A great piece of research from the authors at the University of Michigan and Princeton University (*) tests the hypothesis that the bankers inside the sub-prime mortgage bubble knew it was all too good to last. They find the hypothesis false. … Continued
A sovereign wealth fund (SWF) is an organisation that manages financial and other assets on behalf of a government or nation. But what about the holdings of foreign exchange reserves by central banks? These assets, often much larger in size, … Continued
I make the point in classroom discussions of the US fiscal outlook that, simplifying only a little, the problem of US federal spending reduces to the problem of the US health care system. All rich countries face an increase in … Continued
A key feature of macroeconomic analysis is the relationship between a country’s savings and investment rates. Savings represent income that is not consumed. Investment means spending on assets that will last for some period of time, such as factories, houses, … Continued
In economics and finance it is important to be clear about when we’re discussing a stock – the amount of something at a point in time – and when we’re referring to a flow – the volume of something during … Continued
Financial markets set the prices of assets such as stocks and bonds through the interaction of demand and supply. Deliberate attempts to fix or distort those prices, termed “market abuse” in the EU, are therefore usually illegal. But there is … Continued
Perhaps I’m a bit naive, but in my years in the finance business I met very few people who struck me as unethical. Selfish, blinkered, dull and sometimes even quite stupid, yes, but seldom really bad. Perhaps they were good … Continued
Yesterday in class a question arose as to whether the Federal Reserve (the US central bank) is keeping US government interest rates down by buying government bonds in the market. By adding to the demand for bonds, relative to a … Continued
Quantitative easing (QE) has become a highly controversial policy, particularly in the USA, where the Federal Reserve has been criticised by politicians, investors and academics up to and including the charge of treason. Yet the Chairman of the Fed, Ben … Continued
One of my recent dinners was at the house of the Vice Chancellor of the University of Cambridge, at his grand, official residence in Latham Road. The dinner was for speakers at the Cambridge University alumni weekend, which attracts several thousand … Continued
Every country’s economic relations with the rest of the world are summarised in the balance of payments. This is divided into the current account, which records the flows of trade and income, and the capital account, which records the flows … Continued
Financial repression is a term used by economists which means the government taking ordinary people’s savings to achieve some goal, typically to pay for the government itself, by exploiting imperfections in the financial system. It is an indirect form of … Continued
Starting pay for new investment banking hires at the analyst (entry) level has gone up recently. This report shows that the investment banking employment cartel is now paying £45,000 for people starting this autumn in London. That looks like good news … Continued
I was recently asked the difference between a Ponzi scheme and a pyramid scheme. They are closely related but there is a key difference, which is that a pyramid scheme is not necessarily fraudulent, though it frequently is marketed with … Continued
Here is a letter from a US professor who is retiring after 40 years of teaching. He complains of the sense of entitlement among today’s students and says he “grew increasingly weary of all the whining, crying, excuse-making, and general lack … Continued