One quick rule of thumb springs to my mind on sett...

2007-08-17T17:23:00.000+01:00

One quick rule of thumb springs to my mind on setting the penalty discount rate for owners of distressed subprime-backed securities:

That penalty interest rate had sure as heck be higher than the retail rate on 30-year fixed prime 20% mortgages.

After all, it seems like all of our subprime holders would trade their current assets for prime mortgages if they could.

Of course, the Fed just cut the discount rate to half a point below the retail rate on 30-year fixed prime mortgages.

So it looks more like a complete bailout than a LOLR/MMLR saction.

A practical question: How can a central bank manag...

2007-08-17T16:28:00.000+01:00

A practical question:
How can a central bank manage to recruit such experts with the meager government-sector salary? Anyone with such a skill set as you described below would certainly get offers from the private sector worth between 2-3 times the Bank of England salary for economists. Maybe the central bank can make exception to its salary scale system to pay such high-quality expert with competitive market salary during financial crisis; but to become a reliable market maker of last resort that is ready all the time, the central bank needs to store such experts in-house during normal times too; I don’t think any central banks can afford that financially.

"In addition to the macroeconomic and monetary economics skill sets familiar to the traditional central bankers, the central bank, in order to act as market maker of last resort, would have to have people with empirical asset pricing skills; so quantitative finance skills would be very important. "

Comments on Maverecon - Willem Buiter's Blog: Central banks as market makers of last resort 2

One quick rule of thumb springs to my mind on sett...

A practical question: How can a central bank manag...