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)
Showing posts with label on the causes of the crisis. Show all posts
Showing posts with label on the causes of the crisis. Show all posts
Friday, December 18, 2009
Bank of England: the financial system has been significantly more stable over the past six months
The Bank of England is today, October 18, publishing its bi-annual Financial Stability Report (PDF, 74 pages). The Report provides the Bank’s current assessment of conditions affecting financial stability and discusses ways to strengthen the financial system in the future.
Inter alia, the Report identifies that the financial system has been significantly more stable over the past six months.
This was underpinned by the authorities’ sustained support for the banking system and monetary policy measures.
Low risk-free interest rates and reduced uncertainty have led to a rebound in a range of asset prices.
Primary issuance in many capital markets has resumed, reducing financing risks for some borrowers.
The market rally has boosted bank profits, lowered concerns about potential future losses, and has enabled banks to raise further external capital.
Banks have also been able to issue unguaranteed term debt, helping them to reduce their reliance on short-term funding.
At the same time, the Report notes that after such a prolonged period of exuberance earlier in the decade, it is inevitable that some banks around the world have overstretched balance sheets. They will take time to adjust, and in the meantime remain vulnerable to the risk of less rapid than expected economic recovery.
Around the world, a number of borrowers, including in the commercial property sector, have large refinancing needs in the coming years. And while funding costs remain low, there is some risk of market participants accumulating excessively risky positions, which could unwind abruptly when yield curves eventually rise.
Over time, and consistent with maintaining lending into the real economy, many banks will need to reduce leverage further, extend the maturity of their funding and refinance substantial amounts of funding as official sector support is withdrawn.
While their profitability is relatively buoyant and market conditions broadly favourable, banks should take opportunities to strengthen their balance sheets, including by not distributing an excessive amount of profit. That will reduce the risk of disruption to the flow of credit in the future.
In relation to safeguarding financial stability in the future, the Report says that, in the medium term, the root causes of this and previous systemic crises must be tackled – excessive risk-taking in the upswing of the credit cycle and insufficient resilience in the subsequent downturn.
It also says that: An expectation that ‘too important to fail’ firms will receive public assistance, and that unsecured, unsecured wholesale creditors will not share losses, has exacerbated both the boom and the bust.
That calls for a robust, multi-faceted policy response. Regulatory policies should give greater emphasis to systemic risks across the cycle and across institutions, as set out in a recent Bank discussion paper (The role of macroprudential policy, November 2009). They should be complemented by structural measures to contain the spread of risk across the system. And because failures of financial institutions cannot and should not be prevented, the resolution framework will need to be extended to limit the impact on the wider economy.
Technically demanding but interesting read, huh!
Inter alia, the Report identifies that the financial system has been significantly more stable over the past six months.
This was underpinned by the authorities’ sustained support for the banking system and monetary policy measures.
Low risk-free interest rates and reduced uncertainty have led to a rebound in a range of asset prices.
Primary issuance in many capital markets has resumed, reducing financing risks for some borrowers.
The market rally has boosted bank profits, lowered concerns about potential future losses, and has enabled banks to raise further external capital.
Banks have also been able to issue unguaranteed term debt, helping them to reduce their reliance on short-term funding.
At the same time, the Report notes that after such a prolonged period of exuberance earlier in the decade, it is inevitable that some banks around the world have overstretched balance sheets. They will take time to adjust, and in the meantime remain vulnerable to the risk of less rapid than expected economic recovery.
Around the world, a number of borrowers, including in the commercial property sector, have large refinancing needs in the coming years. And while funding costs remain low, there is some risk of market participants accumulating excessively risky positions, which could unwind abruptly when yield curves eventually rise.
Over time, and consistent with maintaining lending into the real economy, many banks will need to reduce leverage further, extend the maturity of their funding and refinance substantial amounts of funding as official sector support is withdrawn.
While their profitability is relatively buoyant and market conditions broadly favourable, banks should take opportunities to strengthen their balance sheets, including by not distributing an excessive amount of profit. That will reduce the risk of disruption to the flow of credit in the future.
In relation to safeguarding financial stability in the future, the Report says that, in the medium term, the root causes of this and previous systemic crises must be tackled – excessive risk-taking in the upswing of the credit cycle and insufficient resilience in the subsequent downturn.
It also says that: An expectation that ‘too important to fail’ firms will receive public assistance, and that unsecured, unsecured wholesale creditors will not share losses, has exacerbated both the boom and the bust.
That calls for a robust, multi-faceted policy response. Regulatory policies should give greater emphasis to systemic risks across the cycle and across institutions, as set out in a recent Bank discussion paper (The role of macroprudential policy, November 2009). They should be complemented by structural measures to contain the spread of risk across the system. And because failures of financial institutions cannot and should not be prevented, the resolution framework will need to be extended to limit the impact on the wider economy.
Technically demanding but interesting read, huh!
Friday, September 11, 2009
the causes of the crisis: who is "greedy "after all?
Is it "Wall Street" per se that was/is "greedy" for profits or its clients?
Sunday, August 30, 2009
Thursday, August 27, 2009
greed to blame for the current crisis?
IMO greed is not a sufficient explanation - reason for the current
crisis or the problems of capitalism
crisis or the problems of capitalism
Tuesday, June 23, 2009
back to basics: some thoughts
IMO, the ratings should be de-institutionalized, ie not used as in an "official"-institutional capacity (that was established after the Great Depression).
Plus, instead of a regulation frenzy, policy makers in the US, Europe and elsewhere should, IMO, foster socio-economic systemics that are free from conflicts of interest (using competition law as a tool, inter alia)
Plus, instead of a regulation frenzy, policy makers in the US, Europe and elsewhere should, IMO, foster socio-economic systemics that are free from conflicts of interest (using competition law as a tool, inter alia)
Saturday, June 6, 2009
On the need for a new Capitalism
Fr0m: Thursday, August 09, 2007
Re the "gut of the beast"
In banks we trust is the basic mantra of the existing version of the capitalist system.It looks like that to deal with infamous by now "sub prime" crisis the policy makers in the US and Europe are doing a variety of things. One of them is to fortify/shield/protect the banking sector, a core element of the system, from a potential real or psychological fallout from the sub prime crisis.
Thus, on Thursday, the European Central Bank (ECB) said that it had moved quickly to "pump" 95bn Euros into the Eurozone 13's banking market, in the form of loans, an offer that was taken up by 49 banks and other financial institutions! Is one to assume that all these have important effects on the portfolios due to defaults in the US sub prime market?
To what extent did these high risk instruments penetrate or spread throughout the global financial/investment/banking/money system?
How much of the total portfolio did these high return high risk tools represent? And what is more, why? Is/was the financial world short of other "lucrative" investment opportunities? Was the inherent/expect risk of the sub prime not taken into account? These are IMO the tough questions about the state of the global capitalist and financial systemics in recent years!!!
The unusual move is the ECB's single largest intervention in the banking sector since the immediate aftermath of the 9/11 attacks on the US in 2001.
I am as capitalist as anyone, but these things do cause me major concerns not about the sub prime issue or its effects, but mostly, from a systemics and macro/global point of view about the current state of the fin/econ/social/political system as a whole.
Are we in need of a Capitalism 2008++ Release (ie new version)?
One that takes care of the bugs of the existing one and maybe introduces a new foundation, eg human capital?
Just a thought!
Investing in the real economy
Investing in the real economy
Why was the impact of the US housing market's subprime financial risk outside the US underestimated? In other words, why did investors outside the US "buy in" so much into this high expected risk -high expected return investment tool? Are there not other attractive investment opportunities, both outside the US and in the US economy?
What happened to investment to real economic growth ops, more "business" or "entrepreneurial" ones?
Is there a global "entrepreneurial" deficit? Which affects investment options, employment opportunities, etc?
Written: Sept 5, 2007
Updated: June 6, 2009
Why was the impact of the US housing market's subprime financial risk outside the US underestimated? In other words, why did investors outside the US "buy in" so much into this high expected risk -high expected return investment tool? Are there not other attractive investment opportunities, both outside the US and in the US economy?
What happened to investment to real economic growth ops, more "business" or "entrepreneurial" ones?
Is there a global "entrepreneurial" deficit? Which affects investment options, employment opportunities, etc?
Written: Sept 5, 2007
Updated: June 6, 2009
Sunday, May 10, 2009
Survival in Globalia" "Homes"
"Homes"
A. The "Lord" of the Keys
What is the key to survival, prosperity and happiness nowadays?
a) Having a "home"
b) Having money in the bank
c) Having health insurance-coverage
d) Having access to a job or client market
What are the modern definitions of "job-less", "money-less", "home-less", "market-less", etc.? For a) people and b) corporations?
How does fit with the "be a good neighbour" CSR approach?
What does "having an "identity"" mean, in today's terms?
B. Home ownership - The core of our stability?
President Bush once said that owning a home is the center of the American Dream.
Not only of the American!
Many Europeans, eg my parents, have home ownership at the center of their "living philosophy".
I do not. Am I "heretical"? Am I wrong? Is selling my flat a "stupid move", an irreversible stupid move?
Many own their home. It gives them and all other homeowners around the world a stable place to "stand", that I do appreciate and I can empathise with.
But in these global, interesting, volatile times, is building a tangible "fortress" ("my home is my fortress") the way to best deal with the dynamics - challenges of the times? Or is it a "life strategy" defensive measure which is not in line with the dynamics of the times?
For one, owning a home ties you down, reduces your mobility. Not only do the things we own wind up owning us (a quote from "The Fight Club") and a home is indeed "a thing" (rather than an intangible or mobile asset). Real estate property, along with alcohol, cigarettes and cars (another key symbol of "having") are the core taxable and red taped things in most systems. For obvious reasons.
But when one moves from state to state (eg USA) or country to country (eg EU) or region to region (eg Canada), does it make sense to have "property" and "taxable assets etc" in more than one locations? Who has time for dealing with more than one tax authorities? Or fees to spend for inter-national tax expertise?
Is relocation a privilege for the very rich (who can afford all the experts) and the have-nothings (who relocate with nothing, thus do not have issues of double taxation avoidance and do not need to file in more than one admins)?
In the EU, owning a car is a barrier to mobility too. For tax revenue related reasons, as well.
Does owning a home or car today make economic or strategic sense for anyone who wants to be "light" enough to be able to deal with the winds of globalisation?
Mobility of social security rights is another major issue. Eg how does a not impoverished old person get hospital insurance is he/she moves to the US or within the US? Can one take one's social security scheme with him/her (not to the after life, but to a new location), be it state or private or a mix?
Capital is mobile these global days. Products too. Services, as well, to some extent. Jobs too. But does one have to be desperate enough to liquidate everything in order to relocate or willing to spend a lot of time in red tape activities. Kind of defeats the relocation rationale, does it not?
What is more core then these days to any modern living strategy? Home ownership or a geo mobile health plan?
Thursday, October 23, 2008
my theory on the causes of the crisis
In short: The real economy has been suffocating for decades in Europe and even the US. That is why investors focused on dotcoms & then on subprimes.
This is an audio (MP3) version of my theory re "the causes of the crisis" as I presented it on October 23, 2008 (then in video format, I have extracted the audio from that):
two options:
1. YouTube video (audio mainly)
2. pure audio (free to download)
http://www.box.net/shared/d9pccl6q4v
This is an audio (MP3) version of my theory re "the causes of the crisis" as I presented it on October 23, 2008 (then in video format, I have extracted the audio from that):
two options:
1. YouTube video (audio mainly)
2. pure audio (free to download)
http://www.box.net/shared/d9pccl6q4v
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