I’ve been searching for a while for a key policymaker of the bubble years to come out and apologize for his mistakes, and of all people it seems that Bill Clinton has managed to be first across that particular line. “I should have raised more hell about derivatives being unregulated,” he tells Peter Baker — and he’s absolutely right. Would that Alan Greenspan or Bob Rubin or Larry Summers could say the same thing — especially in the light of the revelations from Brooksley Born, the former head of the CFTC, about the way in which they actively agitated to keep derivatives unregulated.
In the blogosphere, 2=trend, and recently two high-profile financial journalists — Alan Beattie of the FT and Justin Fox of Time — have come out with heavyweight new books of economic history. Beattie’s False Economy looks at global development, while Fox’s The Myth of the Rational Market looks at the history of the efficient markets hypothesis. What I didn’t know until today was that Beattie and Fox are both distant relatives of misguided liquidationists — something which came out when I asked them both about economic history.
I’m fascinated that after roundly rejecting GM’s offer to swap their bonds for equity in the existing company, GM’s bondholders seem to have embraced with alacrity GM’s new offer to swap their bonds for equity in a new, post-bankruptcy company. It’s increasingly obvious, it if wasn’t clear all along, that the old exchange offer was in neither GM’s interest nor in that of the bondholders, and that bankruptcy is necessary to allow GM to shed certain obligations — especially obligations to its dealerships — which would otherwise hobble it for the foreseeable future.
From a narrow sovereign credit and ratings perspective, said Fitch’s David Riley, the huge spike in the US government deficit “is the right policy response”. His point was that we’re in a historically very rare period when both companies and households are deleveraging — they’re not borrowing, they’re not spending, and the government has to step in and make up the difference, lest we suffer an even worse recession and the destruction of massive amounts of value and potential economic growth.
David Riley, the head of sovereign ratings at Fitch, gave the first big presentation at the Fitch banking conference today — and quite rightly, too. The future of banking is inextricable from public finance and macroeconomics: looking at things on a bank-by-bank level ensures that you’ll miss the big picture. His presentation was a good one, and definitely worth blogging.
One of the more challenging and interesting aspects of being a financial journalist is trying to define terms like convexity and covariance for a lay audience — it’s not easy. So I was particularly taken with Justin Fox’s one-sentence definition of alpha in his new book on the efficient markets hypothesis: