With all the excitement in financial markets, I almost missed this story on the bailout for automakers.
Yearly Archives: 2008
Understanding the TED spread
One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. The size of this gap presumably reflects some sort of risk or liquidity premium. I was interested to break the TED spread down into identifiable components to try to get a better understanding of what may be responsible for its recent behavior.
Gross domestic income and recessions
The “final” values for 2008:Q2 GDP released by the Bureau of Economic Analysis on Friday were more disappointing than the earlier estimates. Still, the 2.8% annual growth rate for real GDP that we’re now told characterized the second quarter doesn’t sound like a recession. Or does it?
Last Quarter’s Fundamentals…
Weren’t as strong as some of us thought.
I was surprised; so were market observers. From Bloomberg:
U.S. Economic Growth Slower Than Initially Estimated (Update2)
By Timothy R. Homan
Sept. 26 (Bloomberg) — The U.S. economy expanded more slowly than previously estimated in the second quarter, showing consumer spending was weakening before the credit crisis intensified.
Peterson Institute for International Economics Joins the Blogosphere
From the Peterson Institute comes the “Real Time Economics Watch”. The latest posts are on how each crisis is different and yet the same [0], by Ted Truman, and the US/Japan parallels (or lack thereof) [1], authored by Adam Posen.
(The Peterson Institute doesn’t call it a weblog, but it seems like one…)
Does House Republican Resistance Make Sense for Their Constituency?
From the Justin Fox, regarding House Republicans’ plan:
…that of the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to “encourag[e] corporations to sell unwanted assets.” But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn’t be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?
Eric Cantor, the Republican chief deputy whip, has a more reasonable-sounding if still pretty vague plan to insure more mortgages rather than buy mortgage securities. ….
I’m in agreement with Justin that guaranteeing even more mortgages won’t be any better than the original Paulson plan.
My observation here is that the obstructionism of this group is either a manifestion of denial of reality, or a sheer indifference to the needs of their constituents — to the extent that House Republicans purport to represent small business Main Street.
The Financial Crisis and Entrepreneurship
Most of the discussion surrounding the current crisis has focused on the implications for major businesses and their hiring and investment decisions, or households and their employment possibilities, or consumer behavior. One overlooked (or underemphasized) aspect of the issue is the impact on small firms. Fortunately, my former colleague (and coauthor), Rob Fairlie has just published a book that can inform one’s thinking on this subject.
Who’ll Be the Next Treasury Secretary?
As the Congress was debating how much power and how many hundreds of billions to the US Treasury, I was pondering who would be in charge of all that come January 20th.
What happened to oil markets on Monday?
Here’s how it was reported, for example, in the Wall Street Journal:
Reaction to the Wall Street bailout and frenzied last-minute trading in the oil market sent crude prices soaring by more than $16 a barrel, the biggest one-day jump ever.
The late-day spike, which shoved oil up 16% to $120.92 a barrel on the New York Mercantile Exchange, offered an illustration of Wall Street’s hard-to-predict moves amid broad market turmoil.
And here’s what really happened.
Housing Prices: How Far to Go until Bottom?
I’ll just take the market’s view here; using the futures prices from the CME (via ino.com), prices will fall about another 16% from June (or 17% in log terms):