Archive for June 2009
The recession and pay: The quiet Americans
The original article is available here.
From The Economist print edition
Employees are proving stoical in the face of pay cuts and compulsory unpaid leave
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BACK when times were better and the newspaper industry wasn’t fighting for dear life, reporters at the Cleveland Plain Dealer would regularly grumble at the measly pay increases their union negotiated. Last month, when the union announced it had negotiated a 12% pay cut in exchange for a promise of no lay-offs, there was applause. “It took me aback,” says Harlan Spector, a medical reporter and one of the negotiators.
Like many long-standing economic relationships, “wage stickiness” is being tested by the savagery of the recession. Read the rest of this entry »
Reforming financial regulations in America: Better broth, still too many cooks
The original article is posted here.
From The Economist print edition
Barack Obama’s plan for regulatory reform is not bold enough
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FINANCIAL regulation in America has two problems: there is both too much of it and too little. Multiple federal agencies oversee the financial system: five for banks alone, and one each for securities, derivatives and the government-sponsored mortgage agencies. They share these duties with at least 50 state banking regulators and other state and federal consumer-protection agencies. Yet all these regulators failed to anticipate and prevent the worst financial crisis since the Depression, because risk-taking flourished in the cracks between them. Toxic subprime mortgages were peddled by lenders with little federal oversight and shoved into off-balance-sheet vehicles. The greatest leverage accumulated in firms that avoided the capital requirements of banks.
On June 17th Barack Obama took aim at these weaknesses (see article). Read the rest of this entry »
Sovereign credit-default swaps: Muffled signals
The original article is linked here.
Sovereign credit-default swaps
Muffled signals
From The Economist print edition
Credit derivatives on countries are behaving oddly
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GOVERNMENTS in the rich world are announcing record-breaking deficits and their credit ratings are under threat. Yet the market that should be most worried is not. An index of credit-default-swap (CDS) spreads on the seven biggest rich economies maintained by Credit Derivatives Research (CDR), a research outfit, has widened in recent weeks, but still signals half the risk it did in February, before the full scale of the damage to public finances became clear (see chart). The trend holds true even for Britain, which is threatened with a credit-rating downgrade, and Ireland, which on June 8th suffered its second sovereign downgrade in three months.
Dave Klein at CDR admits to being puzzled by the trend. Read the rest of this entry »
Central banks’ exit strategies: This way out
The original article is available here.
From The Economist print edition
The Federal Reserve weighs plans to unwind its unconventional stimulus
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A FIREFIGHTER’S first rule of survival is “know your way out”. The same can be said of financial firefighting. Though it has no intention of exiting soon, the Federal Reserve is planning its path out from the extraordinary measures it has taken to free credit markets and boost demand. Read the rest of this entry »
Federal Reserve Bank of New York: The president speaks
The original article is available here.
From Economist.com
William Dudley, president of the Federal Reserve Bank of New York, speaks with The Economist about quantitative easing and exit strategies
Q: Treasury yields are up sharply in the past few weeks. Why?
A: The economy is looking less dark so people are taking away the Japanese deflation scenario. Basic financial conditions have generally eased quite a bit in the last six weeks. If you thought the equilibrium funds rate was wildly negative six weeks ago, it’s not so negative anymore. I don’t know if the economy has turned out better than forecast, but the adverse tail has diminished significantly. The risk of the banking system melting down, the deflation outcome, has very much diminished. And supply is enormous. Another thing of course is the mortgage market, which has its own dynamics: rates go up, duration extends. The third reason is some uncertainty by some people about the whole exit from all these programmes and the possible inflationary consequences of that. Read the rest of this entry »
