This week’s
edition has sections on Regulation/Risk, Markets, Economics, Nobel prizes and Citigroup. The just resigned CEO of the
bank made a cool one billion dollars from the bank. Your tax dollars at work. For fuck’s sake… EDIT: Calendar updated.
Coming up soon: Weekender: Off-Topics & Views. Don’t miss my previous posts:
Previously on
MoreLiver’s:
REGULATION & RISK
Pick Your Poison – Streetwise Professor
Back in the summer of 2011, I wrote that segregation
could make the markets more fragile, because it would tend to reduce credit
(mainly intraday credit) used to finance variation margin. This is important, because the markets depend
on using credit to fund margin payments.
If this credit freezes up, the markets will freeze up. Indeed, a cleared system works on such tight
deadlines that an interruption of credit can be catastrophic.
Forcing frequent failures – Interfluidity
I’m
sympathetic to the view that financial regulation ought to strive not to
prevent failures but to ensure that failures are frequent and tolerable.
Financial ecosystems
can be vulnerable too – Opinion
/ FT
In general, greater complexity – more species and more
interactions among them – tends to make the system more vulnerable to
environmental shocks…Instead of addressing these fundamental issues, recent
regulatory changes seem to be adding further complexity.
European Commission to
Make Life Harder for Brokers? – riskheads
A recent
review by the European Commission is likely to have serious implications for
insurance brokers across the EU including the UK. The new rules are likely to be
signed into effect during 2013 and with the exception of life products (which
have a 5 year grace period in the directive) all insurance products are likely
to be affected immediately.
Not making the grade: Report card on global
financial reform – voxeu.org
While
financial reform is underway around the world, this column argues that much
more needs to be done.
Ingves, Governor of the Sveriges Riksbank and Chairman
of the Basel Committee on Banking Supervision, published in the Wall Street
Journal, 15 October 2012.
Basel III regulatory consistency assessment (Level 2)
ECONOMICS
The Ultimate World Economic Scorecard – ZH
Barclays'
Julian Callow provides everything you need to know about financial balances and
economic performance (but were afraid to look) in one handy table.
Reinhart-Rogoff vs.
Bordo-Haubrich (with grandstanding by John Taylor) – noahpinion
If you follow econ blogs at all, you'll have been
reading lots about the dustup between Carmen Reinhart & Kenneth Rogoff,
whose research argues that financial crises cause slow economic recoveries, and
Michael Bordo & Joseph Haubrich, whose research argues that recoveries
after financial crises are usually very rapid.
Financial Crises – New
Monetarism
There are good reasons to think that recessions are
not alike, and that the most recent recession has features that are different
from previous ones in the United
States - and different in
important ways from episodes where we think that there was some element of
"financial crisis." Even if we could figure out the Great Depression,
and understood completely the policies that would have been appropriate at the
time, that would be no guarantee of success under current conditions.
When Taleb met Davies – Felix
Salmon / Reuters
This morning, Nassim Taleb returned to Twitter,
posting one of the technical appendices to his new book. And immediately he got
into a wonderfully wonky twitterfight/conversation with Daniel Davies.
Uncertainty weighing on the global recovery – voxeu.org
Bouts of
elevated uncertainty have been one of the defining features of the sluggish
recovery from the global financial crisis. This column explores the role of
uncertainty in driving macroeconomic outcomes using data from a large group of
advanced countries over the past 40 years. It concludes that uncertainty
appears to hinder growth.
The origins of our current woes - and the way
to escape from them
– The
Telegraph
Why are we
here, in the worst recession for over 70 years? Unless we uncover the answer we
won’t be able to address the more important issue of when and how we can hope
to come out of it.
Is the Financial
Sector Worth What We Pay It? – Somewhat
Logically
The financial crisis and subsequent Euro problems show
that we are paying vast sums for a system that, as Joseph Stiglitz, former
chief economist of the IMF, points out, doesn’t allocate capital where needed,
causing capital flows that are pro-cyclic, exacerbating peaks and lows of
business cycles.
What is math, and why
should we use it in economics? – Noahpinion
In my last post, I pointed out that the Nobel
Prize-winning work of Lloyd Shapley and Al Roth, makes heavy use of
mathematics, and indeed would be completely impossible without math. This, I
said, is evidence against the idea that economics doesn't need (or shouldn't
use) math. But then some commenters asked me: What do you mean by
"math"? And I thought that was an interesting question.
A Reinhart &
Rogoff update – alphaville
/ FT
Reinhart & Rogoff, the doyens of financial
remembrance, are back with a new paper and a Bloomberg piece containing some
entertaining irritation. Their main aim is “to dismiss the misconception that
the U.S. is
somehow different. The latest financial crisis, yet again, proved it is not.”
ECONOMICS:
CENTRAL BANKING
My view on inflation
targeting – BIS
(pdf)
Jansson, Deputy Governor of the Sveriges Riksbank, at Karlstad University, Karlstad, 11 October 2012.
The recovery and
monetary policy – BIS
(pdf)
Fed’s Dudley at the
National Association for Business Economics Annual Meeting, New York
City, 15 October 2012.
Bernanke at a high-level seminar "Challenges of
the global financial system: risks and governance under evolving
globalization", sponsored by the Bank of Japan and the International
Monetary Fund, Tokyo, 14 October 2012.
ECONOMICS: FISCAL POLICY
Has the IMF Missed
the Point on Public Debt Overhangs? – PIIE
On the basis of these observations, I would suggest
very different policy conclusions. The first aim of economic policy in a
country with large public debt must be to avoid default…Second, time is vital…. sudden action leads
to greater public expenditure cuts
Heterogeneity at the
IMF – mainly
macro
Their self criticism about the impact of austerity is
both unusual and commendable in equal measure. They also appear to recognise
that pushing Greece further
than it can or should go is stupidity of the highest order. They are producing
some of the best policy orientated empirical macro research at the moment. Yet
this is the same IMF that in May co-hosted a conference on Latvia that
looked very much like a PR job for the benefits of short sharp shock austerity.
The IMF’s attitude to austerity remains nuanced and country specific.
Misusing cyclically
adjusted budget deficits – mainly
macro
Does this mean looking at cyclically adjusted budget
deficits is a bad idea, if the adjustment itself is so uncertain? The answer is
clearly no. It makes sense to run surpluses in a boom and deficits in a
recession.
Different approaches
to austerity – mainly
macro
It seems likely that a good part of current austerity
plans involve temporary fiscal changes designed to reduce debt levels, and so
the differences between the multipliers of tax and spending changes will apply.
For countries like the UK, that have focused on spending cuts, the knock on
effects on output will be relatively large, whereas for countries like France
the impact of austerity may be more moderate (although still unwelcome).
1933 And All That – Krugman /
NYT
What all
this also tells us is the folly of using growth from the recession trough as a
measure of success: the worse you screw up the original response to the crisis,
the better this measure looks!
Bubble, Bubble,
Conceptual Trouble – Krugman
/ NYT
Basically, it takes much more clarity and unity to
pursue either discretionary fiscal expansion or unconventional monetary policy
than it does to cut the Fed funds rate, and few countries manage to display
that kind of clarity and unity. And that, in turn, is why it took a war to end
the Great Depression; there’s nothing special about military spending from an
economic point of view, but as a political matter Hitler managed to override
the usual objections to stimulus.
Arrow v. Taylor
Debate at Stanford – EconoSpeak
Based on this summary, Taylor is very
confused about the role that fiscal policy plays during a recession even after
Arrow stated the standard Keynesian position when the economy gets stuck in a
liquidity trap
HistorySquared’s
dailies (good and quick!):
NOBEL PEACE PRIZE
A Nobel Prize for Idiots, Signifying Only Bias – View
/ BB
It is hard to imagine anything more wrongheaded than last week’s decision by the Nobel Committee to award its Peace Prize to the European Union. Until, that is, one is reminded of the frauds, terrorists, totalitarians and world- class idiots who have won the award over the past 20 years.
It is hard to imagine anything more wrongheaded than last week’s decision by the Nobel Committee to award its Peace Prize to the European Union. Until, that is, one is reminded of the frauds, terrorists, totalitarians and world- class idiots who have won the award over the past 20 years.
[Opinion]: Few could dispute the Nobel committee’s
assessment the EU has helped turn a continent of war into a continent of peace,
but many have questioned its timing.
Van Rompuy, Barroso
and Schulz to collect the EU’s Nobel together – alphaville
/ FT
Barroso and Van
Rompuy win battle for Nobel limelight – euobserver
NOBEL ECONOMICS “PRIZE”
Noble Matching – Marginal
Revolution
In honor of the Nobel prizes to Al Roth and Lloyd
Shapley, here is a primer on matching theory. Matching is a fundamental
property of many markets and social institutions. Jobs are matched to workers,
husbands to wives, doctors to hospitals, kidneys to patients.
An Unusually Worthy
Nobel Prize – Why
Nations Fail
Both men have done foundational work in the theory of
matching, markets and market design — work that deepens our understanding of
how our society allocates resources, which doesn’t just happen through the
miraculous invisible hand of the Walrasian auctioneer.
The 2012 Nobel Prize
to Shapley and Roth – Conversable
Economist
The Nobel prize to Shapley and Roth is one of those
prizes that I suspect I will have a hard time explaining to non-economists. The
non-economists I know ask practical questions.
Al Roth Takes Home
the Nobel Prize – Freakonomics
The type of economics he is best known for is what is
called “Market Design.” Essentially, it
means bringing market-type thinking to areas in which historically non-market
allocation mechanisms have been used.
A Nobel for economics
that really works – Noahpinion
There are
cases in which economics works, in which it does discover "laws",
and in which difficult math is absolutely essential. For example, consider the
theories that won the Economics Nobel Prize this week.
To win the Nobel
Prize in Economics, it helps to wield math. Lots of it – QZ
The winners—Alvin Roth of Harvard and Lloyd Shapley of
UCLA—are joining the ranks of some serious math nerds in a field increasingly
flush with equations.
A Nobel Prize for
Market Design – Digitopoly
Last night, I tweeted that I thought the Nobel prize
for economics would be awarded for the field of practical market design. And,
that is indeed what the Nobel committee announced today.
Shapley and Roth Improved the Way People Are Matched
With Limited Resources
What Does It Feel
Like To Win a Nobel Prize? – Slate
/ New Scientist
Memorable quotes from this year’s winners.
Nobel Goes To
Economists Who Actually Solved Problems In The Real World – NPR
CITIGROUP
Pandit quits Citi – alphaville
/ FT
The Pandit years – alphaville
/ FT
You Can’t Be Half a
Gangster – The
Reformed Broker
Citigroup’s $900
Million Man Departs Abruptly – naked
capitalism
Citi’s Chairman Steps
Up to a Decisive Role – DealBook
/ NYT
Citigroup Agreed to
Carve Out Hedge Funds Before Pandit’s Exit – BB
Citigroup and Vikram Pandit: Pray as you go – The
Economist