Category Finance
Too little financial innovation in mortgages?
While "financial conservatives" have been complaining about too much financial innovation, my complaint is that there's been too little. Why can't I use my house as an ATM, as long as I have sufficient remaining equity? Why can't I make positive, zero, or negative monthly payments on my mortgage, whenever I feel like it? The […]
Banks, Aggregate Demand, and Aggregate Supply
What is the relation between banks, aggregate demand, and aggregate supply? Do bad banks shift the AD curve or the AS curve? Do bad banks make it harder for fiscal or monetary policy to shift the AD curve? Some economists argue that you need to fix the banks (and the financial system) to get an […]
Canadian vs. US bank regulation?
This is a topic I do not understand at all well, but I am confident that some of our readers will. But I do hear that the myth that Canadian banks are more strictly regulated is largely…well, a myth. One colleague who used to work in banking told me he never actually met a regulator, […]
Liquidity and risk: liquidity as the value of an option to sell at the market price
Is this a risk crisis or a liquidity crisis? What's the difference? We can define "risk" and "liquidity" any way we like, but some definitions are more useful than others. A useful definition would explain why "risky" assets need high yields to make people willing to hold them, and why "illiquid" assets need high yields […]
Why does liquidity matter so much?
This question has been bugging me for the last few months. I see the financial crisis as largely a liquidity crisis. People only want to hold the most liquid assets, and shun the illiquid. So liquid assets have high prices and low yields; and illiquid assets have low prices and high yields. But if we […]
The US may need a financial hegemon. But the US is not the world.
Canadians are federalists by instinct, so my reaction to Dani Rodrik's recommendation to resist the imposition of a global financial regulator with a Procrustean mandate is to nod my head in approval. In the current context, the proper Canadian reaction to such a proposal would be to wonder why on earth ceding authority to a […]
Liquidity and aggregate demand
Money is perfectly liquid. Other assets are not as liquid as money, but some are more liquid than others. One of the main features of the financial crisis is that some assets became less liquid than they had previously been. I want to look at the channels through which a fall in the liquidity of […]
I hope Hillary fails
Nothing personal, but I just do not understand why she is asking China to buy more US treasuries. This just doesn't make any sense to me. She ought to be doing the exact opposite. Can someone explain it? Regardless of the ultimate cause of the crisis (and China and perhaps Japan saving too much and […]
Guest post: Mark to market
Commenter JKH has been doing some thinking about mark-to-market and its role in the current crisis, and WCI is delighted to report that he has been good enough to put those thoughts together and agree to have them posted here: Lurking in the background to the credit crisis and the unfolding policy responses to it […]
The stable “Anglo Saxon” model of finance
Nouriel Roubini is not alone in declaring the "Anglo Saxon" model to have failed. Chris Dillow disagrees. He shows that, judging from GDP numbers, the "Anglo Saxon" countries are not doing worse than the others, so news of the instability and death of the Anglo Saxon model may be exaggerated. But it all depends on […]
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