A PREVIEW OF SESSION # 3. THURSDAY, FEBRUARY 19

International Political Economy – Leiden University

[1] Credit markets & flight-to-safety episodes
[2] What went wrong? A debate on risk-management
[3] Central banks (introduction)
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. Please listen to this song. It'll help us understand flight-to-quality episodes in credit markets! Here are the lyrics:

Money’s too tight to mention
Simply Red (1985)

I’ve been laid off from work my rent is due
My kids all need brand new shoes
So I went to the bank to see what they could do
They said son looks like bad luck got a hold on you

Money’s too tight to mention
I can’t get an unemployment extension
Money’s too tight to mention

I went to my brother to see what he could do
He said brother I’d like to help but I’m unable to
So called on my father, father
Almighty father, he said

Money’s too tight to mention
Oh money money money money
Money’s too tight to mention
I can’t even qualify for my pension
Were talking bout reaganomics
Oh lord down in the congress
They’re passing all kinds of bills
From up there on capitol hill, we’ve tried it

Money’s too tight to mention
Oh money money money money
Money’s too tight to mention
Cutbacks!

Were talking bout the dollar bill
And that old man who’s over the hill
Now what are we all to do
When money’s got a hold on you
Money’s too tight etc.

Were talking bout money money
Were talking bout money money

. Take a look at these charts: 10-year Treasury Note [chart]; 10-year Moody's Baa bond [chart]; 3-month US Treasury Bill [chart]. More info on the current episode of flight-to-quality: (a) Ambrose Evans-Pritchard: "EU mulls action as Ukraine crumble triggers contagion fears for Europe", The Telegraph; (b) Ambrose Evans-Pritchard: “Failure to save East Europe will lead to worldwide meltdown”, The Telegraph; (c) Laura Cochrane & Denis Maternosvky: “Dead’ Russian Bond Market’s 80% Yields Squeeze Firms”, Bloomberg; (d) Fred Weir : “Global downturn hammers Ukraine's economy”, The Christian Science Monitor.

. A Debate on risk-management. Chiara Cavaglieri. “Islamic finance accelerates into motor policies”, The Independent; Roger Boyes: "Age of Testosterone comes to end in Iceland", TimesOnline; Gillian Wilmot: “Men have messed up. Let women sort it out”, Financial Times (November 26, 2008); Sharon Reier. “Women take their place on corporate boards”, International Herald Tribune; Lloyd Blankfein: “Do not destroy the essential catalyst of risk”, Financial Times; Eric Dash & Julie Creswell: “Citigroup Saw No Red Flags Even as It Made Bolder Bets”, The New York Times.

. More flight-to-quality data. June 2008: 4.8% (German Bund) / 5.45% (Russia sovereign) / 8.80% (Ukraine sovereign); October 2008: 3.8% (German Bund) / 9.80% (Russia sovereign) / 21.80% (Ukraine sovereign). Calculate country risk. [Brazil v. Russia chart]