Recapitalising Britain

Prime Minister Gordon Brown has finally pulled the trigger. In the most momentous move yet in the credit crisis, the UK government is effectively partially nationalising the UK banking system. For months, I have maintained that the financial system needed to be recapitalised in the UK and elsewhere. If any country is to work its

The global economy has crashed: we need a comprehensive credit crisis plan

Despite the fall in markets, Congress’s not having passed the Economic Patriot Act may be a blessing in disguise. The FTSE is trading up. Dow futures show a rise of 170 points. So, maybe the sell-off was a one-day event.

In any event, it does give the U.S. Congress more time to pass new legislation crafted from scratch. And the new proposal can have the things we need in it

Quote of the day: TARP not based on any facts

I caught this quote via Political Wire. It reminds me of Paul Wolfowiz’s quote for why the Bush Administration used WMDs as the rationale for war in Iraq. Some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy. “It’s not based on any particular

How to tackle systemic malaise

Marshall Auerback here. Ed has had a few posts on the Swedish bailout plan with which I agree. I think the main political argument (made by Bo Lundgren in yesterday’s NY Times) is that you have ZERO political legitimacy unless everybody is perceived to be making sacrifices and getting some long term benefit via equity.

Congress does need to act on the Economic Patriot Act

If you hadn’t been following it, credit markets are still seized up — even more than when Paulson first presented his bailout plan the Economic Patriot Act for Congressional approval. The fact of the matter is Paulson has shown leadership. I don’t like his plan. Most Americans don’t like his plan. And we can all

The Paulson plan is not going to make it

The uproar by American taxpayers about the Paulson Bailout plan is likely to torpedo this plan. Even amongst Republican lawmakers, the plan is looking like a complete bust. Just moments ago, President Bush was on TV asking for American support for the plan. He claimed that if we do not support Paulson’s proposal, America would

Lehman’s bankruptcy: putting the cart before the horse?

Update Mar 2009: There is a pernicious little piece of historical revisionism going around that the Lehman bankuptcy did not matter. I am reposting this as a retort.

Note the piece by James Suriowiecki which induced me to re-post:

In the past few days, though, a new meme has started circulating through the economics blogosphere, suggesting that Lehman’s failure actually did not wreak the havoc that everyone who lived through last September thought it did. This argument, which was floated by the well-respected macroeconomist Willem Buiter on Friday, is based on a paper from last November by the Stanford economist John Taylor, which purports to show (pdf) that the credit markets actually did not react all that badly to Lehman going under and that the crisis was really the product of market uncertainty about the effects of government action.

Below is the original post from 16 Sep

Don’t think, react

I have a friend who is a very unusual and cosmopolitan blend. Satoshi is a Japanese guy who grew up in the deep south in New Orleans who I met when we worked together at a German bank in the high yield market in London ten years ago. He has this expression he always used

The Swedish banking crisis response – a model for the future?

Yesterday I pointed out that today’s global banking crisis has some historical precedents worthy of comparison. In particular, I looked at the Japanese bailout schemes from their housing bubble to see if there was anything there to learn. Unfortunately, the Japanese experience leaves doubts as to whether government intervention is helpful or harmful.

There are other examples, however. The Nordic model is a particularly useful one to look at as we move forward. Sweden’s Central Bank Chairman Bäckström shared some of his insights from that experience some eleven years ago in a speech to a Federal Reserve symposium that is available on the Swedish Riksbank website. This is a brilliant piece of work

A Home Price Firewall

In the Washington Post today, Martin Feldstein gives is view on housing. His view is that a downward spiral is likely unless we act to prevent it. Hisplan is essentially a government bailout. Martin Feldstein is the President of the National Bureau of Economic Research, which determines whether when the U.S. has recessions. He is