Mind Over Market

At Bernanke's behest, in response to early tremors foreshadowing the financial crisis, Federal Reserve board members and staff engaged in  a process of idea generation and brainstorming. The effort was aimed at finding creative ways to provide emergency short-term lending and guarantee programs to extinguish the potential fires of financial panic and restore collapsed financial markets.  This blue sky thinking was well underway by September 2007 and prepared the Fed for what Bernanke calls "the dark abyss" at the height of the panic and pushed the limits of the Fed's authority in the bailouts of Bear Stearns and AIG.  By Robert Stowe England October 30, 2015 Before former Federal Reserve Chairman Ben Bernanke came up with an array of lending facilities to put out the fires of financial panic that broke out in 2007, he laid the groundwork inside the Fed with a brainstorming effort he called blue sky thinking. “We had ongoing conversations that were like a doctor...

By Yusuke Horiguchi October 7, 2014 1. In a systemic financial crisis, strong forces of contagion--a virulent form of negative externality--put even the solidest financial firms with no faults of their own at serious risk, because of other firms' plight. This is a notorious example of market failure, providing a justification for public intervention aimed at preventing the financial system's collapse, typically involving taxpayer money. This is a standard economic analysis, widely accepted, at least at this level of generality, and with a straightforward prescription on the general direction of policy to be followed when coping with severe system-wide financial stresses.  It needs emphasis, however, that the prescription is applicable only to systemic crisis situations.  2. The situation of September 2008 and the ensuing few months was none other than that of an epochal systemic crisis. It in fact was the epitome of "unusual and exigent circumstances", in w...

Even after five years, there has been little acknowledgement of how the Lehman bankruptcy could have been avoided on September 15, 2008. A deal to spin off Lehman's bad assets to a Maiden Lane special purpose vehicle had been forged by Wall Street firms willing to lend the funds to make it possible. However, the sale of Lehman's good assets to Barclays Bank failed for lack of a temporary Fed guarantee of Lehman’s trading book. It may go done as the biggest mistake in the history of the Fed. By Robert Stowe England The Federal Reserve could have prevented the bankruptcy of Lehman Brothers in September 2008 by briefly guaranteeing the trades on Lehman’s good assets. The Fed guarantee was needed for only about 30 to 60 days to allow time for a vote by Barclay’s board of directors on Barclay management’s decision to acquire Lehman’s good assets. By Saturday, September 13, a deal had been put together under direction of Treasury Secretary Hank Paulson and ...

Sandy Will was guest host on Squawk Box on CNBC on September 10, 2013. Unedited Transcript form CNBC: more from our guest host sandy weill, of the weill cornell medical college. hopefully you saw that interview we had a little while ago. i'm glad i'm here this time. you do have a much more nuanced view. i'm going to try to summarize a little bit. it provides a capital that allows us to deliver the prosperity for this country. i don't think if you could figure out a way to do it quickly and easily with good regulations, you're open to a lot of different things, basically more capital and, you know, better lending standards. absolutely correct. but the -- to tarnish bankers and put them all in the same penalty box, which we talked about earlier doesn't help anyone. or they can't trade and they're not going to be able to trade. what will happen to our capital markets? right. how do you determine what is for customer and for your own acco...

Lecture to Ethics Class Carey School of Business, Johns Hopkins University Legg-Mason Building, Baltimore East Harbor Campus Inner Harbor, Baltimore, Maryland August 27, 2012 By Robert Stowe England It’s nearly four years since the advent of financial crisis. Yet, for most Americans, a thick fog still shrouds its origins Finding the answer to what went wrong is what compelled me to write Black Box Casino. In the end, it was a detective story where even a list of important actors could run into the hundreds. At the center of origins of the crisis is a single industry – the mortgage industry. As senior writer for Mortgage Banking magazine since 1988, I have reported on the vast changes sweeping through the industry for more than two decades. The mortgage industry in 2008 was nothing like it was when I started covering it. Twenty years ago the mortgage industry was disciplined by the free market. It was flexible and innovative. New loan products would appear and...