Articles & Essays
The Crisis & What To Do About It.
The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact-that the defect was inherent in the system -contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting.
America must lead a rescue of emerging economies
The global financial system as it is currently constituted is characterised by a pernicious asymmetry. The financial authorities of the developed countries are in charge and they will do whatever it takes to prevent the system from collapsing.
How to capitalise the banks and save finance
Now that Hank Paulson has recognised that the troubled asset relief programme is best used to recapitalise the banking system, it is important to spell out exactly how it should be done.
Denmark Offers a Model Mortgage Market: There is a safe way to securitize home loans.
The American system of mortgage financing is broken and needs a total overhaul. Until there is a realistic prospect of stabilizing housing prices, the value of mortgage-related securities will erode and Treasury Secretary Henry Paulson's efforts will come to naught.
Recapitalise the banking system
The emergency legislation before Congress was ill-conceived - or, more accurately, not conceived at all. As Congress tried to improve what Treasury requested, an amalgam plan has emerged that consists of Treasury's original troubled asset relief programme and a quite different capital infusion programme in which the government invests in and stabilises weakened banks and profits from the economy's eventual improvement.
Paulson cannot be allowed a blank cheque
Hank Paulson's $700bn rescue package has run into difficulty on Capitol Hill. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque.
The Perilous Price of Oil
All this has occurred at the same time as a world credit crisis that started with the collapse of the US housing bubble. The rising cost of oil, coming on top of the credit crisis, has slowed the world economy and reinforced the prospect of a recession in the US.
A Danish fix for the US mortgage crisis
The recent compromise struck between the Treasury and Democrats in Congress on the fate of Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, constitutes the worst of all possible worlds. The Treasury offered a blank cheque to come to the rescue, if necessary, but the managements of both companies were kept in place.
On Israel, America and AIPAC
The United States and Israel seek to deal only with the president of the Palestinian Authority, Mahmoud Abbas, in the hope that new elections would deny Hamas the majority it now has in the Palestinian Legislative Council. This is a hopeless strategy because Hamas has said it would boycott early elections, and even if their outcome would result in Hamas's exclusion from the government, no peace agreement would hold without Hamas's support.
Bush’s Latest Blunder
The Bush administration is again committing a blunder in the Middle East by supporting the Israeli government in its refusal to recognise a Palestinian unity government that includes Hamas.
