The worst US economic recession in 50 years
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Tag Archives: US economy
Mortgage Crisis -> Credit Crisis -> Financial Crisis -> Economic Crisis -> THE GREAT DEPRESSION
Feed readers: Download this post to be able to watch this CBS 60 minutes video on the credit crisis.
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Watch CBS Videos Online
Bailout Plan
– Text of Draft Proposal + NYT explainer
– Conrad Black’-s take on the financial meltdown
– Takes from 3 economists
– More links here. More links, again.
– UPDATE: Paul Krugman says the plan does not address the real problem.
– UPDATE: More Krugman
Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us.
Exactly.
We will never have a perfect model of risk. – by Alan Greenspan
The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics.
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FOLLOW UP
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Risk premia creeping higher
Since Halloween, financial markets seem to be getting spooked again.
Larry Kudlow writes:
Until recently, I thought the Fed could stand pat at their December 11th meeting. However, I have completely changed my mind in light of the continuing credit market turbulence.
Kudlow notes that the spread between 30-day asset-backed commercial paper and U.S. Treasuries, which spiked up dramatically after August’-s liquidity events but subsequently eased back down, climbed back up during November to the neighborhood of its previous high.
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The same is true of the spread between the London interbank offered rate and Treasuries.
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One of the features of the initial financial turmoil on which I commented last August is that it seemed to be confined specifically to the financing of problematic securities, but was not showing up as a broader risk premium in something like the spread between Baa-rated corporate bonds and 10-year Treasuries. But the latter spread has made a significant move up over the last month, and now stands 80 basis points higher than in July.
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A sharp upward move in the Baa-Treasury spread is often associated with the early stages of an economic downturn, as the following longer-term perspective using monthly data illustrates:
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For what it’-s worth, bettors at Intrade also seem to believe that the risk of a U.S. recession during 2008 has crept up since mid-October.
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Cross-posted from Econbrowser.