Robert Waldmann As he watches policy makers cry “fire fire” in Noah’s flood, Paul Krugman becomes almost shrill. He has a simple (rigorous) model which suggests more stimulus would be ideal and that, when in a liquidity trap, government spending should be set to give unemployment equal to the non accelerating rate of unemployment. In […]

Robert Waldmann Over at Firedoglake “Masaccio” has a very interesting report on a legal complaint by the estate of Lehman Brothers against J.P. Morgan. on September 9, 2008, JPMorgan insisted that Lehman sign further agreements, under which Lehman guaranteed all obligations of its subsidiaries, including obligations under derivatives, and lost the ability to access its […]

Robert Waldmann There seems to be a widespread view that the US experience with deregulation has been mixed. Financial deregulation was a disaster, but airline deregulation and telecoms deregulation were OK (except for how crowded airports are and irritating advertisements by competing phone companies). What is this “telecoms deregulation” of which you speak. I absolutely […]

Robert Waldmann I think it is not clear to all readers why I assert that in the simplest possible model of financial markets all agents will invest proportionally in all tranches of all CDOs. I’m not sure I can present even the simplest model in plain ascii. Also the model is very simple and you […]

Robert Waldmann Senator Mark Warner said something about derivatives reform. I kept reading a version of what he said which seemed implausible to me. I had trouble finding a transcript or video of him speaking. In the end very beginning but I’m an idiot and didn’t notice: I found it. It confirms my suspicions.Warner is […]

Robert Waldmann claims that, after the invention of the mortgage based security, which clearly served to diversify risk, there have been three main purposes : weakening the effects of prudential regulations, weakening the effects of prudential charters and making balance sheets look better. I remain very ignorant about banking and real world finance. Some time […]

Robert Waldmann Republican Susan Collins proposed an amendment to tighten bank capital reqirements. It passed unanimously, but might be removed in conference because the Obama Treasury is opposed. The world is upside down. One key issue is whether banks can use “Trust preferred securities” to evade satisfy capital requirements. After the jump, I will ask […]

Robert Waldmann Felix Salmon wrote “S&P and Moody’s are clearly completely incompetent, and no one should base any investment decisions on the random series of letters they apply to bonds.” second quote (from comments) “… But without rating agencies…… who other than big investment companies/funds that have their own in-house muscle to do due-diligence can […]

Robert Waldmann Alex Tabarrok wrote In Too Big To Save Robert Pozen gives a clever example, based on an excellent paper by Coval, Jurek and Stafford, which explains both the lure of structured finance and why the model exploded so quickly. Suppose we have 100 mortgages that pay $1 or $0. The probability of default […]

“Liquidity” is another magic word. I like it rather less than “friction.” In the debate on financial regulatory reform opponents of tight regulations use the word liquidity as a magic spell which, they hope, will make all inconvenient evidence and arguments go away (no links my claim is like saying the Sun emits light). The […]