Tuesday, 16 Nov 2010 | 4:24 PM ET

Economist Robert Shapiro Springs the Bad News about the Liquidity Trap

Posted By: Ash Bennington

Two short words can evoke terror in the heart of any true Keynesian: Liquidity Trap.

Dr. Robert Shapiro
Source: NDN.org
Dr. Robert Shapiro

I recently spoke with Dr. Robert Shapiro about the overall state of the economy —and the dreaded liquidity trap scenario. Dr. Shapiro was Under Secretary of Commerce for Economic Affairs during the Clinton administration, and the principal architect of President Clinton's 1992 economic program.

The formulas representing the liquidity trap concept are both dizzying and varied — but Dr. Shapiro breaks the idea down into a highly digestible form :

"You know you're in a liquidity trap when—no matter how low the interest rates are—lending doesn't occur. Or very little lending occurs."

That's really the crux of a very complex concept: When you're stuck in a liquidity trap, banks don't want to lend and businesses and consumers don't want to borrow.

So how does the liquidity trap scenario occur?

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  Tuesday, 16 Nov 2010 | 4:21 PM ET

State AG Robosigning Settlement Brewing

Posted By: Diana Olick

Sources on both sides of the 50-state attorney's general investigation into so-called "robo-signing" foreclosure practices tell me they are nearing a settlement. As Bank of America , JP Morgan Chase and Iowa Attorney General Tom Miller square off today before the Senate Banking Committee, the framework of a deal is taking shape.

»Read more
  Tuesday, 16 Nov 2010 | 2:58 PM ET

The Surprising Rise Of Hard Money Populism

Posted By: John Carney

There’s something new going on in Washington, DC.

Senate Committee on Banking Housing and Urban Affairs hearing during which Federal Reserve Board Chairman Ben Bernanke delivers second semi-annual report on monetary policy.
Senate Committee on Banking Housing and Urban Affairs hearing during which Federal Reserve Board Chairman Ben Bernanke delivers second semi-annual report on monetary policy.

Under the usual rules of the politics of money, high unemployment results in criticism of the Federal Reserve from the left. The Fed is usually accused of having a monetary policy of being too tight when unemployment creates political waves.

The critics have traditionally been Democrats—such as banking committee chairs Wright Patman in the late 1960s or Henry Gonzalez in the early 1990s.

But monetary policy beyond the zero-boundary at a time of high unemployment has sparked off a tidal wave of criticism coming mainly from the right. On Monday we had the open letter to Ben Bernanke from a mostly conservative and Republican affiliated group calling for the Fed to stop its latest quantitative easing program.

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  Tuesday, 16 Nov 2010 | 2:42 PM ET

What is the Fuel of the Future for the US?

Posted By: Lori Ann LaRocco

On Wednesday, Senate Majority Leader Harry Reid is expected to put the Pickens Plan for energy independence up before the Senate.

The bill would create a 10 year plan to fund solar, wind and natural gas initatives. Also included in the plan are tax credits which are designed to speed up the adoption of vehicles running on natural gas. Reid's plan is slightly different than T. Boone Pickens' original proposal, which emphasized wind power (an area in which Pickens hads a substantial financial stake). Pickens later changed his plan—and his investment strategy—to include a broader array of alternative energy plays, including a larger role for natural gas.

Many on Wall Street and on the Hill doubt Reid's bill will pass because the relatively low price of oil has sapped the political drive for alternative energy. In fact, one of my energy contacts told me he is telling his clients his Pickens Plan "power play" is to buy more oil companies!

I decided to sit down with two people to get their perspectives on the plan. Gregory Boyce, Chairman and CEO of Peabody Energy, the world's largest private sector coal company, and Richard Soultanian, Co-President of the utility cost management firm, NUS Consulting.

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  Tuesday, 16 Nov 2010 | 2:19 PM ET

Managers Cut the Cash, Set Stage for Selloff

Posted By: Jeff Cox

Investor exuberance as evidenced in a recent survey of fund managers may have foretold the current market selloff.

Getty Images

Portfolios have been reduced to a “dangerously low” 3.5 percent in cash, according to November’s Bank of America Merrill Lynch Fund Manager Survey. That coincides with 41 percent of managers saying they are overweight equities, compared to 27 percent in October.

The BofA Merrill results are in line with other sentiment surveys.

The American Association of Individual Investors reports 58 percent of investors as bullish, well ahead of the norm of 39 percent. The Investors Intelligence poll, which surveys newsletter editors, was a less frothy though still enthusiastic 48 percent bullish.

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  Tuesday, 16 Nov 2010 | 2:08 PM ET

No MERS Bailout Coming from This Congress

Posted By: John Carney

Despite legal troubles the electronic mortgage database known as MERS has encountered recently, there is no legislation rescue coming soon, according to sources on Capitol Hill.

Tom Grill | Photographer's Choice RF | Getty Images

Not only is there no legislation being drafted on Capitol Hill, there is no chance that any such legislation will come up during the lame-duck session of Congress begun this week, according to both Democratic and Republican sources.

What’s more, Republican lawmakers have indicated that they would oppose a bailout of MERS if it were to be proposed in the next Congress, according to a source familiar with the matter.

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  Tuesday, 16 Nov 2010 | 12:02 PM ET

Kyle Bass Takes the Flip Side of John Paulson's Trade?

Posted By: Ash Bennington

Earlier today I wrote about Kyle Bass going long on Citi and Bank of America stock.

Bass Kyle
Bass Kyle

It would seem that Mr. Bass is taking the opposite side of John Paulson's trade.

Paulson, long known to have been bullish on the financial sector , seems to be paring back some of his positions – with special notice to Citi and Bank of America, according to a New York Times DealBook post :

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  Tuesday, 16 Nov 2010 | 11:32 AM ET

David Tepper Sold Financials As He Gave His 'Everything Will Go Up' Speech

Posted By: John Carney

Appaloosa Management, the $14 billion hedge fund firm run by David Tepper, sold large amounts of financial sector stocks in the third quarter of this year—a period during which he appeared on CNBC’s Squawk Box to argue that stocks were attractive whether the economy slumped or improved.

The timing of the stock sales with Tepper's bullish remarks, revealed in Appaloosa's third quarter 2010 13F with the SEC, raised some eyebrows across financial blogs and on Wall Street. Was Tepper pulling a fast one?

The influential and secretive financial blog ZeroHedge certainly thinks so :

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  Tuesday, 16 Nov 2010 | 11:07 AM ET

Oops! Analyst Backpedals from Statement about US Treasuries

Posted By: Ash Bennington

We've all had bad days at the office. And, if you've worked in the financial services industry long enough, it's even likely that you have made a mistake that cost a financial institution some money. (Note: The phrase "Look, bad trades happen!" Is still highly unlikely to buy you much sympathy from your boss.)

Treasury Building
Treasury Building

But when it comes to goof ups: Very few of us have the power to push up the borrowing costs of the federal government of the United States of America.

That's exactly what seems to have happened yesterday to Steven A. Hess, a senior analyst at Moody’s.

The Financial Times Alphaville blog is reporting that Mr. Hess made the following observation to Market News International:

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  Tuesday, 16 Nov 2010 | 10:11 AM ET

Kyle Bass Goes Along on Banks That Are Too Big to Fail

Posted By: Ash Bennington

Kyle Bass at Hayman Advisorsis just not an equities guy .That much has been known for a while.

So when he seems to be shifting up his asset allocation—and taking long positions in financial stocks—it makes you wonder why.

Courtney Comstock over at Clusterstock dug out two very interesting equities positions from Hayman Advisors 13f filing for the third quarter of 2010 .

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