Archive for July, 2009

What impacts emerging foreign currencies more? US news or domestic news?

July 31, 2009

Fed economists Fang Cai, Hyunsoo Joo, and Zhiwei Zhang in their new paper say:

This paper utilizes a unique high-frequency database to measure how exchange rates in nine emerging markets react to macroeconomic news in the U.S. and domestic economies from 2000 to 2006. We find that major U.S. macroeconomic news have a strong impact on the returns and volatilities of emerging market exchange rates, but many domestic news do not. Emerging market currencies have become more sensitive to U.S. news in recent years. We also find that market sentiment could sway the impact of news on these currencies systematically, as good (bad) news seems to matter more when optimism (pessimism) prevails. Market uncertainty also interacts with macroeconomic news in a statistically significant way, but its role varies across currencies and news.

In sum foreign currency of the selected emerging econ reacts more to US eco data/ news compared to domestic eco data/ news. The researched countries are: Czech Republic, Hungary, Indonesia, Koreea, Mexico, Poland, South Africa, Thailand and Turkey. Barring Thailand and Turkey, all currencies react more strongly to US news and the connections is getting stronger. They add it is first such paper to track the impact on these 9 countries

I am not surprised by the results. The oppposite results would have been more surprising. Seeing the way Indian markets react to everything US, the results are expected to be same for other emerging economies.  Similar paper on India would be highly welcome.


High frequency algorithmic trading- the new buzzword or next disaster?

July 31, 2009

I see a lot of posts today morning on the new financial assets trading jazz- High Frequency Trading or High Frequency Algorithmic Trading (HFT).

Wilmott explains what it is:

The idea is straightforward: Computers take information — primarily “real-time” share prices — and try to predict the next twitch in the stock market. Using an algorithmic formula, the computers can buy and sell stocks within fractions of seconds, with the bank or fund making a tiny profit on the blip of price change of each share.

I don’t know what the excitement is about (as Wilmott rightly points ) . This has been happening for a long time. I have read many articles/interviews (before the crisis that is) where people sang praises about their new algorithmic/quantitative model and how they are making so much money. The only difference this time (and each time) is a new name and new buzzword- it is  HFT this time. Supposedly Goldman has made quite a lot of money using HFT. This has led others to be excited and would most likely join in.

I have never been a part of designing any such algorithms and am not even capable of doing it. So cannot pass much comments on what it is and what it is not.

However, one thing I have noted and can say it with much confidence – When financial market players get excited about any new trading strategy/buzzword, it is most likely to fail. Most of it is done to make quick money and the long/mid-term repercussions are never discussed/ understood. As Wilmott says:

It’s a nice idea, and to do it properly requires some knowledge of option theory as developed by the economists Fischer Black of Goldman Sachs, Myron S. Scholes of Stanford and Robert C. Merton of Harvard. You type into some formula the current stock price, and this tells you how many shares to hold. The market falls and you type the new price into the formula, which tells you how many to sell.

By 1987, however, the problem was the sheer number of people following the strategy and the market share that they collectively controlled. If a fall in the market leads to people selling according to some formula, and if there are enough of these people following the same algorithm, then it will lead to a further fall in the market, and a further wave of selling, and so on — until the Standard & Poor’s 500 index loses over 20 percent of its value in single day: Oct. 19, Black Monday. Dynamic portfolio insurance caused the very thing it was designed to protect against.

This is the sort of feedback that occurs between a popular strategy and the underlying market, with a long-lasting effect on the broader economy. A rise in price begets a rise. (Think bubbles.) And a fall begets a fall. (Think crashes.) Volatility rises and the market is destabilized. All that’s needed is for a large number of people to be following the same type of strategy. And if we’ve learned only one lesson from the recent financial crisis it is that people do like to copy each other when they see a profitable idea.

Most strategies are like picking nickels in front of a steamroller. You may fool the steamroller most of the time but even once the steamrollers gets ahead, it is enough to create a much bigger damage  and erode all the nickels made so far.

It is not that people who design these strategies are not aware of the problems. They are just too smart to know the limitations. However, they also know at the back of the mind that the losses would be socialised and some kind of bailout/support would come from Govt/ Central banks. Each crisis leads to a much bigger moral hazard and the machine keeps running. How else do you explain the recurrence of some fancy strategy when its near-twin has just failed?

Top 10 books on international economic history

July 31, 2009

Prof. Daniel Drezner points to top 10 books on international economic history. He was about to give a list of top books in International Political Economics but decided that students need to know a bit of eco history first. He says:

The thing is, most graduate programs in political economy don’t give you that much historical background before throwing the cutting-edge theory and methodology at you.  This year I was lunching with some Ph.D. students at one of the top IPE schools in the country, and the students (and some of the professors) made it pretty clear that they didn’t know all that much about the topic beyond the tricks of the trade – formal modeling, econometric techniques, etc. 

If you’re expecting me to go off on a rant here about the uselessness of these tools, well, you’re going to be sadly disappointed.  There are some pretty good reasons to learn these techniques – among other things, they’ll help you to separate the wheat from the chaff when it comes to what blogs, pundits and public intellectuals are saying about the global economy. 

That said, the opportunity cost can be significant – a failure to learn anything about global economic history beyond the stylized facts contained in the most-cited articles.  This would be a weird collection of scattered knowledge, ranging from the 1860 Cobden-Chevalier Treaty to the 1934 Reciprocal Trade Agreements Act to the birth of the Washington Consensus. 

Soooo….. before you are ready to ready the ten books in IPE that you have to read, you should first read these ten books on global economic history.  

Once you imbibe the (sometimes contradictory) information contained in these books, you can look at what the stylized facts contained in IPE books with a much more astringent perspective.  It’s not a coincidence that the foundational IPE texts are by the twentieth century’s greatest economic historians – Eli Heckscher, Albert Hirschman, Charles Kindleberger, and Jacob Viner.  Trust me – you will feel much the wiser for it. 

🙂 The list is as per Prof Drezner so would differ from people to people. But knowing (and above all remembering)  eco history is very very important.

Primer on Central Bank Communications

July 31, 2009

Richard Lambert of BoE has a useful speech (old though) on Central Bank Communications.  It lists the basic issues and hasa  short literature survey of the issues.

Conference on Measuring Financial Innovations

July 30, 2009

BIS hosted a conference on this topic in Aug 2008. It has recently put up the papers here. Looks good to me as it has numerous country examples on wide variey of issues.

Buiter criticises Fed Board structure, Bernanke and Summers

July 30, 2009

Willem Buiter has written a really nasty post on all mentioned in the title.

  • He says Fed Board Structure only helps banking industry. It is a system which allows regulated to choose regulators. You have regional Fed Board supervising banks and banks in turn serve as board members and shareholders as well. This problem came to surface with NY Fed recently
  • Bernanke should not be reappointed as he has made Fed a moral hazard machine and turned Fed into a off balance sheet subsidiary of US Treasury
  • Summers should not be elected to FEd Chairmanship as he is behind much of the problems we face now.

Buiter has been a big critique of Fed in this crisis and his 2008 paper on the same set the stage for more to come (It inspired ME to write one of its most creative posts).

In this post his criticism of Fed’s board structure is quite interesting. Again, I don’t see Obama’s plan to fix this big conflict of interest problem and instead focuses on all other things. Why don’t we reform Fed Board structure?  How can we still have banks as major stakeholders in regional Feds?  Why isn’t this the major reform agenda for Fed?  Financial oligarchy just gets bigger and bigger and is not limited to US. It is spreading its wings and weight everywhere.

Worst is behind us…really?

July 30, 2009

I thought the crisis of this magnitude would lead people to say we will be careful this time, no hype, no baseless forecasts etc etc. However, I just see the opposite.  I had raised this point earlier but requires a revisit.

Everyday you spot one interview in the business dailies of some CEO/CFO/Fund Manager etc saying

  • Worst is behind us.
  • The crisis is history now
  • India Inc is unlikely to see similar times
  • We will never visit the 8,000 BSE sensex levels .
  • Indian economy is expected to grow at 8% and hence sensex will rise to 20k/ 25k/30k levels.
  • The event was a mere blip in the Indian economy growth trend.
  • Some have again started mentioning the word decoupling
  • Etc etc

All you feel like doing after reading these statements is go an a hair pulling/banging spree. How can these  people forget events so fast?  It is well known and researched that people have short memories and don’t remember history. But the crisis has not yet become history? It is still ongoing,  very much alive and kicking.

And again we get the same set of statements which experts said as the crisis had just hit US shores. I can understand their statements going wrong as the crisis  had not hit Indian shores. What I don’t understand is how can we repeat the same statements which have been proven false outright as crisis hit India. And most of these experts have high responsibility jobs. What is going on really?

What is also bugging is that we have just seen how badly equity markets go wrong in telling us of the economic sentiment. But again we are just seeing the current rise as  one of glorious Indian economy.

I have shared this with people working in various industries (mostly finance). And they say we are concerned as well but the experts don’t have a choice. As a CFO/Fund Manager you have to give rosy prospects of the future. Your job depends on markets only going up. Moreover they add, financial markets are forward driven and cannot be backward looking at history.

Phew! It sounded ridiculous to me at first but the points are so true. In fin markets we only think forward which is why we conveniently choose to forget history. And no wonder, the problem keeps getting worse and experts appear so shocked when the same set of events are repeated. This is a much bigger problem than the crisis itself. It is not just that forgetting history harms oneself, it causes harm to others as well. Especially when you have a responsibility towards investors, shareholders etc.

UKFI Leadership Change at this point of time?

July 29, 2009

UK Financial Investments Limited was set up to manage all the equity positions UK govt has taken in the various UK banks. It is fully owned by the UK govt.

Y’day, a press release (see Treasury press release as well) from UK said that both Chairman and CEO of the firm are being changed. FT reported :

Alistair Darling stunned top City bankers on Tuesday by announcing a new team to run the taxpayer’s stake in the banking industry, raising fears of a “massive hole” in the management of a portfolio that could eventually be sold for more than £100bn.

The chancellor said John Kingman, chief executive of UK Financial Investments, was stepping down, relinquishing his role as chief shareholder in RBS and Lloyds Banking Group for a move to the private sector. Mr Darling announced simultaneously that Sir David Cooksey, the businessman and venture capitalist, would replace Glen Moreno as chairman of UKFI. One of his first jobs will be to find a City high flyer to replace Mr Kingman.

Telegraph said Klingman wanted to join pvt sector 2 years back but decied to stick on and help the govt manage the crisis. He also is likely to get a much higher salary going forward (but obvious).  Another FT article has more details:

John Kingman jokingly called it his “little start-up”. From a room in the corner of the Treasury, UK Financial Investments manages bank shares equivalent to £3,000 for every household in Britain, with a remit to sell that stake at a profit. Yet less than nine months after UKFI was set up, Mr Kingman, the high-flying civil servant who became its first chief executive, and Glen Moreno, acting chairman, are leaving.

“UKFI is one of Britain’s most powerful bodies and these changes at the top come at a very sensitive time,” said Vince Cable, Liberal Democrat Treasury spokesman.

Treasury insiders say they knew two years ago that Mr Kingman wanted to move to the private sector, even if the news came as a shock to some in the City. One senior banker said on Tuesday he was “gobsmacked” to hear the news. Mr Kingman’s departure leaves the biggest hole, since he was the Treasury permanent secretary who masterminded Northern Rock’s rescue and was intimately involved in the deal to save RBS and Lloyds.

His tough negotiating style was described by Sir Fred Goodwin, former RBS chief executive, as like a “drive-by shooting”. His intellectual manner was seen by some MPs on the Treasury committee as arrogance. Mr Kingman’s friends believe he stayed in the civil service because it was more “fun” than working in the private sector; they insisted he was not motivated by money. But his priorities may have changed: his return to the private sector is likely to be lucrative. City figures speculate he could move to an investment bank, although he says he does not have a job lined up.

I hope there is no irregularity in the finances of UKFI. Otherwise, UK Govt has had it. Moreover, I don’t know why would you leave such an important office to join pvt sector at this point of time ? It is bound to get criticism and people would look at it from all possible angles.

Another issue is if Klingman joins some finance firm, the problem of fluid movement froma top job in finance to a top govt job and vice-versa continues. It was not seen as a problem till now and was considered healthy as both pvt and public sector gained. This crisis has changed the belief and is seen as a major impediment to reforming finance and bringing it under some control. Tough tough times for govt officials. They should be very careful of their moves.

SEC bans naked shortselling permanently

July 29, 2009

SEC has banned naked short-selling permanently. In 2005 , SEC’s view of naked short-selling was more sober:

Naked short selling is not necessarily a violation of the federal securities laws or the Commission’s rules. Indeed, in certain circumstances, naked short selling contributes to market liquidity. For example, broker-dealers that make a market in a security generally stand ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Thus, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market.

However even in 2005 it was concerned over naked short-selling being used for manipulative practices, but could not decide on it. In 2009 it banned naked short-selling altogether as a lesson from the crisis.

RBI Governors’ press statement – ushering in more transparency

July 29, 2009

I had commented y’day about RBI getting more transparent and above all communicating more effectively. I discovered another development which adds to the transparency point.

 RBI Governor talks to the press after the mon policy and this statement is a record of the same. The practice of publishing the press statement was started by Dr Subbarao. It was first put on the website for his first monetary policy meeting in October 2008. January 2009 statement is  here, April 2009 statement is here.

From April 2009, the statement started a new trend. It started reporting about Central Bank’s meeting with commercial bank heads. It said:

“This morning, I had a meeting with the chiefs of major banks where we announced the annual policy of the Reserve Bank for 2009-10. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each others’ perspectives. 

RBI released July 2009 statement of the Governor. July 2009 statement goes a bit further than the April 2009 one:

“This morning, I had a meeting with the chiefs of major banks where we announced the monetary policy of the Reserve Bank for the remaining period of 2009-10 in the light of the macroeconomic developments so far. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each other’s perspectives.

Bankers generally welcomed the Reserve Bank’s policy stance. They felt that the status quo on policy rates would anchor interest rate expectations that could spur investment demand. They indicated that they are seeing signs of revival in the domestic economy and expect credit demand to pick up in the second half of the year.  In this context, I emphasised the need to increase the flow of credit, particularly to agriculture and micro, small and medium enterprises. 

Banks were concerned that their liability structure is getting shorter with the reduction in the term structure of deposits, while the asset structure is getting elongated on account of the increasing share of long-term loans, particularly infrastructure. Several banks also indicated that the share of current and savings (CASA) deposits has been declining, which would put pressure on their net interest margins (NIM).  As regards credit quality, banks were of the view that non-performing assets (NPAs) are expected to increase, particularly, in the unsecured segments, although they will remain manageable.  Going forward, public sector banks emphasised the need for raising capital as risk-weighted assets expand in their asset portfolio.

So, this time discussion with central bankers is shared witht he public. It tells you about the concerns of commercial bankers in the crisis which is a useful value addition. In all, I think RBI is getting more transparent with each mon policy. Great developments.

Primer on Central Bank Independence

July 28, 2009

Carl Walsh of Univ of California Santa Cruz has written a useful short primer on central bank independence. Sums up the main idea and has a literature survey on the subject as well.

First Quarter Review of Monetary Policy for FY 2009-10

July 28, 2009

RBI released its monetary policy for Q1 2009-10. The policy was seen as a test for RBI to balance quite a few tasks – Growth vs inflation, CPI Inflation vs WPI Inflation, High Govt Borrowings vs Low Interest Rates etc etc.

Anyways, the best part of the statement is it is just 26 pages of text. A highly welcome move compared to previous statements which ran into 7-80 pages.  I managed to qiock read it in abt 15 minutes which is no mean achievement.

Another development is the simplicity of language. Earlier ones were also simple but this one takes a step forward with the neat headings and precise explanations. This one is more reader friendly The Governor surely is trying to walk the talk. In his previous interview he stressed on the need to make RBI more transparent and improve communications.

CB: If there were three things that you could achieve in your first three years, what would those three be?

DS: First, I would like the RBI to acquire greater proficiency in managing monetary policy in a globalised context. India is going to become more and more integrated. And we are going to be impacted by what’s happening around the world.

Second, we have to make the RBI more transparent. We need to improve communication at both technical and non technical levels.

Here are a quick points  from the statement:

  • Monetary Transmission has improved
  • Inflation is a worry and -ve WPI inflation is just plain statistics. It has increased WPI Inflation forecast from 4% to 5% by end of 2009-10
  • Flow of financial resources are still constrained. Bank lending stood firm in 2008-09 but so far in FY 2009-10 it doesn’t look good.
  • Lending Rates remain high esp in private and foreign banks
  • It also has a nice table (Table 20) which explains what has led to rise in liquidity

Challenges for Indian economy:

  • Manage ample liquidity and inflation in future
  • Manage govt borrowing program
  • Spur Pvt Investment
  • Fiscal Consolidation
  • Improve Investment Climate & absorptive capacity


RBI also released a detailed assessment of economic conditions y’day.

10 Myths over subprime mortgages

July 27, 2009

Yuliya Demyanyk points to 10 myths about subprime lending in this loan. The lost includes virtually everything under the sun.

Myth 1: Subprime mortgages went only  to borrowers with impaired credit

Myth 2: Subprime mortgages promoted homeownership

Myth 3: Declines in home values caused  the subprime crisis in the United States

Myth 4: Declines in mortgage underwriting standards
triggered the subprime crisis

Myth 5: Subprime mortgages failed because people used homes as ATMs

Myth 6: Subprime mortgages failed because of mortgage rate resets

Myth 7: Subprime borrowers with hybrid mortgages  were offered (low) “teaser rates”

Myth 8: The subprime mortgage crisis in the United States  was totally unexpected

Myth 9: The subprime mortgage crisis in the United States  is unique in its origins

Myth 10: The subprime mortgage market was too small to cause big problems

In the end she says:

Many of the myths presented here single out some characteristic of subprime loans, subprime borrowers, or the economic circumstances in which those loans were made as the cause of the crisis. All these factors are certainly important for borrowers with subprime mortgages in terms of their ability to keep their homes and make regular mortgage payments. A borrower with better credit characteristics, a steady job, a loan with a low interest rate, and a home whose value keeps increasing is much less likely to default on a mortgage than a borrower with everything in reverse.

But the causes of the subprime mortgage crisis and its magnitude were more complicated than mortgage interest rate resets, declining underwriting standards, or declining home values. The crisis had been building for years before showing any signs. It was feeding off the lending, securitization, leveraging, and housing booms.

She has even written a paper to explain a few ideas about the sub-prime market.

South Africa and India- same set of problems?

July 27, 2009

Brahima Coulibaly and Trevon D. Logan and Federal Reserve have written a paper on South Africa’s macroeconomic progress:

The abstract says:

During Apartheid, there was little need for redistributional policies or to borrow for public works since the vast majority of the population was underserved. With the arrival of a representative democracy in 1994, however, South Africa faced a unique problem–providing new and improved public services for the majority of its citizens while at the same time ensuring that filling this void would not undermine macroeconomic stability.

Over the past fifteen years, policy makers have achieved macrostability, but progress on social needs has been below expectations and South Africa continues to lag behind its peers. This paper reviews the progress made so far and examines the challenges ahead for the upcoming administration. Our analysis suggest an increase in skill formation as a possible solution to the policy dilemma of fulfilling the outsized social demands while maintaining macrostability.

In sum, the paper says South Africa’s performance on macroeconomic parameters is quite good but has not delivered on social development. Infact they have worsened and is a cause of concern. President Mbeki had to resign despite a strong macroeco performance.

The paper also tells story of Zimbabwe which tried to do the opposite after its independence- social development first but was given up in the middle for macroeconomic growth to get more foreign investment. The delicate balance was lost and the end result was it could not achieve anything.

The paper stresses that SA should maintain the delicate balance and actually both can be achieved. SA focused on capital intensive industries and as a result there is a mismatchg between demand for skilled labour and supplyu of unskilled labour. The solution is to increase the supply of skilled labour to match the demand for the same. This will lower the social unrest.

Well, this is so similar to India’s probelm as well. India became independent in 1947 and policy was more inclined to the social development. From 1991 onwards we started looking at macroeconomic stability but social development deteriorated. Infact, just like SA we also lag behind on social development parameters in similar country group.  The Poverty numbers have actually worsened. In India also, economists suggest the same thing- the need for skill development (I think it is more important to have labor intensive industries)

However, what puzzles me more is why hasn’t macroeconomic growth/ stability led to increase in social development? Isn’t that what economists say- grow first and rest will follow. China, India I know face the same problem and now South Africa faces the same issue as well. Why doesn’t growth lead to alleviation of the social issues?

Economic forecasting was created to make astrology look respectable

July 24, 2009

Richard Fisher of Dallas Fed in his recent speech points to this memorable quote from John Kenneth Galbraith.

Mind you, one of my professors at Harvard was John Kenneth Galbraith, who warned us that “economic forecasting was created to make astrology look respectable.”

Well only Fisher can point to such quotes.This is another super speech from Fisher whose speeches are always a big hit and full of humor. His last speech was in May 2009 so it has been quite a while.

In this speech he begins by saying:

In his upcoming book, In Fed We Trust: Ben Bernanke’s War on the Great Panic, David Wessel of the Wall Street Journal writes that “Fed officials are the Jewish mothers of the global economy. They always have to worry about something …”[1] He also organizes the Federal Open Market Committee (FOMC) into “cool guys,” “jocks,” “geeks” and “wannabes.” I am classified as one of the “jocks” who, according to Wessel, are “determined to show their manhood by talking tough about inflation and economic rectitude.” So this morning, you are going to hear from a compulsive worrier preoccupied with price stability and monetary integrity.


He looks at two issues in this speech – growth (which he thinks will be weak) and Too Big Too Fail (which is a big worry despite Obama proposals to rein them). He says TBTF was a problem in this cruisis but the bailouts have led to much bigger TBTF institutions. In the end for TBTF he says:

I know my opinions on this subject will hardly endear me to the largest financial institutions. On his death bed, Voltaire (who was neither a Hollywood lyricist nor a movie actor nor the president of the Federal Reserve Bank of Minneapolis) was asked to renounce the devil. He is said to have replied that this was no time for making new enemies. Some think that during this time of crisis and with financial and economic recovery still so tenuous, it is not the right time to think about proposals that make the perfect the enemy of the good. I disagree.

I believe we need to “think long,” as the Californian George Shultz likes to say, and the current policy prescription for treatment of TBTF is a bit shortsighted or, at best, necessary but not sufficient. If we want to avoid a repeat of what has just happened over the past 18 months, we need to exorcise the notion that an institution is too big to fail and remove all incentives for any institution to risk infecting the health of the financial system. If we make some enemies in the process, so be it. The object is to get it right.

Superb all the way.

Comparing Japan and Asian crisis with US 2007 crisis

July 24, 2009

Takatoshi Ito of Tokyo University has given a superb lecture comparing Japan and Asian crisis in 1990s with US crisis in 2007. I usually don’t read presentations as it misses the details but this one is really good.

He points to various similarities (quite a many) and differences (very few) between the three crises. It is full of useful facts on the 3 crisis and covers wide areas (mon pol, banking issues etc)

In the last 2 slides he says:

All the US advices to Japan (1997-2003) and Asia (1997-98) have to be taken seriously—for the US itself
–Avoiding moral hazard
–Stick to mark-to-market; transparency of balance sheet is important
–Hedge funds should be regulated
–Management should be purged immediately, when an institution essentially fails
–Keep pumping in capital to insolvent institutions and create a “zombie”is a bad solution
–“To big to fail”should be avoided

Maybe it is human nature to be objective and critical to others, but to be protective and optimistic to oneself 

 🙂 Unfortunately, as key US policymakers have hardly changed there is no one to remind them of the lessons. They have been conveniently forgotten.

Have Short-selling bans helped?

July 24, 2009

Riksbank has this short research notes section called economic commentaries. I was reading this short note on short-selling Maria Strömqvist. She works for their financial stability dept.

In this short note she explains:

  • basics of short-selling,
  • the policy responses of various countries on short-selling in this crisis (see this)
  • Sweden’s response to short-selling (did not ban it despite pressure from banks)
  • reasons given by people for banning short-selling in the crisis
  • manipulation is not the same as short-selling (though ex-Lehman ex-chief thinks they are same)
  • Finally, Short-selling is an important part of efficient financial markets (yeah they still believe in it) and should not be banned. It helps in  arbitrage and is quite useful to push prices lower when they are not rightly priced.

I don’t know but short-selling is always a puzzle with me. It is rarely used in good times and used extensively in bad times. If rational investor theory is to be believed it should be opposite but fin markets work on the herd principle. And this time when US/UK banned it, who have advocated it all along I knew something is terribly wrong about the way we think about short-selling. Textbook explanation is fine but reality is a lot different.

This paper is a good primer but is too text-bookish.

This paper reminded of another paper by the same authoron hedge funds. In that paper she defended hedge funds sayng they have not caused the crisis and are actually quite useful for efficient markets (again). Recently, Sweden was in news as its finance minister said hedge funds and PE firms are not to be blamed for this crisis.

So, Sweden is emerging as one country which has dared to go different in this crisis. Its policy docs, policies still favor all that efficient market talk. This is exactly what finance people love. I read somewhere (can’t locate the link) that it is pitching itself as the preferred destination for international finance etc. But it has been hurt pretty bad in this crisis as its banks had lent heavily to East European region. I r’ber reading the stuff from Riksbank as the crisis set in, saying we will not be affected, have robust fin system etc. I hope it has learnt the lessons.

FinMin Rupee Symbol Design Contest Update

July 24, 2009

I had posted about this contest by Finance Ministry of India to design a symbol for Indian Rupee (like $ for US Dollar etc). I got a lot of comments and designs on the post. Some were concerned over the status of the contest.

Fin Min has released a press release on the status of the contest. It says it has received many applications and a first list of short-listed entries would be posted on the website very soon.

Great news.


The first list of short-listed candidates is out and is here.

Literature review of papers explaining the ongoing crisis

July 23, 2009

Cleveland Fed economists Yuliya Demyanyk and Iftekhar Hasan have written a useful literature survey of various papers explaining the ongoing crisis. Most papers etc have been discussed widely. But a lit survey is always welcome 🙂

How can you ignore Joseph Stiglitz?

July 23, 2009

This article from Michael Hirsh of Newsweek is quite disturbing and interesting. Obama and his team have been ignoring Joe Stiglitz for a while and his expertise is not being used for policymaking. The reasons are pretty silly- his rivalry with Larry Summers. Stiglitz has been criticising Obama(despite his supported Obama for Presidency) and his team for their policies which has not been taken kindly by the team. The article says only Obama wants him but other don’t.


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