Morning Caffeine 3-19-2012

***The must read post of the day. MMR will have comments on this.****

Comments
  • wh10 March 19, 2012 at 6:36 am

    Per the last link, can I hear “businesses hire when they are swamped with demand?”

  • Michael Sankowski March 19, 2012 at 7:56 am

    Amen Brother!

    Businesses Hire when they are swamped with demand!

    P.S. I bumped this up to the first spot – I should have done that in the initial draft.

  • Dunce Cap Aficionado March 19, 2012 at 9:48 am

    “Credit Default Swaps are insurance products. It’s time we regualted them as such.”

    I am an insurance professional and have experience both as an underwriter and broker dealing with what most consider more complicated forms of coverage- Professional Liabilty prodcuts. I have been screaming about this to anyone who will listen for 3 years now. I personally know someone who spent years at the top echelons of AIG. You will likely never see the media trace any of the casuality of the 2008 crisis back to Hank Greenberg leaving amid ‘scandal’ (which was drummed up by the [sarcasm on] honorable Elliot Spitzer, a man that can be described as a careerist at best). But when Hank left, so followed many people who were loyal to him and had learned so much from him. With them went AIG’s entire risk management process/style. If Hank et al had never left AIG, the Fin Serv. outfit that was issuing CDS’s left right and center would have been operating under strict risk management guidelines. Obviously, this is not the soluition going forward but shows that these products being written by the wrong people is disaterous, hence, they should be regulated just like insurance contracts (which they more or less are, hell they’re quoted in ‘premium’ aren’t they?).

    • beowulf March 19, 2012 at 12:32 pm

      That’s an interesting point about Hank Greenberg. He certainly had the last laugh. After he fell, Spitzer and then AIG fell even farther.

      • Dunce Cap Aficionado March 19, 2012 at 12:56 pm

        No kidding. I thought the way Giuliani conducted his witch hunts was extreme (if anyone doesn’t remember he had people led out of their office buidlings in handcuffs, having effectively ruined their careers he neglected to have any real case built against them to the point that some were not even charged with anything). Spitzer took it to a new level; it was only a matter of time before someone went rooting around his closet for skeletons.

        As far as the fall of AIG, I can’t imagine Hank Greenberg is having a laugh over it. He spent most of his life building that company into something that was destroyed in less than half a decade.

  • Dunce Cap Aficionado March 19, 2012 at 12:31 pm

    Mike,

    Have you followed LENR research for some time? I was always given the impression that it is all smoke & mirrors so I know little about it. Can you speak to any of its credibility?

    Best,
    DCA

  • wh10 March 19, 2012 at 12:45 pm

    So Mankiw apparently updated his textbook with commentary on the financial crisis.

    http://worthpublishers.com/Catalog/uploadedFiles/Content/Worth/Product/About/Look_Inside/Mankiw,_Macroeconomics_8e/Mankiw_Macro_ch20.pdf

    “There are limits, however, to how much conventional monetary and fi scal
    policy can do. A central bank cannot cut its target for the interest rate below zero. (Recall the discussion of the liquidity trap in Chapter 12.) Fiscal policy is limited as well. Stimulus packages add to the government budget defi cit, which is already enlarged because economic downturns automatically increase unemploymentinsurance payments and decrease tax revenue. Increases in government debt are a concern in themselves, because they place a burden on future generations of taxpayers and call into question the government’s own solvency. In the aftermath of the fi nancial crisis of 2008–2009, the federal government’s budget defi cit reached levels not seen since World War II. This explosion of government debt gave rise to the so-called Tea Party movement, whose goal was to reign in government spending. In August 2011, Standard & Poor’s responded to the fi scal imbalance by reducing its rating on U.S. government debt below the top AAA level for the fi rst time in the nation’s history, a decision that made additional fi scal stimulus more diffi cult.

    The limits of monetary and fi scal policy during a fi nancial crisis naturally lead
    policymakers to consider other, and sometimes unusual, alternatives. These other types of policy are of a fundamentally different nature. Rather than addressing the symptom of a fi nancial crisis (a decline in aggregate demand), they aim to fi x the fi nancial system itself. If the normal process of fi nancial intermediation can be restored, consumers and business will be able to borrow again, and the economy’s aggregate demand will recover. The economy can then return to full employment and rising incomes. The next two categories describe the major policies aimed directly at fi xing the fi nancial system.”

    I can’t believe this garbage can get published.

    • wh10 March 19, 2012 at 12:47 pm

      Also, am I out of the loop? Is there still a credit crisis in the banking system, or is credit seized more so because the economy sucks?