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Quantitative easing
Now the Federal Reserve has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal. Quantitative easing. Senior Editor Paddy Hirsch explains what this "nuclear option" it is, and what the Fed hopes it'll do.
Derivatives
Credit default swaps? They're complicated -- and scary! The receipt you get when you pre-order your Thanksgiving turkey? Not so much. But they have a lot in common: They're both derivatives. Senior Editor Paddy Hirsch explains.
Bonds, notes and bills
So much government debt! But what's the difference between the Treasury's bills, notes and bonds? Senior Editor Paddy Hirsch explains.
Inflation
Most economists agree that inflation of about 2% or 3% annually is a natural function of a growing economy. But people are worried government stimulus measures could spark much higher inflation. Senior Editor Paddy Hirsch explains
High-frequency trading
High-frequency trading is creating a ruckus on Wall Street. Marketplace Senior Editor Paddy Hirsch explains what high-frequency trading is and why some people are up in arms about it.
Factoring
Many small businesses get the cash they need to operate and expand from so-called factors. One of the biggest factors in the business is CIT, and with CIT on the ropes, small businesses are worried. Senior Editor Paddy Hirsch explains what factoring is, and how it works.
Financial alchemy
Many asset-backed securities have been downgraded from AAA recently. But at least one issuer has miraculously repackaged a downgraded deal to make some of its bonds worth a AAA rating again. Senior Editor Paddy Hirsch explains.
Where's the toxic waste?
Banks are paying back TARP money and claiming they're the picture of health. So what happened to all those toxic assets that were clogging their arteries a few months back? Senior Editor Paddy Hirsch explains.
Dark pools
Dark pools are exchanges where people trade stocks anonymously. Senior Editor Paddy Hirsch explains how they work, and why the SEC is considering regulating them.
The 'repo' market
Senior Editor Paddy Hirsch explains why the repurchase (or repo) market is a vital part of the financial system, and why the government is considering changes to it.
Meet Cap 'n Trade
Cap and Trade is the linchpin of the government's effort to curb carbon emissions. Senior Editor Paddy Hirsch explains how the cap and trade model works.
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Comments
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From Battle Creek, MI, 09/13/2009
I've watched so many of these videos, I am drunk.
From Sarasot, FL, 08/17/2009
Great video, but should be included that you are also explaining the TALF program (not just QE).
Additionally - the hope of exporting more goods on a devalued dollar works if you are an export nation, not an important nation.
While devaluing to increase exports would of worked in FDR's day, this is a nation of consumption and imports (we are 180 degrees from where we were in the New Deal era).
Thus devaluing helps international companies, it hurts the consumer who buys imports.
We continue to forget what spins the wheel, and that is consumption.
Companies reported better expected earnings, based on cost cutting - with Top Line (revenues) significantly lower.
You can only run a business on shrinking revnue by cost cutting for so long.
At the end of the day, consumers need jobs, money, and credit avaliability - IF we want to see an increase in revenue (and GDP).
The QE policy has failed - banks are not lending (but using money to pay down mark-to-market losses or buying risk-free assets at higher rate - arbitratge).
The 0-25% and the QE package has done little for the man on the streets, but it is helping the banks considerably.
From Truckee, CA, 05/15/2009
Nothing about devaluing our currency is good. Even if its just a little bit. Monetary inflation is bad for the middle and lower classes, its the silent tax. The politically conected who get the new money first (think bank bailouts) get richer as they get cheap money before prices rise, the middle and lower classes get the new money last and at that point have already seen a reduction in living standards. Ask yourself why does it takes both parents working to support a family in todays society, when only 30 years ago one worker could support a family. The answer is Inflation. A Paul Gill is correct buy gold and silver to protect yourself for when the FED can't remove the liquidity it is flooding the market with and we get hyperinflation.
From Ashland, OR, 01/28/2009
Good overview but why not at least poke fun at the euphemism - quantitive easing = printing money!
Also, you leave out one critical part: if the Fed accepts bogus securities for the money it injects into the bank, how does it value those securities?
From Philadelphia, PA, 01/16/2009
Paddy, excellent job on this whiteboard series. Thanks for helping average joes like myself understand these issues.
I still don't understand why the government doesn't include conditions when they inject this money into the banking system, such as requirements that banks lend at least some of this money to credit worthy borrowers. Instead they resort to more games like quantitative easing. Would such requirements be considered 'regulations' that the government wants to steer clear of?
And one correction: This financial debacle has left many of us needing a FEW drinks!
From Milwaukee, WI, 01/13/2009
To: Ash Hasan
Hello, what happens when the FED buys treasuries is that it drives up the price of the bonds. The price of a bond and its yield are inversely related.
I hope this helps.
From VA, 01/12/2009
A question then, if the the FED is buying the Treasuries and as it does so, shouldnt that bring the yield higher because it is taking the supply out of the flot.
01/11/2009
very helpful
From Newton, MA, 01/10/2009
There are some inaccuracies, I believe, in this video.
The Fed Funds Target Rate is simply the interest rate that the Fed wants member banks lend to each other, rather than the interest rate that banks lend to the public.
And the Treasury does not "create money". Only the Fed has that ability. That being the case, if the Treasury is buying troubled assets directly from banks, where is it getting the money from?
The Federal Reserve Website has a great interactive tutorial on how it conducts monetary policy here:
http://www.federalreserveeducation.org/fed101/index.htm?CFID=2357250&CFTOKEN=43253331
01/10/2009
Along with Planet Money, you guys are providing vital information which helps to uncode all of the economic jargon which is keeping people on the outside looking in. Without this information, people may not be more aware of their financial choices and the ramifications of the current market. Thanks so much. I'm glad that I can keep my goal to never get any information from CNBC. :)
From Bethesda, MD, 01/08/2009
Content is great. Presenter, equally so. But production values suck. Marketplace, can't you spring for a clip-on microphone and a tripod?
01/07/2009
These whiteboard explanations are great. Thank you so much. How can I get into contact with Paddy Hirsch?
From Melbourne, 01/07/2009
Excellent piece of work... i am in loss of words. I have learnd alot 2day.. thank u!
From Washington, DC, 01/05/2009
Thanks, these are really good explanations -- apolitical too!
I think they should be dated though.
From NY, 01/05/2009
Is there any way to RSS feed these videos or have them e-mailed? Thanks so much.
From Dallas, TX, 01/03/2009
I like these presentations. These are very explanatory and informative. Great job and I would like to see more.
From Vancouver, BC, 01/02/2009
The last words speak volumes - I would add that no matter what happens, the US dollar is not going to maintain its current value. The US dollar is an means to an end not the means itself. Let me explain - People have rushed to the dollar for now but those people who got into it first are now getting back out and into something else. What happens if the US dollar goes down? All commodities which are quoted in US dollars appear to go up.
Analysts tend to give people too much credit. People act like lemmings (following the crowd) because acting independently and getting it wrong is fatal while getting into the next 'party' late or leaving to late won't kill your assets.
Making 10% per year is possible this way with constant vigilence.
My way is different - find a nice place and throw your own party. I'm in gold and silver and run two junior mining companies. See you at the party sooner or later. Hopefully sooner.
From Phoenix, AZ, 12/28/2008
Great explanation! Complex concept was untangled & then presented auditorily & visually. This was my first visit to the Whiteboard. I have bookmarked the site & will return frequently. Keep up the clear teaching.
From Abbotsford, BC, 12/28/2008
Great presentation, very accessible. Thank you!
From Tokyo, 12/27/2008
Some people believe that what FED is doing is easing of quality rather than quantity because pretty selective when it comes to what to buy.
From Christiansted, 12/27/2008
This is completely wrong on almost all aspects
www.moslereconomics.com
From Los Gatos, CA, 12/27/2008
Mr. Hirsh, that is one of the BEST explanations on the subject, as well as the best approach to summarizing what the Fed delivers in their minutes. Keep up the good work! Any chance you can discuss what makes indexes like the 1, 6 & 12 Month LIBOR, 12 MTA, 1 year CMT, fluctuate up and down? I am interested on what makes these move as they apply to ARMs that are becoming adjustable in the coming months and years.
From Montreal, QC, 12/27/2008
WOW! I just have to say that this whiteboard explanation is just simply brillant! This is what I call "conceptual finance". I will soon start my Master degree in finance and if there's something I dislike about teachers and student is their lack of creativity. Using the whiteboard and visuals to explain is just amazing. you guys are my hero... I AINT JOKING!! Every time I do a presentation at school and I use the board I get people by surprise but hey..IT WORKS!!! We have to teach students to develop their right part of their brain be freakin creative. Absolutely amazing... I wish in the future to work in some way with you guys!! (Using the white board is like the book "The back of the napkin" - its book explaining how using pictures can solve multiple problems!)
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