Monday, May 24, 2010

Swapping Risk

I promised more on Greece and that it wouldn't involve Greek drama. I'm following through on that below.

European leaders, especially in Germany, resisted initial clamor that they would bailout Greece before coordinated a 750 billion euro bailout plan. Now several Republican Congressmen are fighting against using IMF money funded by the United States to aid Greece.

The move puts them at odd with actions already being taken by the Federal Reserve. Just last week the Fed restarted swap lines with major central banks that allow them to access dollars. Of course the size of these swaps is miniscule. Total outstanding swaps were valued at less than $10 billion. Yet recognizing the chance of global contagion the move opens swap options to banks outside Europe, such as the Bank of Canada and Bank of Japan.

From swap size alone, Greece looks much more like Bear Stearns than Lehman or AIG, when swap lines grew to over $500 billion.

But looking simply at the size of the swaps is misguided. Before responding last week to the Greek crisis, swaps had been out of use since February. The haste by American officials to respond signaled a willingness to forestall a crisis, or more accurately to stand ready should the crisis spread. Lawmakers have both derided the Fed for acting with little authority and benefited by not having to approve any funding the Fed did provide. Moves to reduce American involvement in IMF plans are more likely to drive American involvement to places like the Fed, and outside of Congressional oversight, rather than reducing the overall burden.

Friday, May 21, 2010

Mourning Becomes Debt

So far this blog has been silent on the Greek debt. This first foray into the crisis let's me put the part of me that remains a disaffected English major to use. More rigorous analysis will appear in forthcoming posts.

In the heart of the Great Depression, there was a brief resurgence in American interest in Greek tragedy. Unhappy to simply play out classical drama Americans instead made the classics our own, such as the epic reimagining of the Oresteia set in the Civil War. The Americanized version is unsurprisingly bloodier, rougher, and much, much longer (running at over four hours, even after significant cuts). As Greece now plays out a debt tragedy, America is on course to repeat it’s Depression era mimicry by laying the groundwork (as I've written about previously) for its own debt crisis: one, like it’s theatrics, sure to prove more grueling and protracted than Greece’s.

Monday, May 3, 2010

Keeping Granny Working and Thinking

“Keeping Granny on the Job” is just mean and unfair.

Or so I was told at least a half dozen times while planning a conference of the same name late last year. As the recession displayed evidence that some seniors were in fact delaying retirement, scholars at the event explored the ways that public policy encourages workers to retire as soon as they can, with unfortunate financial consequences.

Yet, with all the attention on granny’s finances, nothing was presented to other aspects of granny’s wellbeing. In a new research paper that appeared at almost same time as the conference, and that I’ve just discovered, researchers from the Rand Corporation, indicate that seniors who work have much better cognitive skills. They examine retirement trends internationally and find that people who work longer score better on cognitive tests.

Maybe our conference was wrong, there’s no need to keep seniors on the job. They should want to stay.