Paddy Hirsch is a Senior Editor at Marketplace. He is the author of the book Man vs Markets, Economics Explained, Pure and Simple, and he is the creator and host of Marketplace Whiteboard, a video explainer of financial and economic terms.

Hirsch joined Marketplace in 2007, just as the credit crunch that preceded the 2008 financial crisis began to take hold.  As editor of the New York Bureau and the entrepreneurship desk, he spearheaded Marketplace’s financial markets coverage throughout the crisis and as the economy fell into recession. He was awarded a Knight Fellowship at Stanford University in 2010, and he returned to Marketplace in July of 2011, when he was appointed Senior Producer of Marketplace Money. He published his first book, Man vs Markets, in August 2012.

Hirsch got his start in journalism with an internship at the BBC in Glasgow, Scotland. He became a field producer for CNBC in Hong Kong and later was a consultant to the Open Broadcast Network in Bosnia. He has been an editor for Direct Capital Markets, Institutional Investor Newsletters, Standard & Poor’s, and the Vietnam Economic Times. Prior to becoming a journalist, he served as an officer in the Royal Marines.

Hirsch attended Campbell College in Belfast and received a bachelor’s degree in French and International Studies from the University of Warwick. He is a Knight Fellow and was a Webby honoree in 2009.

 

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Features by Paddy Hirsch

Fed to banks: Get a bigger rainy-day fund

The Federal Reserve said today that it wants to “strengthen the liquidity positions of large financial institutions.” In everyday language, the Fed wants banks to have a lot more cash on hand than they do right now, in case of an emergency. Like an emergency fund. Or the air bag in a car.

Banks don’t usually have much cash lying around in their vaults, since they prefer to lend it out to people and earn interest on it. The only thing that cash in a vault accumulates is dust. But just like any other business, banks need cash to run their businesses. They need to make payroll, make bond payments, settle lawsuits.

But rather than have cash on hand to do those things, banks prefer to borrow the money … from other banks.

In order for one bank to lend to another, the lending bank has to trust that the borrower bank will be able to pay it back. And if the lender doesn’t trust the borrower, he won’t lend. And that leaves the wanna-be borrower with a liquidity crisis.

Trust can break down between banks for any number of reasons. Maybe the lender bank’s been tipped off that the wannabe borrower has bought too many toxic assets. Or maybe there’s a rumor that a big fund owned by the wannabe borrower is about to go bust.

There may be some truth to this ... or there may be none. But all it takes is the whiff of a problem for the money to dry up. And without money coming in the door, a bank can’t send money out the door. And if it doesn’t send money out the door, the bank goes bust.

The Fed doesn’t want banks to go bust.

So it’s come up with an idea.

Banks will have to estimate how much cash is going to go out the door during a short-term period of stress, and based on that, it will have to hold a certain amount of cash on hand. That will essentially allow a bank to operate on its own, without borrowing from other banks, for a certain period of time.

Does this mean that bank robbers are now feverishly working out plans to tunnel into the Bank of New York from the crypt of Trinity Church? Hardly. By cash, the Fed doesn’t mean bank notes necessarily, it means stuff that can be converted into cash very easily and quickly. Like Treasury debt, commercial paper, shares of blue chip companies and the like.

What does all of this talk about default really mean?

Make no mistake, if the U.S. government defaults on its debt obligations, it will be a catastrophe. But the media has been misusing the term.
Posted In: debt ceiling, default, government shutdown 2013

Explaining capital adequacy requirements

Changes to capital adequacy requirements are a cornerstone of the government’s efforts to secure the financial system. Marketplace’s Paddy Hirsch explains.
Posted In: financial crisis

Can the government take on good and bad debt?

For personal purposes, there is a difference between 'good debt' and 'bad debt' -- but can the government make the same distinction?
Posted In: government spending, debt, investment

Who does the U.S. actually owe $16.7 trillion to?

Although we often think of our debt as owed to foreign countries, in reality, America owes a lot of money to ourselves. Even regular Americans indirectly own a large chunk of our national debt.
Posted In: debt ceiling, national debt, 401(k), retirement plans, default

Free coffee this weekend: Coffee lovers rejoice!

Sunday is National Coffee Day and popular coffee shops are offering complimentary caffeine. Here's a list.
Posted In: coffee, caffeine, starbucks

Obama & the debt ceiling: An explainer

The government is considering raising the debt ceiling -- again. But what exactly is the debt ceiling: Watch an explainer to understand what's at stake and what it means for you and me.
Posted In: debt ceiling, government spending, government shutdown

Explaining exchanges

You've heard of the New York Stock Exchange and Nasdaq. Do people really still stand around and yell out buy and sell orders at these places? Paddy Hirsch explains what an exchange is -- by taking us to the supermarket.
Posted In: stock exchange, stock, stock market

Protecting your social security number from hackers

Social security numbers are open to hacking if not properly protected.
Posted In: Money Matters, Personal Finance, social security numbers, hacking

What's confidential about Twitter's IPO filing?

Twitter tweeted that it had "confidentially submitted" papers for a planned initial public offering. The news reached more more than 23.6 million people, so what's confidential about that?
Posted In: Twitter, IPO

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