John At The Center

I am told that both Larry Summers and Treasury Secretary Tim Geithner, good friends of Wall Street, considered the 82-year-old Volcker little more than a crank who should be ignored. And so he was.

via How Obama Screwed Volcker – The Daily Beast.

However, the economy was actually growing at a relatively healthy pace until Volcker sent interest rates through the roof in an effort to wring inflation out of the economy. Volcker's interest rate hikes gave us a worst recession since World War II (until now), pushing the unemployment rate above 10 percent.

via Beat the Press Archive | The American Prospect.

“It is still the aftermath of the bubble,” says Mr. Hatzius. “The deleveraging still continues.”

via New Study Shows Money Has Tightened Despite Fed’s Efforts – Real Time Economics – WSJ.

Employment in the securities industry fell by just under 79,000 positions from the peak in June 2008 to last month, according to the Bureau of Labor Statistics. That’s no small number. But it’s actually 14,000 shy of the number of jobs lost during the rout of March 2001 to October 2003 that followed the burst of the dot-com bubble.

via Reuters Breakingviews – Today’s Reversal vs. Dot-Com Bust – NYTimes.com.

Currensee, a social network for foreign exchange traders, has raised $6 million more in funding. On Currensee, users link their brokerage accounts to their profiles, so that they can share trades and foreign exchange positions. They can also track the trades and positions of “trading friends” in real-time. The funding round was led by Northbridge Partners. New investor Egan-Managed Capital also participated.

via Forex Traders Social Network Currensee Gets Another $6 Million | paidContent.

There could be a better alternative to inflation targeting, which became all the vogue among central bankers in the last two decades but now has doubters. Rather than target a rate of inflation, as is now custom, target a level of prices.

via An Alternative to the 2% Inflation Goal – Real Time Economics – WSJ.

For some, the crisis has shattered faith in the precision of models and their inputs. They failed Keynes’s test that it is better to be roughly right than exactly wrong. One number coming under renewed scrutiny is “value-at-risk” (VAR), used by banks to measure the risk of loss in a portfolio of financial assets, and by regulators to calculate banks’ capital buffers. Invented by eggheads at JPMorgan in the late 1980s, VAR has grown steadily in popularity. It is the subject of more than 200 books. What makes it so appealing is that its complex formulae distil the range of potential daily profits or losses into a single dollar figure.

via Economist.com.

One way to deal with that problem is to self-insure. JPMorgan Chase holds $3 billion of “model-uncertainty reserves” to cover mishaps caused by quants who have been too clever by half. If you can make provisions for bad loans, why not bad maths too?

China punished some banks, including Bank of China, for lending too much, after a surge in new loans this year increased inflationary pressures, sources said on Wednesday citing central bank figures, Reuters reported.

The People’s Bank of China, the central bank, had also told other lenders, including Industrial & Commercial Bank of China, CITIC Bank and China Everbright Bank to increase their reserve requirement ratio by 0.5 percentage point.

via China Said to Punish Banks for Overlending – DealBook Blog – NYTimes.com.

Still, Mr. Buffett did offer one tough general opinion: make sure the bosses of failing banks — and their spouses — pay very, very dearly. “If I was running things, if a bank had to go to the government for help, the C.E.O. and his wife would forfeit all their net worth,” he said. “And that would apply to any C.E.O. that had been there in the previous two years.”

via Buffett Really Wants to Punish Failed Bankers – DealBook Blog – NYTimes.com.

Mr. Buffett said banks needed to change their incentives to executives who were focusing on short-term earnings gains. “It is nice to have carrots, but you need sticks,” he said. “And the stick — the idea that some guy is worth $500 million leaves and only has $50 million left — is not much of a stick as far as I am concerned.”

In December, American exports to China were up just over 60% from the previous December, while imports were just 6% higher. And yet, were you to google “American imbalances”, the results would overwhelmingly focus on China and its currency policy, rather than on America’s reluctance to tax petrol or carbon.

via Trade deficits: Give China a break | The Economist.