Archive for October 27th, 2008

Cox says Municipalities under stress as well

October 27, 2008

Though much of the discussion in this Oversight Senate hearing is on Greenspan’s testimony, SEC Chairman Cox’s testimony is interesting as well. He says concerns are being felt in Municipalities as well:

Now that the credit crisis has reached the state and local level, investors need to know what they own.

This multi-trillion dollar market entails many of the same risks and is subject to the same abuses as other parts of the capital markets. Individual investors own nearly two-thirds of municipal securities, directly or through funds, and yet neither the SEC nor any federal regulator has the authority to protect investors by insisting on full disclosure. The problems in Jefferson County, Alabama are only the most recent reminder of what can go wrong.

The multi-billion dollar fraud in the City of San Diego, in which we charged five former City employees this past year, has injured investors and taxpayers alike. The economic slowdown will now make it even harder for many states and localities to meet their obligations. Many municipalities continue to use interest rate swaps in ways that expose them to the risk that the financial institution on the other side of the derivatives contract may fail.

That is why, repeatedly over the last two years, I have asked Congress to give the SEC the authority to bring municipal finance disclosure at least up to par with corporate disclosure. Knowing what we now know, I would have begun this campaign on my first day on the job.

So, this market is also largely unregulated (like the credit derivatives market) and still has grown to a trillion dollar market.

After dollar, now the turn of Euro Funding

October 27, 2008

So far, the Central banks had set up swaplines with Fed for USD funding. Now, Denmark Central Bank has set up a swap line with ECB for Euro funding upto USD 12 billion.

So, after concerns in USD markets, the concerns are shifting to Euro market as well.

IMF bails out emerging markets

October 27, 2008

IMF has given $2.1 billion to Iceland and is about to give $16.5 billion to Ukraine and is in talks with Hungary. Dani Rodrik says IMF needs to step up and has to act as a global lender of last resort to emerging markets. Though he feels pity for the emerging markets but there is little choice now:

Emerging markets have every right to say that they are being swept under by a crisis that is not their own doing. But the real reason the rest of the world needs to move on this front is naked self-interest. Combine a deep recession in the advanced countries with an uncontrolled depreciation of emerging-market currencies, and the pressure to erect trade barriers in the U.S. and Europe will be impossible to withstand.  A vicious cycle of unemployment and protectionism feeding on each other a la 1930s could transform the deep recession everyone is already expecting into a second great depression. It can get worse…

Apart from this there are concerns in Korea, Pakistan, Belarus as well (Read the IMF statements linked).

Korean won has depreciated substantially and is facing a currency crisis. Korean must be feeling dejavu as current events similar to what happened in South East Asian Crisis as well. In that too, Korea went down suddenly. The Korean central bank has recently reduced interest rates by 75 bps as well. Now, I don’t even understand this. If it lowers interest rates, the pressure on Korean Won would be more and would depreciate further. How do you balance it? This is actually going to be a problem for all emerging economies.

Pakistan is not really hurt by the global crisis but because of home grown political instability.

Belarus case is also quite interesting. Recently, Doing Business Blog pointed that Belarus has undertaken numerous reforms to make doing business in Belarus easier. In Doing Business 2009 report, it is the 4th global reformer in 2007-08 and has jumped from 115 ranking to 85 ranking! This should lead to more prosperity in Belarus but this crisis has simply led to a reversal of sorts. What do you really do as a policymaker?

Krugman in his blog says that we are going to see a mother of all currency crises. Expect more fireworks in emerging economies going ahead.

Another important point is IMF itself is not in a good financial shape. So, it will be interesting to see hopw it fares in this crisis.

Mostly Economics in Nobel company; Happy Diwali to all

October 27, 2008

I had pointed a while back that as per Econolog ranking, Mostly Economics has been ranked as one of the friendly blogs.

The same  ranking has been updated and Mostly Economics has jumped ahead. It is now ranked 30th in the list of top 50 economics blogs on the web! It didn’t feature in this top ranking earlier and was just ranked as a friendly blog.

It is simply amazing to be ranked in the same list as Blogs of econ giants Paul Krugman,  Tyler Cowen, Gary becker, Steven Levitt, Chris Blattman etc. (Though I don’t understand how Mostly Economics comes ahead of Bekcer and Blattman’s Blog; it does not even have Mankiw and Rodrik Blog in the rankings which is surprising). The ranking would change in days to come and the Blog ranking might slip lower, but I don;t mind this temporary ranking at all

Mostly Economics thanks all the visitors for visiting it and passing their comments. It couldn’t have been possible without you all.

WIth this, Mostly Economics also wishes all the visitors and their families a Very Happy Diwali.

P.S. Blogging is not going to be very active as this week we have many holidays.

Assorted Links

October 27, 2008

1. WSJ Blog points China preparing for the crisis. It points to a report which compares the previous recessions with this one

2. JRV points beggar thy neighbour policy could be very dangerous

3. TTR points ICICI Bank draws judiciary’s ire

4. ACB has an excellent post walking to school. He also points Keynes is back

5. MR points to a paper which measures the true cost of social security in US. MR on Alan Greenspan’s comments

6. Krugman says after all the mess we could have mother of all currency crises. Rodrik agrees and suggests IMF intervention 

7. FCB on credit rating agencies

8. DB Blog says US Treasury is a crisis snob

9. Econbrowser analyses Fed’s Balance sheet

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