Philosophical, logical or faulty?
The recent analyses and concerns re the public finances in certain Southern European countries, as well as the UK and the United States, prompted me to consider the following sequence of syllogisms:
So let me see if I got that straight or not:
A) There was "systemic" trouble in the financial/banking world, originally caused to a large extent by subprimes (right or wrong so far? )
B) Then most governments/states spent loads of money to bail out or help institutions stay out of potential trouble, and
C) "now" the financial world is ...... (trying to find a proper word for it here) some of the states that either overspent on bailouts or preventive measures or whose finances are in large deficit ("imbalance") due to the fall in revenues (which is due to the economic recession that resulted from the subprime then financial then economic crisis)?
Is the preceding sequence of thoughts (algorithm)
a) on the mark or
b) missing the point?
What mark and what point though?
Showing posts with label financial services. Show all posts
Showing posts with label financial services. Show all posts
Wednesday, February 10, 2010
Friday, December 18, 2009
Banking in post-industrial economies
In recent months I have blogged and tweeted the question: Do London and NYC over rely on financial services for activities, growth and jobs?
And does the crisis show that NYC and London need a new model for activities, growth and jobs?
Thus it does not surprise me to read, today, in an article at the Guardian that, in view of the recent decisions by the British and French governments to highly tax large bankers' bonuses and the arguments that they could lead to an exodus of bankers from London, Andy Haldane, the head of financial stability at the Bank of England (Britain's central bank) has argued during an interview with BBC World Service that bankers moving overseas to avoid the bonus supertax could be price worth paying to achieve lasting reform of the sector! Plus he also poses some very insightful food for thought re the structure of commercial and investment banking these days and arguing for a potential separation of commercial banking and investment banking activities (and thus benefits and risks).
I am in no way antithetical to the financial services and banking industries. They always had and still have a role to play in an economy. What I am skeptical about though is the weigh that has been placed on this industry or sector. Especially by London and NYC.
In my theory about the causes of the current crisis, I propose that in recent decades, financial services did not adapt to the shrinking of manufacturing in the US and Europe (based on an assumption of mine that it is large manufacturing companies that have high needs for banking and investment banking due to the high fixed costs and capital intensity of manufacturing). The rapid shrinking of the manufacturing base in the US and much of Europe should IMO have led to some shrinking of the financial services and investment banking, which do not seem to have happened before the crisis. The alleged trend for high level bankers to move to Asia, where manufacturing strives in recent years, proves to some extent the validity of my claim that high level banking needs manufacturing (and vice-versa), whereas Services based economies of our times, such as the US, the UK, etc, do not the same volume and type of banking needs that manufacturing did in the peak days of the US and European industrial era.
In addition, it does make sense IMO to pose the question whether it makes more sense for commercial and investment banking to co-exist in an entity and hedge each other or to be separate? Not that the answer is easy. We do after all live in interesting times and to wish someone to live in such times was not a wish but, allegedly, an Ancient Chinese curse.
Listen to an audio presentation, about 10 minutes) of my theory on the causes of the crisis: http://www.box.net/shared/d9pccl6q4v (October 2008)
And does the crisis show that NYC and London need a new model for activities, growth and jobs?
Thus it does not surprise me to read, today, in an article at the Guardian that, in view of the recent decisions by the British and French governments to highly tax large bankers' bonuses and the arguments that they could lead to an exodus of bankers from London, Andy Haldane, the head of financial stability at the Bank of England (Britain's central bank) has argued during an interview with BBC World Service that bankers moving overseas to avoid the bonus supertax could be price worth paying to achieve lasting reform of the sector! Plus he also poses some very insightful food for thought re the structure of commercial and investment banking these days and arguing for a potential separation of commercial banking and investment banking activities (and thus benefits and risks).
I am in no way antithetical to the financial services and banking industries. They always had and still have a role to play in an economy. What I am skeptical about though is the weigh that has been placed on this industry or sector. Especially by London and NYC.
In my theory about the causes of the current crisis, I propose that in recent decades, financial services did not adapt to the shrinking of manufacturing in the US and Europe (based on an assumption of mine that it is large manufacturing companies that have high needs for banking and investment banking due to the high fixed costs and capital intensity of manufacturing). The rapid shrinking of the manufacturing base in the US and much of Europe should IMO have led to some shrinking of the financial services and investment banking, which do not seem to have happened before the crisis. The alleged trend for high level bankers to move to Asia, where manufacturing strives in recent years, proves to some extent the validity of my claim that high level banking needs manufacturing (and vice-versa), whereas Services based economies of our times, such as the US, the UK, etc, do not the same volume and type of banking needs that manufacturing did in the peak days of the US and European industrial era.
In addition, it does make sense IMO to pose the question whether it makes more sense for commercial and investment banking to co-exist in an entity and hedge each other or to be separate? Not that the answer is easy. We do after all live in interesting times and to wish someone to live in such times was not a wish but, allegedly, an Ancient Chinese curse.
Listen to an audio presentation, about 10 minutes) of my theory on the causes of the crisis: http://www.box.net/shared/d9pccl6q4v (October 2008)
Tuesday, December 15, 2009
The European Parliament approves Euro 25 million for 2010 for Microfinance
A "European Progress Microfinance Facility" is to make available (via private amd public bodies) "micro-credits" (up to €25,000) to people within the European Union who want loans to start or grow very small firms (10 people or less and a turnover of less than €2 million), but are unable to obtain them on conventional credit markets.
To ensure that the Facility can start promptly in early 2010, the European Parliament Plenary on December 15 agreed via a vote to release 25 million Euro from the EU's 2010 budget (the 210 EU budget which will be put to a vote on Thursday, with the EP's extra powers following the Lisbon Treaty's entry into force Dec. 1).
For the three remaining years, there is, for the moment, no agreement between Parliament and Council on the resources for the Facility. The MEPs agreed to make €100 million available for the Facility over four years - as proposed by the European Commission, but stressed during the debate that these funds do not have to come from the "Progress" programme, which was set up to help vulnerable groups of people. The Commission had proposed that the Microfinance Facility be funded from this programme, as it already had received an additional €114 million, at Parliament's request.
Details:
The Facility is to be open to public and private bodies in the Member States that provide micro-finance to persons and micro-enterprises. It is to make the €100 million available to them over 4 years through joint management arrangements with the EIB group (European Investment Bank and European Investment Fund).
To ensure that the Facility can start promptly in early 2010, the European Parliament Plenary on December 15 agreed via a vote to release 25 million Euro from the EU's 2010 budget (the 210 EU budget which will be put to a vote on Thursday, with the EP's extra powers following the Lisbon Treaty's entry into force Dec. 1).
For the three remaining years, there is, for the moment, no agreement between Parliament and Council on the resources for the Facility. The MEPs agreed to make €100 million available for the Facility over four years - as proposed by the European Commission, but stressed during the debate that these funds do not have to come from the "Progress" programme, which was set up to help vulnerable groups of people. The Commission had proposed that the Microfinance Facility be funded from this programme, as it already had received an additional €114 million, at Parliament's request.
Details:
The Facility is to be open to public and private bodies in the Member States that provide micro-finance to persons and micro-enterprises. It is to make the €100 million available to them over 4 years through joint management arrangements with the EIB group (European Investment Bank and European Investment Fund).
Wednesday, December 2, 2009
ECOFIN agreement on the EU financial supervisory directive, now up to the Eur. Parliament
Today (Dec. 2) The ECOFIN (Economic and Financial Affairs) Council reached a so called "political agreement" on the financial regulation directive. According to EU's legilstive procedures, the "ball" now passes to the European Parliament.
The agreement reached, if it remains as is wil lead to the establishment of:
a) European Systemic Risk Board (ESRB) that would be responsible for macro "prudential oversight" of the financial system within the EU.
b) a European Banking Authority (EBA)
c) a European Securities and Markets Authority (ESMA) and
d) a European Insurance and Occupational Pensions Authority (EIOPA)
A European System of Financial Supervisors (ESFS), consisting of a network of national financial supervisors will be working in tandem with the above 3 (b, c, d) new European Supervisory Authorities (ESAs).
The EU's Finance Ministers also agreed on the Single European Payment Area (SEPA) aimed at achieving an integrated and competitive internal market for Euro payments.
The UK government claims that it secured the provisions that would avoid the UK taxpayer to pay for bail-outs decided at EU level rather than Westminster!
Let's see what the European Parliament says.
Tuesday, October 13, 2009
The rich in Asia
The number of persons in Asia with USD 1 million or more in invest-able assets experienced a double digit decline in 2008 (approx. -15% according to one source).
Saturday, October 10, 2009
Financial Illiteracy
I am finding that retrospection is an interest exercise. Looking back at things I wrote or jotted down or observed 1, 2, 3 or more years ago and see how they relate with 2009 reality.
This is one of them. A text I wrote 22 months ago, December 18, 2007, ie right at the beginning of the current crisis.
"Financial Illiteracy"
December 18, 2007: Russia's MICEX published a report today on stock and other financial investing by Russians. It estimates that 0.5 million Russians invest in the financial markets, compared to a figure of 88 million in the US.
In my opinion, the most interesting part of the report is the notion of "financial illiteracy" that the authors of the report use to describe the level of financial knowledge that most Russian investors possess and its effects on the financial markets and their investing success!
Which makes me think:
1. How "financially literate" are most individual investors around the world?
2. The institutional ones?
How "financially literate" was the decision of the major and reputable and allegedly savvy financial institutions that over-invested in the US subprime instruments? Did they not "realise" the default risk they were undertaking that was embedded in these high yield promising (in return for high risk) financial instruments?
Rationality, Literacy, Greed, etc.
Which brings us to the following questions, food for thought:
The decision of the US president, the US Capitol Hill, the US Central Bank (the Fed) and many other central banks (eg the European Central Bank (ECB), the Bank of England, to offer either:
a) Some facilitation to some of the mortgage holders
b) Low interest "facilitation" to commercial banks (for helping borrowng and lending between them) and other private institutions to help them weather the storm and avoid major failures (in the interest of their image and trust value, as well as in the interest of avoiding banking crises and a nasty cascade of major economic and social effects)
How policy rational, how policy literate, how ideologically capitalist or free market are they?
The rush to invest in these fundamentals lacking subprime mortgage instruments, by both the borrowers and the lenders (and the subsequent holders of those instruments, almost all over the world, eg England, Europe, Germany, etc.), what "symptoms" does it show for the US, European and global financial system, capitalism, global entrepreneurship, etc?
In my personal opinion:
But that leads us, in my opinion, in the path of enlightenment re a much wider "literacy" problem, one of the average citizen of the world, including the citizens of the US, EU countries, etc:
The capitalist system could, IMO, survive the potential "failures" of major financial and banking institutions! The low interest rates subsidies can even be considered unfair "state aid" to the businesses that over-invested in subprime, vs the ones that were prudent or sage or risk-adverse or un-greedy enough to not over-invest or pull out on time!
The moral of this "story" IMO, is that the capitalist world has a literacy deficit in Economics and Capitalism knowledge and understanding and that that is part of the problem that forces certain "money and investment" managers of other peoples' savings or investment moneys to try to impress their (how literate?) cliens that they are "better" managers than their competition!!!!
In the words of one of my Finance Theory professors at INSEAD, when one compares performance of funds, one cannot compare ex post facto (realised) Returns on Investment, one has to take into account the risk that was undertaken in making those investment decisions!!
And that means that the main illiteracy problem is related to the inherent trade-off made between "expected return" and "expected (associated) risk" when one makes an investment or any kind of decision that has uncertainty incorporated into it: that means most decisions by all people and organisations in life!
Plus, is the financial and capitalist system today based/relying too much on confidence and trust? Instead of knowledge/literacy and rationality?
Communism thought that by eliminating the private sector from almost all functions of the economy and life, one could eliminate the effect of greed and/or ambition. It failed in that, because it, IMO, did not understand the human nature of greed, inter alia.
IMO, Capitalism is the best available economic system, much like Democracy is the best available/possible political one. But in the same way that Democracy has many version and "updates", the same IMO applies to capitalism.
The fundamental problem IMO is that most people today suffer from literacy re civics/politics/citizenship and economics, finance and "economic citizenship". Education in the fundamental principls (at least) of Probability and Statistics being one of them.
Which takes us back to the issue of quality of basic education (primary, secondary) in most countries, including the OECD ones. And that is for sure a policy issue (education policy) in most countries.
22 months after I first wrote these thoughts, I am amazed at how more relevant they seem today.
This is one of them. A text I wrote 22 months ago, December 18, 2007, ie right at the beginning of the current crisis.
"Financial Illiteracy"
December 18, 2007: Russia's MICEX published a report today on stock and other financial investing by Russians. It estimates that 0.5 million Russians invest in the financial markets, compared to a figure of 88 million in the US.
In my opinion, the most interesting part of the report is the notion of "financial illiteracy" that the authors of the report use to describe the level of financial knowledge that most Russian investors possess and its effects on the financial markets and their investing success!
Which makes me think:
1. How "financially literate" are most individual investors around the world?
2. The institutional ones?
How "financially literate" was the decision of the major and reputable and allegedly savvy financial institutions that over-invested in the US subprime instruments? Did they not "realise" the default risk they were undertaking that was embedded in these high yield promising (in return for high risk) financial instruments?
Rationality, Literacy, Greed, etc.
Which brings us to the following questions, food for thought:
- Can the mere/generic/vague notion or concept or factor of "greed" explain these over-exposures?
- How "rational" are not only the individual but the institutional or other "professional" investors?
The decision of the US president, the US Capitol Hill, the US Central Bank (the Fed) and many other central banks (eg the European Central Bank (ECB), the Bank of England, to offer either:
a) Some facilitation to some of the mortgage holders
b) Low interest "facilitation" to commercial banks (for helping borrowng and lending between them) and other private institutions to help them weather the storm and avoid major failures (in the interest of their image and trust value, as well as in the interest of avoiding banking crises and a nasty cascade of major economic and social effects)
How policy rational, how policy literate, how ideologically capitalist or free market are they?
The rush to invest in these fundamentals lacking subprime mortgage instruments, by both the borrowers and the lenders (and the subsequent holders of those instruments, almost all over the world, eg England, Europe, Germany, etc.), what "symptoms" does it show for the US, European and global financial system, capitalism, global entrepreneurship, etc?
In my personal opinion:
- The subprime crisis does show a serious structural fault in the financial capitalist system, but one that is not serious enough to bring the whole system down or call for philosophical or systemic re-thinking of the whole.
- But it does call for some major thinking on these "local" (in the financial world) systemics.
- Does it call for policy or regulatory action? I do not think so. But while I am ideologically opposed to the idea of the bailing out of profit making, non state, businesses (banks and other financial institutions) by Central Banks, I must admit that practically the action is justifiable.
But that leads us, in my opinion, in the path of enlightenment re a much wider "literacy" problem, one of the average citizen of the world, including the citizens of the US, EU countries, etc:
- What is the level of Economics, Political and Policy literacy?
- Plus of literacy on the rules and theory and practices of the capitalist system?
The capitalist system could, IMO, survive the potential "failures" of major financial and banking institutions! The low interest rates subsidies can even be considered unfair "state aid" to the businesses that over-invested in subprime, vs the ones that were prudent or sage or risk-adverse or un-greedy enough to not over-invest or pull out on time!
The moral of this "story" IMO, is that the capitalist world has a literacy deficit in Economics and Capitalism knowledge and understanding and that that is part of the problem that forces certain "money and investment" managers of other peoples' savings or investment moneys to try to impress their (how literate?) cliens that they are "better" managers than their competition!!!!
In the words of one of my Finance Theory professors at INSEAD, when one compares performance of funds, one cannot compare ex post facto (realised) Returns on Investment, one has to take into account the risk that was undertaken in making those investment decisions!!
And that means that the main illiteracy problem is related to the inherent trade-off made between "expected return" and "expected (associated) risk" when one makes an investment or any kind of decision that has uncertainty incorporated into it: that means most decisions by all people and organisations in life!
Plus, is the financial and capitalist system today based/relying too much on confidence and trust? Instead of knowledge/literacy and rationality?
Communism thought that by eliminating the private sector from almost all functions of the economy and life, one could eliminate the effect of greed and/or ambition. It failed in that, because it, IMO, did not understand the human nature of greed, inter alia.
IMO, Capitalism is the best available economic system, much like Democracy is the best available/possible political one. But in the same way that Democracy has many version and "updates", the same IMO applies to capitalism.
The fundamental problem IMO is that most people today suffer from literacy re civics/politics/citizenship and economics, finance and "economic citizenship". Education in the fundamental principls (at least) of Probability and Statistics being one of them.
Which takes us back to the issue of quality of basic education (primary, secondary) in most countries, including the OECD ones. And that is for sure a policy issue (education policy) in most countries.
22 months after I first wrote these thoughts, I am amazed at how more relevant they seem today.
Wednesday, October 7, 2009
US policy: regulating derivatives: dilemmas
US policy (swaps etc):
Has the House Financial Services Committee learned the lesson not to split the oversight of various financial services?
Policy Dilemma (US, EU, etc): Do the benefits of a single oversight body for all financial services of any kind outweigh the risks/cons?
Has the House Financial Services Committee learned the lesson not to split the oversight of various financial services?
Policy Dilemma (US, EU, etc): Do the benefits of a single oversight body for all financial services of any kind outweigh the risks/cons?
Friday, September 25, 2009
are the new EU regulatory proposals realistic?
EU: Towards 4 pan-EU regulators for systemic risk, banks, insurers and exchanges?
Any lessons learned by the causes of the US crisis?
Any lessons learned by the causes of the US crisis?
the contribution of Financial Services in national GDP: UK and Germany
Does the Finance sector account for 15% of the UK #economy (GDP) as the German finance minister claims, or 8% as the UK Treasury claims?
Makes a big difference.
In Germany it is estimated at 6% of GDP.
But in terms of socio-economic modeling: Do the UK and London depend too much on Financial Services for economic activity and jobs?
Makes a big difference.
In Germany it is estimated at 6% of GDP.
But in terms of socio-economic modeling: Do the UK and London depend too much on Financial Services for economic activity and jobs?
Saturday, April 26, 2008
Bottom up Finance and Capitalism
What is more important for the "real" US economy? Sovereign wealth funds, hedge funds, other funds, banks or "Microfinance" of the Grameen type, that has recently arrived in the US, in Queens, NY?
Microcredit is a financial innovation which originated in Bangladesh and it is the provision of very small loans to the unemployed, to poor entrepreneurs and to other people living in poverty whose alternative sources of funding are pawn shops and loan sharks.
Microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth! The United Nations had declared 2005 the International Year of Microcredit
Microcredit is a part of "Microfinance", the provision of financial services to low-income clients, including the self-employed, while it has also come to refer to a "movement" that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.
It is associated with Muhammad Yunus, a Bangladeshi banker and economist, founder of the Grameen Bank, both (Yunus and Grameen Bank) being the joint winners of the 2006 Nobel Peace Prize!
IMO, Microfinance is taking finance and capitalism back to its healthy "roots" or "cornerstones".
Food for thought: Compare and (what is more important) contrast, Microfinance and the infamous subprimes!
As I have noted in the past, IMO, capitalism "means" owning a business rather than a house!
Whereas the industrial revolution based capitalism needs large funds to set up a business and it was based on high fixed costs (thus the need for state aid), Services, and the US economy is about 75% Services these days, do not normally needs large funds. Thus, IMO, microfinance seems much more relevant to the real US economy as well as the fundamentals of Capitalism and Free "Marketism".
Microcredit is a financial innovation which originated in Bangladesh and it is the provision of very small loans to the unemployed, to poor entrepreneurs and to other people living in poverty whose alternative sources of funding are pawn shops and loan sharks.
Microcredit is increasingly gaining credibility in the mainstream finance industry and many traditional large finance organizations are contemplating microcredit projects as a source of future growth! The United Nations had declared 2005 the International Year of Microcredit
Microcredit is a part of "Microfinance", the provision of financial services to low-income clients, including the self-employed, while it has also come to refer to a "movement" that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.
It is associated with Muhammad Yunus, a Bangladeshi banker and economist, founder of the Grameen Bank, both (Yunus and Grameen Bank) being the joint winners of the 2006 Nobel Peace Prize!
IMO, Microfinance is taking finance and capitalism back to its healthy "roots" or "cornerstones".
Food for thought: Compare and (what is more important) contrast, Microfinance and the infamous subprimes!
As I have noted in the past, IMO, capitalism "means" owning a business rather than a house!
Whereas the industrial revolution based capitalism needs large funds to set up a business and it was based on high fixed costs (thus the need for state aid), Services, and the US economy is about 75% Services these days, do not normally needs large funds. Thus, IMO, microfinance seems much more relevant to the real US economy as well as the fundamentals of Capitalism and Free "Marketism".
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