Princeton: Crisis on Wall Street Panel Discussion
I saw this over the weekend, and thought it was pretty good.
Princeton economists review recent events on Wall Street and assess the implications for the economy and public policy.
Panelists:
- Hyun Shin, Professor of Economics and associate chair of the Department of Economics;
- Markus Brunnermeier, Professor of Economics;
- Harrison Hong, Professor in Finance;
- Paul Krugman, professor of economics and international affairs;
- Alan Blinder, Professor of Economics and Public Affairs and co‐director of the Center for Economic Policy Studies.
Wednesday, October 01, 2008 | 01:00 AM | Permalink
| Comments (35)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef0105350c6999970c
Listed below are links to weblogs that reference Princeton: Crisis on Wall Street Panel Discussion:
Comments
Why is no one addressing the most egregious of all the issues in this bill: THE BAILOUT GOES TO FOREIGN BANKS.
http://www.cnbc.com/id/15840232?video=873682522
Posted by: popo | Oct 1, 2008 1:12:43 AM
Jeez BR, do you ever sleep?
;)
Like I should talk.. Still at the office :/
Posted by: Dr. Kenneth Noisewater | Oct 1, 2008 1:34:27 AM
SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES
AND CENTRAL BANKS.
The Secretary shall coordinate, as appropriate, with
foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
Paulson and Bush threatened to veto the legislation if there was an explicit prohibition of transfers from foreign banks to an American "subsidiary".
Will American taxpayers now be on the hook for FOREIGN generated toxic shit? WHY? Is this some kind of quid pro quo so that "nuthin' happens to your pretty little Treasury Auctions"?
Posted by: brion | Oct 1, 2008 2:12:13 AM
Rep. Robin Hayes, R-N.C., took issue with the provision that would allow foreign banks and investment firms to qualify for assistance from U.S. tax dollars.
"The initial draft of the proposal that came from the Treasury was fundamentally limited to U.S. financial institutions," Hayes said. "During the course of negotiations, this changed, and now foreign banks and
financial companies are just as eligible to receive U.S. taxpayer dollars as an American company."
Posted by: brion | Oct 1, 2008 2:13:55 AM
Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic U.S. mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.
and this
The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have “its headquarters in the United States.” That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.
But a Treasury “Fact Sheet” released at 7:15 Saturday night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: “Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.”
The major change in the suggested eligibility requirements is the biggest change that Treasury publicly made after a day of briefings and conversations with Capitol Hill, and is likely the first of many
http://www.politico.com/news/stories/0908/13690.html
Posted by: brion | Oct 1, 2008 2:16:20 AM
The video was great, a great service by great minds. I appreciated the levity as well. It seemed, however, that Alan Binder's presentation was cut the video. If anyone has the complete version, I'd appreciate it.
Posted by: karen | Oct 1, 2008 2:47:46 AM
Seems to me foreign money is included because that is the money calling the shots here.
Posted by: debreuil | Oct 1, 2008 3:37:12 AM
Also… What I don’t think most folks know is the fact that most of that initial $700B was going to go to the foreign based PDs, through their US subs to take illiquid CDOs off their balance sheets and enable them to continue to buy Ts at the auctions. That will never hit the MSN, because it would **** off J6P to see the money is not going help him buy a new car at all.
Posted by: brion | Oct 1, 2008 3:38:39 AM
Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."
At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. It is as if many financial institutions sold "earthquake insurance" on the same house: when the quake hits, all these claims become close to worthless — but the claims are simply bets disconnected from reality.
Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.
Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase; claims that are directly tied to mortgages would be a good start.
Let financial institutions fail, merge or be bought out. The faltering institutions will see their shares devalued and will be likely to be taken over by stronger institutions — as has already started happening. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.
The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.
Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.
Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.
— Ari J. Officer has completed his master of science degree in financial mathematics at Stanford University. Lawrence H. Officer is a professor of economics at the University of Illinois at Chicago.
Posted by: AGG | Oct 1, 2008 3:44:16 AM
Barry -
America told em NO TO THE BAILOUT Monday , and the SOB's are back to do it again . Whats the point in having elected officials if the blind side us at every turn .
November will be VERY interesting .
Bill
Posted by: Bill | Oct 1, 2008 4:23:54 AM
Can someone please clarify for me:
Is a MBS directly connected to a number of specific homes with addresses?
Or to put it differently: if I buy one, what exactly do I get?
Thanks.
Posted by: Phil | Oct 1, 2008 4:57:48 AM
Has anyone found the text of the legislation the Senate will be voting on? I've read news reports summarizing the changes, but I can't find the actual legislation itself. My concern is that it will be posted too late for reasonable analysis before the vote.
Posted by: GreggT | Oct 1, 2008 6:04:22 AM
Barry,
Excellent item, thanks. This reinforces what we all know. There are just as good minds in Government (Come on, be charitable!) so what worries me if WTF is really going on here? The way being proposed is a lousy deal for taxpayers, and I assume they know this. What am I missing here? Is it the bank lobbyists?
As was quotes somewhere else, if Buffett can cut a sweetheart deal with the best and best managed of the Ibanks, surely Treasury can cut a better deal with the worst and worst managed banks?
I don't get it.
Posted by: Philipat | Oct 1, 2008 6:16:45 AM
The trouble with the Paulson bailout plan is the lack of definition rather than the over-definition.
Isn't this the ultimate discretionary policy that is setting the new rules such that the expectations about future policy moves essentially involve unlimited government commitment?
Posted by: Tamas David-Barrett | Oct 1, 2008 6:33:34 AM
Which bank does the FDIC keep their money? That's where I want to put my money. Can you imagine some bank manager telling the FDIC that they can't have their money? No way.
Posted by: VennData | Oct 1, 2008 6:40:58 AM
Dear Barry:
Thanks so much for this.....It is hard to find this type of discussion and I really appreciate it....ACK
Posted by: ack | Oct 1, 2008 6:48:59 AM
These type of roundtables are exactly what we need, not the ones on CNBC...this panel is a bit too dry and academic. I have been clamoring for Barry to do this SINCE JULY 24!...Good news is he is considering it!
Great quote...now let's do something about it. Host a live issues roundtable on your blog...you mediate...with anti-clueless dolts such as Volcker, Roubini, Bogle, Shiller, maybe Bill Seidman...other nominees? Otherwise we may as well give up. No way our politicians can get us out of this on their own. When the roundtable is done, call Kudlow and go on his show to promote it. Even get his buy in on some points if possible. C'mon Barry...you can pull it off. Whatever you want me to do, you have my email.
Posted by: Steve Barry | Jul 24, 2008 7:03:54 PM
Posted by: Steve Barry | Oct 1, 2008 7:23:28 AM
Here's what we get from CNBC...to discuss how to stabilize housing, they bring on Ara Hovnanian, home builder CEO...he'll be impartial, right?...really makes me seasick.
Posted by: Steve Barry | Oct 1, 2008 7:33:40 AM
Hovnanian seems to be in panic...calling for soup lines...yet I see housing dropping another 30%. He'll really be a basket case if I'm right.
Posted by: Steve Barry | Oct 1, 2008 7:50:26 AM
Steve,
Then make any housing subsidy only for pre-existing homes...that would be hard for Hovnanian to argue against wouldn't it? Unless he had to tell the truth, that homebuilders were silent while the run-up occured, but like the grasshopper and the ants, had no clue winter was coming.
Posted by: Bruce in Tennessee | Oct 1, 2008 7:59:14 AM
Senators, today, are making a big mistake. Unless they are positive the House will pass the same bill, they are going on record for this massive increase in debt, and will give their more fiscally conservative opponent in the 5 weeks away election a huge talking point. I don't think some of them have considered this....
Posted by: Bruce in Tennessee | Oct 1, 2008 8:02:52 AM
Can someone please clarify for me:
Is a MBS directly connected to a number of specific homes with addresses?
Or to put it differently: if I buy one, what exactly do I get?
Thanks.
Posted by: Phil | Oct 1, 2008 4:57:48 AM
Phil,
Simply, MBS are Not tied Directly to a specific House. A # of 'Mortgages' are pooled, from which different securities can be crafted. Many of those 'pieces of art' are 'toxic'=truly Worthless.
Those are the ones (think Level III 'assets) that are fixin' to be shoveled into the USTreas= 'Yucca Mountain', in the proposed bailout..
see: http://www.investopedia.com/terms/m/mbs.asp
and 'related terms' for starters...
It goes waay past MBS..
Posted by: Mark E Hoffer | Oct 1, 2008 8:08:41 AM
Bruce...I don't blame the homebuilders...if Wall street firms were leveraged 30 to one, they could take a single subprime liar loan for 400K in Michigan or Florida and turn it into 12 Million in securities!!! And Greenspan let it happen!!!!
Posted by: Steve Barry | Oct 1, 2008 8:09:25 AM
The stock chart of Hovnanian is the best visualization of the bubble.
Put in on "max", i.e. from '92 onwards.
http://finance.google.com/finance?client=ob&q=NYSE:HOV
Posted by: Phil | Oct 1, 2008 8:10:50 AM
Bruce,
re: those Sen., they always have:
http://www.blackboxvoting.org/
as their own, personal, backstop..
Posted by: Mark E Hoffer | Oct 1, 2008 8:11:33 AM
