Auros ([info]auros) wrote,
@ 2009-03-06 23:49:00
Previous Entry  Add to memories!  Tell a Friend  Next Entry
Current mood: incredulous

Two extremely good articles on different aspects of the crisis.
Michael Lewis (author of Moneyball and Liar's Poker) has a piece on Iceland in Vanity Fair, and Amartya Sen (the Bengali expert on development economics and Nobelist) has a piece in the NY Review of Books on the future of capitalism.

The Iceland one is kind of mind-boggling. What's most shocking to me is the degree of stupidity among the international banks that made the loans that enabled the Icelandic banks (and bankers) to spiral out of control. It's like the NINJA loans into the subprime sector, but on the scale of corporate leveraged buyouts and the GDP of small countries (including Iceland).


(Read 9 comments) - (Post a new comment)


[info]auros
2009-03-14 08:20 am UTC (link)
I haven't followed the Austrian situation... Did the Austrian banks generate a lot of those truly worthless Icelandic loans or something, such that they vaporized the value deposited with them?

And I'm not sure I follow your comment about the American banks. Do you buy into the argument that the American banks' "toxic" assets are being so significantly undervalued that if we could reveal the "true" value, they'd actually be solvent, and sitting on assets worth significantly more than deposits? (I'm willing to believe deposits are down -- people have pulled money out, and they're not generating new deposits through money-multiplying loans.)

(Reply to this) (Parent)(Thread)

[info]juniorbird
2009-03-14 05:12 pm UTC (link)
I believe that the Austrian banks are some of those institutions that counted now-worthless AIG paper as reserves. I haven't followed closely either but I came across the nugget and found it amusing.

As for my comment about American banks, I only mean that the monetary base in this:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=BASE&s[1][range]=5yrs

Appears to be well large than M1 in this:
http://www.federalreserve.gov/releases/h6/current/h6.htm

Even if that's true, it only means that the *system* is solvent, not that any given bank is solvent. It probably principally is a measure of what we the people have bought from the banks, converting worthless toxic assets into the valuable Federally-guaranteed assets that count against M1.

Mostly, struck me as odd and amusing, is all.

(Reply to this) (Parent)(Thread)

[info]auros
2009-03-15 05:37 pm UTC (link)
Hmm. It looks to me like the base was briefly significantly higher than M1, but now is about equal (so we'd have a money multiplier right around 1.0 -- which means that we're not creating any money through loans)...

I guess a multiplier below 1.0 could also mean that new monetary base going to the banks is being used to retire the banks own debts to other institutions, thus destroying money...

I definitely agree that we likely have a system that is solvent (but illiquid) in aggregate, but with many individual institutions (like AIG) insolvent (in the absence of continual bailouts or an orderly intervention / bankruptcy / receivership / insert your favorite name here).

(Reply to this) (Parent)

(Read 9 comments) - (Post a new comment)

Create an Account
Forgot your login or password?
Login w/ OpenID
English • Español • Deutsch • Русский…