The Great Debate UK

from Nicholas Wapshott:

Yellen shows her hand

The difference between the Federal Reserve Board of Chairwoman Janet Yellen and that of her immediate predecessor Ben Bernanke is becoming clear. No more so than in their approach to the problem of joblessness.

Bernanke made clear that in the post-2008 economy, his principal goal was the creation of jobs, not curbing inflation. He settled on a figure, 6.5 percent unemployment, as the threshold that would guide his actions.

While remaining true to the spirit of Bernanke’s principal goal, Yellen and the rest of her board refined the target in their meeting on March 18 and 19, a change in approach that at first sent the wrong signal to the stock and bond markets. At the press conference following the meeting, Yellen said she would not be raising interest rates “for a considerable time,” which could mean “something on the order of around six months.”

The Fed decided it would no longer be tied to the “quantitative” 6.5 percent jobless figure, which is fast being approached. The February unemployment numbers, for example, are 6.7 percent. After listening to Yellen, the markets assumed -- wrongly -- that the Fed was about to abandon the jobless target, end quantitative easing and start raising interest rates.

Hypocrisy piled on humbug

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The row over bankers‘ pay and honours has presented the depressing spectacle of British public life at its nadir, with hypocrisy piled on humbug.

On the one hand, we hear bankers and their apologists arguing that their rewards are required to keep them from running off to sunnier climes, which prompts a number of questions. First, when bankers claim that they have to be paid a fortune in recognition of the size of the organizations they run, we may well ask: how many banks of this scale are there in the world today? How many are so hungry for skills like those of Britain’s bank bosses that they are willing and able to offer these sorts of rewards?

from Global News Journal:

Hope and Fear at the World Bank

It was early March and Kristalina Georgieva, the European Commissioner of International Cooperation Humanitarian Aid and Crisis Response, was traveling in Asia. Her plan was to attend a 7.5 magnitude earthquake simulation that would hit Indonesia and generate a tsunami. A few things, however, changed in her itinerary: The destination turned out to be Japan, the earthquake was 9.0 and it not only generated a huge tsunami, but also a nuclear catastrophe. Plus, it was real.

“Usually our fears are bigger than reality. In this case our reality was worse than our fears,” Georgieva said recently at a World Bank panel on the climate, food and financial crises the world is facing today and the way they all intertwine. Georgieva’s strong Slavic optimism brightened the gloomy panel, but the data she threw in didn’t back up her positive view:

Will the euro survive Europe’s latest sovereign debt crisis?

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IRELAND/Kathleen Brooks is research director at forex.com. The opinions expressed are her own.

Ireland’s banking crisis reached boiling point this week. The Irish authorities are still adamant the country doesn’t need a bailout and are trying to draw a distinction between a sovereign bailout (which Irish Prime Minister Brian Cowen, Finance Minister Brian Lenihan et al claim they don’t need) and banking sector support (which they most definitely do).

from Breakingviews:

Bush still shows blind eye for financial crisis

By James Ledbetter

During his presidency, George W. Bush was not known as an overly reflective man, or as someone with a powerful thirst for economic knowledge (despite being the only president with a Harvard MBA). It is thus unsurprising that his memoir is not overly reflective about the causes of the financial meltdown that closed out his presidency, nor even very generous with details about what it was like to preside over. Anyone who opens his new memoir, "Decision Points," intent on unearthing Bush's heretofore buried financial insights will be disappointed.

Still, there is some value in glimpsing how Bush perceives the crisis, in part because his economic perspective is so widely shared in the newly resurgent Republican Party. In the chapter devoted to the financial crisis, Bush paints an economic picture using almost exclusively his favorite primary color: tax cuts. Tax cuts, in his view, got America out of the recession that began shortly after he took office. Tax cuts provided another critical boost in 2007. Tax cuts are beautiful because they take money out of the government's hands and place it into citizens' hands; that is all Bush knows, and all he thinks he needs to know, about the economy.

from MacroScope:

The octopus and the economists

What do an eight-legged creature in an aquarium in Germany and 74 economists have in common? The consensus view that Spain would claim the World Cup -- until the economists, as they so often do, changed their minds.

worldcup.jpgIf World Cup 2010 goes down as one of the most unpredictable and exciting competitions in recent history, bringing underdogs Holland and Spain to the final showdown, what was hopelessly routine was watching so-called expert opinion converge around the safest bet. At least among financial professionals, who have done so well of late predicting the future.

A history lesson for lenders

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-Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.-

Anyone looking for a broader perspective on the events of the last three years could hardly do better than choose for bedtime reading “This Time is Different” by Carmen Reinhart and Kenneth Rogoff.

Financial Crisis Part II

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- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Hollywood would never allow a record-breaking disaster movie to go without a sequel. The same seems to be true of the 2008 banking crisis.

Greenspan and the curse of counterfactual

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Laurence_Copeland-150x150- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

Suppose that, instead of appeasing Nazi dictator Adolf Hitler at Munich in 1938, Neville Chamberlain had taken Britain to war, what would today’s history books say about the episode?

from Breakingviews:

Rabobank takes lead in bank capital revolution

(Refiles on October 19, 2010 to add disclaimer for author's personal investment. Neil Unmack owned Lloyds CoCos when he wrote this article.)

Ever since the financial crisis struck, regulators have argued for an overhaul of bank capital. Contingent capital, which can absorb losses while the bank remains in business, sounds like the solution. But until last week it had only been used by a few distressed lenders.

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