Tag Archives: debt

Financial innovations behind the US real estate boom and bust of 2002-2008

As we commemorate the 10th anniversary of the Lehman Brothers bankruptcy, which marked the point where the US financial system truly moved into crisis, it’s worth reviewing the innovations that led to the real estate bubble that lay behind Lehman’s (and Bear Stearns’) problems: the separation of mortgage origination from who owned the debt; securitisation;… Continue Reading

Classifying funds: the type of contract – is it equity or debt?

Another way to classify funds that are provided by a saver to an investor is whether they are in the form of debt or equity. These are the two main forms of contract through which one person or company can provide funding to another. Note that governments, which are very important actors in the financial system, can only… Continue Reading

Too much debt? There is a better way

Pretty much all financial crises involve too much debt. The global financial crisis was triggered by excessive lending for US property purchase. The slow recovery from the crisis is probably because of too much debt. China’s successful plan to insulate its economy from the post-crisis recession has left it with its own debt problem. Those… Continue Reading

Greece repays IMF using the IMF’s own “currency”

Greece this week repaid €750m to the International Monetary Fund (IMF) which it funded by drawing on its SDR account at the IMF. This legitimate but unusual move caught many commentators by surprise and drew attention to the little known SDR. * The SDR – Special Drawing Right – is something of a curiosity in… Continue Reading

Still debating the causes of the world financial crisis

Major world historical events such as the financial crisis that swept much of the world in 2007-09 typically have multiple causes. In 2014 there was an outpouring of new books about the causes of the First World War which started a century before. Historians continue to disagree about why the nations of Europe went to… Continue Reading

Barriers to negotiating mutually beneficial outcomes: the example of Greece

The current stand off in talks to renegotiate the Greek debt bailout shows the difficulty of achieving an outcome that could be good for both sides. * Why lenders sometimes rationally forgive part of a loan There is plenty of excellent commentary on the Greek debt situation, arising from a newly elected Greek government which… Continue Reading

On the difficulties of using macroeconomic data for policy advice

The economics blogosphere and now the mainstream financial press are full of discussion about the flaws in widely cited research done by Professors Ken Rogoff and Carmen Reinhart. These authors produced an excellent and path-breaking book This Time Is Different which surveyed in detail several centuries of financial crises. This book, which suggested, unfortunately correctly, that… Continue Reading

US healthcare spending as the central budgetary problem

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 public spending arising from a combination of a higher proportion older people and a rise… Continue Reading

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