Deleveraging and asset prices – the ‘Minsky moment’ revisited

I think it’s worth looking back at a comment I wrote in November last year on how the global economy had reached a ‘Minsky moment’. In brief, economist Hyman Minsky unerringly predicted the boom and bust of tech stocks, and events of the last few years have followed the same classic Minsky pattern. Minsky argued that periods of stability breed periods of instability, where prolonged economic st…

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On banks, and monetary policy mistakes

Many people blame the banks’ woes on a lack of regulation of the banking industry and the leverage that banks have built up over the past few years. This is certainly an important factor, but is only part of the story.

Conventional wisdom says that the mess that the banks are in is due to a lack of regulation, which meant that banks did things that they shouldn’t really have got involved with….

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'Reality leaves a lot to the imagination' John Lennon

Lunch yesterday with a member of the ECB, who will have to remain nameless, was an interesting affair. The usual hawkish noises around inflation remaining stubbornly high, the need to avoid second round effects and the damage to the Eurozone that would be borne out of an inflationary spiral were entirely expected. Indeed I have some sympathy with the ECB. Their mandate, as I’ve mentioned before… Read the article

Letter from Washington DC

Our chief economist, Steven Andrew, and I are just back from a research trip to Washington. To some extent our visit was overtaken by this weekend’s events and the government bailout of the GSEs (Freddie Mac and Fannie Mae), but there was tangible nervous excitement in the air that anticipated that something big was about to happen – plus we’d had the shocking rise in US unemployment out on Fri…

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"Arguably the worst they’ve been in 60 years"

Three quick things this morning. 

1) Putting aside the question of why on earth would Alistair Darling publicly predict the worst economic downturn for sixty years, the more interesting question is how does he come to that conclusion? No other forecaster is predicting such a disaster, and they all have exactly the same economic inputs as the Chancellor (he might get the official statistics a co…

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'Tier 1' bank bonds continue to deteriorate

Spreads on Euro denominated ‘Tier 1′ bank bonds hit record wides yesterday, reflecting the growing concern in the market about banks’ ability and willingness to repay investors. ‘Tier 1′ bank bonds are the highest yielding, highest risk bonds in a banks’ capital structure. Essentially, banks issue a spectrum of different ‘tiers’ of debt securities in an attempt to minimise their cost of funding…

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Writedowns, Cuts & Losses

Now that many ‘experts’ have revised their expectations for total bank writedowns significantly upwards, many in excess of one trillion dollars, I thought it may be useful to take a look at those losses that have so far been realised, and how this compares to the amount of capital raised. It’s also interesting to note the correlation with the number of financial market employees that have found…

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Black Swans and Olympic Sprinters

The Freakonomics column of the New York Times has taken its fun approach to economics to produce an analysis of Usain Bolt’s performance in the 200 metres sprint on Wednesday. For anybody who saw it, you won’t be surprised that it was a Black Swan event, way off the Bell Curve in terms of what you might think could be achievable (although Don Bradman’s batting average of 99.94 also puts him in …

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What will higher government borrowing mean? Steeper gilt yield curves as long dated bonds underperform, and crowding out for the private sector

The newspapers over the past week or so have been full of alleged leaks from the government about fiscal help for the poor British consumer. Ideas floated have included a suspension of stamp duty (although HBOS has pointed out that following the 1991/1992 stamp duty holiday, house prices still fell by 8.3% in that latter year, and transactions fell to their lowest level for 34 years), and a £15…

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Citius, Altius, Fortius

UK housing market numbers once again fell short today, which is not surprising given the sparsity of credit and falling mortgage approvals (see our most recent blog comment on mortgage approvalshere – note that our mortgage approvals chart is now predicting year-on-year house price declines of 20% by January 2009).

Today we are going to focus on the speed of decline. During the last housing mar…

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