The Bear Stearns bailout was not quite unprecedented; Continental Illinois Bank in 1984 and Citicorp in 1991 were both beneficiaries of Fed-orchestrated rescue operations. And notoriously, the hedge fund Long Term Capital Management was not allowed to fail in 1998. However since the mortgage crisis is by no means over, and further financial difficulties seem […]

On August 27, 2006 this column suggested that US house prices would fall by 15% nationwide, peak to trough. On March 11, 2007 this column suggested that the total bad debt loss from the mortgage crisis would be about $1 trillion. At a meeting at the American Enterprise Institute Wednesday, it became clear that in […]

We are frequently told that modern democracies are “soft” and unable to bear the stress of a major war, compared with our iron-hearted ancestors with less affluent lives. However contemplation of the likely relative effects of the possible war between Colombia and Venezuela makes one realize: a society that finds the costs of a major […]

The complex and ongoing collapse in the US securities markets, and the extraordinarily expensive demise of Northern Rock in Britain, signify gross failures of banking regulation on both sides of the Atlantic. As regulation has grown more complex, it has become notably less effective. In the post-financial-holocaust world that we will shortly enter, how should […]

The powers of the Presidency may wane as the President becomes more and more of a lame duck, but in the last year of his Presidency even the most unpopular and powerless President has one ability remaining: he can booby-trap the economy for his successor. In American history, there are a number of examples of […]

It is a well known mathematical axiom that stock markets and other markets are “persistent” – in other words, trends in those markets continue for longer than they would if price movements were truly random. However it has become clear in recent months that trader psychology is even more “persistent” than the markets themselves. Thus […]

It is now clear that the credit crunch was not due simply to bull market over-optimism, but resulted very largely from the failures of a number of the financial models that have been a staple of the last generation. As the crunch spreads its malign tentacles ever wider into every corner of global economic life, […]

It was revealed Thursday that the George W. Bush administration intends to present a budget showing deficits of $400 billion for each of the fiscal years to October 2008 and October 2009, at a time we are close to an economic peak. Given a normal recession, that means the next “trough” deficit will probably be […]

The Federal Reserve’s unexpected inter-meeting cut of 0.75% in the Federal Funds rate to 3.5% was accompanied by a sharp rally in the dollar bond market, as the 10-year Treasury bond yield dropped to 3.4%. With inflation well above 4% and rising, one can only ask: why? Why would anyone buy the obligations of a […]

President George W. Bush, Fed Chairman Ben Bernanke and the Democrats in both Congress and the Presidential campaigns agree that a fiscal stimulus is essential. It now appears that such a stimulus, of around 1% of Gross Domestic Product, $145 billion, will be enacted, perhaps by means of a rebate of around $1,000 per taxpayer. […]