Economy

The Wall St.-Main St. Divide ... on Wall St.
October 16, 2009

One thing you can't help noticing when you read about third-quarter bank earnings is the huge divide between banks whose revenue depends heavily on trading and investment banking (underwriting, M&A, etc.) and banks whose revenue depends heavily on consumer lending. To put it simply: The banks in the former category--Goldman, JP Morgan*--are doing very well. The banks in the latter category--Citigroup, Bank of America--are performing abysmally. I don't have a ton to say about this, other than that it highlights the limits to what can be accomplished with a "top down" bank bailout.

Will the Small Banks Be Happy Now?
October 16, 2009

Like a lot of other bloggers, I've puzzled over why small banks are opposed to the proposed consumer financial products regulator, which could in principle given them an edge over megabanks. But they clearly have their concerns, and they don't appear to be softening on them, which made me wonder a few weeks back if we shouldn't just exempt them from the new consumer reg.'s and be done with the problem. Well, it looks like the House Financial Services Committee did precisely that yesterday: Democrats showed a willingness to change parts of the financial-overhaul package to make it more palatabl

Worth Reading
October 15, 2009

Shariah compliant Islamic banks fared relatively well during the crisis. Despite Felix Salmon's protests, Thomson Reuters still buys Breakingviews. Nate Silver defends Rush Limbaugh. Covered bonds grow in popularity in Europe. Is the ECB embracing core inflation as the key inflation metric? And is the sequel to Freakonomics "error-riddled" on climate change?

More on Meritocrats v. Establishment on Wall St.
October 15, 2009

Matt Yglesias highlights some evidence that, contra my item from yesterday, the changes on Wall St. during the last generation aren't just cultural and sociological; the amount of brainpower on Wall St. has increased fairly dramatically. I don't doubt this is the case. My point is just that the cultural change is as important as the intellectual change, if not more, in creating our dodgy financial system. That is, the problem isn't smart people per se.

M&A … and Bruce
October 15, 2009

It's safe to say there are not too many investment banking chieftains whose idea of a compliment was to tell you after a meeting that "you showed a certain amount of fingerspitzengefuhl in there." To which the appropriate response was, "Only a certain amount?" Followed by the inevitable rejoinder: "But were you effective?" Bruce Wasserstein, who died this week at 61, loved complexity and was a genuinely complex man himself. Like many of his former colleagues, clients, and competitors, I'll be trying to figure him out for years.

How Supply and Demand Really Did Drive the Oil Boom
October 15, 2009

I've highlighted a couple recent papers investigating the causes of the commodity price boom, pre-crisis.

How the Recession is Boosting the Military
October 15, 2009

The Dept. of Defense is crowing about its recruiting success in fiscal year '09, and chalking it up -- at least in part -- to the weak economy. From the Washington Post: The Pentagon, which made the announcement Tuesday, said the economic downturn and rising joblessness, as well as bonuses and other factors, had led more qualified youths to enlist. The military has not seen such across-the-board successes since the all-volunteer force was established in 1973, after Congress ended the draft following the Vietnam War.

Inflation? Have You Seen All That Excess Capacity?
October 15, 2009

Matt Yglesias flagged a sober point (among many) in Martin Wolf's latest column:  Higher prices of gold reflect fear, not fact. This fear is not widely shared. The US government can borrow at 4.2 per cent over 30 years and 3.4 per cent over 10 years. During the crisis, the inflation expectations implied by the gap in yields between conventional and inflation-protected securities collapsed. These have since recovered – yet another sign of policy success. But they are still below where they were before the crisis.

Why You Should Care About Caijing
October 15, 2009

My introduction to the magazine Caijing came while I was researching this recent piece about our economic relationship with China. It's probably the most influential Chinese business magazine and has become a prominent sign of the regime's tolerance of criticism on the economic front. (See my piece for more on that if you're interested.) Anyway, it sounds like we may be at a bit of a crossroads in the life of the magazine--and also the broader policy of allowing this form of government scrutiny.

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