First, the UK needs to make global regulation work. It should discourage regulatory arbitrage even if it expects to gain in the short run.
A call for a new Bretton Woods type conference. I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.
:and:
2) Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now? "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
Anyway, the level of lending in a more sensible environment should be much higher than the current level, since the problem at the moment is that the banks don't have any money to lend.
I'm not even sure that the money that was sploshing around the system prevously was available for companies who wanted to do real work. Pure financial stuff was much sexier.
Well, it did slosh around the housing market in the US. A few new home builders went from local to regional to national and if they didn't become massive centers of the economy (like finance was), certainly became the bellweather of US economic "health". It was one of the reasons I ran away from the equities market - for quarter after quarter, only housing was doing well.
But your point is well taken that the economic picture we see today is probably more accurate, except for those trying to meet contractual obligations made under seemingly more propitious conditions. I wonder to what extent that has worked its way through as well. I've heard both good projections and bad.
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banks don't have any money to lend
After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing? "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
:: banks don't have any money to lend After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?
After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?
Once again there is a misapprehension as to the nature of banking. Banks do not take in existing money and lend it. If they did, there could not be any new money.
Credit Institutions aka Banks simultaneously create new money as interest-bearing credit and matching deposits.
Sure, Banks are made liquid through TARP and may have better quality assets (bailing out the rich), but they are conserving capital jealously against further defaults, and they have a shortage of creditworthy people and projects to whom to lend.
The TARP money is a credit transfusion replacing the credit haemorrhaging out of the economy as it collapses. The only ways of getting it into the economy is to spend it or lend it. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
banks don't have any money to lend After all the billions of TARP dollars thrown at banks just so they would lend?
After all the billions of TARP dollars thrown at banks just so they would lend?
Or you have the banking regulators intervene the institutions and put them back on their feet so they can start lending again, at a lower cost than TARP. The brainless should not be in banking. — Willem Buitler
The problem is that the shadow banking system, which had taken such a big role in financing the economy (via securitisation, and commercial paper, asset backed or otherwise, mainly), is now gone, and banks cannot step up to replace it.
So banks actually lend a little bit more than before, but companies get much less financing than before, because of the disappearance of the unregulated lenders, and the inability of the banks to step in on the scale required. In the long run, we're all dead. John Maynard Keynes
There will be such a conference before too long, I think, and it will look rather like a Creditors' Meeting for the US, in particular.
I don't think that there is anything that the US will really be able to do to limit its work either any more than any other debtor can direct their creditors.
papicek:
Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?
Governments should be able to ensure enough credit to allow strong mature companies to operate, but there is a continuing cull gathering pace, I think, of those mature companies which have been weakened by private equity debt loads.
The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Possibly. Don't underestimate the US's ability to manage outcomes internationally. At times we're very good, even if very underhanded at it. Depends on how aggressively China can leverage her status as the world's largest consumer now that the US is not.
The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'.
Most of the smaller firms are more manageable risks, as they require less capital. Nobody is trying to enter markets, even now, where there are strong barriers to entry. So we're talking local franchises. I'd be more worried about a scenario like the big three automakers soaking up all the available capital retooling their lines to maintain competitiveness with Toyota and Honda, while similarly big firms trying to expand and/or diversify as well. (Global Marine planning on refurbishing its fleet for deeper drilling would be another great credit sponge, for instance.) "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
China can leverage her status as the world's largest consumer now that the US is not.
China is a midget compared to the US and Europe. And need I remind you that it was Europe, not the US, that was the locomotive of the world economy over the years leading to 2007? In the long run, we're all dead. John Maynard Keynes
Your graph in that earlier diary was on growth. What's the situation in absolute dollars - or any currency you choose? "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
But otherwise, their share of world demand is still pretty low. In the long run, we're all dead. John Maynard Keynes
China is not even close to being the world's leading consumer, but hardly a midget, and with lots more upside than either the EU or the US.
Source: CIA World Factbook. "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate.
Not quite. You'd expect the inevitable overshoot into lending paranoia, which is more or less where we are now,
But eventually companies should find it easier to get access to funds. Funds could be made available with less draconian expectations of instant returns. So jobs would be created and wealth could - potentially - be distributed more equitably.
A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth. One of the easiest ways to create the illusion of growth is to fire people. Relaxing that criterion would create and sustain jobs and allow the real economy to rebound.
Most of the risk has been in property lending. Reducing prices by 50% or 75% would be brutal in the short term, but would have the useful side effect of making housing affordable again. It would also free up disposable income which could be spent on other things, beyond trying to service a mortgage.
A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth.
You don't have to tell me. I work at a publically traded retailer, who is currently stressing and restressing that each of us squeeze the last penny out of the customer that we can.
I've pushed back on this as much as I can, but I'm already starting to hear grumbles from my managers over my performance. I haven't thrown the NYT in WWI example at them yet, and I'm keeping my mouth shut (at work) about the low regard in which I hold shareholders. (To me, they're no more than gamblers and deserve as much consideration. I've heard the "boss who signs your check" already, but as it wasn't directed at me, I haven't replied, "it's the customer who funds the payroll account and the customer is the only one with any choice in this equation. That should be a fun conversation.) "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
Too many people in the US believe that businesses should be run as feudal mini-states, and the owner is literally a king. When customers shop, they're nominally guests, but in fact they're really there to pay tribute. (This pretty much explains everything about how IBM, Microsoft, and other corporates do business.)
The concept of symmetrical obligation seems almost completely alien to the Anglo outlook. Whenever it's suggested it's labelled 'socialism' and greeted with grunting, hooting and pointing, shit flinging and simian hysterics.
The US will continue down its fail spiral until a majority of the population outgrows this outlook.
I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
2) Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?
I am struck by how the thesis advanced by NBBooks in his current diary, Debunking the Myth of the Financial Markets, should fit into this discussion. As he notes:Wall Street simply is not doing what most people think it's doing. Nor what most people think it should be doing. Wall Street is not even doing what it says it is doing. Wall Street is pushing a big myth that its services are essential to the functioning of the rest of the economy. But the truth as, as this graph shows, Wall Street does not -- and has not for a very long time -- serve the function of allocating credit in the economy. The arguments and graphs from Ozgur Orhangazi's Financialization and the US Economy seem cogent. I realize that selling this idea to Serious PeopleTM is an even bigger challenge than selling the recommendations Wolf has made, but the concepts are mutually reinforcing and the solutions would seem to be similar.
Wall Street simply is not doing what most people think it's doing. Nor what most people think it should be doing. Wall Street is not even doing what it says it is doing. Wall Street is pushing a big myth that its services are essential to the functioning of the rest of the economy. But the truth as, as this graph shows, Wall Street does not -- and has not for a very long time -- serve the function of allocating credit in the economy.
The arguments and graphs from Ozgur Orhangazi's Financialization and the US Economy seem cogent. I realize that selling this idea to Serious PeopleTM is an even bigger challenge than selling the recommendations Wolf has made, but the concepts are mutually reinforcing and the solutions would seem to be similar.
