This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Paul Krugman (The New York Times): Interest rates: the phantom menace, November 20, 2009. Well, what I hear is that officials don’t trust the demand for long-term government debt, because they see it as driven by a “carry trade”: financial players borrowing cheap money short-term, and using it to buy long-term bonds. They fear that the whole thing could evaporate if long-term rates start to rise, imposing capital losses on the people doing the carry trade; this could, they believe, drive rates way up, even though this possibility doesn’t seem to be priced in by the market. What’s wrong with this picture?

• Michael Panzner (Financial Armageddon): Economists: wrong again, November 21, 2009. As if they didn’t cause enough

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Vito Racanelli (Barron’s): The easy money has been made, November 2, 2009. The choppy action last week suggests the going gets much tougher from here. In a year in which the market has jumped far off its lows, the bull has so far talked the talk of earnings growth. It’s time to walk the walk.

• Edward Harrison (Credit Writedowns): Bullish data, recoveries, crashes and the psychology of forecasting redux, November 2, 2009. Is a double dip or crash a baseline scenario? No, not necessarily - but it is increasingly likely. So, as bullish as I believe the data are, I am more worried about a bad outcome, not less.

• Andy Kessler (The Wall Street Journal):

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Vito Racanelli (Barron’s): The easy money has been made, November 2, 2009. The choppy action last week suggests the going gets much tougher from here. In a year in which the market has jumped far off its lows, the bull has so far talked the talk of earnings growth. It’s time to walk the walk.

• Edward Harrison (Credit Writedowns): Bullish data, recoveries, crashes and the psychology of forecasting redux, November 2, 2009. Is a double dip or crash a baseline scenario? No, not necessarily - but it is increasingly likely. So, as bullish as I believe the data are, I am more worried about a bad outcome, not less.

• Andy Kessler (The Wall Street Journal):

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Joseph Stiglitz (The National Interest): Death cometh for the greenback, October 27, 2009. Whichever path we take, like it or not, we will be moving away from current arrangements, the dollar-reserve system. There are only two questions: will the movement away be orderly or disorderly, and will America play a part in shaping the new system that will emerge?

• Doug Kass (TheStreet.com): Earnings likely to trend lower, October 27, 2009. Underpromising and overdelivering is the oldest game in the investor relations handbook, as earnings expectations are often cagily crafted by corporate managements. In turn, many Wall Street analysts, emulating Ralph Wanger’s zebras, follow that company guidance in adopting a herd mentality that morphs into a Wall

From Arnold Kling's entry yesterday:

Kwak goes on to endorse Chinn's ideological rant that the Bush tax cuts caused the financial crisis. Yes, I know that Chinn is speaking in the tone of economic analysis rather than a rant, but only a left-wing ideologue would take the thesis seriously. I bet Kwak cannot find a blog post of Chinn's where he made a policy point against Democrats/liberals or for Republicans/conservatives.

Where Kling is responding to James Kwak's assertion: "[Menzie] Chinn is not given to ideological ranting." (Thanks, James).

I don't find it very profitable to characterize anybody's posts as "rants", but I thought it useful to see what the definition is:

A rant or harangue is a speech or text that does not present a well-researched and calm argument; rather, it is typically an attack on an idea, a person or an institution, and very often lacks proven claims. Such attacks

Over at the Baseline Scenario, James Kwak has a good example of the sort of thing the new Financial Products Safety Commission should be regulating: reverse convertible bonds (read his article here). With these you get a relatively high coupon, say 10%. The overall return though is tied to the performance of an underlying stock. The bank or broker, though, does not actually buy the underlying stock.

For example, you give a bank $100 for a year, and get a $10 coupon payment. The principal at the end of the year is tied, though, to how well XYZ stock does. If the stock closes above say $80, you get your $100 back. If it ends up above that level you get the value of the stock. Analytically, this is the same as buying the stock and writing a covered call on it; or to writing

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming is that the finance industry has effectively captured our government”, says Simon Johnson, a chief economist with the International Monetary Fund in 2007 and 2008. In an article entitled “The Quiet Coup” in the May, 2009 issue of the Atlantic magazine he (with James Kwak) goes on to say that “if the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform and if we are to prevent a true depression, we’re running out of time”.

America is in financial crisis but instead of the financial oligarchy being broken up to permit essential reform they are continuing to use their influence to prevent precisely the sorts of reforms that are …