bank run, the United States Office of Thrift Supervision (OTS) seized Washington Mutual Savings Bank from Washington Mutual, Inc. and placed it into the receivership of the Federal Deposit Insurance Corporation (FDIC). The FDIC sold the banking business to JPMorgan Chase; stripping the holding company of its banking assets but leaving it holding the bank's debt.[6][2] Washington Mutual, Inc. filed for Chapter 11 voluntary bankruptcy in Delaware, where it is incorporated, on September 26, 2008.[3][7]

Not only that: in Ireland yesterday the government passed an unlimited guarantee on deposits for a period of two years because wealthy depositors were massively withdrawing money (despite the increase of the limit to EUR 100,000 a few days earlier) and the banks stocks were sinking (Anglo Irish' stock, the day before, dropped from EUR 4.3. to EUR 2.63, and after the announcement surged back by more than 70% to close at EUR 3.90). Now the other EU governments are pissed off at what they probably see as a "beggar thy neighbour" policy by the Irish... The interesting thing is that this guarantee covers deposits not only retail, but also commercial, institutional and interbank, plus "covered bonds, senior debt and dated subordinated debt (lower tier II)". It's estimated that this amounts to EUR 400 - 500 billion, i.e. two and half times Ireland's GDP. 

Meanwhile, the FT reports unprecedented demand for physical gold (i.e., bullion, not ETF or other forms of paper gold). It looks like lots of people are preparing to put ingots under their bed, and sleep on it with a gun under their pillow :-)

All in all, I'm afraid that bank runs are a real concern in these days.

Ci rinuncio.

Non è che "perché è scritto su Wikipedia" debba essere la verità. WaMu è andata a pancia all'aria per ragioni altre dal "massive" bank run che il Wiki-autore menziona. La gente a ritirato circa $16 miliardi di depositi quando praticamente WaMu era morta a causa dei suoi bei mutui. I "bank runs" sono un'altra cosa, ma fa lo stesso. Diciamo che ho torto io, no matter. Let's pretend we are in the middle of bank run, it is usually the best way of creating one.

Visto che ci siamo, alziamo il limite FDIC a $500K. Tanto siamo in periodo di elezioni e, siccome i politici sono cinici e populisti, questa è l'ovvia politica da aspettarsi e da farsi.

Tra teoria positiva (i politici son populisti e cialtroni) che diventa teoria normativa (non c'è niente di male che siano tali) e passione per il catasfrofismo generalizzato, meglio andare a cenare vah ...

Francamente, il comportamento dei due in questa vicenda è imbarazzante,
nessuna leadership, solo propaganda e caccia di voti del popolino
impaurito e mal informato. Pessimo voto a entrambi.

Ma il populismo e' normale nei periodi di crisi: l'alternativa e'  la perdita di consenso a favore di forze autoritarie di destra o di sinistra che siano. Vedi anche i recenti risultati delle elezioni in Austria, che mi hanno ricordato quel che un suo illustre cittadino, Robert Musil, scriveva in tempi anche peggiori di quello presente (1930):

"La malasorte ha decretato che l'umore dei tempi si spostasse dalle vecchie direttrici del liberalismo favorite da Leo Fischel - i grandi ideali-guida di tolleranza, dignita' umana, e libero commercio - e ragione e progresso nel mondo occidentale fossero rimpiazzati da teorie razziali e slogan di strada".

Actually I do not think that it makes a big difference to insure deposits up to 100k usd or up to 250k usd if you can cumulate the insurance up to whatever you want by splitting your money into several banks. The big difference would be made by a cap to the amount of reimbursement that each one can receive from the FDIC regardless the no. of accounts/banks she/he has.

L'articolo è questo: http://www.corriere.it/economia/08_settembre_30/vendetta_economisti_chicago_4cdb58ee-8eb4-11dd-8a6d-00144f02aabc.shtml

 Mi sfugge qualcosa, o l'autore, confondendo questo (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm) e questo (http://www.freedomworks.org/informed/issues_template.php?issue_id=3028), parlando di "vendette" e di presunte ricette alternative condivise da chi critica Paulson, et cetera, sembra mostrare di non avere idea di cosa stia scrivendo?

Ammazzate che valanga di boiate! L'hanno mandato sino a NY per scrivere queste insulsaggini? Soldi buttati!

L'ignoranza coperta da ideologia ed il servilismo verso il potere politico italiano di questi giornalisti è impressionante.

L'allineamento di Mieli al nuovo "social-fascismo" (peronismo) economico di Tremonti è totale, il che segnala con chi ha deciso di stare la MI-TO che "conta" e spiega il perché di CAI e l'ossessione di BS affinché fosse CAI a prendersi Alitalia (oltre alle licenze autostradali e tante altre cose ...).

Pacta sunt servanda: tutto si tiene nel bel paese, siamo tornati agli anni '30. Allegria!

Sul TG1 delle 20 si è visto, nell'ordine:

1) Roubini intervistato da Monica Maggioni che avvisa che il treno della recessione è partito e...chi c'è c'è;

2) Veltroni che dichiara, lui, la fine del capitalismo sregolato;

3) Una nota del Cardinale Bertone che dice che il mercato è un mezzo e non un fine.

Io la cospirazione liberista la vedo sempre messa peggio.

 

Anche quest'altro articolo  di Ennio Caretto e' illuminante riguardo al livello dei corrispondenti del Corriere in Amerika. Leggendo la fonte  (questa volta citano che stanno copiando una notizia del Washington Post), mi domando come sia venuto in mente a Caretto di collegare la crisi finanziaria ad un party in cui si vende oro.

Oggi il Corriere e' illeggibile. Questa gente non ha capito niente di quello che sta succedendo, ma ha deciso (ideologicamente) di buttare il bambino con l'acqua sporca, in pieno delirio tremontiano-statalista. Leggere per credere.

Erano i tempi in cui Greg Mankiw di Harvard, economista alla Casa
Bianca, chiamava il suo barboncino «Keynes». Oggi Keynes, sinonimo di
salvataggio-tassa- e-spendi, è il padrone.

Auguri.Ha ragione Michele, il Corriere si è allineato.

stavo per segnalare lo stesso articolo, che secondo me stava benissimo nel topic bullshit, sotto-argomento: servilismo pro bullshit. E' un attacco populista, non documentato, raffazzonato ai primi 3 nobel le cui teorie un ignorante può vedere dietro alla crisi attuale...Guarda caso tremonti ha appena detto che gli economisti devono tacere. Il foglio di regime (anche detto primo quotidiano italiano) scatta sull'attenti e dice signorsì.

Ieri ho sentito Tremonti a Radio24 che dichiarava "Non è più questione di scegliere tra Stato e Mercato, me tra ciò che è Etico e ciò che è Non-etico".

 

Paura.

E come è il caso per tutti i servi di qualsiasi regime, il giornalista  (i giornalisti, a questo punto) del Corriere perde (perdono) anche quel poco di capacità d'intedere e di senso dell'ironia che la mamma loro poteva avergli infuso.

Greg chiama ANCORA "Keynes" il suo cane, e lo considera un complimento! Per la semplicissima ragione che Greg Mankiw keynesiano - ahimé! - era e keynesiano rimane. Stava dal lato del nuovo vate italiano da prima, so to speak, il Greg. Ma il giornalista non lo sa. Infatti lui funziona così.

Sotto sotto lui (il giornalista medio del Corriere) è comunista, quindi pensa che chiunque stia con Bush è malo. Non solo Bush è malo, Amerika è malo e capitalismo è malo.mTremonti ora è semibbuono perché dice che capitalismo, Amerika e speculatori sono mali. Rimane 'sta cosa del Bush, che il capo del Tremonti dice che è buono, ma transeamo che occorre accontentarsi. Allora, siccome Mankiw lavorava con Bush, deve essere malo e non può essere keynesiano, perché keynesiano, ha detto Tremonti, sono quelli che pensano come lui e sono bbuoni. Siccome Bush e Mankiw sono mali, keynesiani e buoni non possono essere. Ecco, mi son spiegato? Lui funziona così. Applicate la stessa metodologia a Prescott (che dice che occorre tagliare tasse, Bush le ha tagliate, quindi Prescott è malo, eccetera) o a Scholes and Co. o a qualsiasi altro tema che vi possa venire in mente. È una metodologia efficacissima e semplicissima: BS bbuono, tutto quello che BS e commercialista dicono che è malo, malo. 

Ho sbattuto il naso su questa. Ero curioso di sapere cosa Di Pietro avesse detto e su cosa avesse criticato (in Italia quando uno critica dicono che "attacca", criticare in Italia è vietato, bisogna sempre fare i complimenti lisciosi a tutti, poi si parla male alle spalle che quello invece attaccare non è, quello è far politica) Napolitano.

Invece La Stampa non me lo dice. Riporta le accorate ed infuocate parole del loro nuovo nume, VW, e del PdL che certifica, ovviamente, che Di Pietro è una specie di mostro trinariciuto. Ma cosa abbia detto Di Pietro non son riuscito a scoprirlo.

La qual cosa non è una novità: da poche settimane dopo le elezioni la grande stampa ha deciso che solo quanto dicono PdL e PD conta, tutti gli altri no. Spariti così i rifondaroli, ma anche i fascisti de la Destra e persino Casini. E sparito, ovviamente, il più pericoloso e cattivo di tutti, il vero obiettivo della censura, ossia Di Pietro. Non male, non male. Così faranno il bipartito, suppongo ... 

Credo che tutto nasca da questa intervista a skytg24.

 

Il Corrierino banderuola è diventato più realista del re ......

Parrebbe logico aspettarsi, infatti, che da "Il Giornale" berlusconiano provenga sempre acritico sostegno alle farneticazioni in odor di santità di Julius Decimosesto, invece un amico mi ha segnalato l'articolo nel quale sembra si sostenga la vitalità moralizzatrice di quel mercato oggetto delle accuse più infamanti, provenienti dalla Valtellina.

Quando leggo (ed evidenzio in neretto alcuni passaggi)

Il crac dei mutui,
il nome con cui questa crisi rischia di passare alla storia,
rispolvera tutti i nostalgici del New Deal. Tutti quelli che avevano
sbuffato contro il liberismo, bestemmiato Reagan e la Thatcher, e
digrignato i denti davanti alle ricette dei Chicago Boys, ora stanno
lì a ripetere: ve l’avevamo detto
. E così sia. Il
passo successivo è mettere in croce l’efficienza del libero
mercato. Come si sa questa è una tentazione antica e ha a che
fare con la scelta tra sicurezza e libertà. La sicurezza
significa Stato, la libertà è la dea del mercato.
L’unica cosa certa è che, finora, nessuno ha trovato
un’alternativa reale al capitalismo. Chi ci ha provato ha prodotto
disastri umani, politici e economici
. Il problema, come sosteneva
Schumpeter, è che il capitalismo ha un brutto carattere: crea
e distrugge. Quando gli uomini esagerano e cercano scorciatoie per
arrivare al cielo, il dio mercato li riporta con i piedi per terra.
Le crisi servono anche a questo. È una lezione di etica.
Adesso tocca allo Stato. Intervenire o no?
È quello che sta
accadendo adesso. Quando il capitalismo mostra la sua faccia cattiva
più di qualcuno dice: è moribondo. Non regge più.
Succede ogni volta che passa il ’29. È, insomma, un vecchio
errore, la paura di uno sguardo miope. La svista sta tutta nel
dimenticare che il capitalismo non è cinico, ma etico. Si basa
su alcuni imperativi morali. Lo sapevano i mercanti medievali, quando
sancivano la santità dei contratti. Un uomo che non rispetta i
patti è finito, perde la faccia, non ha credibilità,
non ha onore. E il mercato lo punisce
. Non è un caso che
Adam Smith, padre della scienza economica, insegnasse filosofia
morale a Glasgow. La sua Teoria dei sentimenti morali viene prima
della Ricchezza delle nazioni. L’etica del capitalismo è
spietata. Punisce gli errori e si basa sul principio che chi sbaglia
paga.

non posso fare a meno di chiedermi se le telefonate d'indirizzo abbiano sbagliato strada ....... :-)

il capitalismo etico? ma stiamo scherzando?  questa è la più colossale mistificazione che abbia mai sentito. il mercato non è etico. è a-morale (e non ho detto immorale).

il capitalismo etico? ma stiamo scherzando?  questa è la più colossale
mistificazione che abbia mai sentito. il mercato non è etico. è
a-morale (e non ho detto immorale).

Io mi preoccupo di piu' quando sento parlare di scegliere cio' che e' etico...  Nel primo caso e' solo un'espressione figurata, come quando di parla di "logica dell'evoluzione naturale", usando tra darwiniani termini lamarckiani; nel secondo mi fa pensare a policies dichiarate "etiche" da alcuni e applicate ad altri tramite la forza dello Stato, come nella tradizione hobbes-hegel-gentiliana che ci ha regalato le peggiori dittature del XX secolo.

questo però scusami lo capisco. tremonti non è "il mercato". lui è un politico ed è ovvio che faccia delle scelte e proponga dei modelli. poi io l'intervista non l'ho sentita quindi non ti so dire altro.

questo però scusami lo capisco. tremonti non è "il mercato". lui è un
politico ed è ovvio che faccia delle scelte e proponga dei modelli.

E' proprio questo che mi preoccupa: non credo all'"Intelligent Design" neanche in economia, e con questo designer poi...

Buonasera a tutti. Mi chiamo Luca e sono nuovo del blog. Vorrei aggiungere questo post solo per esprimere il dispiacere di non poter leggere in italiano la seconda e la terza parte di questo articolo interessantissimo e di chiara comprensione anche per me che non sono esperto in materia, ma non per questo meno interessato a comprendere i fenomeni che accadono e le cause che li generano, di qualsiasi natura essi siano. Purtroppo il mio inglese non è all'altezza dei contenuti tecnici espressi nell'articolo e pertanto la lettura mi risulta un pò complicata (interrotta da continue consultazioni del vocabolario, che un pò fanno perdere il filo del discorso). Immagino che l'autore sia molto impegnato. Tuttavia "oso" sperare che troverà il tempo per una traduzione (non autoamtica per favore). Grazie per l'attenzione e complimenti a tutti.

Dear David, Michele and friends, As your idea on the bailout plan are shared by the majority of US taxpayers, it would be worth figuring out a way to link your actions (e.g. the economists' letter to the House) to grass root activist movements that can exert pressure on their representatives not to pass the bailout plan when it will be proposed again in the House. For example, Michael Moore is conducting a campaign in this sense in his blog (where he quotes the economists' letter to the House and he comes up with the same suggestion that you put forth at point 3 in your piece). You have 3 days, it does not seem much, but it is worth making a try... 

is this a joke? Michele and Moore, M&M?

Beh, dopotutto sono omonimi no? :-D

...and if it works then we'll make the same with Grillo?

might be worth a try, but looks like one or Dr Evil's plans for taking over the world :)

I do have the vague feeling that Michele and Moore might both dislike the bailout but for complete different reasons and with complete different alternative measures.

Just a feeling, tho'.

In case you are interested, here is the video of a panel on the financial crisis held yesterday at the Johns Hopkins University

http://www.econ.jhu.edu/recordings/panel.html

Qualcuno ha qualche idea precisa delle ragioni che stanno dietro alle grandi oscillazioni recenti?
Speculatori a parte, I mean, che di quelli abbiamo gia' letto e comunque se ne occupa il governo in carica.

Altre ipotesi, o ragioni?  

Per Unicredit stava per saltare (ed è stata poi salvata in extremis) HYPO REAL ESTATE, una banca tedesca di cui Unicredit ha una importante partecipazione (non so in realtà di quanto). Si stima che dovrà procedere ad una svalutazione di almeno 1 MLD € sulla 3° trimestrale. Oggi Unicredit capitalizza circa 35 MLD€, nenche pochi se ipotizziamo un utile netto 2008 che difficilmente potrà essere superiore ai 3-4 MLD, contro gli oltre 6 MLD del 2007

importante partecipazione (non so in realtà di quanto)

mi pare 300 milioni. un collega di blog su giornalettismo.com ha citato anche il potenziale impatto delle polizze index linked con sottostante Lehman. onestamente I'm no equity guy, e comunque il titolo è di nuovo in area 3€ nonostante la smentita di Santander.

edit: spettegulezz + andamento post intervento restrittivo sullo shorting mi fanno pensare che qualcuno abbia sfruttato un po' di rumor per squeezare il titolo...

Cuestion (se dise così en inglese, no?):

How comes all those auction theorists and experts are in favor of the Paulson's plan?

Pure chance? It smells like some people are looking for jobs ... ah, greed, where will you take us?

Domando tanto par domandare, neh ...

Eh, l'avevo notato anch'io. Vedo che non sono l'unico che diventa cinico invecchiando.

Mah, mah ... le intenzioni mi sembrano ottime, ma non sono per nulla
certo che la strada dell'appello pubblico sia una buona idea. Per tre
ovvie ragioni:

- Il panico serpeggia quasi incontrollabile oramai, come anche i
movimenti di oggi suggeriscono. Occorre ristabilire la tranquillità ed
a mio avviso vi è una sola maniera (tra l'altro meno costosa di tutte
le altre) di farlo, che è praticamente una variante dell'idea dei
repubblicani della House of Representative di garantire le ipoteche. Il
problema è farlo in maniera tale da non far esplodere il moral hazard.
Ma questa è un'altra questione, su cui vale la pena di discutere a
parte. In ogni caso, l'allarmismo in questo momento fa malissimo,
specialmente quello pubblico che dice "un grave pericolo incombe" ma
non lo quantifica e definisce, lasciando solo la vaga ma grave
impressione che le banche europee siano sottocapitalizzate (che lo
sono, tutte le banche del mondo credo lo siano, dopo derivati e
off-balance sheet bag-of-tricks) ed esposte alla caduta. Scrivere ai
banchieri centrali ed ai governi è una cosa, scrivere al pubblico è
un'altra, in circostanze come queste.

-
L'appello individua un problema (sottocapitalizzazione) che è più un
effetto che una causa. La causa essendo la cattiva regolazione e
supervisione oltre che, e soprattutto, la bag-of-tricks menzonata sopra
- vogliamo andare nei dettagli? Si può fare anche quello, se proprio si
insiste. Esempietto italiano: qual'è la corrispondenza fra il valore a
cui Banca Intesa ha in stato patrimoniale azioni Telecom ed il valore
di mercato di Telecom? Nessun regolatore che glielo possa far notare?
Ho detto BI ed ho detto Telecom tanto per dire, neh, che la lista è
lunga ... La lettera suggerisce di curare l'effetto, non la causa. Già
questa non mi sembra una buona idea. Perché non chiedere una rapida ed
efficacie riforma della regolazione, con sua relativa attuazione?
Vogliamo fare i tecnici? Allora spieghiamo alla gente perché le banche
europee sono finite ad essere cosi super-leveraged anche se non
avrebbero dovuto o potuto essere. E chiediamo si metta fine a questa
pratica in modo adeguato.

- Infine, l'appello chiede
esplicitamente soldi pubblici per ricapitalizzare le banche. Da un lato
non mi sembra ovvio che servano - magari i cinesi due lire in DB o in
Banca Intesa li vogliono investire: abbiamo forse paura che le banche
nazionali tali non siano più? - dall'altro mi sembra la maniera
migliore per scatenare i nuovi statal-corporativisti-mercantilisti, di
cui l'Italia ha il campione e leader intellettuale al Ministero
dell'Economia. Se anche gli economisti accademici in odore di
mercatismo sostengono che occorre ri-nazionalizzare le banche, seppur
parzialmente, qualcuno mi spiega perché non rinazionalizzare la
chimica, l'acciaio o anche il calzaturiero?

Non intendo come ai nostri colleghi sia venuta l'idea di aprire pubblicamente questa can of worms.
Nonostante il grande rispetto che ho per il cervello di parecchi di
loro, questa volta temo abbiano preso una decisione troppo emozionale
ed affrettata. Insomma, non sono solo io quello che si fa prendere dalle
passioni, a volte succede anche a persone con molto più aplomb del mio ...

lasciando solo la vaga ma grave
impressione che le banche europee siano sottocapitalizzate (che lo
sono, tutte le banche del mondo credo lo siano, dopo derivati e
off-balance sheet bag-of-tricks) ed esposte alla caduta

In realta', sotto fractional banking tutte le banche lo sono sempre e comunque: solo che in condizioni normali nessuno ci pensa e quindi il sistema resta in stato metastabile, con l'implicita promessa del "lender of last resort" di sostenere occasionali cadute prima che si propaghino a catena. Questa e' una delle poche considerazioni che mi fanno considerare me stesso liberale e non anarchico...

Se anche gli economisti accademici in odore di
mercatismo sostengono che occorre ri-nazionalizzare le banche, seppur
parzialmente, qualcuno mi spiega perché non rinazionalizzare la
chimica, l'acciaio o anche il calzaturiero? 

Il settore bancario non e' come tutti gli altri, data la sua importanza nella determinazione della liquidita' e alla sua intrinseca instabilita' a cui accennavo piu' sopra: e che lo stato vi debba in qualche modo essere profondamente coinvolto (almeno come regolatore) e' accettato anche da convinti liberalizzatori come il vecchio Milton, checche' ne dicano i giornalisti di Corriere e Repubblica. La stessa scelta di usare fiat money, con tutto il suo potenziale per abusi e a volte di crisi di fiducia, discende dalla decisione di lasciare allo stato mani piu' libere nei momenti di crisi (in un modo che secondo me non e' strettamente necessario, e talora e' controproducente - vedi piu' sotto).

Pero' forse la ricapitalizzazione non e' neppure necessaria, e ci sono strade ugualmente efficaci: mi meraviglia che non si discuta maggiormente di semplici garanzie al debito (non solo dei depositi al dettaglio) come fatto tre giorni fa in Irlanda con risultati eccellenti, almeno per il momento. Ovviamente sto parlando qui di fronteggiare immediati problemi di liquidita', non di insolvenza a lungo termine derivante da bilanci bancari in cui le passivita' eccedano le attivita' per un periodo prevedibilmente lungo: questo e' un problema di medio-lungo termine che andrebbe tenuto distinto dall'emergenza attuale.

Apparentemente l'effettiva capacita' dello stato di colmare tutte i buchi che si possono aprire (in Irlanda questo richiederebbe piu' del doppio del prodotto lordo annuale del paese) non ha alcuna importanza ai fini del sentimento di fiducia, dato che l'effetto di stabilizzazione dipende da correzioni ai margini, come nei controlli di "fly-by-wire" sugli aerei. Per questa ragione, penso che la coordinazione a livello europeo nemmeno sarebbe necessaria, anche se l'emissione di nuova moneta in Europa e' controllata da un'entita' sovranazionale come la BCE. Un caso interessante e' quel che successe in Hong Kong in due serie crisi finanziarie, quella del 1983 e quella del 1998: in entrambi i casi la stabilizzazione dipese da garanzie governative sulla difesa dell'equilibrio, e la sua rinuncia a intervenire sulla massa monetaria (nel primo caso ripristinando un currency board dopo una pausa di 11 anni, e nel secondo rafforzandolo con l'abolizione di certi poteri discrezionali sulla determinazione dei tassi d'interesse (una "Liquidity Adjustment Facility" scioccamente introdotta nel 1992 per cercare di limitare le fluttuazioni al rialzo dei tassi). 

Da The New York Times, come salvare il sistema finanziario USA

“The revised bill is a recovery bill for the economy and a recovery
bill for millions of Americans suffering the ravages of mental illness
and addiction,” said Mr. Ramstad, who has been working for “mental
health parity” for more than a decade.

``...the average
foreclosure rate, the ratio between the value of unpaid mortgages on
foreclosed houses, and the value of all mortgages is slightly below 3%'...'

can anybody point me to a source for this statistics? thanks

 

Qualche dato uscito oggi sulla grandezza del mercato dei CDS.

A total $33.6 trillion of transactions are outstanding on governments, companies and asset-backed securities worldwide, based on gross numbers, the DTCC said

Ma attenzione, queste cifre sono "gross".  L'esposizione netta e' enormemente inferiore:

[The DTCC doesn't list contracts on all companies, governments and other securities beyond the top 1,000 in the registry,] on which there are a net of $183.3 billion

Quali sono i principali nomi:

After canceling out overlapping trades, investors have taken out a net $22.7 billion of contracts based on Italy's debt, $16.7 billion against Spain and $12.5 billion on Deutsche Bank of Frankfurt, the report shows.

Among companies, GE Capital Corp., the finance arm of General Electric Co., New York-based Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. had the biggest dollar amount of contracts tied to their debt on a net basis after Deutsche Bank, Germany's biggest bank, the DTCC said.

Source: Bloomberg.

Fino ad ora non avevo mai visto cifre sull'esposizione netta.  Sono piuttosto rassicuranti.

 

 

 

Grazie, molto utile.

Anche a me questi numeri rassicurano, specialmente perché il nominale totale è praticamente la metà di quanto era un anno fa. Il che vuol dire che le banche si sono mosse attivamente per chiudere posizioni. In alcuni casi a danno nostro (es.: AIG, dove credo non si sia trattato tanto di "chiusura" ma di esercizio da parte degli acquirenti) in altre in maniera meno rumorosa.

Forse il peggio è passato e ne usciamo senza le ri-capitalizzazioni pubbliche? Forse ... 

 

Ahi! Sembra che queste cifre erano incomplete: (!)

     Nov. 6 (Bloomberg) -- The most comprehensive report on unregulated credit-default swaps didn't disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world's biggest
insurer.
     A study by the Depository Trust and Clearing Corp. fails to include privately negotiated credit-default swaps that insurers such as AIG, MBIA Inc. and Ambac Financial Group Inc. sold to guarantee securities known as collateralized debt obligations. It includes only a ``small fraction'' of mortgage securities, according to Andrea Cicione at BNP Paribas SA in London.

Ma lo fai apposta!  Insomma, sono ancora tutte lì!

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