Iceland’s new banking disaster?

February 6, 2012 11:28 am by Financial Times

By Olafur Arnarson, Michael Hudson and Gunnar Tomasson

Today, from Greece to Iceland, governments are acting as enforcers or even as collection agents on behalf of the financial sector — and Iceland stands as a dress rehearsal for this power grab.

The problem of bank loans gone bad has thrown into question just what should be a “fair value” for these debt obligations. The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and financial agencies into a conflict, pitting banks, vulture funds and debt-strapped populations against each other.

Continue reading: “Iceland’s new banking disaster?”

Tags: ECB, Fannie Mae, Federal Reserve, Freddie Mac, Greece, Iceland, IMF
Posted in Banks, Crisis, US economy | Permalink

Capital controls are not beggar thy neighbour

January 23, 2012 2:43 pm by Financial Times

By Kevin P. Gallagher

Rio de Janeiro, Brazil. AFP/Getty Images

Emerging markets have fallen victim to unstable capital flows in the wake of the financial crisis. In an attempt to mitigate the accompanying asset bubbles and exchange rate pressures that come with such volatility, a number of emerging markets resorted to capital controls. Although these actions have largely been supported by the International Monetary Fund, some policy-makers and economists have decried capital controls as protectionist measures that can cause spillovers that unduly harm other nations.

Recently-published research shows that these claims are unfounded. According to the new welfare economics of capital controls, unstable capital flows to emerging markets can be viewed as negative externalities on recipient countries. Therefore regulations on cross-border capital flows are tools to correct for market failures that can make markets work better and enhance growth, not worsen it.

Continue reading: “Capital controls are not beggar thy neighbour”

Tags: Brazil, capital controls, Emerging markets, gordon brown
Posted in Economics, Eurozone, IMF, Keynesianism | Permalink

The IMF and the eurozone: weighing unconventional options to stabilise the global economy

January 19, 2012 5:56 pm by Financial Times

By Domenico Lombardi and Sarah Puritz Milsom

Following the unprecedented downgrade of the European Financial Stability Facility and nine eurozone sovereigns by Standard & Poor’s, there is a renewed impetus for the International Monetary Fund to step up its involvement in the deepening euro area crisis. In an executive board meeting earlier this week, managing director Christine Lagarde requested that the membership step up the fund’s own war chest in an effort to better equip the institution to adequately confront the growing global threat. The move follows an earlier reshuffle at the helm of the European department of the IMF, signalling that the fund has been quietly preparing itself for the gloomiest scenario in which the situation in Europe develops into a full-blown systemic crisis.

Credit: Hannelore Foerster/Bloomberg

Currently, the IMF is unable to ring-fence the euro area and contain any spillovers to the global financial system unless its global membership agrees to provide a significant boost to its resources. As it stands, the organisation has some $385bn in its forward commitment capacity, including the activation of the contingent facility — the new arrangements to borrow — that can be used “to cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system.”

Continue reading: “The IMF and the eurozone: weighing unconventional options to stabilise the global economy”

Tags: Christine Lagarde, EFSF, eurozone crisis, Special Drawing Rights
Posted in Central banks, Economics, Eurozone, IMF | Permalink

Euro lacks a government banker, not lender of last resort

December 9, 2011 12:30 pm by Financial Times

By Thomas I. Palley

In his novel, The Jungle, the American muckraking author Upton Sinclair wrote about the horrendous work and sanitary conditions in the Chicago meat packing industry of the early 20th century. It is sometimes said Sinclair aimed for the heart but hit the stomach. That is because he aimed for progressive social and economic change, but instead his work prompted the founding of the Food and Drug Administration.

The same problem of missing the target confounds current discussions of the eurozone’s problems. What the euro lacks is a government banker, not a lender of last resort as is widely claimed.

Continue reading: “Euro lacks a government banker, not lender of last resort”

Tags: Euro, European Central Bank
Posted in Central banks, Economics, Eurozone, Fiscal policy, Monetary policy | Permalink

EU economy: Black hole or green growth

October 24, 2011 2:09 pm by Financial Times

By Carlo Jaeger

“The facts, ma’am, just the facts”: these words, attributed to the detective Joe Friday in the American 1950s crime series Dragnet, resonate in today’s eurozone crisis. Will anybody help Angela Merkel, German chancellor and a trained physicist with a sharp analytical mind, to get hold of the facts blurred by this misguided eurozone debate? Or must we wait for François Hollande, Socialist challenger for the French presidency, a European with hyper-sober realism, to grasp the facts his country’s president, Nicolas Sarkozy, has so far ignored?

Continue reading: “EU economy: Black hole or green growth”

Tags: Angela Merkel, Nicolas Sarzoky
Posted in Climate change, Eurozone | Permalink

Supply pessimism can ruin your health

October 6, 2011 4:25 pm by Financial Times

By Bill Martin

Has the UK’s economy been structurally weakened by the banking crisis? Policy makers think so – in spades. Despite the depth of recession and limp recovery, they believe that the gap between output and some notion of the economy’s productive potential is not that far from zero. The Office for Budget Responsibility concludes that most of the budget deficit is structural rather than cyclical and, until very recently, some members of the Bank of England’s Monetary Policy Committee were pressing for higher interest rates. Supply pessimists like former MPC member Andrew Sentance believe demand stimulus would serve only to push up inflation.

Continue reading: “Supply pessimism can ruin your health”

Posted in UK economy | Permalink

African Monetary Union risks perpetuating the myth Africa is one country

September 28, 2011 10:23 am by Financial Times

By Xhanti Payi

One of the most difficult struggles being fought by those who wish to attract investment into Africa is to destroy the widely held belief that Africa is one big country. Africa in reality is a collection of widely diverse and exciting countries, with varying prospects and challenges.

So apart from the argument that an African Monetary Union (AMU) would be a bad idea if the example of the European Monetary Union is anything to go by, there is a case to be made that a monetary union may interrupt the fight against negative sentiment about Africa that is born out of this that arbitrary aggregate approach. With that said, the idea of an African Monetary Union is a product of history, and arguing against it requires understanding of its context.

Continue reading: “African Monetary Union risks perpetuating the myth Africa is one country”

Tags: Africa, African Monetary Union, Euro
Posted in Economics, Fiscal policy, Monetary policy | Permalink

Why the Vickers Report failed the UK and the world

September 20, 2011 6:55 pm by Financial Times

By Laurence Kotlikoff

The Independent Banking Commission’s final report is a grave disappointment. The ICB (chaired by Sir John Vickers) seeks to reinstate Glass-Steagall by ring-fencing good banks and letting bad banks do their thing and, if they get into trouble, suffer the consequences. This proposition was tested by the collapse of Lehman Brothers, whose failure nearly destroyed the global financial system.

The commission retains the current system apart from some extra requirements primarily imposed on the good banks (the retail banks). The main impact of this is likely to be to foster more financial intermediation to run through the bad banks, i.e. if you impose more regulation on financial companies that call themselves X and less on companies that call themselves Y, companies that call themselves X will start to call themselves Y. In short, the commission has in effect taxed good banking while sanctifying shadow banking. The commission has also chosen to regulate based on what a bank calls itself, rather than on what it does.

Continue reading: “Why the Vickers Report failed the UK and the world”

Tags: Limited Purpose Banking, Vickers Report
Posted in Banks, Regulation | Permalink

Why the global economic recovery is in trouble

September 18, 2011 3:48 pm by Financial Times

By Eswar Prasad and Karim Foda

The world economy has hit a rough patch on the road to recovery and is in danger of skidding off course.

The latest update of the Brookings Institution-FT Tracking Indices for the Global Economic Recovery (TIGER) reveals abundant cause for gloom. The general picture among G20 economies is one of slowing growth, swooning financial markets, and declining consumer and business confidence.

A series of adverse shocks, coupled with political wrangling that has stymied effective policymaking and added to uncertainty, has crippled growth in advanced economies. Emerging markets have maintained strong growth so far, but the battle against domestic inflation and weaknesses in major export markets are beginning to affect their growth as well.

Debt crises, weak employment growth and policy dithering in the major advanced economies have exacerbated global economic uncertainty. The perception of rising risk and inadequate policy responses has shaken financial markets and dented confidence around the world. Reflecting widespread anxiety and fear about global economic prospects and the lack of obvious policy solutions, stock markets around the world have taken a beating over the past summer.

Continue reading: “Why the global economic recovery is in trouble”

Tags: economic index, economic recovery, TIGER
Posted in Crisis, Economics, Fiscal policy, UK economy, US economy | Permalink

Euro bonds are not enough: eurozone countries need a government banker

August 31, 2011 3:16 pm by Financial Times

By Thomas I. Palley

The eurozone‘s public finance crisis continues to fester, reflecting both political and intellectual failure. The intellectual failure is that the crisis has been interpreted exclusively as a debt crisis when it is also a central bank design crisis resulting from the euro’s flawed architecture. The flaw is the inability of eurozone governments to harness the central bank’s power to assist government finances. This systemic weakness explains why US and UK government bonds are weathering the storm, whereas Spain confronts default rumours despite having roughly similar debt and deficit profiles.

Continue reading: “Euro bonds are not enough: eurozone countries need a government banker”

Tags: ECB, EPFA, Euro bond, Sovereign debt
Posted in Economics, Eurozone, Fiscal policy, Monetary policy | Permalink

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