Archive for the ‘Economics’ Category
Who could have thought…
The bars were sponsored by liquor companies, the kitchen by Lufthansa. One room had marble walls, another, cashmere. Hundreds of guests plucked hors d’oeuvres from Plexiglas trays, but when I reached for a passing tray of pigs in blankets, the waitress tried to stop me. “These are for Michael,” she said.
That would be Michael Moore, filmmaker, who was enthroned nearby on a crowded sofa nibbling from a skewer, which did seem less in harmony with his everyman sneakers and populist persona than a sausage wrapped in fried bread. The Monday night party in Manhattan, which spread over two luxurious penthouse suites, was sponsored by Esquire and tricked out with the magazine’s advertisers’ products. The guests were there to celebrate Moore’s latest movie [Capitalism, A Love Story], which had just had its New York premier uptown.
I will show my support for the British strikes against the use of foreign labour by leaving the country the day after…getting back all the taxes I have paid in the UK since Nov 1, 1997.
It’s your chance, Gordon, to free up yet another workplace for a native of Albion. And for a relatively minor amount of money too!!!
President-elect Obama has selected Mary Schapiro as new Chair of the U.S. Securities and Exchange Commission. And that doesn’t appear to be the beginning of the much-indeed shaking of the financial industry.
Trouble is, in fact, that Mary Schapiro became in 2007 the Chair of the Financial Industry Services Authority, the new grandly-named self-regulatory body that…dropped the number of large fines just as the latest financial crisis was starting to brew, in 2006.
How can a 20-year-long-career regulator be trusted in remaking the whole regulatory “oversight playbook” is anybody’s guess. The only positive point is that with expectations very very low, Ms Schapiro can only succeed…
Sobering end-of-year commentary by Floyd Norris on the International Herald Tribune: “The year the system failed“:
Long-term interest rates are at their lowest levels in half a century. Long-term interest rates are at their highest levels in nearly 20 years. This is shaping up as the worst year in seven decades for the stock market. Of the 10 best days the stock market experienced during those 70 years, six came in 2008. A Wall Street legend who became a hero for forcing Wall Street to treat investors better now admits to defrauding a later generation of investors of $50 billion. A prominent lawyer is said to have embezzled hundreds of millions by selling phony securities to hedge funds. The economists are worried about deflation. They are also fearful of inflation. The U.S. government is lending money to businesses that never could have borrowed from it before. People fear a wave of corporate bankruptcies as companies find they cannot borrow money to repay loans that are due.
This was the year the financial system stopped working. Nearly all the contradictory but accurate statements above can be traced to that fact. […]
the banking industry was in no position to assume its historical role as a lender that patiently waited for loans to be repaid. To the contrary, banks trusted neither their own balance sheets nor those of other banks. For a significant part of the economy, the government became the lender of first and only resort.
For most of 2008, the Federal Reserve and the U.S. Treasury failed to realize that the banking system faced a solvency crisis rather than a liquidity crisis. Efforts to provide liquidity proved ineffectual because no one had confidence in the values of enormous amounts of derivatives and securitizations that the banks owned.
It is more or less self-evident that it’s the whole banking system that needs to be reviewed. As soon as things turned sour, it kind of disappeared from view, apart from few notable exceptions (and nobody would bet they won’t get in trouble in the next few months if not weeks…).
Perhaps we should just accept that as things stand, all banks are ultimately owned by the state. And rather like most major US airlines, banks will periodically make a big, big mess with their accounts.
Trouble is, they make the mess with everybody else’s money too…
Millions of gallons of ink must have been consumed in the neverending discussions about the “disaster” represented by the US Government’s decision to let Lehman Brothers fail and disappear. Andrew Ross Sorkin on today’s IHT agrees:
With hindsight, many in the financial industry blame a deepening of the global financial crisis on the government’s decision to let Lehman crumble
I disagree with that analysis, for two very simple reasons. When Lehman was allowed to go bankrupt, a signal was sent to all, saying that not everybody will be rescued. This was in direct contrast with the Japanese Government’s decadal efforts to prop up every financial institution under its watch (that’s why those efforts lasted for a decade or even more).
More importantly, the failure of Lehman Brothers showed everybody what the failure of “just a bank” may mean, with innumerable, overwhelmingly negative consequences propping up even in unlikely places. And this was good: because it is in the human nature to seriously question people advising that something bad may be happening in the near future, and to need a direct experience of that “something bad” before properly reacting.
You can spend every last molecule of your breath explaining a child that eating too many sweets can be painful. But there is nothing like going through a “tummy ache” that will convince the child of changing their way.
And you could transfer yourself back to January 1939 and explain all the reasons for the upcoming Nazi continent-wide monstruosity, but I am sure nobody in the UK or France (or the USA) will agree to go to war until forced to by the pain of circumstance.
And so, had Lehman Brothers been rescued alongside the other relatively large institutions, we would still be discussing the pro’s and con’s of rescue packages. And we would have never known that it takes just a bank to fail, to see a run on money-market funds.
Hindsight will fuel further commentaries on now-defunct Lehman Brothers: and hindsight can be useful to make sense of the world, but only works when there is something to look back at…