Stay Calm, Everyone. We’ll Get Through This.
The ground is shifting in the acute financial crisis that started around Labor Day, and erupted like a boil into public consciousness about three weeks ago. While Congress continues its indecision over whether to respond with forceful measures, the crisis has begun to have a powerful impact on the Main Street economy. None other than Warren Buffett (who’s been around for a lot of years | Read More »
Congress Says “We Have A Deal”
During my daily chronicle of the Panic of 2008, I’ve had occasion once before to say that the fever has broken. That was a week ago Friday, after Secretary Paulson first announced the outlines of his plan to buy up to $700 billion in distressed mortgage-backed paper. I’ve also had several occasions to tell you that officials at the Fed had taken extraordinary actions in | Read More »
What Happens If There’s No Bailout?
Yesterday morning, the new week started off on a hopeful note in world financial markets, as all eyes turned to the action in the US Congress. Secretary Paulson and Chairman Bernanke had managed to create enough fear among lawmakers to convince them that a large emergency bailout is needed, in order to repair the balance sheets of banks, Wall St. firms, and other financial intermediaries. | Read More »
The Root Causes of the Financial Crisis
Let me tell you a story about mortgage-backed securities purchased with borrowed money (“leverage”). An MBS is basically a package of individual home mortgages pooled together so that it can be priced and analyzed like a bond. (And usually the pool is also divided horizontally into credit-quality tranches too.) MBS are a big hit with institutional investors, because their bond-like analytics made it possible to | Read More »