dunnettreader + financial_system   274

Karaman
Theoretical work on taxation and state-building borrows heavily from early modern European experience. While a number of European states increased centralized tax revenues during this period, for others revenues stagnated or even declined and these variations have motivated alternative arguments for the determinants of fiscal and state capacity. This study reviews the arguments concerning the three determinants that have received most attention, namely warfare, economic structure, and political regime, and tests them by making use of a new and comprehensive tax revenue dataset. Our main finding is that these three determinants worked in interaction with each other. Specifically, when under pressure of war, it was representative regimes in more urbanized-commercial economies and authoritarian regimes in more rural-agrarian economies that tended to better aggregate domestic interests towards state-building. - Downloaded via iphone
tax_collection  taxes  state-building  nation-state  urban_politics  competition-interstate  political_culture  political_participation  agriculture-surplus  Absolutism  government_finance  fiscal-military_state  agriculture  Europe-Early_Modern  economic_history  article  bibliography  political_sociology  central_government  19thC  financial_instiutions  downloaded  18thC  15thC  urban_elites  military_history  political_economy  17thC  governing_class  constitutional_regime  local_government  fiscal_policy  16thC  government-forms  jstor  Crown_finance  financial_system 
july 2017 by dunnettreader
Flores-Maciss
What determines when states adopt war taxes to finance the cost of conflict? We address this question with a study of war taxes in the United States between 1789 and 2010. Using logit estimation of the determinants of war taxes, an analysis of roll-call votes on war tax legislation, and a historical case study of the Civil War, we provide evidence that partisan fiscal differences account whether the United States finances its conflicts through war taxes or opts for alternatives such as borrowing or expanding the money supply. Because the fiscal policies implemented to raise the revenues for war have considerable and often enduring redistributive impacts, war finance—in particular, war taxation—becomes a high-stakes political opportunity to advance the fiscal interests of core constituencies. Insofar as the alternatives to taxation shroud the actual costs of war, the findings have important implications for democratic accountability and the conduct of conflict. - Downloaded via iphone
US_history  downloaded  politics-and-money  US_military  deficit_finance  sovereign_debt  business_cycles  international_finance  fiscal_policy  Congress  US_foreign_policy  capital_markets  fiscal-military_state  political_history  article  political_economy  monetary_policy  taxes  US_politics  accountability  financial_system  redistribution  business-and-politics 
july 2017 by dunnettreader
Paul Pfleiderer a Chameleons: The Misuse of Theoretical Models in Finance and Economics (2014) | Stanford Graduate School of Business
Chameleons: The Misuse of Theoretical Models in Finance and Economics
By Paul Pfleiderer
March 2014Working Paper No. 3020
Finance
In this essay I discuss how theoretical models in finance and economics are used in ways that make them “chameleons” and how chameleons devalue the intellectual currency and muddy policy debates. A model becomes a chameleon when it is built on assumptions with dubious connections to the real world but nevertheless has conclusions that are uncritically (or not critically enough) applied to understanding our economy. I discuss how chameleons are created and nurtured by the mistaken notion that one should not judge a model by its assumptions, by the unfounded argument that models should have equal standing until definitive empirical tests are conducted, and by misplaced appeals to “as-if” arguments, mathematical elegance, subtlety, references to assumptions that are “standard in the literature,” and the need for tractability.

Download
financial_system  downloaded  macroeconomics  economic_policy  economic_theory  economic_models 
april 2017 by dunnettreader
Reading: Barry Eichengreen (2011): Economic History and Economic Policy via Brad DeLong
Barry Eichengreen (2011): Economic History and Economic Policy - EHA Presidential Address 2011
As you read, formulate your answers to the following questions:
1. What does Eichengreen think are the uses of history, as shown in the use of history in trying to understand the macroeconomic crisis that began in 2008?
2.What does Eichengreen think are the abuses of history, as shown in the use of history in trying to understand the macroeconomic crisis that began in 2008?
3.What rules and approaches does Eichengreen arrive it for future people trying to use history better?
Downloaded via iPhone to DBOX
monetary_policy  historiography-postWWII  QE  fiscal_policy  unemployment  historiography-19thC  economic_history  economic_policy  Keynesianism  speech  FX-rate_management  downloaded  central_banks  Great_Depression  historiography  FX  austerity  financial_system  financial_crisis  financial_regulation  Minsky  historiography-20thC  FX-misalignment  Great_Recession  inflation 
january 2017 by dunnettreader
Gary Gorton
Mobile Collateral versus Immobile Collateral
Gary Gorton, Tyler Muir
NBER Working Paper No. 22619
Issued in September 2016
NBER Program(s):   AP   CF   DAE   EFG   ME
In the face of the Lucas Critique, economic history can be used to evaluate policy. We use the experience of the U.S. National Banking Era to evaluate the most important bank regulation to emerge from the financial crisis, the Bank for International Settlement's liquidity coverage ratio (LCR) which requires that (net) short-term (uninsured) bank debt (e.g. repo) be backed one-for-one with U.S. Treasuries (or other high quality bonds). The rule is narrow banking. The experience of the U.S. National Banking Era, which also required that bank short-term debt be backed by Treasury debt one-for-one, suggests that the LCR is unlikely to reduce financial fragility and may increase it.
NBFI  NBER  financial_stability  risk_management  collateral  financial_economics  capital_markets  bad_regulation  leverage  financial_system  risk-systemic  paywall  money_market  banking  paper  financial_regulation  BIS 
october 2016 by dunnettreader
Psychologists at the Gate: Review of Daniel Kahneman’s Thinking, Fast and Slow (2012) | Andrei Shleifer - J of Econ Lit
Shleifer, Andrei. 2012. “Psychologists at the Gate: Review of Daniel Kahneman’s Thinking, Fast and Slow.” Journal of Economic Literature 50 (4): 1080-1091. -- downloaded via iPhone to DBOX
investors  cognition  neuroscience  reviews  books  credit  cognitive_bias  cognitive_science  financial_regulation  Minsky  risk_assessment  asset_prices  bubbles  creditors  downloaded  financial_system  credit_booms  behavioral_economics  financial_crisis 
august 2016 by dunnettreader
Pedro Bordalo, Katherine Coffman, Nicola Gennaioli & Andrei Shleifer - “Stereotypes” (Forthcoming 2016) Quarterly Journal of Economics
Citation:
Bordalo, Pedro, Katherine Coffman, Nicola Gennaioli, and Andrei Shleifer. Forthcoming. “Stereotypes.” Quarterly Journal of Economics. -- We present a model of stereotypes based on Kahneman and Tversky’s representative-ness heuristic. A decision maker assesses a target group by overweighting its representative types, defined as the types that occur more frequently in that group than in a baseline ref-erence group. Stereotypes formed in this way contain a “kernel of truth”: they are rooted in true di˙erences between groups. Because stereotypes focus on di˙erences, they cause belief distortions, particularly when groups are similar. Stereotypes are also context dependent: beliefs about a group depend on the characteristics of the reference group. In line with our predictions, beliefs in the lab about abstract groups and beliefs in the field about political groups are context dependent and distorted in the direction of representative types. -- downloaded via iPhone to DBOX
behavioral_economics  cognitive_bias  credit_crunch  financial_system  article  heuristics  bubbles  credit_booms  downloaded  cognition  investors  capital_markets 
august 2016 by dunnettreader
Bordalo, Gennaioli and Shleifer - Diagnostic Expectations and Credit Cycles - WP June 2016 version
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. Working Paper. “Diagnostic Expectations and Credit Cycles”.Abstract
We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky’s (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light of incoming data. The model reconciles extrapolation and neglect of risk in a unified framework. Diagnostic expectations are forward looking, and as such are immune to the Lucas critique and nest rational expectations as a special case. In our model of credit cycles, credit spreads are excessively volatile, over-react to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility
PDF, revised June 2016 -- downloaded via iPhone to DBOX
financial_system  bubbles  creditors  investors  leverage  credit_crunch  paper  capital_markets  debt_crisis  consumer_demand  debt-overhang  banking  reallocation-labor  demand-side  credit_booms  downloaded  debt-restructuring  reallocation-capital  financial_crisis  investment 
august 2016 by dunnettreader
Gennaioli, Nicola, Andrei Shleifer and Robert Vishny - Neglected Risks: The Psychology of Financial Crises (2015) | Andrei Shleifer - pre-pub pdf
We model a financial market in which investor beliefs are shaped by representativeness. Investors overreact to a series of good news, because such a series is representative of a good state. A few bad news do not change investor minds because the good state is still representative, but enough bad news leads to a radical change in beliefs and a financial crisis. The model generates debt over-issuance, "this time is different" beliefs, neglect of tail risks, under- and over-reaction to information, boom-bust cycles, and excess volatility of prices in a unified psychological model of expectations.
Citation
Gennaioli, Nicola, Andrei Shleifer and Robert Vishny. 2015. "Neglected Risks: The Psychology of Financial Crises." American Economic Review, 105(5): 310-14.
DOI: 10.1257/aer.p20151091
Downloaded pre-pub pdf via iPhone to DBOX
financial_crisis  investors  Minsky  investment  credit_booms  financial_system  downloaded  article  capital_markets 
august 2016 by dunnettreader
Iryna Stewen & Mathias Hoffmann - Holes in the Dike: the global savings glut, US house prices & the long shadow of banking deregulation (2015 wp)
Verein für Socialpolitik / German Economic Association in its series Annual Conference 2015 (Muenster): Economic Development - Theory and Policy with number 112834. -- Abstract -- We explore empirically how capital inflows into the US and financial deregulation within the United States interacted in driving the run-up (and subsequent decline) in US housing prices over the period 1990-2010. To obtain an ex ante measure of financial liberalization, we focus on the history of interstate-banking deregulation during the 1980s, i.e. prior to the large net capital inflows into the US from China and other emerging economies. Our results suggest a long shadow of deregulation: in states that opened their banking markets to out-of-state banks earlier, house prices were more sensitive to capital inflows. We provide evidence that global imbalances were a major positive funding shock for US wide banks: different from local banks, these banks held a geographically diversified portfolio of mortgages which allowed them to tap the global demand for safe assets by issuing private-label safe assets backed by the country-wide US housing market. This, in turn, allowed them to expand mortgage lending and lower interest rates, driving up housing prices. -- downloaded via iPhone to DBOX
banking  financial_crisis  deregulation  US_economy  downloaded  financial_regulation  global_imbalance  capital_markets  post-Cold_War  financial_system  interstate_banking  savings  house_prices  securitization  financial_innovation  interest_rates  mortgages  international_finance  capital_flows  community_banks  paper  21stC  economic_history  competition-interstate  NBFI 
august 2016 by dunnettreader
R. Esteves - The Political Economy of Global Financial Liberalisation in Historical Perspective (2011) Oxford Economic and Social Sciences WP
Abstract
This paper is a first attempt to garner the theory and evidence on the political economy of the first wave of financial liberalisation during the nineteenth and early twentieth century, and of its demise after World War I. Not everyone gained from the process of globalisation (of trade, labour, and finance), which brought about important changes in the structure of the economy and the distribution of income in nations across the world. This paper explores how the economic incentives generated by these dislocations translated, through the political system, into choices about openness to foreign capital and financial integration. The period before World War I is remarkable by the almost absence of restrictions on cross-border capital flows, which may explain the little attention it has received in the historical literature, compared to the extensive study of trade protectionism in this period. After the War, many countries experimented with capital controls which varied in nature and intensity and were intensified during the Depression. Despite the attempt made here to reconcile these stylized facts to models of political economy, the analysis requires a better empirical foundation and some suggestions for further research are also proposed. - Downloaded via iPhone to DBOX.
financial_regulation  economic_growth  pre-WWI  20thC  protectionism  downloaded  gold_standard  international_finance  financial_system  trade-policy  trade  19thC  capital_flows  capital_controls  globalization  deregulation  free_trade  paper  economic_history  financial_innovation  political_economy 
august 2016 by dunnettreader
Dewatripont, M. and Rochet, J., Tirole, J. - Balancing the Banks: Global Lessons from the Financial Crisis (orig 2010) - Princeton University Press
The financial crisis that began in 2007 in the United States swept the world, producing substantial bank failures and forcing unprecedented state aid for the crippled global financial system. Bringing together three leading financial economists to provide an international perspective, Balancing the Banks draws critical lessons from the causes of the crisis and proposes important regulatory reforms, including sound guidelines for the ways in which distressed banks might be dealt with in the future.

While some recent policy moves go in the right direction, others, the book argues, are not sufficient to prevent another crisis. The authors show the necessity of an adaptive prudential regulatory system that can better address financial innovation. Stressing the numerous and complex challenges faced by politicians, finance professionals, and regulators, and calling for reinforced international coordination (for example, in the treatment of distressed banks), the authors put forth a number of principles to deal with issues regarding the economic incentives of financial institutions, the impact of economic shocks, and the role of political constraints.

Offering a global perspective, Balancing the Banks should be read by anyone concerned with solving the current crisis and preventing another such calamity in the future.
Downloaded Chapters 1 & 2 to Tab S2
books  kindle-available  downloaded  financial_system  financial_regulation  financial_crisis  banking  bank_runs  shadow_banking  capital_markets  capital_flows  capital_adequacy  liquidity  risk_management  incentives-distortions  incentives  international_finance  global_governance  regulatory_arbitrage  regulatory_avoidance  regulation-costs  regulation-enforcement  regulation-harmonization  regulation 
august 2016 by dunnettreader
Jean Tirole - Financial Crises, Liquidity, and the International Monetary System (eBook, Paperback 2016 and Hardcover 2002) - Princeton University Press
Written post Asia crisis but eternally applicable - he was focusing on capital flows when it still was heterodoxy -- Once upon a time, economists saw capital account liberalization--the free and unrestricted flow of capital in and out of countries--as unambiguously good. Good for debtor states, good for the world economy. No longer. Spectacular banking and currency crises in recent decades have shattered the consensus. In this remarkably clear and pithy volume, one of Europe's leading economists examines these crises, the reforms being undertaken to prevent them, and how global financial institutions might be restructured to this end. Jean Tirole first analyzes the current views on the crises and on the reform of the international financial architecture. Reform proposals often treat the symptoms rather than the fundamentals, he argues, and sometimes fail to reconcile the objectives of setting effective financing conditions while ensuring that a country "owns" its reform program. A proper identification of market failures is essential to reformulating the mission of an institution such as the IMF, he emphasizes. Next he adapts the basic principles of corporate governance, liquidity provision, and risk management of corporations to the particulars of country borrowing. Building on a "dual- and common-agency perspective," he revisits commonly advocated policies and considers how multilateral organizations can help debtor countries reap enhanced benefits while liberalizing their capital accounts.

Based on the Paolo Baffi Lecture the author delivered at the Bank of Italy, this refreshingly accessible book is teeming with rich insights that researchers, policymakers, and students at all levels will find indispensable. -- downloaded excerpt to Tab S2
books  kindle-available  downloaded  financial_system  financial_regulation  financial_crisis  banking  capital_adequacy  contagion  sovereign_debt  international_monetary_system  international_finance  international_political_economy  IMF  emerging_markets  globalization  global_governance  global_system 
august 2016 by dunnettreader
J Oldfather, S Gissler & D Ruffino - Bank Complexity: Is Size Everything? | FRB: FEDS Notes: July 2016
Jeremy Oldfather, Stefan Gissler, and Doriana Ruffino - Can we measure the complexity of large banks by comparing their balance sheets? The Basel Committee on Banking Supervision (BCBS) acknowledges that we cannot, but it stops short of defining alternative non-balance-sheet measures.1 In this note, we propose a network-based analysis to study the structural complexity of banks through publicly available data on the structure of large U.S. banks. We show that our analysis is also informative more broadly for tailoring bank resolution plans. - interesting use of network graphs - downloaded to Tab S2
paper  Fed  financial_system  financial_regulation  financial_crisis  capital_adequacy  banking-universal  bank_holding_cos  networks-architecture  networks-financial  risk_management  complexity  downloaded 
july 2016 by dunnettreader
D. Georgarakos
Trust, Sociability, and Stock Market Participation
Dimitris Georgarakos1 and
Giacomo Pasini2
1Goethe University Frankfurt and Center for Financial Studies
2Venice University
Review of Finance (2011) 15 (4): 693-725. doi: 10.1093/rof/rfr028 -- This article investigates the importance of both trust and sociability for stock market participation and for differences in stockholding across Europe. We estimate significant effects for the two, and find that sociability can partly balance the discouragement effect on stockholding induced by low regional prevailing trust. We test for exogeneity of trust and sociability indicators using variation in history of political institutions and in frequency of contacts with grandchildren, respectively. Moreover, the effect of trust is stronger in countries with limited participation and low average trust, offering an explanation for the remarkably low stockholding rates of the wealthy living therein. - downloaded via iPhone to DBOX
trust  sociability  investors  financial_system  article  capital_markets  investment  behavioral_economics  downloaded 
july 2016 by dunnettreader
Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer - Diagnostic Expectations and Credit Cycles | NBER - May 2016
NBER Working Paper No. 22266, Issued in May 2016 -- We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky’s (1972) representativeness heuristic. In this formulation, when forming their beliefs agents overweight future outcomes that have become more likely in light of incoming data. The model reconciles extrapolation and neglect of risk in a unified framework. Diagnostic expectations are forward looking, and as such are immune to the Lucas critique and nest rational expectations as a special case. In our model of credit cycles, credit spreads are excessively volatile, over-react to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility. - via DeLong
paper  paywall  business_cycles  Minsky  RBC  financial_system  capital_markets  credit  credit_booms  credit_crunch  rational_expectations  heuristics  rationality-economics  rational_choice  financial_stability  volatility  risk_assessment  interest_rates  spreads  Kindleberger 
may 2016 by dunnettreader
Perry Mehring - Shadow banking’s enduring perils - INET - May 2016
In the immediate aftermath of the global financial crisis, most people thought that shadow banking was all in the past, and good riddance! Today, however, it is…
Instapaper  financial_system  capital_markets  money_market  shadow_banking  banking  leverage  financial_regulation  from instapaper
may 2016 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - Liquidity Runs - April 2016
"We do not want to face Bear." Email from a Goldman employee to a hedge fund manager, March 11, 2008 ( Financial Crisis Inquiry Report , p. 288) Despite mixed…
Instapaper  financial_system  financial_crisis  liquidity  insolvency  financial_system-government_back-stop  contagion  clearing_&_settlement  risk_assessment  risk_management  risk-systemic  from instapaper
may 2016 by dunnettreader
Edward Kane - Theory of How and Why Central-Bank Culture Supports Predatory Risk-Taking at Megabanks | INET (Dec 2015)
This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators. It identifies a series of hard-to-change cultural norms and assumptions that support go-for-broke risk-taking by megabanks that meets the every-day definition of theft. The problem is not to find new ways to constrain this behavior, but to change the norms that support it by establishing that managers of megabanks owe duties of loyalty, competence, and care directly to taxpayers. -- downloaded pdf to Note
paper  downloaded  financial_system  financial_regulation  norms-business  incentives  incentives-distortions  banking  organizations  firms-theory  firms-structure  firms-organization 
february 2016 by dunnettreader
Mike Konczal, J.W. Mason, Amanda Page-Hoongrajok - Ending Short-Termism: An Investment Agenda for Growth - Roosevelt Institute - Nov 2015
The first part of this agenda will directly counter several of the specific trends known to increase short-termism. It will include ideas that are broadly applicable across industries, such as policies to address skyrocketing CEO pay, as well as more targeted solutions. A policy agenda to address corporate short-termism requires a comprehensive approach focused on building countervailing power, which is addressed in the second part of our proposal. The forces that push firms toward shorttermism will persist and find new ways to exert power, but the reforms outlined in this paper embrace wide-scale, long-term changes, such as granting workers power on boards, designed to attract long-term stakeholders. The agenda also includes practical, simple policy changes for regulators.The third part of our agenda contains solutions that point to a new role for the state. Taxes and full employment are two obvious and necessary ways of checking short-termism, and if companies are less interested in investment, government needs to fill in that gap, whether by providing high-speed cable or funding basic research. -- downloaded pdf to Note
US_economy  investment  investors  capital_markets  corporate_finance  corporate_governance  shareholder_value  shareholders  short-termism  financial_system  equity_markets  capital_formation  capital_allocation  executive_compensation  debt  buybacks  tax_policy  Labor_markets  labor_share  unions  investment-government  downloaded 
november 2015 by dunnettreader
J.W. Mason - Understanding Short-Termism: Questions and Consequences - Roosevelt Institute - Nov 2015
addresses the most common objections to the idea that short-termism is a serious problem for the US economy. These objections fall into 3 broad categories: short-termism is not real (because of an apparent increase in business investment), short-termism is not harmful (because increased payouts allocate capital more efficiently), and short-termism is not our problem (because shareholders alone should determine what to do with a corporation’s surplus funds). J.W. Mason provides answers to 12 common questions about short-termism and shareholder payouts. Questions 1 and 2 reflect the first objection, Questions 3 through 7 reflect the second objection, and questions 8 through 12 reflect the third objection. Drawing on the best available data, he concludes that none of these objections hold up under scrutiny.This report is part of the Roosevelt Institute’s comprehensive Rewriting the Rules agenda, which aims to level the playing field and grow the economy. A companion report, “Ending Short-Termism,” develops a policy agenda to respond to this challenge -- downloaded pdf to Note
US_economy  investment  investors  capital_markets  corporate_finance  corporate_governance  shareholder_value  shareholders  short-termism  financial_system  equity_markets  capital_formation  capital_allocation  executive_compensation  debt  buybacks  tax_policy  downloaded 
november 2015 by dunnettreader
JAMES LIVESEY, review essay - Berkeley, Ireland and 18thC Intellectual History (Aug 2015) | Cambridge Journaks - Modern Intellectual History Modern Intellectual History - BERKELEY, IRELAND AND EIGHTEENTH-CENTURY INTELLECTUAL HISTORY - Cambridge Journals O
Modern Intellectual History / Volume 12 / Issue 02 / August 2015, pp 453-473
Department of History, School of Humanities, University of Dundee -- (1) Marc A. Hight ed., The Correspondence of George Berkeley (Cambridge University Press, 2013) (2) Scott Breuninger , Recovering Bishop Berkeley: Virtue and Society in the Anglo-Irish Context (Palgrave, 2010) (3) Daniel Carey and Christopher J. Finlay , eds., The Empire of Credit: The Financial Revolution and the British Atlantic World, 1688–1815 (Irish Academic Press, 2011) -- 18thC Irish intellectual history has enjoyed a revival in recent years. New scholarly resources, such as the Hoppen edition of the papers of the Dublin Philosophical Society and the recently published Berkeley correspondence, have been fundamental to that revival. Since 1986 the journal Eighteenth-Century Ireland: Iris an dá chultúr has sponsored a complex conversation on the meaning and legacy of the 18thC in Irish history. Work in the journal and beyond deploying “New British” and Atlantic histories, as well as continuing attention to Europe, has helped to enrich scholarly understanding of the environments in which Irish people thought and acted. The challenge facing historians of Ireland has been to find categories of analysis that could comprehend religious division and acknowledge the centrality of the confessional state without reducing all Irish experience to sectarian conflict. Clearly the thought of the Irish Catholic community could not be approached without an understanding of the life of the Continental Catholic Church. Archivium Hibernicum has been collecting and publishing the traces of that history for a hundred years and new digital resources such as the Irish in Europe database have extended that work in new directions. The Atlantic and “New British” contexts have been more proximately important for the Protestant intellectual tradition
books  reviews  article  paywall  intellectual_history  18thC  Ireland  Berkeley  British_history  Three_Kingdoms  Church_of_England  Catholics-Ireland  Protestants-Ireland  Atlantic  economic_history  financial_system  finance_capital  credit  Glorious_Revolution  colonialism  Protestant_Ascendancy 
november 2015 by dunnettreader
Diana Ayala Pena, Milan Nedeljkovic, Christian Saborowski - What Slice of the Pie? The Corporate Bond Market Boom in Emerging Economies | IMF Research - July 2015
This paper studies the determinants of shifts in debt composition among EM non-financial corporates. We show that institutions and macro fundamentals create an enabling environment for bond market development. During the recent boom episode, however, global cyclical factors accounted for most of the variation of bond shares in total corporate debt. The sensitivity to global factors appears to vary with relative bond market size—which we interpret to be associated with liquidity and easy entry and exit—rather than local fundamentals. Foreign bank linkages help explain why bond markets increasingly substituted for banks in channeling liquidity to EMs. Our results highlight the risk of capital flow reversal in EMs that benefited from the upturn in the global financial cycle mostly due to their liquid markets rather than strong fundamentals. -- downloaded pdf to Note
paper  IMF  financial_system  cross-border  emerging_markets  bond_markets  corporate_finance  disintermediation  capital_markets  capital_flows  liquidity  contagion  business_cycles  downloaded 
november 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - Market liquidity and financial stability - October 2015
Everyone seems to be worried about market liquidity – the ability to buy or sell a large quantity of an asset with little or no price impact. Some observers… Nice overview of which issues ought to be of concern to keep an eye on, and what recent studies by FRBNY have shown
Instapaper  financial_system  financial_regulation  markets-structure  liquidity  financial_stability  equity_markets  corporate_finance  bond_markets  money_market  asset_prices  firesales  intermediation  broker-dealers  market_makers  HFT  from instapaper
october 2015 by dunnettreader
Mike Koczal - Four Ways of Looking at a TBTF Subsidy: A Reply to Dean Baker - October 2015
The discussion over a Too Big To Fail (TBTF) subsidy, where the largest banks are able to borrow more cheaply as the result of potential future bailouts, is…
Instapaper  financial_system  financial_regulation  financial_crisis  banking  TBTF  Dodd-Frank  bailouts  US_politics  from instapaper
october 2015 by dunnettreader
Guillaume Vuillemey, review - Nicolas Buat, John Law: La dette ou comment s’en débarrasser - La Vie des idées - 8 juillet
Recensé : Nicolas Buat, John Law – La dette ou comment s’en débarrasser, Les Belles Lettres, Collection « Penseurs de la liberté », 2015, 272 p., 21 €.
-- Mots-clés : dette | monnaie | banques | XVIIIe siècle -- John Law a laissé son nom associé à un scandale financier considérable. Nicolas Buat retrace sa vie aventureuse, et ses projets ambitieux pour dynamiser l’économie et éteindre la dette de la France. -- Que l’on cherche à tirer de l’histoire de grands enseignements, ou que l’on se satisfasse d’y contempler une galerie de portraits et de tableaux sans conséquences pour notre temps, on ne peut demeurer indifférent au personnage de John Law. Le récent ouvrage biographique de Nicolas Buat – conservateur en chef des Archives de Paris – nous invite à le redécouvrir. S’il s’inscrit dans une série déjà relativement longue de travaux consacrés à Law (dont le plus connu est certainement le livre d’Edgar Faure, La Banqueroute de Law, paru en 1977), son grand mérite est de nous plonger dans l’atmosphère bouillonnante de la Régence, sans perdre le lecteur dans de trop pointilleuses descriptions du « Système » mis en place entre 1716 et 1720. -- downloaded pdf to Note
books  reviews  French_language  political_economy  18thC  biography  Law_John  French_government  French_politics  money  monetary_theory  monetary_policy  sovereign_debt  default  Mississippi_Company  bubbles  banking  currency  investors  Regency-France  financial_system  financial_crisis  capital_markets  financial_innovation  downloaded 
october 2015 by dunnettreader
Aida Caldera, Mikkel Hermansen, Oliver Röhn - Economic resilience: A new set of vulnerability indicators | VOX, CEPR’s Policy Portal - 19 September 2015
The Global Crisis and its high costs have revived interest in early warning indicators of economic risks. This column presents a new set of indicators to detect vulnerabilities and assess country-specific risks of suffering a crisis. The empirical evidence confirms the usefulness of the vulnerability indicators in warning of severe recessions and crises in OECD countries. But indicators are no silver bullet and should be complemented with other monitoring tools, including expert judgement. -- paper giving overview of OECD Program working on indicators of upcoming crises and macro policies that could be adopted to head off crises -- stress on linkages across 6 clusters of economic activity and potential vulnerabilities -- in tuning indicators, looking at trade off between false positives and insufficient strength of negative signals, and the costs of responding to false positives vs failing to respond to warning flags -- also trying to see how, via linkages, prudential measures in one area might reduce vulnerabilities in other areas, so not left with only the blunt instrument of monetary policy
paper  OECD  OECD_economies  BRICS  business_cycles  recessions  macroeconomic_policy  macroeconomics  macroprudential_policies  financial_system  financial_crisis  credit_booms  fiscal_policy  FX-misalignment  capital_flows  housing  FDI  forecasts 
september 2015 by dunnettreader
Economic resilience - OECD Program with Working Papers and data sets on vulnerability ibdicators
Reducing the vulnerability of economies to crises and strengthening their capacity to absorb and overcome severe shocks while supporting strong growth -- that is strengthening economic resilience -- is a key policy priority. The Economic Resilience work stream aims at providing a systematic and holistic framework, including a set of indicators, to help governments identify vulnerabilities to shocks and crises early on so as to reduce their likelihood and economic cost. The findings arising from this work stream will be used to strengthen macro and structural policies surveillance.
website  OECD  business_cycles  forecasts  economic_indicators  financial_system  recessions  financial_crisis  macroeconomics  macroprudential_policies  macroprudential_regulation  housing  credit_booms 
september 2015 by dunnettreader
Charles A.E. Goodhart, Enrico Perotti - Containing maturity mismatch | VOX, CEPR’s Policy Portal - 10 September 2015
In the last century, real estate funding by banks grew steadily. This column argues that the unprecedented expansion of banking in mortgage lending resulted in a high degree of maturity mismatch. The solution to this problem should focus on greater maturity matching, and not using insured deposits. One avenue to do so is by securitising mortgages with little maturity transformation. Another is to create intermediaries providing mortgage loans where the lender shares in the appreciation, while assuming some risk against the occasional bust. -- downloaded as pdf to Note
paper  banking  financial_system  financial_regulation  financial_crisis  capital_markets  risk-systemic  markets-structure  real_estate  mortgages  liquidity  money_market  deposit_insurance  disintermediation  maturity_transformation  securitization  institutional_investors  bubbles  Minsky  downloaded 
september 2015 by dunnettreader
Egmont Kakarot-Handtke - Make a Bubble, Take a Free Lunch, Break a Bank by :: SSRN - Oct 2012, update May 2015
University of Stuttgart - Institute of Economics and Law -- Standard economics is known to be incapable of integrating the real and the monetary sphere. The ultimate reason is that the whole theoretical edifice is built upon a set of behavioral axioms. Therefore, the formal starting point is moved to structural axioms. This makes it possible to formally track the complete process of value creation and destruction in the asset market and its consequences for the household and business sector. From the set of structural axioms emerge the well-known phenomena of a bubble from free lunches through appreciation to defaults due to a lack of potential next buyers. -- Pages in PDF File: 35 -- Keywords: new framework of concepts, structure-centric, axiom set, profit, rate of interest, liquidity preference, primary market, secondary market, parrot economics, theory of value, valuation price, appreciation, depreciation, net worth, debt/income ratio -- didn't download
paper  SSRN  economic_theory  macroeconomics  financial_system  markets-structure  bubbles  asset_prices  leverage  primary_markets  secondary_markets  liquidity  interest_rates  credit_booms  capital_markets  money_market 
september 2015 by dunnettreader
Egmont Kakarot-Handtke - Essentials of Constructive Heterodoxy: Financial Markets :: SSRN - June 2015
University of Stuttgart - Institute of Economics and Law -- What stands before all eyes as failed Orthodoxy is ultimately caused by the wrong answer to Mill's Starting Problem. It is now pretty obvious that one cannot put utility maximization, equilibrium, well-behaved production functions, ergodicity or any other physical or psychological or sociological or behavioral assumption into the premises. No way leads from such premises to the explanation of how the actual market economy works. The logical consequence is to discard them. Having first secured a superior formal starting point, the present paper addresses the question of how the various types of financial markets emerge from the elementary monetary circuit. -- Pages in PDF File: 33 -- Keywords: new framework of concepts, structure-centric, Law of Supply and Demand, Profit Law, IOU, complementarity of retained profit and saving, securities, bonds, common stock, mortgages, consumer financing, helicopter money -- didn't download
paper  SSRN  economic_theory  financial_system  capital_markets  money  profit  credit  asset_prices  investment  mortgages  leverage  consumer_finance  savings  equity-corporate  equity_markets  bond_markets 
september 2015 by dunnettreader
Primary and Secondary Markets by Egmont Kakarot-Handtke :: SSRN - Aug 2011, update March 2015
Also Dec 2012 Levy Economics Institute of Bard College Working Paper No. 741 -- University of Stuttgart - Institute of Economics and Law -- This paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand and supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake.-- Pages in PDF File: 26 -- Keywords: new framework of concepts, structure-centric, axiom set, residuals, real and monetary stocks, money, credit, financial saving, nonfinancial saving, net worth, financial profit, nonfinancial profit, retained profit, appreciation, wealth -- downloaded pdf to Note
paper  SSRN  economic_theory  macroeconomics  financial_system  markets  markets-structure  primary_markets  secondary_markets  asset_prices  profit  investment  interest_rates  savings  capital_gains  money  wealth  credit  liquidity  downloaded 
september 2015 by dunnettreader
Ben S. Bernanke, review - Charles P. Kindleberger, Jean-Pierre Laffargue eds, Financial Crises: Theory, History, and Policy | JSTOR Journal of Economic Literature (1983)
Journal of Economic Literature 21, No. 2 (Jun., 1983), pp. 574-575 -- delicious in retrospect -- he dings Minsky for inadequate formalism and thinks respondents showed data that punched holes in his approach,. He softly gives the nod to Solow’s defense of Lender of Last Resort as against Friedman and Harry Johnson that all you need is well run monetary policy. Though Solow also stressed the need to guard against people exploiting the implicit guarantee. Ben should have drawn a few stronger lessons before the financial crisis produced its Minsky moment, in part because Greenspan thought the market would provide the discipline Solow saw as necessary, and Ben became LLR for the globe. -- downloaded pdf to Note
books  reviews  financial_system  financial_regulation  financial_crisis  Minsky  Kindleberger  Solow  Friedman_Milton  Bernanke  central_banks  credit_booms  business_cycles  lender-of-last-resort  bubbles  financial_system-government_back-stop  downloaded 
september 2015 by dunnettreader
Darrell Duffie and Jeremy C. Stein - Reforming LIBOR and Other Financial Market Benchmarks (2015) | AEAweb: Journal of Economic Perspectives, 29(2): 191-212.
LIBOR is the London Interbank Offered Rate: a measure of the interest rate at which large banks can borrow from one another on an unsecured basis. LIBOR is often used as a benchmark rate—meaning that the interest rates that consumers and businesses pay on trillions of dollars in loans adjust up and down contractually based on movements in LIBOR. Investors also rely on the difference between LIBOR and various risk-free interest rates as a gauge of stress in the banking system. Benchmarks such as LIBOR therefore play a central role in modern financial markets. Thus, news reports in 2008 revealing widespread manipulation of LIBOR threatened the integrity of this benchmark and lowered trust in financial markets. We begin with a discussion of the economic role of benchmarks in reducing market frictions. We explain how manipulation occurs in practice, and illustrate how benchmark definitions and fixing methods can mitigate manipulation. We then turn to an overall policy approach for reducing the susceptibility of LIBOR to manipulation before focusing on the practical problem of how to make an orderly transition to alternative reference rates without raising undue legal risks. -- didn't download
article  financial_system  financial_regulation  money_market  capital_markets  markets-structure  LIBOR  fraud  business-norms  business_ethics  trust  market_manipulation  accountability 
september 2015 by dunnettreader
Symposium: The Bailouts of 2007-2009 (Spring 2015) | AEAweb: Journal of Economic Perspectives Vol. 29 No.2
Austan D. Goolsbee and Alan B. Krueger - A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler (pp. 3-24) **--** W. Scott Frame, Andreas Fuster, Joseph Tracy and James Vickery - The Rescue of Fannie Mae and Freddie Mac (pp. 25-52) **--** Charles W. Calomiris and Urooj Khan - An Assessment of TARP Assistance to Financial Institutions (pp. 53-80) **--** Robert McDonald and Anna Paulson - AIG in Hindsight (pp. 81-106) **--** Phillip Swagel - Legal, Political, and Institutional Constraints on the Financial Crisis Policy Response (pp. 107-22) -- available online, didn't download
article  journals-academic  financial_system  Great_Recession  financial_crisis  bailouts  bail-ins  capitalism-systemic_crisis  capital_markets  banking  bank_runs  shadow_banking  NBFI  securitization  credit_booms  credit_ratings  incentives-distortions  public-private_partnerships  Fannie_Mae  housing  leverage  financial_system-government_back-stop  financial_innovation  firesales  liquidity  asset_prices  Fed  lender-of-last-resort  regulatory_capture  regulatory_avoidance  credit_crunch  bankruptcy  government_agencies  government_finance  global_economy  global_governance  international_finance  international_monetary_system  international_crisis  property_rights  derivatives  clearing_&_settlement  GSEs  bubbles 
september 2015 by dunnettreader
R Böhme, N Christin, B Edelman & T Moore - Bitcoin: Economics, Technology, and Governance (2015) | AEAweb: Journal of Economic Perspectives, 29(2): 213-38.
Bitcoin is an online communication protocol that facilitates the use of a virtual currency, including electronic payments. Bitcoin's rules were designed by engineers with no apparent influence from lawyers or regulators. Bitcoin is built on a transaction log that is distributed across a network of participating computers. It includes mechanisms to reward honest participation, to bootstrap acceptance by early adopters, and to guard against concentrations of power. Bitcoin's design allows for irreversible transactions, a prescribed path of money creation over time, and a public transaction history. Anyone can create a Bitcoin account, without charge and without any centralized vetting procedure—or even a requirement to provide a real name. Collectively, these rules yield a system that is understood to be more flexible, more private, and less amenable to regulatory oversight than other forms of payment—though as we discuss, all these benefits face important limits. Bitcoin is of interest to economists as a virtual currency with potential to disrupt existing payment systems and perhaps even monetary systems. This article presents the platform's design principles and properties for a nontechnical audience; reviews its past, present, and future uses; and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy. -- downloaded pdf to Note
article  Bitcoin  blockchain  payments_systems  financial_system  financial_regulation  monetary_policy  money  money_supply  asset_prices  financial_innovation  macroeconomic_policy  downloaded 
september 2015 by dunnettreader
Akerlof, G.A. and Shiller, R.J.: Phishing for Phools: The Economics of Manipulation and Deception. (eBook and Hardcover)
Phishing for Phools therefore strikes a radically new direction in economics, based on the intuitive idea that markets both give and take away. Akerlof and Shiller bring this idea to life through dozens of stories that show how phishing affects everyone, in almost every walk of life. We spend our money up to the limit, and then worry about how to pay the next month’s bills. The financial system soars, then crashes. We are attracted, more than we know, by advertising. Our political system is distorted by money. We pay too much for gym memberships, cars, houses, and credit cards. Drug companies ingeniously market pharmaceuticals that do us little good, and sometimes are downright dangerous. Phishing for Phools explores the central role of manipulation and deception in fascinating detail in each of these areas and many more. It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation. At the same time, the book tells stories of individuals who have stood against economic trickery—and how it can be reduced through greater knowledge, reform, and regulation. -- Intro downloaded pdf to Note
financial_crisis  kindle-available  behavioral_economics  competition  downloaded  market_manipulation  markets-psychology  financial_system  pharma  accountability  books  politics-and-money  marketing  information-asymmetric  markets-dependence_on_government  disclosure  markets-failure  financial_innovation  financial_regulation 
august 2015 by dunnettreader
Accounts and holding to account | Enlightened Economist - August 2015
I *loved* Jacob Soll’s The Reckoning: Financial Accountability and the Making and Breaking of Nations. It gives a long historical perspective on accountancy – no, wait – and particularly its importance in literally holding leaders and politicians to account. The book’s message is that there is a constant tension between the increasing sophistication of methods of accounting to hold to account, literally, kings or powerful companies or political leaders and the scope that sophistication creates for new ways of defrauding the people or the shareholders. So the methods of accountancy need to be embedded in a culture of honest dealing.
review  economic_history  institution-building  accountability  institutional_capacity  public_finance  self-regulation  accounting  government_officials  government_finance  books  trust  financial_system  from instapaper
august 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - Bond market liquidity: should we be worried? — Money, Banking and Financial Markets
Our bottom line is this: resilience of intermediaries and resilience of markets are mutually reinforcing. With more resilient institutions, someone is more likely to stand ready to make a market in bonds – both Treasuries and corporates – so long as the rewards are adequate. Since the less liquid a market is, the higher the return to market making will be, the more likely it is that someone will step up to trade when price moves are large. Put another way, better regulation has removed the public subsidy to trading activity that banks and others were able to capture prior to the crisis, so making markets has become more expensive and prices may have to move more than before to attract stabilizing traders. But during those periods when liquidity is particularly valuable, the rewards should exceed these higher capital and liquidity costs. We worry less, not more, because enhanced capital and liquidity requirements are making intermediaries more resilient. Tags: Corporate bonds, Bond market, Liquidity, U.S. Treasury bonds, High-frequency trading, Contagion, Systemic risk -- really good on corporate bonds and links to recent studies on the Treasury market, especially after the flash crash in October 2014 -- downloaded pdf to Note
financial_system  financial_regulation  financial_crisis  capital_markets  risk-systemic  markets-structure  HFT  liquidity  capital_adequacy  banking  broker-dealers  intermediation  corporate_finance  Dodd-Frank  downloaded 
august 2015 by dunnettreader
Jane E. Ihrig, Ellen E. Meade, Gretchen C. Weinbach - Monetary Policy 101: A Primer on the Fed's Changing Approach to Policy Implementation | US Federal Reserve Board of Governors - June 2015. - via IDEAS
The Federal Reserve conducts monetary policy in order to achieve its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates as prescribed by the Congress and laid out in the Federal Reserve Act. For many years prior to the financial crisis, the FOMC set a target for the federal funds rate and achieved that target through purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large scale asset purchase programs, this approach to implementing monetary policy will no longer work. This paper provides a primer on the Fed's implementation of monetary policy. We use the standard textbook model to illustrate why the approach used by the Federal Reserve before the financial crisis to keep the federal funds rate near the FOMC's target will not work in current circumstances, and explain the approach that the Committee intends to use instead when it decides to begin raising short-term interest rates. -- downloaded pdf to Note
US_economy  financial_system  Fed  central_banks  monetary_policy  interest_rates  money_market  banking  GSEs  institutional_investors  NBFI  downloaded 
august 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - How the Fed will tighten — Money, Banking and Financial Markets - August 2015
So, as the FOMC moves to “normalize” monetary policy after years of extraordinary accommodation – eventually raising the federal funds rate to their projected long-run norm of nearly 4% – how, precisely, will the Fed tighten monetary policy? The answer is that the mechanics will be fundamentally different from previous Fed tightening cycles. While the nature of the prospective policy tools will be familiar to long-time specialists, their use will be radically different. As a result, the chapter on Fed operations in money and banking textbooks (including ours) will once again be substantially amended to explain this new framework to the next generation of students aiming to understand the U.S. central bank. This post summarizes why the Fed’s policy mechanics must change and the basics of how the operating framework will function going forward. For those interested in a more detailed version of this discussion, Fed researchers Ihrig, Meade, and Weinbach recently published an excellent primer that is likely to be a reference for years to come. Tags: Federal Reserve, Policy tools, Policy mechanics, Repo, Reverse repo, ON RRP, Term RRP, Term deposit, IOER, IORR, Interest on reserves, GSEs -- downloaded page as pdf to Note
US_economy  financial_system  Fed  central_banks  monetary_policy  interest_rates  money_market  banking  GSEs  institutional_investors  NBFI  downloaded 
august 2015 by dunnettreader
Leonard E. Burman, William G. Gale, et al - Financial transaction taxes in theory and practice | Brookings Institution - June 30, 2015
By: Leonard E. Burman, William G. Gale, Sarah Gault, Bryan Kim, Jim Nunns and Steve Rosenthal -- In response to the financial market crisis and Great Recession, there has been a resurgence of interest in financial transaction taxes (FTTs) around the world. We estimate that a well-designed FTT could raise about $50 billion per year in the United States and would be quite progressive. We discuss the effects of an FTT on various dimensions of financial sector behavior and its ambiguous effects on economic efficiency. -- downloaded pdf to Note
paper  financial_system  capital_markets  markets-structure  HFT  taxes  financial_economics  financial_transaction_tax  liquidity  market_makers  tax_policy  tax_collection  downloaded 
july 2015 by dunnettreader
Financial Market Trends - OECD Journal - Home page | OECD
‌The articles in Financial Market Trends focus on trends and prospects in the international and major domestic financial markets and structural issues and developments in financial markets and the financial sector. This includes financial market regulation, bond markets and public debt management, insurance and private pensions, as well as financial statistics. -- links to the contents of each issue of the journal
journal  website  paper  financial_system  global_economy  global_system  financial_regulation  financial_crisis  capital_markets  risk-systemic  international_finance  banking  NBFI  insurance  markets-structure  risk_assessment  risk_management  sovereign_debt  corporate_finance  corporate_governance  institutional_investors  pensions  consumer_protection  equity-corporate  equity_markets  debt  debt-overhang  leverage  capital_flows  capital_adequacy  financial_economics  financial_innovation  financial_system-government_back-stop  bailouts  too-big-to-fail  cross-border  regulation-harmonization  regulation-costs  statistics 
july 2015 by dunnettreader
Christian Thimann - The economics of insurance and its borders with general finance | VOX, CEPR’s Policy Portal 07/17/2015
What is insurance and where does insurance end?’, is a pressing question in international finance as global regulators are still pondering whether there can be systemic risk in insurance. This column argues that the challenge faced by regulators partly stems from terminological confusion between insurance activities and more general financial activities. -- downloaded pdf to Note
paper  financial_system  insurance  financial_regulation  financial_crisis  capital_markets  risk-systemic  international_finance  downloaded 
july 2015 by dunnettreader
Thomas Palley - Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter - June 15 2015
This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
paper  economic_theory  macroeconomics  stagnation  economic_growth  Keynesianism  economic_sociology  inequality  financial_system  financial_crisis  downloaded 
july 2015 by dunnettreader
Jakob de Haan, Dirk Schoenmaker -Teaching finance after the crisis | VOX, CEPR’s Policy Portal - 06 July 2015
The financial crisis brought with it many challenges, both to prevailing disciplinary tenets, and for research and policy more generally. This column outlines the lessons that can be drawn from the financial crisis – issues like financial market failures, macro-prudential policy, structural changes of the financial system, and the European banking union. It argues for the inclusion of these topics in curricula for the next generation of finance students
financial_economics  financial_system  financial_regulation  financial_crisis  capital_markets  EMH  information-markets  macroprudential_policies  cross-border  European_integration  ECB  banking  business_cycles  Minsky 
july 2015 by dunnettreader
Sven Langedijk,et al - The corporate debt bias and the cost of banking crises | VOX, CEPR’s Policy Portal - 04 July 2015
Sven Langedijk, Gaëtan Nicodème, Andrea Pagano, Alessandro Rossi --Strengthening the banking sector through higher equity capital is one of the key elements of policies aiming to reduce the probability of crises. However, the ‘corporate debt bias’ – the tendency of corporate tax systems to favour debt over equity – is at odds with this objective. This column estimates the benefits for financial stability of eliminating the corporate debt bias. Fully removing the debt bias is estimated to reduce potential public finance losses by between 25 and 55% for the six large EU countries sampled.
paper  financial_system  financial_regulation  financial_crisis  banking  capital_adequacy  debt  corporate_finance  leverage  tax_policy  interest_rates  equity-corporate  EU 
july 2015 by dunnettreader
Financial Transaction Taxes in Theory and Practice | Brookings Institution - June 30, 2015
By: Leonard E. Burman, William G. Gale, Sarah Gault, Bryan Kim, Jim Nunns and Steve Rosenthal -- In response to the financial market crisis and Great Recession, there has been a resurgence of interest in financial transaction taxes (FTTs) around the world. We estimate that a well-designed FTT could raise about $50 billion per year in the United States and would be quite progressive. We discuss the effects of an FTT on various dimensions of financial sector behavior and its ambiguous effects on economic efficiency. -- their overview sets up lots of strawmen while acknowledging that FTTs are quite common even in money center markets like London, but they've done some estimates of various types of impacts in the paper -- didn't download
paper  financial_system  financial_regulation  financial_crisis  capital_markets  financial_transaction_tax  liquidity  volatility  transaction_costs  international_finance 
july 2015 by dunnettreader
The Contribution of Bank Regulation and Fair Value Accounting to Procyclical Leverage by Amir Amel-Zadeh, Mary E. Barth, Wayne R. Landsman :: SSRN ( rev'd June 19, 2015)
Amir Amel-Zadeh, University of Cambridge, Judge Business School; Mary E. Barth, Stanford, Graduate School of Business; Wayne R. Landsman, U of North Carolina Kenan-Flagler Business School -- Rock Center for Corporate Governance at Stanford University Working Paper No. 147 -- Our analytical description of how banks’ responses to asset price changes can result in procyclical leverage reveals that for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, leverage is not procyclical. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of US commercial banks reveal that bank regulation explains procyclical leverage for banks facing a binding regulatory leverage constraint and contributes to procyclical leverage for those that do not. Fair value accounting does not contribute to procyclical leverage. -- PDF File: 46 -- Keywords: Fair value accounting, procyclicality, leverage, risk-based capital regulation, financial institutions, commercial banks -- saved to briefcase
paper  SSRN  financial_system  financial_regulation  banking  capital_adequacy  leverage  procyclical  countercyclical_policy  macroprudential_regulation  risk  risk_management  asset_prices  firesales  accounting  financial_crisis  bubbles  Basle  international_finance 
july 2015 by dunnettreader
Anne Beatty, Scott Liao - Financial Accounting in the Banking Industry: A Review of the Empirical Literature:: SSRN October 23, 2013
Anne Beatty, Ohio State - Dept of Accounting & Management Information Systems; Scott Liao, U of Toronto, Rotman School of Management -- Rotman School of Management Working Paper No. 2346752 -- We survey research on financial accounting in the banking industry. After providing a brief background of the micro-economic theories of the economic role of banks, why bank capital is regulated, and how the accounting regime affects banks’ economic decisions, we review three streams of empirical research. Specifically we focus on research examining the relation between bank financial reporting and the valuation and risk assessments of outside equity and debt, the relation between bank financial reporting discretion, regulatory capital and earnings management, and banks’ economic decisions under differing accounting regimes. We provide our views about what we have learned from this research and about what else we would like to know. We also provide some empirical analyses of the various models that have been used to estimate discretion in the loan loss provision. We further discuss the inherent challenges associated with predicting how bank behavior will respond under alternative accounting and regulatory capital regimes.-- PDF File: 121 -- Keywords: financial accounting; bank regulatory capital; information asymmetry -- saved to briefcase
paper  SSRN  financial_system  financial_regulation  capital_markets  banking  disclosure  accounting  capital_adequacy  asset_prices  risk  investors  leverage  incentives  incentives-distortions  balance_sheet  Basle 
july 2015 by dunnettreader
The Misrepresentation of Earnings by Ilia D. Dichev, John R. Graham, Campbell R. Harvey, Shivaram Rajgopal :: SSRN June 2, 2015
Ilia D. Dichev, Emory University - Goizueta Business School -- John R. Graham, Duke University; NBER -- Campbell R. Harvey, Duke University - Fuqua School of Business; NBER -- Shivaram Rajgopal, Emory University - Goizueta Business School -- We ask nearly 400 CFOs about the definition and drivers of earnings quality, with a special emphasis on the prevalence and detection of earnings misrepresentation. CFOs believe that the hallmarks of earnings quality are sustainability, absence of one-time items, and backing by actual cash flows. Earnings quality is determined in about equal measure by controllable factors like internal controls and corporate governance, and non-controllable factors like industry membership and macroeconomic conditions. On earnings misrepresentation, CFOs believe that in any given period a remarkable 20% of firms intentionally distort earnings, even though they are adhering to generally accepted accounting principles. The economic magnitude of the misrepresentation is large, averaging about 10% of reported earnings. While most misrepresentation involves earnings overstatement, interestingly, one third of the firms that are misrepresenting performance are low-balling their earnings or reversing a prior intentional overstatement. Finally, CFOs provide a list of red flags that can be used to detect earnings misrepresentation. --"PDF File: 23 -- saved to briefcase
paper  SSRN  financial_system  financial_regulation  capital_markets  disclosure  accounting  GAAP  corporate_governance  corporate_citizenship  business_practices  business-norms  business-ethics  market_manipulation  markets-psychology  profits  investors  investor_protection  incentives-distortions 
july 2015 by dunnettreader
Ronald J. Gilson, Reinier Kraakman - Market Efficiency after the Financial Crisis: It's Still a Matter of Information Costs :: SSRN - European Corporate Governance Institute Law Working Paper No. 242/2014
Ronald J. Gilson, Stanford Law & Columbia Law; Reinier Kraakman, Harvard Law; both ECGI -- [Financial crisis is said] to have demonstrated the bankruptcy of the Efficient Capital Market Hypothesis (“ECMH”). (..) the ECMH had moved beyond academia, fueling decades of a deregulatory agenda. (..) when economic theory moves from academics to policy, (..) inevitably refashioned to serve the goals of political argument. This happened starkly with the ECMH. It was subject to its own bubble – (..) expanded from a narrow but important academic theory about the informational underpinnings of market prices to a broad ideological preference for market outcomes over even measured regulation. (..) the ECMH addresses informational efficiency, which is a relative, not an absolute measure. This focus on informational efficiency leads to a more focused understanding of what went wrong in 2007-2008. Yet informational efficiency is related to fundamental efficiency (..) Properly framing market efficiency focuses our attention on the frictions that drive a wedge between relative efficiency and efficiency under perfect market conditions. (..) relative efficiency is a diagnostic tool that identifies the information costs and structural barriers that reduce price efficiency which, in turn, provides part of a realistic regulatory strategy. While it will not prevent future crises, improving the mechanisms of market efficiency will make prices more efficient, frictions more transparent, and the influence of politics on public agencies more observable, which may allow us to catch the next problem earlier. PDF File: 87 -- saved to briefcase
paper  SSRN  financial_system  financial_regulation  financial_crisis  capital_markets  EMH  information-markets  information-asymmetric  efficiency  prices  financial_economics  animal_spirits  behavioral_economics 
july 2015 by dunnettreader
Arianna Lovera - La finance solidaire: Un marché civique pour le financement du travail | La Vie des idées - 15 janvier 2013
Face au marché capitaliste, il existerait un marché civique, dans le cadre duquel il est possible de financer les projets professionnels ou particuliers selon d’autres critères que celui de la maximisation du profit : c’est l’ambition de la finance solidaire, branche de l’économie solidaire qui permet de financer le travail en prenant en compte des critères extra-économiques ou éthiques. (...) les démarches d’octroi des prêts se fondent donc à la fois sur des critères bancaires traditionnels et sur des critères extra-économiques : parmi les premiers figure notamment l’analyse des bilans et des prévisionnels du sujet demandeur du prêt, dans le but de vérifier qu’il soit en condition de rembourser à la fois le prêt et les intérêts ; tandis que parmi les critères extra-économiques ou « éthiques » entrent des considérations concernant l’activité elle-même et son impact sur le tissu économico-social dans lequel elle s’inscrit. -- didn't download
article  financial_instiutions  financial_system  banking  nonprofit  solidarity  social_entrepreneurs  co-ops  access_to_finance  credit  financial_innovation  finance_capital 
june 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - Monetary policy and financial inclusion | Money and Banking - June 2015
Central bankers usually steer clear of discussions about inequality. They view monetary policy as a tool for stabilizing the economy. For many central banks,… -- discusses trade-offs between inflation and unemployment that won't be constant but will vary by structure of financial system including access to credit by lower income and wealth classes, which will both effect impact of recessions on behavior of demand and financial channels through which monetary policy is supposed to work -- so inequal impact doesn't have to be a policy objective that the central bank worries about like the objectives of economic recovery, or nflation, but it will be highly relevant as a condition for meeting the primary objectives and the effectiveness of tools available
Instapaper  monetary_policy  financial_system  banking  zero-bound  inflation  unemployment  business_cycles  access_to_finance  from instapaper
june 2015 by dunnettreader
Macroprudentialism – A new Vox eBook | VOX, CEPR’s Policy Portal 15 December 2014
Dirk Schoenmaker -- overview and TOC -- Macroprudentialism is now part of the standard macroeconomic toolkit but it involves a set of relatively untested policies. This column introduces a new VoX eBook that collects the thinking of a broad range of leading US and European economists on the matter. A consensus emerges on broad objectives of macroprudential supervision, but important disagreements remain among the authors. -- downloaded pdf to Note
financial_system  financial_regulation  financial_crisis  central_banks  macroprudential_regulation  leverage  business_cycles  banking  NBFI  shadow_banking  monetary_policy  EU  Eurozone  OECD_economies  credit  mortgages  downloaded 
june 2015 by dunnettreader
Georges Gloukoviezoff - Les banques face à leurs clients: Salariés de banque et inclusion bancaire | La Vie des idées - 28 janvier 2013
English translation March 2014 -- http://www.booksandideas.net/When-French-Banks-Encounter-their.html -- Most banks have now abandoned their previous function of providing advice. Instead, they view their services as products designed to maximize profits. They have started invoking the client’s autonomy as a way of passing on the risk of financial exclusion to their customers. In what ways have bank employees reacted to these new circumstances? -- Georges Gloukoviezoff est docteur en économie et spécialiste des questions d’inclusion financière des particuliers. Il est membre de l’Observatoire national de la pauvreté et de l’exclusion sociale. Il a publié en octobre 2010 aux Presses Universitaires de France "L’Exclusion bancaire. Le Lien social à l’épreuve de la rentabilité". Il tient également un blog sur la page d’Alternatives Economiques. -- downloaded French version as pdf to Note
article  France  financial_system  banking  access_to_finance  access_to_services  labor  labor-service_sector  consumer_protection  risk_management  risk_shifting  knowledge_economy  knowledge_workers  financial_innovation  advisory_services  business_practices  business-norms  profit  profit_maximization  financial_regulation  customer_relations  exclusion  exclusion-economic  economic_sociology  poverty  workforce  know-how  services  services-worker_autonomy  managerialism  productivity  incentives-distortions  consumer-know-how  downloaded 
june 2015 by dunnettreader
Understanding the Modern Monetary System by Cullen O. Roche :: SSRN - revised April 1, 2013
Orcam Financial Group, LLC -- August 5, 2011 -- This paper provides a broad understanding of the workings of the modern fiat monetary system in the United States. The work is primarily descriptive in nature and takes an operational perspective of the modern fiat monetary system using the understandings of Monetary Realism. -- Pages in PDF File: 40 -- downloaded pdf to Note
macroeconomics  financial_economics  monetary_policy  monetary_theory  central_banks  banking  interest_rates  financial_system  financialization  demand-side  investment  economic_models  downloaded 
june 2015 by dunnettreader
Douglas J. Elliott and Qiao Yu - Reforming shadow banking in China | Brookings Institution - May 12, 2015
Shadow banking has become an important, and rapidly growing, part of Chinese finance. Much of the reporting and analysis for this sector focuses on the risks of shadow banking, which clearly do exist and are significant. However, the societal benefits, on the whole, appear to be even greater. Therefore, shadow banking should be reformed, to reduce the risks and increase the benefits, not abolished or shrunk simply for the sake of reducing its importance. The right approach is to find the optimum balance of societal benefits and risks, not to aim for an arbitrary size or role. Further, much of shadow banking results from a web of regulatory, bureaucratic, and policy constraints and pressures on the formal banking sector, as well as some internal weaknesses at the banks. Therefore, reform recommendations arising from a consideration of shadow banking need to extend into the formal banking sector. -- This paper will focus on recommendations for regulatory reform -- didn't download
paper  China-economy  banking  NBFI  shadow_banking  regulation-enforcement  financial_system  financial_regulation  financial_sector_development  financial_stability 
may 2015 by dunnettreader
Zoltan Jakab and Michael Kumhof - Banks are not intermediaries of loanable funds - and why this matters - Zoltan Jakab and Michael Kumhof | Bank of England - Working Paper No. 529 - 29 May 2015
In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations. This paper contrasts simple intermediation and financing models of banking. Compared to otherwise identical intermediation models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have much greater effects on the real economy. -- downloaded pdf to Note
paper  banking  intermediation  macroeconomics  economic_models  economic_theory  financial_economics  financial_system  credit  loanable_funds  downloaded 
may 2015 by dunnettreader
MN Baily, W Bekker and SE Holmes - The big four banks: The evolution of the financial sector, Part I | Brookings Institution - May 26, 2015
Martin Neil Baily, William Bekker and Sarah E. Holmes -- This report is the first in a series on the evolution of the financial sector. The series aims to retrace the major trends that have shaped the banking sector since the crisis and to orient the public as to where industry stands today. This first installment focuses on the “Big Four” banks: JP Morgan Chase, Bank of America, Citi, and Wells Fargo. This first report is meant to be a factual exploration of the balance sheets of the four largest banks. We will follow this with a report on the regional banks and then a sample of smaller banks. While we give some commentary on the data, the purpose at this stage is to allow readers access to a picture of the largest banks and form their own judgments about why the banks have changed. Putting together the balance sheets of the big four seemed at first as if it would be a straightforward task, but the reality has been different and more difficult. We have aimed to present an accurate picture in the following pages but we would welcome comments. -- didn't download
paper  US_economy  banking  financial_system  financial_crisis  capital_adequacy  capital_markets  too-big-to-fail  intermediation 
may 2015 by dunnettreader
Niel Jay et al - Financial markets imperfections and the SME investment dearth | VOX, CEPR’s Policy Portal - 29 June 2014
Do all firms have equal access to external financing? -- Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell -- Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth. -- they had srats on firm-level performance that allowed them, after pulling out country-level differences in economic conditions, to compare access to finance by similarly successful enterprises, differentiated by size -- as expected, the SMEs had a harder time accessing credit (as well as equity, which is a harder problem to fix given information, transaction and liquidity costs that aren't size-invariant are worse for equity) .
SMEs  Europe  EU  financial_system  banking  credit  access_to_finance  investment 
may 2015 by dunnettreader
Thorsten Beck, Asli Demirgüç-Kunt, Maria Soledad Martinez Peria - Foreign banks and small and medium enterprises: Are they really estranged? | VOX, CEPR’s Policy Portal - 01 April 2010
Small and medium enterprises are engines of economic growth. But what kind of market structure is more conducive to financing these enterprises? This column argues that different types of bank, applying different types of lending technology and organisational structures can all play a vital role in financing them. They're working with a big data set they developed -- shows quite different lending technologies as between foreign and domestic, but similar outcomes in volume of lending, conditions, pricing etc. The big differences are cross couhtry, where thoorer, less developed suffer from less access to credit for investment, higher pricing, etc -- which reflects overall economic conditions and business environment. -- nice use of data -- downloaded page as pdf to Note
financial_system  development  emerging_markets  LDCs  SMEs  access_to_finance  banking  financial_instiutions  cross-border  firms-structure  firms-organization  credit_ratings  financial_sector_development  financial_innovation  investment  collateral  downloaded 
may 2015 by dunnettreader
Charles A.E. Goodhart, Philipp Erfurth - Monetary policy and long-term trends | VOX, CEPR’s Policy Portal - 03 November 2014
There has been a long-term downward trend in labour’s share of national income, depressing both demand and inflation, and thus prompting ever more expansionary monetary policies. This column argues that, while understandable in a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance. The authors propose policies to raise the share of equity finance in housing markets; such reforms could be extended to other sectors of the economy. -- downloaded page as pdf to Note
macroeconomics  global_economy  globalization  labor_share  Labor_markets  inequality-global  inequality  inequality-wealth  OECD_economies  wages  housing  mortgages  debt  debt-overhang  asset_prices  interest_rates  bubbles  real_estate  equity-corporate  equity_markets  central_banks  monetary_policy  financial_system  financial_crisis  LTV  downloaded 
may 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - An Open Letter to Bill McNabb, CEO of Vanguard Group - May 2015
Dear Mr. McNabb, We find your WSJ op-ed (Wednesday, May 6) misleading, short-sighted, self-serving, and very disappointing. Vanguard has been in the forefront… No kidding! Appaling that the money market fund industry has been allowed to reach such insane size while providing money-equivalents for all investors/savers that can't hold up in an incipient panic. If the government is going to be forced to, effectively, provide deposit insurance, at least the amounts should be capped and transparent and the risks properly priced. That the SEC couldn't get its act together on NNFs is the most glaring evidence of regulatory capture in the whole sorry mess.
financial_system  financial_regulation  financial_crisis  shadow_banking  NBFI  money_market  financial_system-government_back-stop  SEC  regulatory_capture  risk-systemic  liquidity  asset_management  asset_prices  from instapaper
may 2015 by dunnettreader
Video - Robert C. Merton (2014) : Measuring the Connectedness of the Financial System: Implications for Systemic Risk Measurement and Management
Abstract -- Macrofinancial systemic risk is an enormous issue for both governments and large asset pools. The increasing globalization of the financial system, while surely a positive for economic development and growth, does increase the potential impact of systemic risk propagation across geopolitical borders, making its control and repairing the damage caused a more complex and longer process. (..) . The Financial Crisis of 2008-2009 and the subsequent European Debt Crisis were centered around credit risk, particularly credit risk of financial institutions and sovereigns, and the interplay of the two. The propagation of credit risk among financial institutions and sovereigns is related to the degree of “connectedness” among them. The effective measurement of potential systemic risk exposures from credit risk may allow the realization of that risk to be avoided through policy actions. Even if it is not feasible to avoid the systemic effects, the impact of those effects on the economy may be reduced by dissemination of that information and subsequent actions to protect against those effects and to subsequently repair the damage more rapidly. This paper applies the structural credit models of finance to develop a model of systemic risk propagation among financial institutions and sovereigns. Tools for applying the model for measuring connectedness and its dynamic changes are presented using network theory and econometric techniques. Unlike other methods that require accounting or institutional positions data as inputs for determining connectedness, the approach taken here develops a reduced-form model applying only capital market data to implement it. Thus, this model can be refreshed almost continuously with “forward-looking” data at low cost and therefore, may be more effective in identifying dynamic changes in connectedness more rapidly than the traditional models. This new research is still in progress. (..) In particular, it holds promise for creating endogenously specified stress test formulations. The talk closes with some discussion of the importance of a more integrated approach to monetary, fiscal and stability policies so as to better recognize the unintended consequences of policy actions in one of these on the others.
video  financial_system  financial_economics  financial_crisis  risk-systemic  networks-financial  networks-information  macroprudential_policies  macroprudential_regulation 
may 2015 by dunnettreader
The strategic under-reporting of banks’ risk - Taylor Begley, Amiyatosh Purnanandam, Kuncheng Zheng | VOXEU - 08 May 2015
A key regulatory response to the Global Crisis has involved higher risk-weighted capital requirements. This column documents systematic under-reporting of risk by banks that gets worse when the system is under stress. Thus banks’ self-reported levels of risk are least informative in states of the world when accurate risk measurement matters the most.
paper  financial_system  financial_regulation  financial_crisis  capital_adequacy  risk-systemic  banking  Basle 
may 2015 by dunnettreader
Economist's View: 'Social Costs of the Financial Sector' - Luigi Zingale lecture and paper - May 2015
Via Tim Taylor, a quotation from Luigi Zingales ("watch video of the lecture or read the talk at his website"): "While there is no doubt that a developed economy needs a sophisticated financial sector, at the current state of knowledge there is no theoretical reason or empirical evidence to support the notion that all the growth of the financial sector in the last forty years has been beneficial to society. In fact, we have both theoretical reasons and empirical evidence to claim that a component has been pure rent seeking. ..." -- downloaded pdf to Note of Zingale paper
financial_system  financial_innovation  financial_sector_development  rent-seeking  financial_regulation  financialization  capital_markets  banking  NBFI  shadow_banking  economic_growth  video  downloaded 
may 2015 by dunnettreader
Jonathan D. Ostry , Atish R. Ghosh , and Mahvash S. Qureshi - Managing Capital Flows in Frontier Economies | IMF Direct - April 2015
By Jonathan D. Ostry , Atish R. Ghosh , and Mahvash S. Qureshi  There has been a remarkable increase in financial flows to frontier economies from private… Enfin! Just 20+ years late. Nice roundup of various people (like Rodrik) thinking about all the variables, including what sorts of local institutional capacity (government and financial markets and institutions) are required for (1) absorbing different types of capital flows or (2) if a country wants to restrict flows in some fashion, to manage different types of restrictions. Additionally, there are challenges to the basic premise of encouraging capital flows to frontier markets -- these countries are more likely to be investment constrained than the unproven assumption that they're savings constrained. Macroeconomic impacts are also getting a closer look, not only the dilemmas of managing monetary policy and exchange rates -- e. g., FDI can be defeated if inflows raise the rate to reduce trade advantages. Since the biggest issuers from frontier markets tend to be the state, there's a big potential impact on sustainability of fiscal policy (to say nothing of corruption), and again the exchange rate impacts can be severe in both directions. The post is mainly an outline of an ambitious, multidimensional research program that's emerging among development economists, financial economists, macroeconomics in both the OECD countries and think tanks in emerging markets and the IFIs. -- finally the discussion has moved off the obsession with flight capital that took root in the 1980s and was the trump played anytime anyone questioned the happy-happy conventional wisdom of capital liberalization promoters.
economic_theory  macroeconomics  capital_flows  FDI  IFIs  IMF  capital_controls  fiscal_policy  monetary_policy  FX  FX-misalignment  neoliberalism  globalization  emerging_markets  frontier_markets  competitiveness  technology_transfer  infrastructure  development  financial_system  financial_regulation  financial_sector_development  financial_stability  banking  interest_rates  institutional_investors  institutional_capacity  institution-building  central_banks  governance  bibliography  Instapaper  from instapaper
may 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - The euro area's debt hangover — Money, Banking and Financial Markets - April 2015
You wouldn’t know it from the record low level of government bond yields, but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. And, gross government debt (as measured by Eurostat) is close to or exceeds this threshold in Belgium, France, Greece, Ireland, Italy, Portugal and Spain. Debt levels this high have important long-run consequences. (...) they are a drag on growth. High debt means that households have more difficulty maintaining consumption when income falls; firms may be unable to keep up production and investment when revenue dips; and governments are in no position to smooth expenditure when revenue falls. More economic volatility means lower growth. Beyond that, high levels of debt reduce the effectiveness of central bank stimulus. (...) So, what is the euro area to do? We see three paths out of this predicament: (1) breathtaking supply reforms that trigger an investment boom; (2) inflation; or (3) a mix of asset sales and debt relief.The first option is the best. The alternatives would threaten the survival of the euro, undermine the fiscal credibility of major governments, or both. [After pointing out the problems with 1 and 2, they look at how much would sovereign_debt have to be reduced to reach debt sustainability targets embodied in Maastricht] For Greece, the write-down is 71% of face value; for Spain, 63%; and for France 50%. Taken as a whole, meeting the 60% Maastricht criterion (while maintaining bank system capital) would require that (..the) combined debt of [Greece, Spain and France of] €9.36 trillion be written down by a total of €5.07 trillion. As extreme as this sounds, it is, in fact, insufficient. Many euro-area governments also face significant unfunded pension liabilities. (...) The sooner they own up to this, the better for their long-term growth prospects. -- copied to Pocket
EU  Eurozone  debt  debt-overhang  debt-restructuring  sovereign_debt  leverage  deleverage  economic_growth  economic_reform  creditors  default  monetary_policy  ECB  central_banks  interest_rates  investment  deficit_finance  debt_crisis  corporate_finance  demand-side  supply-side  capital_markets  Great_Recession  financial_crisis  financial_system  banking  capital_adequacy  Pocket 
april 2015 by dunnettreader
Steve Cecchetti and Kim Schoenholtz - Residential real estate in China: the delicate balance of supply and demand — Money, Banking and Financial Markets - April 2015
Some observers believe that demand for housing in China is price-insensitive for cultural reasons. Among other things, housing is viewed as a “status good” for those wishing to get married. Another favorable factor is the preparedness of Chinese policymakers to intervene and support housing markets should they soften. Then there is the possibility that central bank policy will be adjusted in a manner designed to further support real estate lending. Yet, there remain grounds for skepticism. The role of big-city home ownership as a status good in Japan did not prevent the massive and destructive land and housing price boom and bust in the 1980s. And, government actions to support China’s housing prices will be fighting an uphill battle if private expectations of capital gains weaken. Not only that, but the day may come when China sees the need to implement a tax on property, if only to provide a better underpinning for municipal finances. This would almost surely drive prices down quickly. Finally, the government’s other objectives of liberalizing the financial system (as a step toward internationalizing the renminbi) and increasing housing supply to meet the needs of a migrating population may prove incompatible with supporting high house price-to-rent ratios. -- really fine update on what's been happening in urbanization, local governments, policies re financial sector liberalization, GNP and personal income growth (and slow down) etc -- copied to Pocket
China  China-economy  financial_system  housing  asset_prices  bubbles  urbanization  economic_growth  financial_regulation  financial_sector_development  financial_stability  banking  NBFI  shadow_banking  regulation-enforcement  tax_reform  taxes  local_government  infrastructure  wages  economic_culture  municipal_finance  Pocket 
april 2015 by dunnettreader
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