Sheila Bair, chairman of the Federal Deposit Insurance Corporation urged Thursday that mortgage servicers should force mortgage pools to reduce the long term interest rate at which subprime mortgages refix after the first few years, fixing the rate instead at the initial “teaser” rate. I trust no Bear’s Lair reader is remotely surprised at this […]

Senator Barack Obama (D.-IL) has proposed that the income ceiling on social security contributions be abolished, in order to balance the system. However his solution ignores the much greater Medicare deficit and fails to address the central problem: the system needs balancing because we are living longer without working longer. If we are to enjoy […]

After pretending an unwonted firmness for a few weeks, the central banks in both Britain and the United States caved this week, accepting financial sector bailouts and in the Fed’s case lowering interest rates. Moral hazard has thus been made immoral certainty; financial market participants who indulge in grossly speculative activity can be “highly confident” […]

It is now becoming clear that whether or not he relinquishes the presidency nominally, Vladimir Putin will remain in effective control of Russia for many years after 2008. In that event, his “spook” economic and political priorities, honed during his decades with the KGB, will doubtless rule Russian policy. Since Putin appears most comfortable in […]

Free market economics is famously predicated on “market rationality,” the idea that each participant in the economy acts as a coolly reasoning “homo economicus” in purchase and investment decisions. Yet as the disintegration of the 1995-2007 credit bubble continues it is becoming more and more obvious that in several areas economic decision-making during this period […]

The 45% drop in earnings at Freddie Mac, for a quarter that ended in June, predating August’s intensification of the mortgage market crisis, indicates an uncomfortable reality. President George W. Bush may attempt to hold back the tide of foreclosures by handing out yet more federal guarantees to subprime borrowers, but that will only delay […]

The rapid rebound in the world’s stock markets following the Fed’s cut in its discount rate demonstrated again the central feature of the current market: investors have far too much confidence that all will turn out well, without major economic calamities or even market downturns. For their own wealth and that of the US and […]

According to (pervasive but possibly apocryphal) legend, Chinese prime minister Zhou Enlai, when asked in the 1970s what he thought of the French Revolution, responded “It’s too early to tell.” As for London’s Big Bang of 1986, it is also “too early to tell” whether it was beneficial. However if the current unpleasantness turns into […]

Federal Reserve Chairman Ben Bernanke first achieved fame with a November 2002 speech in which he repeated Milton Friedman’s assertion that the Fed could “drop money out of helicopters” if deflation or a credit crunch occurred. The Fed and the European Central Bank now appear to be doing this, having injected $300 billion into the […]

The German bank IKB has been the recipient of an $11 billion bailout. $64 billion of leveraged buyout financings have been withdrawn in the last month. Standard and Poors have talked of down-rating Bear Stearns, two of whose funds have collapsed. We are clearly in the beginning phase of a classic credit crunch, and it’s […]