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Keynes on speculators taking advantage of mob psychology

July 22, 2013 3 comments

from Lars Syll

How far the motives which I have been attributing to the market are strictly rational, I leave it to others to judge. They are best regarded, I think, as an example of how sensitive – over-sensitive if you like – to the near future, about which we may think that we know a little, even the best-informed must be, because, in truth, we know almost nothing about the more remote future …

The ignorance of even the best-informed investor about the more remote future is much greater then his knowledge … But if this is true of the best-informed, the vast majority of those who are concerned with the buying and selling of securities know almost nothing whatever about what they are doing … This is one of the odd characteristics of the Capitalist System under which we live …  Read more…

Categories: financial markets, Keynes

The Fed, Ben Bernanke, and the rotten Libor

August 8, 2012 1 comment

from Dean Baker

The case of the rigged Libor turns out to be the scandal that just keeps on giving. It reveals a great deal about the behavior of the Federal Reserve Board and central banks more generally.

Last month, Federal Reserve Board Chairman Ben Bernanke gave testimony before Congress in which he said that he had become aware of evidence that banks in England were rigging the Libor in the fall of 2008. According to Bernanke, he called this to the attention of Mervyn King, the head of the Bank of England. Apparently Mervyn King did nothing, since the rigging continued, but Bernanke told Congress there was nothing more that he could do.

The implications of Bernanke’s claim are incredible. There are trillions of dollars of car loans, mortgages, and other debts, in the United States, tied to the Libor. There are also huge derivative contracts whose value depends on the Libor at a moment in time. People were winning or losing on these deals not based on the market, but rather on the rigged Libor rate being set by the big banks.  Read more…

Categories: financial markets

Real World Economists Must Lead

August 7, 2012 22 comments

from Robert R Locke

I think the people in this blog need to show more leadership. That might be hard to understand for those who are use to thinking of the economy as a self-regulating mechanism and of economists as observers and thinkers. But the economic crisis is too important to be left to passivity.

The problem area is not difficult to identify. It is not socialism versus capitalism or free enterprise versus government, as neoliberal, tea party ideologues would have it. The problem that real world bloggers need actively to investigate and manage is a massive system of private investor capitalism at the heart of today’s economy. It emerged from five post WWII mostly noneconomic phenomena: First the information revolution that spun out of the Pentagon during the Cold War, which allows twenty-four hour a day trading of financial packages on money markets worldwide. Two, the end of the Cold War, which opened up vast stretches of the former Communist world to private investor capitalism in an integrated system of stock markets and financial service, Three, the growth of institutional investors in associations like private pension funds that funnel unprecedented amounts of money into private equities, hedge funds, and investment banks. Four, the rapid growth of business schools and departments of finance economics that preach an ideology of unrestrained private investor capitalism and furnish investor capitalism’s skilled labor force, and Five, the development of neoliberalism in economics that justifies the ethical bankruptcy of investor capitalism.  Read more…

Gigo

July 24, 2012 8 comments

from David Ruccio

Once you’ve stated the obvious point that the financial sector “has grown to an unprecedented share of the economy,” how do you make sense of that growth?

Well, if you’re Paul Krugman, you send us to Thomas Philippon’s unpublished essay, “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation” (pdf) [ht: br]. And that’s when the fun—or the horror—begins.  Read more…

Break up the banks. Please.

July 12, 2012 3 comments

from Peter Radford

How do I say this delicately?

The banking system, and in particular the biggest banks, were central players in the development of the crisis; they then played a major role in spreading contagion around the world; they then collapsed due to mismanagement, poor regulation, and endemic greed; this required that they be propped up beyond their normal subsidy by the taxpayer; the cost of propping them up transformed a private debt catastrophe into a sovereign debt catastrophe; this undermined national budget across the globe; which, in turn, induced a wave of austerity-driven debt reduction by governments; which has now ensured that the crisis has become a depression.

Well done banks.  Read more…

Banking and orthodox economics: an ugly brew

May 15, 2012 6 comments

from Peter Radford

Nothing that has emerged about the JP Morgan losses announced last week has altered my original conclusion. This was a basic failure of governance, of regulatory oversight, and of control. Oh, and of orthodox economics. Again.

Yes there were rules in place to prevent such losses. They were ignored. Vanity, hubris, call it what you will, stopped the bank from exercising self-restraint. What appeared to be highly risky, complex, and very large transactions were allowed to take place despite the fact that they were risky, complex, and very large.

The bank thought it was more clever and sophisticated than it was. It turns out to have been dumb. Very dumb.

The oddity here is that these kinds of dumb plays are what brought the banks to their knees back in the crisis. Obviously no one at JP Morgan learned the lesson. Read more…

The Facebook Follies

February 9, 2012 3 comments

fromo Dean Baker

The big business news last week was that Facebook is going public with an initial public offering (IPO) that is likely to place the market value of the company in the range of $100 billion. This price would put Facebook among the corporate giants in terms of market value.

By comparison, Goldman Sachs, of vampire squid fame, has a market value of $55 billion. Ford’s market value is less than $16 billion. With its current market value near $106 billion, Facebook would even give a serious run to Verizon, the giant telephone company.

While the implied value of Facebook is impressive, a question that was raised in several stories was whether the company would really be worth this much money. Some simple back of the envelope calculations show that Facebook would have to gain an enormous share of advertising expenditures over the next 5-10 years in order to generate the sort of profits needed to justify this current price. Read more…

Categories: financial markets

Monetary innovations for eco-friendly production and economic stability

December 9, 2011 15 comments

Discussions about improved prudential regulation, changing the incentives that players in the financial sector face and the possibility of a financial transactions tax as means of reviving the economic system have tended to overlook innovative monetary proposals that focus on changing the nature of credit money itself. Some of these have come from outside academic economics and aim to promote eco-friendly paths of economic recovery. In this post I hope to stir up some discussion by presenting a guide to some of these proposals and Read more…

Crash Tax: Reparations to the 99%

November 16, 2011 5 comments

from Edward Fullbrook

With the continuing fallout from the Global Financial Collapse and the global upsurge of real democratic sentiments, support seems to be growing for a Tobin or financial transactions tax.  Yesterday AlterNet stated the case for it as follows.  

Wall Street caused the crash. It caused devastating unemployment. It exacerbated deficit problems in the United States, Greece, Ireland, Portugal, Spain and Italy. If the market hadn’t crashed, sustained higher tax revenues would have prevented these difficulties from intensifying.
……. 
The crash tax is, essentially, a sales tax on financial transactions. The middle class pays sales tax on all the stuff it purchases. There should be no special exceptions. The 1 percent should be paying sales tax on the purchase of risky derivatives and on bets that derivatives will fail. This is equity. This is simple fairness.  Read more…

S&P Rubbish

August 11, 2011 6 comments

from Peter Radford

As an afterword on the whole downgrade silliness, the world has been full of S&P critiques. Quite why we need to add to the very obvious fact that S&P is clueless as to risk, and very likely corrupt to boot, seems beyond me. Anyone who believed the magical stardust sub-prime mortgage lead into AAA gold alchemy is clearly incapable of even the most simple analytical process. Alchemy is alchemy no matter how you dress it up, and no matter how many MIT economics PhD’s devote their mathematical skills to the problem. Read more…

Downgrade Reaction

August 9, 2011 4 comments

from Peter Radford

Yesterday’s slide in stock prices around the world is not due to the downgrade of US bonds. It is due to the final realization, by hitherto myopic analysts, that we are on the brink of another recession, and that for all the talk of recovery over the last year or so, what growth we have experienced was fragile enough to wither when stimulus was withdrawn.

This was entirely predictable, and should surprise only those who pay no attention. Unfortunately that includes most of Wall Street and Washington.

There are two sources of this renewed crisis. Read more…

Headed to recession?

August 8, 2011 5 comments

from Peter Radford

Well it didn’t take long for the stock and credit markets to vote on the efficacy of American economic policy. Judging by last week’s massive stock market sell off, coupled with the steady decline of bond rates, the vote is clearly a negative one. The markets are giving us the collective thumbs down. Evidently sentiment is gathering behind the notion that the economy is weak, that we have no leadership, that we have no corrective policy, and that the risk of another recession is rising by the hour. To make matters worse there is an epidemic of economic incompetence worldwide, not least in Europe where the leadership seems determined that we need a re-run of 1937. Because, presumably, the first time through was such a thrill. Read more…

Insider Trading and Wall Street’s [Un]Ethics

May 20, 2011 6 comments

from Peter Radford

I’m bored with debt defaults. No one seems to worry about them, so I won’t.

How about insider trading? That sounds like fun.

The much heralded Galleon case and the guilty finding against a well respected money manger has confused Wall Street. The boys and girls down there are throwing a hissy fit. How can someone with a little bit of information not be expected to try to make a buck? After all the whole point of getting those special hints, clues, and facts is to end run the market, make a fortune, preen in fancy restaurants, and retire early in order to serve the public as an official in the Treasury Department. Well, maybe not that last bit.

The point is information is the grist that makes the market work. So he, or she, who has information, has a nugget worth a great deal. Since sharing is not a gene found in these folk’s DNA, they naturally like to hoard and then deploy these nuggets to their own advantage.  Read more…

Categories: financial markets

World Stock Market Capitalization: 4 graphs

November 30, 2010 7 comments

1. World Stock Market Captialization 1980 – 2007
2. World Stock Market Captialization 1996-  2010
3. Dow Jones World Stock Index 1998 – Oct 24 2008
4. Stock Market Capitalization Around the World  Read more…

Categories: financial markets

IMF and Capital Controls

The Tyranny of the Bond Markets

from Kevin Gallagher

Credit rating agencies played a big role in creating the financial crisis. Now they are slowing the recovery. Financial regulatory reform legislation in the US has finally put the agencies on the radar screen, but the proposals don’t go far enough.

It is now legendary that the mortgage-backed securities structured in the shadow banking system all had AAA stamps of approval by the rating agencies. Of course when the mortgage bubble that propped up those assets burst, we learned that such assets were indeed “toxic” and unworthy of such high grades. The world couldn’t handle the truth and spun into the worst financial crisis since the Depression. Read more…

Financial Transactions Tax – urgent call for support

January 24, 2010 10 comments

From: Nigel Stanley <NStanley@TUC.ORG.UK
Subject: [new-pol-econ] Financial Transactions Tax – urgent call for support
Reply-To: new-political-economy-network@googlegroups.com
Trade Unions Congress

The TUC is involved with a high profile campaign for a financial transactions tax with a wide coalition of development, poverty and faith groups which is due to be launched in a few weeks time with some celebrity fairydust.
 
Importantly this is a real international campaign with a similar group coming together in the USA and working with existing coalitions in Europe.
 
One initiative that is taking place in the run-up to the launch is a letter to G20 leaders signed by a worldwide group of economists. The idea is to get some attention just before Davos.
 
I would very much welcome signatures from this group – and just as importantly - help with getting further signatures from colleagues. I am sure that you are members of other lists or know people who could sign.
 
I’ve put the list of those signing already (which includes members of this group) at the end of this email so that you can see there are some substantial figures on board.
 
The letter follows: Read more…

Banking on Heaven

November 29, 2009 1 comment

Banking on Heaven: economics as confessional

 Jamie Morgan

‘I should like,’ said young Jolyon, ‘to lecture on it: “Properties and quality of a Forsyte. This little animal, disturbed by the ridicule of his own sort, is unaffected in his motions by the laughter of strange creatures (you or I). Hereditarily disposed to myopia, he recognises only the persons and habitats of his own species, amongst which he passes an existence of competitive tranquillity.”’ John Galsworthy, The Forsyte Saga.

The recent comment in the Sunday Times (8/11/09) by the Goldman Sachs CEO, Lloyd Blankfein, that banks serve a ‘social purpose’ and do ‘God’s work,’ was a controversial one. Reference to the Almighty in business and banking often leads to satirical exegesis. Many might respond that the liturgy of banks is public worship of quite another kind than might be ascribed to a divine being. Others might suggest that Read more…

Are they predicting a V or a W?

November 19, 2009 3 comments

Over the past six months we hare repeatedly reminded ourselves, as well as non-economists, that although recessions/depressions are usually V-shaped, sometimes they are W-shaped (double-dipped). Time has now come for high-profile economists to give us their predictions as to the shape of the one we are living through.

Yesterday Read more…

Political documents vs. scientific ones

November 13, 2009 5 comments

Tuesday the International Energy Agency released its annual “World Energy Outlook” report http://www.iea.org/speech/2009/Tanaka/WEO2009_Press_Conference.pdf, in which it forecast that by 2030 world oil production would increase from the current 85 million barrels per day to 105.  But yesterday the Global Energy unit at Uppsala University in Sweden issued a report “The Peak of the Oil Age” which claims oil production is more likely to be 75 million barrels a day by 2030.  The diagrams below, from the Guardian, illustrate the radical difference between these two views of our next twenty years.   Read more…

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