Unintended Monetary Policy Effects – Tale II: ECB Crisis Policies

by Andreas Hoffmann and Nicolás Cachanosky The Federal Reserve’s (Fed) and European Central Bank’s (ECB) policy responses to the recent financial disasters offer two tales of unintended consequences. Our previous post outlined undesired effects of the Fed’s policies. In this post, we suggest that the ECB’s stabilization policy did not only fail to achieve its … Continue reading Unintended Monetary Policy Effects – Tale II: ECB Crisis Policies

The Revival of State Banking in Europe

by Alexander Fink[1] and Andreas Hoffmann Since 2009, the role of government in banking has increased substantially in Europe. This is, first, a consequence of capital injections or bailouts of private banks (for instance Dexia in Belgium, Royal Bank of Scotland in the UK, Hypo Real Estate and Commerzbank in Germany, Fortis in the Benelux, … Continue reading The Revival of State Banking in Europe

Income Inequality Matters

by Roger Koppl Income inequality matters. Let me say that again so you know I meant it: Income inequality matters. This statement may be surprising coming from a self-described “Austrian” economist and a “liberal” in the good old-fashioned pro-market sense. It shouldn’t be. It should be one of our issues. The surprise should be that we … Continue reading Income Inequality Matters

Government Revenues from Low-Interest Rate Policies

by Andreas Hoffmann and Holger Zemanek* Over the last two years Carmen Reinhart and Belen Sbrancia have published a series of papers on financial repression and its historical role in financing government debt. They show that throughout the Bretton Woods period governments in many advanced economies repressed financial markets to liquidate the high levels of debt that … Continue reading Government Revenues from Low-Interest Rate Policies

Student Debt Bubble Side Effect

by Chidem Kurdas Gore Vidal died a few days ago. He was a remarkably erudite author, as any reader of his marvelous historical novels – Burr and Lincoln are just a sample – notices.  He never went to college.  Born in 1925, he joined the army at age 17 and published his first novel before age … Continue reading Student Debt Bubble Side Effect

Hundred Years of Bailouts

by Chidem Kurdas After all that’s been said and written about financial crises, it is rare to come across useful insights.  Financing Failure. A Century of Bailouts by Vern McKinley documents a major continuity with past policy making. He shows that policies intended to prop up failing companies are nothing new—the same basic pattern has recurred time … Continue reading Hundred Years of Bailouts

Krugman on Banks and Romney

by Chidem Kurdas Regulation advocates seem to regard the JP Morgan loss as the best thing since sliced bread. Thus Paul Krugman gleefully bawls out Mitt Romney for refusing to see it as a sign for greater government intervention. Krugman repeats the by now well-known argument on banks, as a riff on “It’s a Wonderful … Continue reading Krugman on Banks and Romney

The JP Morgan Caper

by Jerry O’Driscoll    J.P. Morgan Chase & Co., one of the nation’s leading banks, revealed that a London trader racked up trading losses reportedly amounting to $2.3 billion over a 15-day period. The losses averaged over $150 million per day, sometimes hitting $200 million daily. The bank states the trades were done to hedge existing … Continue reading The JP Morgan Caper

Big Bank Breakup or Tea Party?

by Chidem Kurdas We’ve been going back and forth on the economics of too-big-to-fail banks but paying less attention to the politics. The most recent ThinkMarkets broadside on banks is Jerry O’Driscoll’s post on the Federal Reserve Bank of Dallas annual report. In part of the report, the Dallas Fed’s director of research Harvey Rosenblum argues … Continue reading Big Bank Breakup or Tea Party?

Big Bank Obesity Conundrum

by Chidem Kurdas Is the Federal Reserve a hotbed of trustbusters? Fed officials (as well as some academics) have been calling for forcible downsizing of big banks . “I am of the belief personally that the power of the five largest banks is too concentrated,” Dallas Federal Reserve Bank president Richard Fisher said a few days … Continue reading Big Bank Obesity Conundrum

Hayek on the Large Corporation (aka “Breaking up Big Banks?”)

by Mario Rizzo For those who enjoy trying to figure out what important thinkers might have thought about specific issues they never faced (and I am one of them!), the following letter I discovered will prove interesting and perhaps disconcerting to some. Below is a brief excerpt from a letter that F.A. Hayek wrote to the journalist and … Continue reading Hayek on the Large Corporation (aka “Breaking up Big Banks?”)

The Free Market versus Crony “Capitalism”

by Mario Rizzo This will be a short post. Nearby is a Venn diagram showing the intersection between Goldman Sachs and the federal government: people who before or after were attached to both. This is one reason that the current political-economic system will continue to fail. Those who exercise positions of political influence are not about the … Continue reading The Free Market versus Crony “Capitalism”

Thomas Mayer: “I am an Austrian in Economics”

by Andreas Hoffmann In today's publication Thomas Mayer writes that he is "an Austrian in economics." Mayer is the chief economist of Deutsche Bank Group and head of Deutsche Bank Research. Mayer argues that Austrian theory fits recent events well.  He suggests that "Failure of the liquidationists to overcome the Great Depression of the early … Continue reading Thomas Mayer: “I am an Austrian in Economics”

Financial Crisis from Lehman to Europe

by Chidem Kurdas The current financial crisis is a reverse of the 2008 disaster in key respects. Then, investment banks were seen as the main culprits while governments appeared in the guise of cavalry riding to the rescue. The trouble originated in the United States and spread to Europe. This time, the culprits are certain … Continue reading Financial Crisis from Lehman to Europe

No Way to Escape for the Swiss National Bank

by Andreas Hoffmann and Gunther Schnabl It came as a surprise to many: the Swiss National Bank announced an exchange rate target. Accordingly, the Swiss franc will be held above the level of 1.20 francs per euro. Switzerland gives up a part of its sovereignty, when the ECB makes bad press in buying trash-rated euro … Continue reading No Way to Escape for the Swiss National Bank

Fannie, Freddie and Mortgage Addiction

By Chidem Kurdas In the first inning of what looks to be an intricate political game, the Obama administration and its financial industry allies suggested that the economy needs the federal government full force in the mortgage market. The case was pithily made  by bond honcho Bill Gross,  who oversees more than $1 trillion of … Continue reading Fannie, Freddie and Mortgage Addiction

Ending Austerity in the Austerity Debate

by Mario Rizzo   What has been disappointing about the recent stimulus vs. austerity debate is the recycling of arguments that have been gone over many times before in many newspapers and blogs. The debate has become tiresome and unenlightening.   The major feature of the debate that is responsible for the lack of enlightenment is, well, … Continue reading Ending Austerity in the Austerity Debate

Naked Truth on NYT Finance Column

By Chidem Kurdas Media coverage compounds the confusion about financial problems. Take a recent piece by Floyd Norris, probably the best informed of the New York Times finance columnists.  “Credit-default swaps are, in reality, insurance,” he writes in “Naked Truth on Default Swaps”.  The seller of a credit default swap pays the buyer of the … Continue reading Naked Truth on NYT Finance Column

The European Central Bank Turns into the Fed?

by Andreas Hoffmann* The European Central Bank (ECB) and the Fed differ in many aspects. First, the ECB is considered to be more hawkish on fighting inflationary tendencies. Its primary goal is price stability and it has continued to watch money growth. Output gaps below full-employment are only considered secondary as instrument to forecast inflation. … Continue reading The European Central Bank Turns into the Fed?

European Bailout’s Scapegoats and the Future

by Chidem Kurdas Before the near-trillion-dollar bailout package for financially shaky euro-zone governments was announced, French president Nicolas Sarkozy hauled out the financial whipping boys yet again. He promised to “confront speculators mercilessly.” They would soon “know once and for all what lies in store for them,” he said. Presumably he meant that those betting on … Continue reading European Bailout’s Scapegoats and the Future

Canada Beats the U.S.

by Jerry O’Driscoll No, I’m not offering up a delayed report on the Olympics.  But I am following up on earlier post on why Canada avoided a banking crisis.  In today’s (March 19) Wall Street Journal, AEIs Alex Pollock provides an important piece of the puzzle.  Canada avoided a housing crisis, the progenitor of the U.S. … Continue reading Canada Beats the U.S.

Dodd Liquidation Panel

by Chidem Kurdas There is one new regulation that is truly needed—a way to wind down, without major disruption to markets, failing broker-dealers and other financial companies. The new financial industry bill introduced by Senator Christopher Dodd claims to do this and solve the “too-big-to-fail” problem. Reading the particulars of the bill, however, makes one … Continue reading Dodd Liquidation Panel

Bring Back the Robber Barons

by Jerry O’Driscoll  That is the title of yesterday’s “Wonderland” column by Daniel Henninger in the Wall Street Journal.    Henninger distinguishes between market entrepreneurs and political entrepreneurs.  Market entrepreneurs innovate and create new products.  Political entrepreneurs make money by gaming the political system. “We need vision, vitality and commercial moxie. The government is draining it … Continue reading Bring Back the Robber Barons