Category Finance
Cash as the real real option — to do anything
Option theory was originally about financial assets called options. A put option is a derivative that gives you the right to sell some asset at a pre-specified price. A call option is a derivative that gives you the right to buy some asset at a pre-specified price. They are called options because you have the […]
Why can’t Canadians get 30 year mortgages (but Americans can)?
The typical Canadian mortgage matures in 5 years or less. Why can't Canadians get (say) 30 year mortgages? I used to think that the answer was "inflation", or "inflation uncertainty". Now I don't. Now I think the answer is "Section 10 of the Canada Interest Act". Which we should abolish. Why can Americans get 30 […]
US fixed rate mortgages aren’t fixed rate mortgages; they are weird, stupid, and dangerous
Americans aren't really insular, like the English. But they live in a very big country, and that can have the same effect. If there's something peculiar about the US, Americans sometimes won't realise how peculiar it is. US mortgages are peculiar. "Weird" is a better term. Patrick Lawler, as described by James Hagerty, has tried […]
The bank tax: more reasons for Canada to resist
Germany promises to keep pushing for a bank tax: Merkel to push financial reform at G20: German Chancellor Angela Merkel on Thursday called for a global levy on banks, a new European rating agency and a co-ordinated exit from stimulus measures as Germany stepped up efforts to drive financial regulatory reform… She said Germany would […]
The orthodox loss of faith
I think we are witnessing the biggest silent shift in macroeconomic thought since the Second World War. For 70 years we have taught, and believed, that we would never again need to suffer a persistent shortage of demand. We promised ourselves the 1930's were behind us. We knew how to increase demand, and would do […]
Julie Dixon’s alternative to the bank tax
Stephen has already posted on Canada's opposition to the proposed international bank tax. I agree with his main point. There is no way Canadian banks (and their customers and workers, who bear the incidence of that tax) should be paying for failures of other countries' banks, regulated (or not) by other countries' regulators. That just […]
The optimal destruction of wolves
This post is not about wolves. Sorry. You are an armed shepherd guarding 16 sheep against circling wolves. There are more wolves than you have bullets. It takes ki wolves to kill one sheep, where ki is the strength of sheep i. The number of wolves is greater than SUM{ki}, so they could kill all […]
Negative and Positive sovereign debt feedback loops
There are two sorts of countries: countries that can print money to pay their sovereign debts; and countries that can't. Canada is a printer; Greece is a non-printer. Both sorts of countries can get into trouble if they issue too much sovereign debt; but they get into very different types of trouble. Printers get into […]
A public finance vignette
Here's a short story, simple but true, that illustrates a lot of public finance: from public choice to Ricardian Equivalence. I live on a cul de sac. Many of my neighbours wanted our gravel road paved, and were prepared to pay for it. The municipality held a neighbourhood referendum, and the motion passed by more […]
Eurozone: is this the big one?
I'm scared again. I haven't felt this scared for over a year. Things were starting to look better, in Canada in particular, but around the world more generally. Now Greek bond yields are shooting up. I was worried about the Eurozone in January 2009. And again in December. Maybe it was just my Euroskeptic "Anglo-Saxon" […]
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