Good Layman's guide to the financial crisis

[Ski]

http://www.telegraph.co.uk/finance/e...-collapse.html

Very interesting story here. Hits a lot of the core issues of why this economy is nowhere near healthy - private debt becoming public debt, inflation, junk bonds, etc...

Societe General is the 11th largest bank in the world.

[Dayuhan]

You might want to ask your economist exactly why he expects oil prices to respond to a renewed crisis in a manner opposite from what experience and common sense would suggest. It's worth noting that the SG worst case scenario report that you link to sees oil dropping to $50 a barrel in a renewed crisis.

Hits a lot of the core issues of why this economy is nowhere near healthy - private debt becoming public debt, inflation, junk bonds

Interesting how we see what we are conditioned to see. The article cites deflation as a threat, not inflation; junk bonds are mentioned only as a symptom (junk bond yields dropping in the event of the worst case scenario), not a cause.

This is a worst case scenario, not a forecast. many of the big financial houses are doing this now, they put out 3 forecasts instead of one, best case, worst case, median. It's basically an ass-covering maneuver, no matter what happens it will be within the forecast range. Focusing entirely on the worst case scenarios gives as distorted a view as focusing on the best case scenarios would.

There's a tendency these days to confuse the financial services industry and the financial system with the economy; it's neither honest nor useful. Financial issues, debt particularly, are certainly matters of concern but they are not at the core of what troubles the US economy. The core issue to me is American competitiveness, or the lack thereof.

[Schmedlap]

My eyebrows are raised at the striking correlation of weakening dollar and rising stock market prices (reposted below for convenience). This would seem logical if the weaker dollar were spurring exports, but it's not.

[Dayuhan]

My eyebrows are raised at the striking correlation of weakening dollar and rising stock market prices (reposted below for convenience). This would seem logical if the weaker dollar were spurring exports, but it's not.

I'm not sure there's any direct relationship beteen the sliding dollar and the rising equity markets at this point. It could be argued that a cheaper dollar makes it cheap for foreign investors to put money into US equities, but that would tend to push the dollar up.

I'd say the falling dollar runs back to 2 basic causes: very low interest rates make dollar holdings unattractive, and rapid increases in emerging market indices make it attractive to borrow cheap dollars and invest them in non-dollar markets that seem to offer higher returns, a dangerous practice but not an unusual one.

Stock markets are up in a lot of places, partly because there's a lot of cheap money around and partly because of an anticipated economic recovery: stock markets tend to respond more to expectations than actual conditions. I personally think stock markets have outrun fundamentals and are walking on pretty thin ice - and that many emerging markets are moving into bubble territory - but I'm by nature suspicious of such things.

It's always hard to base a conclusion on the relationship between two data points - in this case the dollar and US stock markets - simply because there are so many other factors out there that influence both.

[Ski]

Moody's has put out a rather disturbing report:

http://www.telegraph.co.uk/finance/e...t-spirals.html

[tequila]

If only they'd been so pessimistic when rating SPVs.

[Schmedlap]

Looking for good background material regarding the financial crisis, with specific emphasis on the following...

- Decision-making process for repealing provisions of Glass-Steagals and the hindsight analysis
- Rationale for eliminating the uptick rule and the hindsight analysis
- Impact of foreign investment on housing bubble (would it have happened without it?)
- How AIG got so deep into credit default swaps
- The role of Fannie Mae in the increase of subprime lending
- Changes or proposed changes for corporate governance, leverage requirements, and other legislative responses made or proposed

Non-controversial articles that lay out the facts as most would agree on them are ideal - at least to start off. I'm not looking for "inside accounts," such as books that detail the minute-by-minute deals that resulted in Bear Stearns being purchased or Lehman Brothers failing. Big picture, policy-maker perspective is ideal, preferably stuff worthy of inclusion in a bibliography.

Any takers? The only book on my list, for the moment, is the one by Barth (it looked good when I flipped through it at B&N, but the $60 price tag was a bit steep for a book that I wasn't sure I would regret buying - I now see it for half that at amazon - and, yes, I will "tweak the surge"). There seems to be dozens of books that are similar, but each seems to have an ideological agenda to lay blame, rather than hashing out what happened.