Tag Archives: Monetary policy

The next crisis? We’re hardwiring short-termism into the financial system


By Ben Wright – No one is saying the investment industry is entirely to blame for these problems.

They are rooted in human behavior and have in recent years been exacerbated by a raft of misguided regulation. Most investors are risk-averse, short-termist and congenitally unable to spot a bandwagon without suffering the urge to climb aboard.

This combination is not particularly conducive to making sensible investment decisions. Unfortunately, over the past decade a number of accountancy rules and regulations have been introduced that accentuate these human foibles rather than trying to correct for them. more> http://tinyurl.com/l8wdvfz

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Who’s to blame for Argentina’s debt default?


By Tim Fernholz – The whole reason for Argentina’s 2001 default was the string of currency crises in Asia and South America in the 1990s, with the IMF and other international financial leaders having bungled their responses to a series of problems in developing economies.

Now, because the courts didn’t provide a pathway to a settlement, some say that New York’s status as a center for international finance may wane.

But why did Argentina issue its bonds in New York in the first place?

In no small part because people with money trusted US law more than that of Argentina, thanks to the country’s history of erratic economic policy. That suggests the real villain is … more> http://tinyurl.com/pao4nwk

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The Hidden Reason for Americans’ Shrinking Wealth


By Allison Schrager – Starting around 2001, American families put an increasing amount of their wealth in housing and took on more debt. This came at the expense of other kinds of investments, such as nonhousing wealth, which hasn’t returned to its 2001 peak.

As a result, real estate became a far bigger part of household wealth: Its value increased, and people bought more of it. The disproportionate investment is a big reason median wealth fell almost 40 percent when the housing bubble burst, and also a big reason we still haven’t fully recovered. more> http://tinyurl.com/pmdcp9x

Prophet of Basel Battles Yellen, Draghi and Easy Money


By Leonid Bershidsky – The general manager of the Basel-based Bank for International Settlements, Jaime Caruana wants to remove the punch bowl from a party that other monetary policymakers claim hasn’t gotten started.

The consensus among these policymakers, who have actual responsibility for economic performance in their respective domains, is that monetary easing is necessary, too-low inflation is evil and tighter supervision of banks will suffice to stave off future financial crises.

For the second year in a row, Caruana’s lonely voice is being drowned out by a Keynesian [2] chorus. more> http://tinyurl.com/prrsywu

How to start a bank and let each of the BRICS be in charge


By Devjyot Ghoshal – It’s not easy to bring five world leaders together, get them to negotiate a landmark deal and have them all leave happily.

But something like that may have just happened in Fortaleza, Brazil.

Leaders of the BRICS—Brazil, Russia, India, China and South Africa—met for their sixth summit, and hammered out an agreement to establish a new development bank.

The New Development Bank (NDB), as it’ll be known, is being pitched as an alternative to the World Bank and IMF, mostly because the two Bretton Woods institutions remain dominated by western powers. more> http://tinyurl.com/oxmzjym

We’re in the third biggest stock bubble in U.S. history


BOOK REVIEW

Wall Street Revalued: Imperfect Markets and Inept Central Bankers, Author: Andrew Smithers.

By Brett Arends – What do the following years have in common: 1853, 1906, 1929, 1969, 1999?

Those were the peaks of the five massive, generational stock-market bubbles in U.S. history.

U.S. stocks are now about 80% overvalued on certain key long-term measures, according to research by financial consultant Andrew Smithers, the chairman of Smithers & Co. and one of the few to warn about the bubble of the late 1990s at the time.

Today Smithers argues that stock prices are first likely to go even higher, because they are being driven upwards by two forces.

The first is the Federal Reserve’s “quantitative easing” program – the policy of flinging money at the banks in the hope some of it doesn’t stick, but finds its way into the wider economy.

The second is corporate buying. Under-appreciated at the moment is that the top buyers of U.S. stocks these days are the companies themselves. U.S. companies have been borrowing aggressively and using the money to buy their own stock. more> http://tinyurl.com/k2n4kjz

What Stiglitz Misses On Inequality: The Responsibility Of Economists


[ Piketty ]

By Steve Denning – There is one category of actor curiously missing from Stiglitz’s list of villains: his fellow economists. There is no mention for instance that it was the winner of the Nobel Prize for Economics, Milton Friedman, whose New York Times article on September 13, 1970, “The Social Responsibility of Business is to Increase its Profits”, launched the idea that corporations should focus solely on making money for themselves and the shareholders, and basically, to hell with everyone else.

Nor is there any mention of the famous 1976 article by Professors Meckling and Jensen, “The Theory of the Firm,”—one of the most cited economics articles ever—which provided a supposed economic rationale for giving generous stock options to the top management so that they would focus sharply on making money for the company—and themselves. It was the nonsensical psychology and fantasy mathematics of this article that provided the economic rationale for the idea that the purpose of a firm is to maximize shareholder value and led to the very management practices about which Stiglitz so eloquently complains. more> http://tinyurl.com/olrwaj5

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