particularly the policy lessons:
The evidence suggests drawing some – preliminary – policy lessons:
•Exchange-rate flexibility is crucial to dampen the impact of large shocks;
•Prudential regulation and supervision need to focus on preventing the build-up of vulnerabilities that are particularly associated with credit booms, such as excessive bank leverage;
•A solid fiscal position during “good times” creates some buffers to conduct countercyclical fiscal policies during shocks.
Here are the details as reported on EuroIntelligence:
Harvard's Mankiw is not very optimistic that Government might prevent future financial crises through regulation. A look at the history of boom and bust definitely supports Mankiw' view. Here is an excerpt from his latest New York Times article:
"Whatever we do, let’s not be overoptimistic about how successful improved oversight will be. The financial system is diverse and vastly complicated. Government regulators will always be outnumbered and underpaid compared with those whose interest it is to circumvent the regulations. Legislators will often be distracted by other priorities. To believe that the government will ever become a reliable watchdog would be a tragic mistake.
So where does this leave us? We should plan for future financial crises, to occur at some unknown date for some unknown reason, and arm ourselves with better tools to clean up the mess." read the whole article here
These are cases where also publicly available information does not help short traders...
Engelberg, Joseph, Reed, Adam V. and Ringgenberg, Matthew C., How are Shorts Informed? Short Sellers, News, and Information Processing (February 22, 2010). Utah Winter Finance Conference Selection, 2010. Available at SSRN: http://ssrn.com/abstract=1535337, Feb. 22, 2010
"We combine a database of short sellers’ trading patterns with a database of news releases to show that short sellers’ trading advantage comes largely from their ability to analyze publicly available information. Specifically, the venerable finding that short sellers’ trades predict future negative returns (e.g., Boehmer, Jones, and Zhang (2008) and Asquith, Pathak and Ritter (2005)) is more than twice as strong in the presence of news stories. We show that the most profitable short sales are not from market makers, but from clients, and we show that these client short sales are particularly profitable in the presence of news. Furthermore, we show that the ratio of short sales to total volume is nearly constant through news periods, and when we do find differences between the timing of short sellers’ trades and the overall market, we find that relative to other types of trading there is a significant increase in short selling after news stories. We find that short sellers’ ability to predict returns is concentrated in many of the news categories in which short sellers trade relatively late; a finding consistent with the idea that short sellers’ advantage arises from their ability to process publicly available information."
Short sellers who were betting on falling asset prices received a bad press during the financial crisis. The new study suggests that short-sellers can have above average returns without uncovering and trading on information before it becomes publicly available. A finding regulators should closely look at before implementing new measures!
Longtime ex economic blogger Willem Buiter and today's chief economist of Citigroup believes that China is building bubbles. Buiter thinks that potential counter-measures such as higher interest rates, renminbi appreciation and additional macro-prudential controls will not be implemented in time.
The FT writer concludes from buiters analysis:
"Although we still seem to be in the early stages of an asset boom, bubble and bust sequence in the property and land markets, and perhaps just in the recovery stage for the stock market, it is nevertheless likely in our view that China will experience such a sequence, starting in the residential real estate market. From there it is likely to spread to the commercial real estate sector and to the stock market also. Predicting the timing of the bubble phase (when asset price movements decouple completely from fundamentals) and of the bursting of the bubble (when the fundamentals exact their revenge) is not a science – probably not even an art, but more something akin to witchcraft. Our best guess is that a significant bubble may still be one or two years away, and the bust probably at least three years." read more in the FT
European leaders agreed on thursday that a bail-out package worth between Euro 20 billion and Euro 22 billion would be made available to Greece. French President Nicolas Sarkozy said two-thirds of the money would come from the euro-zone, with the International Monetary Fund putting up the other third.
Here are some ascorted press links to the plan:
Here are dedicated arguments of Yiping Huang, a chinese scholar from Peking University, against Paul Krugman's arguments that China should devalue its currency:
Should the US follow Paul Krugman’s advice and use protectionist policies against China’s exports to encourage a revaluation of its currency? This column argues against this idea. Far from saving jobs, a revaluation of the Chinese currency might even cut global economic growth by 1.5%.
Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead. read more
Above is an excerpt of a an interesting chart (1943) about business booms and depression published by the St. Louis Fed.
National leaders such as Merkel could loose political reputation in their own countries if they would provide huge amounts for a bail-out of Greece. More and more support of the IMF could become an option:
"For weeks, Merkel has stood mostly alone with her insistence that the International Monetary Fund be seen as a savior of last resort for Greece. Now, though, she has received support from Paris and may emerge the winner in the most recent round of Greece poker.
She has been called "Madame Non" -- sometimes "Madame Nyet." The "Iron Chancellor," an allusion to former British Prime Minister Margaret Thatcher, had also become popular. No matter what people called her in recent weeks, however, it had become clear by early this week that Chancellor Angela Merkel's reputation in Europe has suffered recently. She had taken up a lonely position in her fight against demands from the rest of the European Union to promise financial assistance to cash-strapped Greece should the need arise.
But, suddenly, there is new movement in the ongoing poker game over Greece. And it seems likely that Merkel will emerge as the victor.
Shortly before the summit meeting of European heads of state on Thursday and Friday in Brussels, it is seems likely that the EU will accommodate the chancellor on a key issue in the matter of assistance for Greece: The French government says it is open to including the International Monetary Fund (IMF) in an emergency plan for Athens, an idea Merkel has repeatedly brought up recently. Given the prevailing reservations about a euro-zone country turning to the IMF, the chancellor could chalk up Paris's concession as a resounding success." read more
The Economist asks whether innovation works better if government does less or more. Scholars Bhidé(Harvard) and Sandalow (US Department of Energy) have pro's and con's.
Greek Prime Minister Papandreou argued that Greek does not need bail-out financing but political support in order to be able to borrow at reasonable market rates. Here are arguments against this statements from the two scholars Simon Johnson and Peter Boone:
Here is an excerpt from their article on Project Syndicate:
"European leaders are wrong if they believe that Greece can achieve a solution through a resumption of normal market lending. Greece simply cannot afford to repay its debt at interest rates that reflect the inherent risk. The only means to refinance Greece’s debt at an affordable level would be to grant long-term, subsidized loans that ultimately would cover a large part of the liabilities coming due in the next 3-5 years. And, even on such generous terms, Greece would probably need a daunting 10%-of-GDP fiscal adjustment just to return to a more stable debt path.
The alternative for Greece is to manage its default in an orderly manner. Reckless lending to the Greek state was based on European creditors’ terrible decision-making. Default teaches creditors – and their governments – a lesson, just as it does the debtors: mistakes cost money, and your mistakes are your own."
As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas.
The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.
Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.
Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.
"The Fed legally is forbidden from taking such assets. There's a legal requirement that the Fed's assets be investment grade," Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed. read more in The Huffington Post
The EU brothers desperately need a sponsor for Greece. Would probably welcome an outside investor...but at their own rules. Merkel fights for her own political destiny.
In the controversy over possible financial assistance for Greece, Luxembourg Prime Minister Jean-Claude Juncker and chairman of the Eurogroup, cautiously joined front with German chancellor Angela Merkel. Juncker hinted in the European Parliament yesterday Monday that the EU leaders will not make any further decisions this week regarding the Greek problem. He would also not rule out the case any more that Athens seeks help at the IMF. Juncker said that he is not calling for an IMF solution of the Greek crisis. However, that he could not deny that there are a view reasons to involve the IMF. Juncker also mentioned that this had to be done in accordance with the rules of the Eurozone.
Here is an article about the subject in the Frankfurter Allgemeine Zeitung:
Related: This is a great video, which sorts out the major problem of the Eurozone - big differences in global competitiveness:
Econ Analysis: Selected contributions to economics: articles, papers, podcasts, blogs (constantly updated)__________________________________________________________________________________________________
Recommended search terms (click on terms):
Analysts, Analyst Recommendation, Animal Spirits, Austerity, Bail out, Behavioral Finance, Bubble, Buyout, Carried Interest Taxation, Central Banks, CEO, Compensation, Contagion, Corporate Governance, Creative Destruction, Crisis, Currency War, Decoupling, Deflation, Depression, Economic Outlook, Economic Stimulus, Entrepreneur, Exchange Rates, Fiscal Policy, Forecast, Hedge Fund, Herding, Inflation, Information Cascades, LBO, Innovation Minsky Cycle, Monetary Policy, Moral Hazard, Mortgage, Nationalization, Protectionism, Recession, Regulation, Shareholder Activism, Sovereign Wealth Funds, Subprime, Taxes, Tobin Tax, Venture Capital, Walker Report, Yield Curve,
Finance and Real Estate:
Biofuel, Carbon, Cleantech, Climate Change, CO2, Energy, Food Crisis, Food Prices, Externalities, Gold, Kuznets Curve, Solar, Oil, ______________________________________________________________________________________________________
Natural Resources and Food:
Latest articles of selected institutions:
Imported information which does not show the source will be removed.
_______________________________________________________________________________________ ________________________________________________________________________________________ __________________________________________________________________________________
|<< <||> >>|