CFE Analysis | Finance

Pulitzer for the Really Big Short

Jesse Eisinger and Jake Bernstein of the website just won the first ProPublica recently won the first Pulitzer prize given for a story that never appeared in hardcopy press. The award was for their story about how the hedge fund Magnetar made a bundle by promoting the creation of toxic CDOs, buying the riskiest tranches, […]

CFE Analysis | Finance

Yellow Hats and Eating Crow

Colorful news week. For those of you who didn’t keep up: Bernanke wore a red tie to the press conference and informed us that he can’t beat Ken Rogoff at chess; QE2 (which will be completed) wore a yellow hat at the wedding; and Warren Buffett isn’t keen on gold. In food news, Buffett—used to […]

CFE Analysis

What economics needs? More CFEs

CFE Fellow Bob Barbera pointed out to us a blog entry by Brad DeLong with the title, “Why Aren’t Economics Departments Using Their Macroeconomic Slots to Hire People Who Know Walter Bagehot?”. Paul Krugman and Larry Summers are mentioned in the post discussing the important ideas economists seem to have forgotton. One answer to DeLong’s […]

CFE Analysis | Finance

Market reaction to potential U.S. rating downgrade

Standard and Poor’s Monday released analysis Monday revising the outlook on U.S. debt to negative. “Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects […]

CFE Analysis | Finance

My NCAA Bracket and the Financial Crisis

Troubled about the state of my highly scientific NCAA bracket, I read with interest Nate Silver’s New York Times blog entry on the odds of Virginia Commonwealth reaching the final four in the NCAA Basketball Tournament. Right there on the virtual sports page, I was amazed to find a pearl of pure modelling wisdom: Whenever […]

CFE Analysis | Finance

Cocos, the movie

“Bank of England official calls to simplify cocos,” reads a headline in the FT today. “Cocos” stands for contingent convertible bonds, and in banking circles refers to bonds that convert into equity if some measure of the bank’s financial health drops sufficiently far. A few years back, the FT published a very nice little movie […]

CFE Analysis | Finance

Buy Low, Sell High: Classic market advice ignored?

The ‘Law of One Price’ is a fundamental economic principle stating that identical goods in efficient markets should sell for the same price. One method for ensuring ‘one price’ is known as arbitrage. Whenever there is a price difference between two identical goods, one can make a risk free profit by buying the underpriced good […]

CFE Analysis | Finance

Borders: more mortar or fewer bricks?

Borders Bookstore will reportedly file for bankruptcy next week, presenting a fascinating case for those of us who are both book lovers and interested in thinking about companies and the rationality of markets. Amazon.com store two months later.) In 3 years, Borders’s shares quintupled in value, then in the next few months lost about 60 […]

CFE Analysis | Finance

Why does the Fed exist?

In light of mistakes at the Fed and governments and central banks around the world before and during the financial crisis, it is only reasonable that we should reassess monetary arrangements. Gerald O’Driscoll’s recent piece in the Wall Street Journal is, however, a stunningly foolish contribution to that discussion. Mr. O’Driscoll states, ‘A number of […]

CFE Analysis | Finance

Olivier Jeanne on Credit Booms and Busts

Olivier Jeanne, who teaches two popular courses for the financial econ. minor, is doing some interesting research on private debt and economic stability with Anton Korinek (U. Maryland). The work demonstrates how rising asset prices in a boom involve an economic externality implying that credit is priced below its true social cost. The lesson is […]

CFE Analysis | Finance

Larry Fink on the recovery, QE2, and Europe

FT.com has a great video interview of Larry Fink CEO of BlackRock. What is most striking is his steadfast defense of moderate positions on the state of the recovery, QE2, and problems in Europe. Some of you may recall that Rob Kapito, President of BlackRock, was the speaker at our Spring event in 2009 and […]