Only punitive interest rates during the boom years could have prevented the "great recession," and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch. The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said."Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy," Mr Bean said.
Only punitive interest rates during the boom years could have prevented the "great recession," and they would have caused a significant fall in growth, according to Bank of England deputy governor Charles Bean.
In a paper on the lessons of the financial crisis prepared for the annual conference of central bankers at Jackson Hole, Wyoming on Saturday, Mr Bean said further policy action might be necessary to keep the recovery on track.
But despite the fragility of the recovery and a considerable margin of spare capacity it was not too soon to analyse the responses to the credit crunch.
The collapse of Lehman Brothers in September 2008 presented central bankers and finance ministers in the advanced economies with one of the toughest challenges that they were ever likely to face, he said.
"Policymakers would be remiss if they did not re-examine their own decisions in the lead-up to to the crisis and strive to learn the lessons for the future conduct of policy," Mr Bean said.
Aug. 29 (Bloomberg) -- Central bankers and economists at a Federal Reserve symposium clashed over how to best contain asset-price bubbles three years after a crash in U.S. housing prices led to the worst global recession since World War II. Bank of England Deputy Governor Charles Bean told the meeting in Jackson Hole, Wyoming, yesterday that regulatory tools would be most efficient at deflating a boom without inflicting broad economic damage. Stanford University Professor John Taylor, creator of an interest-rate-setting formula used by central banks, said the tools are "unproven" and using them may cause central bankers to lose focus on adjusting rates properly. "In a sense, the Fed caused the bubble" in home prices, said Taylor, a former Treasury undersecretary for international affairs. "A priority would therefore be not to create bubbles in the first place," he said in an interview during a break.
Aug. 29 (Bloomberg) -- Central bankers and economists at a Federal Reserve symposium clashed over how to best contain asset-price bubbles three years after a crash in U.S. housing prices led to the worst global recession since World War II.
Bank of England Deputy Governor Charles Bean told the meeting in Jackson Hole, Wyoming, yesterday that regulatory tools would be most efficient at deflating a boom without inflicting broad economic damage. Stanford University Professor John Taylor, creator of an interest-rate-setting formula used by central banks, said the tools are "unproven" and using them may cause central bankers to lose focus on adjusting rates properly.
"In a sense, the Fed caused the bubble" in home prices, said Taylor, a former Treasury undersecretary for international affairs. "A priority would therefore be not to create bubbles in the first place," he said in an interview during a break.
In a major speech to the Jackson Hole Economic Policy Symposium in America which is likely to get a cool reaction from the banking sector, Charles Bean said that the Bank had been powerless to prevent what he called "the Great Contraction" of 2008. He said that the control of interest rates was not, in itself, a powerful enough tool. Under a new "macro-prudential policy" - details of which will be revealed in the Financial Services Regulation Bill later this year - its powers will be more sweeping. In his speech, Mr Bean gave examples of the sort of powers that could underpin such a policy. These included the right to force banks to build up extra reserves during boom times, increase risk-weights on high-risk lenders and impose loan-to-value ratios in the mortgage market. "Monetary policy seems too weak an instrument reliably to moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity," Mr Bean told his audience of policy makers and economists. "Instead, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem. That is what 'macro-prudential policy' is supposed to achieve."
Under a new "macro-prudential policy" - details of which will be revealed in the Financial Services Regulation Bill later this year - its powers will be more sweeping.
In his speech, Mr Bean gave examples of the sort of powers that could underpin such a policy. These included the right to force banks to build up extra reserves during boom times, increase risk-weights on high-risk lenders and impose loan-to-value ratios in the mortgage market.
"Monetary policy seems too weak an instrument reliably to moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity," Mr Bean told his audience of policy makers and economists.
"Instead, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem. That is what 'macro-prudential policy' is supposed to achieve."
I would note that the Federal Reserve Bank in the US had such powers explicitly since the early '90s but refused to use them. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
The U.S. economy remains "weak" and "fragile" and has a "significant" chance of falling back into a recession, Harvard University economics professor Martin Feldstein said in an interview with Bloomberg Radio. "I would say there's still a significant risk, maybe one chance in three, that there will be a double dip, real GDP falling, before we're in the clear," said Feldstein, member of the committee at the National Bureau of Economic Research that dates the beginning and end of recessions. The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously estimated, based on revised Commerce Department figures released today. A separate report showed confidence among consumers rose less than forecast in August from an eight-month low, indicating the biggest part of the economy will be slow to recover. "We see a weak economy," Feldstein said. "We see a fragile economy that is growing at a slower pace."
The U.S. economy remains "weak" and "fragile" and has a "significant" chance of falling back into a recession, Harvard University economics professor Martin Feldstein said in an interview with Bloomberg Radio.
"I would say there's still a significant risk, maybe one chance in three, that there will be a double dip, real GDP falling, before we're in the clear," said Feldstein, member of the committee at the National Bureau of Economic Research that dates the beginning and end of recessions.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously estimated, based on revised Commerce Department figures released today. A separate report showed confidence among consumers rose less than forecast in August from an eight-month low, indicating the biggest part of the economy will be slow to recover.
"We see a weak economy," Feldstein said. "We see a fragile economy that is growing at a slower pace."
Feldstein Sees `Significant Risk' of Recession Again
And in other unexpected news, the sun may rise in the east tomorrow and kittens may be cute. In the end, might makes right. Nothing has changed since the caveman.
Aug. 29 (Bloomberg) -- Gulf Navigation Holding PJSC, Dubai's only publicly traded oil-tanker owner, is seeking to buy new crude carriers as an improving global economy boosts shipping volumes, the company's chief executive officer said. Gulf Navigation may acquire two very large crude carriers, or VLCCs, this year, Per Wistoft said in an interview Aug. 26. Oil output that's set to rise by 2011 will bring enough added crude supply onto the market to necessitate 45 more VLCCs, Wistoft said at his Dubai office. "If the price is right we can buy ships tomorrow," he said. "I'd probably like to see another two VLCCs come into the fleet," with delivery of the vessels before 2013, Wistoft said. A VLCC can haul 2 million barrels of oil.
Aug. 29 (Bloomberg) -- Gulf Navigation Holding PJSC, Dubai's only publicly traded oil-tanker owner, is seeking to buy new crude carriers as an improving global economy boosts shipping volumes, the company's chief executive officer said.
Gulf Navigation may acquire two very large crude carriers, or VLCCs, this year, Per Wistoft said in an interview Aug. 26. Oil output that's set to rise by 2011 will bring enough added crude supply onto the market to necessitate 45 more VLCCs, Wistoft said at his Dubai office.
"If the price is right we can buy ships tomorrow," he said. "I'd probably like to see another two VLCCs come into the fleet," with delivery of the vessels before 2013, Wistoft said. A VLCC can haul 2 million barrels of oil.
LAKE CHARLES, La. -- The only new start-up bank to open in the United States this year operates out of a secondhand double-wide trailer, on a bare lot in front of the cavernous Trinity Baptist Church. A blue awning covers the makeshift drive-through window. Called Lakeside Bank, it is run by a burly and balding former tackle for Louisiana State's football team named Hartie Spence, who doles out countrified humor along with deposit slips and the occasional loan. "This is the one place where the cause of death is mildew," he quipped, standing outside the trailer in withering heat. Asked how his bank in this steaming town of oil refineries and oversize casinos managed to win over federal regulators, Mr. Spence, 70, said, "I'm still thinking it's my looks that did it."
LAKE CHARLES, La. -- The only new start-up bank to open in the United States this year operates out of a secondhand double-wide trailer, on a bare lot in front of the cavernous Trinity Baptist Church. A blue awning covers the makeshift drive-through window.
Called Lakeside Bank, it is run by a burly and balding former tackle for Louisiana State's football team named Hartie Spence, who doles out countrified humor along with deposit slips and the occasional loan.
"This is the one place where the cause of death is mildew," he quipped, standing outside the trailer in withering heat.
Asked how his bank in this steaming town of oil refineries and oversize casinos managed to win over federal regulators, Mr. Spence, 70, said, "I'm still thinking it's my looks that did it."
PROTRACTED unemployment is eating away at millions of people. And the economy's failure to create enough jobs for them is part of a vicious circle that could keep turning for years to come. In my last column, I called for big, temporary government programs aimed directly at putting people back to work. But how might we best accomplish this? The clock is ticking, and we don't have time to create new national organizations to employ people. Instead, the most efficient approach is to use existing organizations for specific ideas and projects. State and local governments as well as nonprofit and other organizations need to be mainstays in this effort. We need to enlist their help -- without telling them exactly what to do. As for a framework, think of the general revenue sharing program adopted by Congress in 1972.
PROTRACTED unemployment is eating away at millions of people. And the economy's failure to create enough jobs for them is part of a vicious circle that could keep turning for years to come.
In my last column, I called for big, temporary government programs aimed directly at putting people back to work. But how might we best accomplish this? The clock is ticking, and we don't have time to create new national organizations to employ people. Instead, the most efficient approach is to use existing organizations for specific ideas and projects.
State and local governments as well as nonprofit and other organizations need to be mainstays in this effort. We need to enlist their help -- without telling them exactly what to do. As for a framework, think of the general revenue sharing program adopted by Congress in 1972.
Deep into the dog days of August, a rather unpleasant scenario is unfolding among the ranks of professional investors on Wall Street. Against the backdrop of unusually low equity trading volumes, even for a typically sleepy August, continued strong flows out of equities into bonds, and high-profile hedge funds shutting down, a bitter truth is dawning for investment professionals. Namely, that the ranks of retail investors, commonly derided as "dumb money" by the Street, have made the right call on US equity and bond markets in 2010. As recently as July, much of Wall Street was awash with bullish research notes for the second half of 2010 calling for higher stocks and warning about low government bond yields. Such bullish research is a staple of the industry and, flush with their bonuses from 2009, the Street simply thought the massive stimulus from the Federal Reserve and US government would translate into a sustainable recovery this year. But since the eruption of the financial crisis in 2008, retail investors, like Odysseus, have stuffed their ears with wax so as to silence the allure of such sirens. (Emphasis added.)
Namely, that the ranks of retail investors, commonly derided as "dumb money" by the Street, have made the right call on US equity and bond markets in 2010.
As recently as July, much of Wall Street was awash with bullish research notes for the second half of 2010 calling for higher stocks and warning about low government bond yields.
Such bullish research is a staple of the industry and, flush with their bonuses from 2009, the Street simply thought the massive stimulus from the Federal Reserve and US government would translate into a sustainable recovery this year. But since the eruption of the financial crisis in 2008, retail investors, like Odysseus, have stuffed their ears with wax so as to silence the allure of such sirens. (Emphasis added.)
To which Zero Hedge responds responds:
When Zero Hedge first admonished our readers in June of 2009 to stay away from markets in light of a general deterioration in market structure, which included a regulator-authorized form of structural frontrunning in the form Flash trading (not to be confused with the imminently following Flash crash), an unprecedented mismatch between stock valuations and economic reality, and Wall Street continued attempts to reflate the ponzi merely for the sake of proving that it can be done, we never expected that retail would take to our warning with the ensuing solemnity. Yet with 16 consecutive outflows from domestic equity mutual funds, shut downs by legendary hedge fund managers such as Druckenmiller and Pellegrini (and many more Tiger derivative blows up to be disclosed soon, once the full extent of the carnage of the flattening of the steepener bandwagon trade is fully appreciated), virtually everyone is asking themselves how did Wall Street not only get it all so wrong, but how on earth is the primary business of the post-facelift Wall Street, which is no longer investment banking, but merely trading (with or without flow-facilitated prop frontrunning) going to sustain the recent record headcount levels (hint: it won't, and many more banks will soon let go thousands of additional staffers as key revenue sources have now disappeared forever), and most importantly, why is this time different? Why did the "dumb money" for the first time ever, not bite on the Wall Street siren song lure of an economic "rebound", but instead has hunkered down, proving that not only is Wall Street nothing more than a pure-play enabler of the ponzi regime's status quo, but that all those who were warning that the economy is far more dire than Wall Street represents, were proven right. These same individuals (and bloggers), first validated in predicting the downward direction of the economy, will see their pessimistic forecasts about stocks validated next. Yet while that happens, all those who still somehow find this a surprising development, are now left proposing hypothesis as to what went wrong.
Well, Zero Hedge was early to descry the baleful effects of propriatary computers co-located at exchanges and that could be used for prop desk trading and was persistent and emphatic that this was bad news for small traders. While they might not have brought on this withdrawal of retail investors by themselves, there is precedent for claiming credit for developments which one has advocated in response to dangers of which one has warned. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
John Hempton has just read The King of Oil: The Secret Lives of Marc Rich, wherein it is revealed how Rich, operating out of Switzerland managed to sell Iranian oil to Franco's Spain on the cheap via a pipeline that ran from Iran through Israel, thence to Albania and on to Spain and turn $1 million into $200 million in a few years via "regulatory arbitrage". He uses this example to discuss the problems of regulation.
A plea As a plea then I want a debate about the right form of regulation - a regulation that controls agency problems but does not allow arbitrage opportunities to people with "Ayn Rand morals". We are not going to get that from the current Tea Party Republicans. They simply argue that regulation (they say but do not mean all regulation) impinges on "freedom" (something that is clearly a good but hard to define). However many of the same people want planning regulations to ban a mosque in downtown New York because it is an insult to the victims of 9/11 (and banning mosques is not a restriction on "freedom"). If that is the level of debate we are not going to get good re-regulation - we are just going to get pandering to whichever lobby group manages to garner most support. And that is a real risk because we will leave agency problems in place (they benefit the rich and powerful) and we will introduce the same sort of (dumb) regulation that made Marc Rich and Pincus Green astoundingly wealthy. That sort of regulation also benefits the rich and powerful - especially those with "Ayn Rand morals". [The rich and powerful - if you have not noticed - are good lobbyists. Unless we are careful many amongst them will get their way.] I don't know how to do this well - but I thought I would state the obvious. The most obvious things that need regulation are things with a government guarantee (implicit or explicit). If you have an implicit guarantee (as we now know almost all large financial institutions have) then regulation really matters. If there are large agency problems (small shareholders, large management) then regulation should be deliberately biased to put power in the hands of shareholders not managers (eg banning staggered board elections). Likewise other agency problems should be strongly policed and the regulation should be of the form that allows that policing. When Elliot Spitzer found that Marsh - a large insurance broker - was participating in bid rigging against schools buying insurance that was shocking - and is precisely the sort of thing in financial markets that should be policed strongly. But it took Elliot considerable effort to find and prove his case. The rules should be established so that sort of behaviour is really difficult to hide.
As a plea then I want a debate about the right form of regulation - a regulation that controls agency problems but does not allow arbitrage opportunities to people with "Ayn Rand morals".
We are not going to get that from the current Tea Party Republicans. They simply argue that regulation (they say but do not mean all regulation) impinges on "freedom" (something that is clearly a good but hard to define). However many of the same people want planning regulations to ban a mosque in downtown New York because it is an insult to the victims of 9/11 (and banning mosques is not a restriction on "freedom").
If that is the level of debate we are not going to get good re-regulation - we are just going to get pandering to whichever lobby group manages to garner most support. And that is a real risk because we will leave agency problems in place (they benefit the rich and powerful) and we will introduce the same sort of (dumb) regulation that made Marc Rich and Pincus Green astoundingly wealthy. That sort of regulation also benefits the rich and powerful - especially those with "Ayn Rand morals". [The rich and powerful - if you have not noticed - are good lobbyists. Unless we are careful many amongst them will get their way.]
I don't know how to do this well - but I thought I would state the obvious. The most obvious things that need regulation are things with a government guarantee (implicit or explicit). If you have an implicit guarantee (as we now know almost all large financial institutions have) then regulation really matters. If there are large agency problems (small shareholders, large management) then regulation should be deliberately biased to put power in the hands of shareholders not managers (eg banning staggered board elections).
Likewise other agency problems should be strongly policed and the regulation should be of the form that allows that policing. When Elliot Spitzer found that Marsh - a large insurance broker - was participating in bid rigging against schools buying insurance that was shocking - and is precisely the sort of thing in financial markets that should be policed strongly. But it took Elliot considerable effort to find and prove his case. The rules should be established so that sort of behaviour is really difficult to hide.
But it will still take regulators that are willing to regulate and politicians that are willing to support them. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Iranian oil to Franco's Spain on the cheap via a pipeline that ran from Iran through Israel, thence to Albania and on to Spain
I hate to be a geography PN, but at the very least some steps are missing here... The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
After the Six Day War, Iran supplied Israel with a significant portion of its oil needs and Iranian oil was shipped to European markets via the joint Israeli-Iranian Eilat-Ashkelon pipeline.[1][2] Brisk trade between the countries continued until 1979.[3] Israeli construction firms and engineers were active in Iran.
See also: In the pipeline: More regime change. Or, as a last resort, read the first portion of the article. :-)
Israel got to keep a significant portion of the oil for its role, Albania and, probably, Syria got bribed. Iran got a market for oil in excess of its OPEC quota. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
a pipeline that ran from Iran through Israel, thence to Albania and on to Spain
I don't think such a pipeline exists or has existed... "Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
Includes handy charts...
For starters, China is buying gold. And not just a little bit either. They bought 454 tonnes of it during the last five years and have shown no signs of stopping. More than anything, China has been on a worldwide buying spree this year. But instead of buying our debt, they've been buying up natural resources. The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States. They've also spent $586 Billion on themselves, stimulating their own economy rather than ours. Adding to that, China has been making currency swap agreements with nations around the world. That means that they will be able to trade with foreign nations in their own currency, and not have to use dollars.
More than anything, China has been on a worldwide buying spree this year. But instead of buying our debt, they've been buying up natural resources. The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.
They've also spent $586 Billion on themselves, stimulating their own economy rather than ours.
Adding to that, China has been making currency swap agreements with nations around the world. That means that they will be able to trade with foreign nations in their own currency, and not have to use dollars.
And this bit: "As a region, Asia has created a $120 Billion Asian Monetary Fund - directly undermining the IMF, which has the same mandate. America holds veto power in the IMF, but no power in this new international body." You can't be me, I'm taken
