"The economic collapse in the wake of the global
financial crises (GFC) and the weaker-than-expected recovery in many countries
have led to questions about the impact of severe downturns on economic
potential. Indeed, for several major economies, the level of output is nowhere
near returning to pre-crisis trend (figure 1). Such developments have resulted
in repeated downward revisions to estimates of potential output by private- and
public-sector forecasters. In addition, this disappointment in post-recession
growth has contributed to concerns that the U.S. economy, among others, is
entering an era of secular stagnation. However, the historical experience of
advanced economies around recessions indicates that the current experience is
less unusual than one might think. First, output typically does not return to
pre-crisis trend following recessions, especially deep ones. Second, in
response, forecasters repeatedly revise down measures of trend."
Pokazywanie postów oznaczonych etykietą kryzys. Pokaż wszystkie posty
Pokazywanie postów oznaczonych etykietą kryzys. Pokaż wszystkie posty
Draghi's Jackson Hole speech has been misunderstood
"Mario Draghi's speech at Jackson Hole on August 22nd caused a considerable stir. For the first
time, he admitted that the absence of a central bank backstop for government
borrowing means both higher borrowing costs for governments and a greater
likelihood of market punishment for profligate governments (...)."
"And the consequences of
this shocking waste of human capital could be serious. Highly-indebted
governments in the Eurozone depend on high tax revenues in the future to reduce
their debt burdens: while even less heavily indebted governments such as
Germany will also need high tax revenues in the future to support their increasing
proportion of elderly. The future fiscal sustainability of the Eurozone depends
on the young people whose futures are currently being systematically destroyed
by unemployment. THIS is what Draghi's speech is about."
How to rip off a bank, Espirito Santo style
"I
have been going through Banco Espírito Santo's half-year 2014 results. They make pretty grim reading. No, actually it's worse
than that. They read like an instruction manual on how to rip off a bank.
I can't work out if the BES management at the time was
stupid, naïve, complacent or criminal. Probably all four. No matter – it has
now been entirely replaced. Well, I say “no matter” - but actually such abysmal
management DOES matter. Those responsible for audit, risk and compliance have
been guilty of incompetence so gross it borders on the criminal. And the former
CEO and vice-chairman, Ricardo Espírito Santo Salgardo – a member of the Espírito Santo family – has been arrested on suspicion of money laundering and tax
evasion. But I suspect he has done more than that: he was also chairman of
ESFG, which – as will become apparent shortly – systematically drained the bank
and its other subsidiaries. If he didn't know what was going on, he was
incompetent: if he did, then he was a party to corruption and fraud on a simply
massive scale. Exactly how massive is not yet clear. But I think we are talking
billions of Euros."
BRICS’ new financial institutions could undermine US-EU global dominance
"During the 1997–98 Asian financial crisis, when
middle-income countries were hard hit by big capital outflows, there was an
effort by China, Japan, Taiwan and other countries to put together an Asian
Monetary Fund to offer balance of payments support. Washington vetoed the idea, insisting that all assistance had to go
through the International Monetary Fund. The result was a mess, including an
unnecessarily deep regional recession, as the IMF failed to act as a lender of
last resort and then attached all kinds of harmful and unnecessary conditions to its lending.
But
the world has changed a lot in the past 15 years. Last week the BRICS countries
(Brazil, Russia, India, China and South Africa) decided to form the Contingent
Reserve Arrangement (CRA) and the New Development Bank (NDB), and the United
States will not have a veto this time. These new
institutions could mark a turning point for the international financial
system."
BIS Slams the Fed; Ridiculous Question of the Day: "Is The Fed Going To Attempt A Controlled Collapse?"
Obszernym fragmentem wpisu jest
podsumowanie w 31 punktach ostatniego raportu Bank
for International Settlements (BIS), które warto przeczytać.
"The
question stems from lengthy (256 page PDF) from the BIS Annual Report (Bank for International Settlements) that stated among
other things "The only source of lasting prosperity is a stronger
supply side. It
is essential to move away from debt as the main engine of growth."
The BIS
slammed the Fed in numerous places and in numerous ways, especially regarding
the Fed's reliance on QE."
"30.
Policy
responses matter too. Central banks find it difficult to operate with policy
rates that are considerably different from those prevailing in the key
currencies, especially the US dollar. Concerns with exchange rate overshooting
and capital inflows make them reluctant to accept large and possibly volatile
interest rate differentials, which contributes to highly correlated short-term
interest rate movements. Indeed, the evidence is growing that US policy rates
significantly influence policy rates elsewhere. Very low interest rates in the
major advanced economies thus pose a dilemma for other central banks. On the
one hand, tying domestic policy rates to the very low rates abroad helps
mitigate currency appreciation and capital inflows. On the other hand, it may
also fuel domestic financial booms and hence encourage the build-up of
vulnerabilities. Indeed, there is evidence that those
countries in which policy rates have been lower relative to traditional
benchmarks, which take account of output and inflation developments, have also
seen the strongest credit booms."
Why Europe Needs Two Euros, Not One
"As the Eurozone cautiously implements stabilising
reforms, Germany is forced to go further with concessions than it would prefer.
This
column suggests that it would be beneficial for discontented members to
consider the formation of a second monetary union. The second euro can be
constructed better than the first, bringing the discontented members
exchange-rate adjustments relative to Germany, and avoiding competitive
devaluations."
"A repeated question about the Eurozone is whether the
members form an optimal currency area. But another question – which is actually
closer to Mundell’s original contribution (Mundell 1961) – is whether the right
number of currencies in the Eurozone is as high as 18, the number of member
countries in the system. If the right number is neither 1 nor 18, then 2 may be
far, far better than either extreme.
Let me begin by
recalling the reasons why 18 would be too many. First, some of the members are probably small enough to have
no scope for using monetary or exchange rate policy as a tool of economic
stabilisation over the business cycle (McKinnon 1963). Next, the 18 members do
form an economically integrated group of geographical neighbours, and therefore
their mutual efforts to use monetary and exchange rate policy to their
advantage could easily lead them to enter into non-cooperative games with
costly Nash consequences. Finally, national monetary policy can mean
Treasury-dominated monetary policy, which can lead to very poor outcomes apart
from strategic games with any foreigners, near and far."
The Bond Trap
"The American financial establishment has an incredible ability to
celebrate the inconsequential while ignoring the vital. Last week, while
the Wall Street Journal pondered
how the Fed may set interest rates three to four years in the future (an
exercise that David Stockman rightly compared to debating how many angels could
dance on the head of a pin), the media almost completely ignored one of the
most chilling pieces of financial news that I have ever seen. According to a
small story in the Financial Times,
some Fed officials would like to require retail owners of bond mutual funds to
pay an "exit fee" to liquidate their positions. Come again? That such
a policy would even be considered tells us much about the current fragility of
our bond market and the collective insanity of layers of unnecessary
regulation."
Why Negative Rates Won't Work In The Eurozone
"It seems unlikely that the ECB is unaware of the effect of
negative rates on Danish lending volumes. So despite
extensive comments in the media about negative rates encouraging banks to lend,
I doubt if that is the real purpose. Indeed, as M3 lending
figures for the Eurozone actually improved slightly in April, it is hard to see why the ECB
would act now when it did not earlier this year.
So I don’t
think this is about bank lending at all. I think it is about German disinflation and the exchange value of the
Euro."
The Myth of the Omnipotent Central Bank
"“Inflation”, said Milton Friedman, “is always and everywhere a monetary
phenomenon”. Upon this statement has been built three decades of faith in the
omnipotence of central banks. It does not matter what government does: it does
not matter what markets do: it does not matter what shocks there are to the
economy. As long as central banks get the money supply right, there will be no
inflation. Or deflation. Growth will simply proceed smoothly along a
pre-determined path.
Leaving
aside the question of whether central banks really control the money supply at
all in an endogenous fiat money system, it is clear to me that the control of
inflation – in all its forms – is by no means so simple. Despite Friedman’s
statement, the forces that create inflation and deflation are in reality poorly
understood."
Deutsche Bank's Latest Capital Raising Won't End Its Problems
"Deutsche Bank has finally admitted – to no-one’s
surprise – that it needs more capital. It has announced
plans to raise 8bn EUR of new
Core Tier 1 equity capital (CET1).
Although everyone knew Deutsche
Bank was short of capital, this admission is nevertheless somewhat embarrassing.
Only last year, Deutsche Bank raised 3bn
EUR with a rights issue and claimed that no further capital would be needed."
"To me, Deutsche Bank looks very much like the archetypal “too big to
fail” zombie bank – draining money from central banks, sovereigns and investors
while giving little in the way of returns. The question is for how long
investors will be willing to put up with poor returns and repeated demands for
more money – for if anyone thinks this is the last of Deutsche Bank’s capital
raising, I fear they are very much mistaken. Though admittedly it is far from
being the only European bank in this condition. European banks generally are in
poor shape. It is to be hoped that the ECB’s stress tests will encourage them
to put their houses in order."
How the Greek Banks Secured an Additional, Hidden €41 billion Bailout from European taxpayers
"In 2013 Greek taxpayers borrowed from the
rest of Europe’s taxpayers €41 billion to pump into the Greek banks. This is well known. What is not known is that, also in 2013/4, the Greek banks received an
additional, well hidden, €41 billion bailout loan from Greek and European
citizens. This bailout was never authorised
by any Parliament or even discussed in public anywhere in Europe.
This is how it worked: Bank X would lend money to… itself. It would do this by issuing
a bond which it did not intend to sell. So, why issue such a phantom
bond? Why write an IOU and give it to one’s self? The answer is: In order to
hand this phantom bond over to the European Central Bank as collateral in
exchange for a cash loan. Normally, of course, the ECB would never
accept such a phantom bond as collateral. Accepting it would have
been to accept a loan it gave to Bank X as collateral for the said loan. It
would have been an assault on the meaning of collateral and a gross violation of
the ECB’s rulebook. So, bank X, knowing this, took its phantom bond
first to the Greek government and had it guarantee it. With the government’s
guarantee stamped on it, the ECB then accepted Bank X’s phantom bond and handed
over the cash. Why? Because the Greek taxpayer had, in the meantime, unknowingly provided
the collateral for Bank X’s loan."
Five explanations for Greece’s bond yield
"The biggest news in the sovereign debt world this week
has come from Greece, which managed to sell some €3 billion in new 5-year
bonds at a yield of just 4.95%. This is not what you might expect, given the macroeconomic situation:
Greece’s debt currently stands at
about 320 billion euros, or 175 percent of GDP. It is rated nine notches below
investment grade at Caa3 by Moody’s. Standard and Poor’s and Fitch rank Greece
six notches below investment grade at B-.
So,
how does one explain investors’ appetite to buy this debt at such low yields?"
Lessons from the Greek PSI
"Lesson 4 (Biggest Lesson of Them All): Prolonging an unavoidable debt re-structure makes the problem far, far
worse, especially when a bailout is given in order to shift bad assets from the
banks’ books to the taxpayers on condition of austerity that causes both the
private and the public sectors to shrink. Introducing a PSI after this sinister error is implemented, while
exempting the official sector that implemented it (including the ECB’s SMP bond
purchases), is to add insult to injury. And to make a much larger OSI more
pressing and more painful for future governments around Europe."
The Financial Economists Roundtable Weighs in on Financial Transaction Taxes
"Many concerns motivate
these proposed taxes. Some people want the financial sector to pay for the
tremendous economic costs that they believe it imposed on everyone in the
global financial crisis of 2008. Others believe that the financial sector
should bear its “fair share” of taxes; such beliefs are particularly strong in
countries where financial transactions are exempt from value-added taxes and
therefore “escape” taxation. Still others simply want new revenues to support
additional government spending, reduce the deficit, or provide tax relief to
other sectors. Finally, some commentators believe that too much financial
activity focuses on short-term rather than long-term goals. They believe that a
transaction tax would force investors and businesses to focus more on long-term
values and less on short-term activities that they perceive to be wasteful."
"Not all taxes are
economically sensible, regardless of how desirable they may appear. A
transaction tax imposed at any economically meaningful rate by only some
countries would cause many transactions to be shifted to other countries,
resulting in far less revenue than a simple static analysis might suggest.
Furthermore, to the extent that a financial transaction tax would generate
substantial revenue, the tax and the associated reduction in liquidity would
lower asset prices. Lower asset prices would cause decreased corporate
investment, resulting in less capital per worker in the long run and thus lower
wages throughout the economy. Therefore, governments should be extremely wary
of introducing or increasing financial transaction taxes."
The Fed’s Actions in 2008: What the Transcripts Reveal
"On Friday, the Federal
Reserve released the transcripts of the 2008 meetings of its Federal Open
Market Committee, which sets monetary policy. The transcripts provide a
detailed account of some of the Fed's key decisions during that crisis year.
Here is a look at the fuller picture that the documents have provided."
"Federal Reserve officials are
unaware in January 2008 that the economy has already entered a recession. But
the Fed's chairman, Ben S. Bernanke, and his closest advisers are feeling
nervous. They worry that the Fed's actions at the end of 2007 have been
insufficient, and that tumbling stock prices represent the start of a broader
pullback in investment."
http://www.nytimes.com/interactive/2014/02/21/business/federal-reserve-2008-transcripts.html
European Banks: Between a Rock (Need of More Capital) and a Hard Place (Low Profitability)
"The financial crisis has
put to the forefront the long-debated issue of banks’ capital adequacy, showing
that banks were much more fragile than they (and their regulators) pretended,
also because they were allowed to push their leverage to levels much higher
than any industrial company, or even a hedge fund, has never dreamt of."
"This column aims to
discuss this issue, looking at a sample of 20 global banks, analysed by
R&S, a Mediobanca subsidiary. The main conclusion is that banks have not
reached a new equilibrium after the financial crisis and that, if banks really
want to be more robust in the future, they must implement radical strategic
changes, aiming at deleveraging through reduction of non-core assets and/or
achieving substantial reduction of operating costs."
Everything You Need to Know About the Emerging-Market Currency Collapse
"First, money poured into emerging
markets when it looked like they offered juicy returns. Then it poured out
after they didn't. Currencies are collapsing. Stock markets are falling. And
central banks are sacrificing the real economy to save the exchange rate.
We've seen this movie before.
It was called the East Asian financial crisis, back in 1997. But, for once, the
sequel won't be worse than the original. Emerging markets don't have enough
foreign-money debt this time around to make their falling currencies much of a
concern. What is a concern is whether their central bankers realize this. They
might overreact—they might already be—and raise rates to prop up their
currencies, when they should be lowering them to prop up their economies.
Now, emerging market currencies have been in a
world of pain since last May. That's when Ben Bernanke first hinted that the
Fed would soon draw down—or "taper"—its bond purchases. If that meant
the Fed would start raising rates sooner too, as markets assumed it did, there
wouldn't be any need to park money overseas to get a decent return. You could
do that in the U.S. So investors pulled their money out just as quickly as they
had moved it in—and emerging market currencies fell."
Merge or Die: Slow Economy Sheds New Light on M&A
"Merger activity will get
a much-needed lift when companies realize that acquisitions are the only way to
expand in a slow-growth economy."
"M&A has long been a
business that runs on optimism. The effort required to buy another organization
— negotiate a price, perform effective due diligence, resolve legal and
regulatory requirements and defeat other bidders — is daunting and
time-consuming, high drama and remarkable tedium. The machinery of M&A is
large, complex and fragile, a fluid constellation of bankers, lawyers, accountants,
consultants, corporate executives, directors and investors of all kinds. It is
both a mechanism of change and an intricate set of financial, organizational
and legal technologies. Perhaps the greatest and most commonly overlooked
aspect of M&A happens when the deal is done: postmerger integration, or
effectively knitting two corporate entities into one.
None of M&A is easy, and
the risks are considerable — too large, apparently, for many companies still
focused on disaster and seemingly content to accumulate cash, passing some of
it to shareholders when they grow restive. This is a big change. The modern era
of M&A, which began in the mid-’70s and was characterized by shareholder
governance and deregulated markets, has been both cyclical and expansionary.
Recessions reduced the size and number of M&A deals for two or three years
only to see them roar back, each wave mightier than the last. What drove those
successively higher waves was the expansion of M&A into the middle market
and into the developed, then emerging, economies. Throughout this period
M&A was broadly tamed and routinized, moving beyond an activity that once
seemed to belong to cowboys, pirates or, most famously, barbarians."
The Banking Industry's Biggest Problem isn't Bonuses or Market Share
"The problem with bonuses in the financial industry is not about
their levels – if someone makes a huge contribution to the economy, he or she
should be richly rewarded. The main problem is that these
bonuses are given to people for doing the wrong things well – things that harm
the economy in order to enrich the shareholders, the top managers of banks and
other financial firms.
So the real question is how we
make banks and other financial firms pursue the right goals, rather than how
much people should be paid, whether in bonuses or salaries. And the only way to make them pursue
different goals from those they pursue now is to change the rules of the
game."
http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-banking-industrys-biggest-problem-isnt-bonuses-or-market-share?utm_source=CEPR+feedburner&utm_medium=feed&utm_campaign=Feed%3A+cepr+%28CEPR%29
Why is the Recovery so Agonizingly Slow?
"Recessions that are driven by a
collapse of the financial sector, balance sheet recessions as they are known,
are one of the most difficult types of recessions to recover from. That is
because the collapse of the financial sector does great damage to the balance
sheets of individual households. In the most recent recession, the typical
household lost a considerable amount of home equity when the price bubble
popped, stock values declined causing losses of retirement, education, and
other types of saving, and widespread unemployment and underemployment caused
households to use their accumulated saving just to survive month to month."
http://www.thefiscaltimes.com/Columns/2014/01/14/Why-Recovery-so-Agonizingly-Slow
Subskrybuj:
Komentarze (Atom)