Artikel mit dem Tag "economics"



24. Oktober 2017
You think credit default swaps are none of your business? I promised that they affect you. Here is an easy explanation what they are in why they caused the financial crisis in 2011? “AIG needed a $185bn taxpayer bailout after it was brought to its knees by financial products such as credit default swaps.” (Article: AIG freed from ‘too big to fail’ regulation from 09.2017) Credit derivatives like credit default swaps are comparable to an insurance that protects you from the risk of credit default
10. Juli 2017
"What is the Volcker Rule? - A federal regulation that prohibits banks from conducting certain investment activities with their own accounts, and limits their ownership of and relationship with hedge funds and private equity funds, also called covered funds. The Volcker rule’s purpose is to prevent banks from making certain types of speculative investments that contributed to the 2008 financial crisis." The banking system has evolved, we are no longer living in a world, where banks only...

12. Juni 2017
Even though markets have hit all time highs and Britain is doing quite well, the Brexit has far-reaching impacts on the British economy but they are hard to detect because the Bank of England has supported its economy tremendously. Before we start with the last entries of this blog series about money and banking, I want to show you, how you can use the concepts to understand what is going on in the real world. I have drafted that article 4 months ago but I have updated it and we are still not...
11. Juni 2017
“Fed Raises Interest Rates for Third Time Since Financial Crisis” Now we can bring everything together. How the Fed, the banks, the dealers, interest rates and assets prices are all linked together and what happens in a crisis. The central bank is supposed to keep the balance of elasticity and discipline in the monetary system and to control the flow of credit and to provide internal stability.

10. Juni 2017
“He thinks the Fed should extend its responsibilities beyond the lender of last resort for banks in need, and become the dealer of last resort, meaning it should provide short-term liquidity for the 23 primary dealers that help implement monetary policy. “ When we think of dealers, we probably think of shady guys selling drugs. Here we are talking about legal financial dealers providing liquidity for the monetary system. Imagine a bank runs into liquidity problems but it owns securities...
09. Juni 2017
“Borrowing at the discount window is essentially a repurchase agreement — pledging collateral in exchange for cash.” This blog article is not on sale, but I am going to explain the "discount mechanism". We are continuing to work with the dealer concept. The dealer was the person that takes the risk on his balance sheet to make transactions possible and receiving a risk premium for that. I am buying the drinks for my party from the supermarket. Due to the fact that I can not pay for them...

08. Juni 2017
“In the opinion of Milton Friedman, eurodollars have always represented unsanctioned private money creation because they’re dollars which are transferred about without observation of the principles that govern dollar transfers in the US.” Half euro, half dollar? No, Eurodollar is just a way of funding, based on the belief that everyone wants to have the currency of the world the US dollar. The US dollar is the currency of the world because it is the most liquid one and the one most...
07. Juni 2017
“The single currency area’s recovery remains exposed to global risks, despite a large-scale quantitative easing package in which the region’s central bankers have spent €1.4tn on bonds and cut rates deep into negative territory.” I was reading the two letters QE in the Financial Times, all the time and I were never sure what they actually mean. I figured out that QE is quantitative easing or open market operations. Probably also not going to ring a bell. QE is done in crisis or during...

06. Juni 2017
“A lack of good quality collateral, which market participants use to secure loans, has crippled the single currency area’s short-term funding (“repo”) markets.” Brokers are helping two parties to get together and make a deal. They take a commission for that without barring any risk. They just bring together the person searching for a car and the one looking for a car. Whereas dealers are buyers and sellers at the same time. A dealer is like a car dealer, who owns cars. He tries to buy...
05. Juni 2017
“My view is that monetary policy should avoid deliberately stoking the risks that come with overheating the US economy and instead, slowly raise the federal funds rate to promote maximum employment commensurate with the economy’s long-run potential to increase production.” What are Fed Funds? Fed Funds are overnight loans from one bank to another bank. It is not the rate at which the Federal Reserve Bank (America's central bank) is lending money an American bank.

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