Unpacking The Flip Side

Summer Olympics 2016

2009-10-02T13:11:00.006-05:00

Brazil Can Do It Too!!!!!!

"All those people who thought we had no ability to govern this country will now learn that we can host the Olympics."

"The Brazilian people are good, generous and the country deserves it."

Brazilian President Luiz Inacio Lula da Silva

Irving Kristol, Godfather of Modern Conservatism, Dies at 89

2009-09-19T19:42:00.002-05:00

Barry Gewen

New York Times

September 18, 2009

Irving Kristol, the political commentator who, as much as anyone, defined modern conservatism and helped revitalize the Republican Party in the late 1960s and early ’70s, setting the stage for the Reagan presidency and years of conservative dominance, died Friday in Arlington, Va. He was 89 and lived in Washington.

He was commonly known as the godfather of neoconservatism, even by those who were not entirely sure what the term meant. In probably his most widely quoted comment — his equivalent of Andy Warhol’s 15 minutes of fame — Mr. Kristol defined a neoconservative as a liberal who had been “mugged by reality.”
It was a description that summarized his experience in the 1960s, along with that of friends and associates like Daniel Bell, Nathan Glazer and Daniel Patrick Moynihan. New Deal Democrats all, they were social scientists who found themselves questioning many of President Lyndon B. Johnson’s Great Society ideas. Mr. Kristol translated his concerns into a magazine. In 1965, with a $10,000 contribution from a wealthy acquaintance, he and Daniel Bell started The Public Interest. Its founding is generally considered the beginning of neoconservatism. “Something like a ‘movement’ took shape,” Mr. Kristol wrote, “with The Public Interest at (or near) the center.”
The Public Interest writers did not take issue with the ends of the Great Society so much as with the means, the “unintended consequences” of the Democrats’ good intentions. Welfare programs, they argued, were breeding a culture of dependency; affirmative action created social divisions and did damage to its supposed beneficiaries. They placed practicality ahead of ideals. “The legitimate question to ask about any program,” Mr. Kristol said, “is, ‘Will it work?’,” and the reforms of the 1960s and ’70s, he believed, were not working. Read More...

What went wrong with economics

2009-07-17T22:44:00.004-05:00

Illustration by Jon Berkerly

Jul 16th 2009 From The Economist print edition

And how the discipline should change to avoid the mistakes of the past

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.” Read More...

Uncertainty bedevils the best system

2009-04-15T09:48:00.001-05:00

By Edmund Phelps
Published: April 14 2009 19:50 Financial Times

In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards. Ignorance of what it can contribute has in the past led some countries to throw out the system or clip its wings. Ignorance of the hazards has made imprudence in markets and policy neglect all the more likely. Regaining a well-functioning capitalism will require re-education and deep reform.
Capitalism is not the “free market” or laisser faire – a system of zero government “plus the constable”. Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society’s formal business economy. Last, a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism. More...

From Bubble to Depression?

2009-04-06T13:52:00.001-05:00

By STEVEN GJERSTAD and VERNON L. SMITH, Wall Street Journal

Bubbles have been frequent in economic history, and they occur in the laboratories of experimental economics under conditions which -- when first studied in the 1980s -- were considered so transparent that bubbles would not be observed.
We economists were wrong: Even when traders in an asset market know the value of the asset, bubbles form dependably. Bubbles can arise when some agents buy not on fundamental value, but on price trend or momentum. If momentum traders have more liquidity, they can sustain a bubble longer.
But what sparks bubbles? Why does one large asset bubble -- like our dot-com bubble -- do no damage to the financial system while another one leads to its collapse? Key characteristics of housing markets -- momentum trading, liquidity, price-tier movements, and high-margin purchases -- combine to provide a fairly complete, simple description of the housing bubble collapse, and how it engulfed the financial system and then the wider economy. Read More...

Why this will not be a normal cyclical recovery

2009-04-06T10:51:00.002-05:00

By Roger Altman
Published: April 5 2009 19:23 Financial Times

The rare nature of this recession precludes a cyclically normal US recovery. Instead, we are consigned to a slow, painful climb-out, as are nations such as Japan and Mexico that depend on US demand. The implications for US policy include a likely second round of stimulus, much more federal capital for the banking system and stunning budget deficits that will slow key initiatives for President Barack Obama, such as healthcare and energy reform.
What is unusual is that this is a balance-sheet driven recession, centred on the damaged financial condition of both households and banks. These weaknesses mandate sub-normal levels of consumer spending and overall lending for about three years. More...

Related Article: The London summit has not fixed the crisis

G20 Communique - Apr 2 London Meeting

2009-04-05T10:57:00.000-05:00

We have today therefore pledged to do whatever is necessary to:

restore confidence, growth, and jobs;
repair the financial system to restore lending;
strengthen financial regulation to rebuild trust;
fund and reform our international financial institutions to overcome this crisis and prevent future ones;
promote global trade and investment and reject protectionism, to underpin prosperity;
build an inclusive, green, and sustainable recovery. Read More

Annex to Communique:

DECLARATION ON STRENGTHENING THE FINANCIAL SYSTEM

DECLARATION ON DELIVERING RESOURCES THROUGH THE INTERNATIONAL FINANCIAL INSTITUTIONS

Progress Report on the Actions of the Washington Action Plan

The Future of Capitalism Discussion

2009-03-29T20:11:00.004-05:00

Watch several discussions on the future of Capitalism hosted by Financial Times Editor Lionel Barber.

http://www.ft.com/cms/3cf2381c-c064-11dd-9559-000077b07658.html?_i_referralObject=1069619695&fromSearch=n

Courtesy Financial Times

Reform the International Monetary System

2009-03-25T12:14:00.005-05:00

Zhou Xiaochuan, Governor, People's Bank of China (PBC)

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system. More...

Courtesy: People's Bank of China

Related Article: US willing to look at China currency proposal (Financial Times)

SA retail investment a glimpse of what’s coming

2009-03-16T20:50:00.004-05:00

By Kuthula Matshazi

RECENTLY, there have been concerns about South African businesses, especially supermarket retail chains flooding the Zimbabwe market with their goods.
This has been necessitated by the situation in Zimbabwe where there had been, in some instances, real and in other cases artificial shortages of basic foodstuffs.
In times when these shortages were acute, South Africa and Botswana became our shopping centres. As a business response to market demand, and exploiting the proximity of Zimbabwe to South Africa and the cordial political relations that we share, these businesses provided Zimbabwe with basic commodities. More...

Related Article: FINANCIAL REGIME CHANGE?, Robert Wade
New Left Review 53, September-October 2008

Courtesy: New Left Review

Fed to Buy $1 Trillion in Securities to Aid Economy

2009-03-16T20:09:00.002-05:00

By EDMUND L. ANDREWS, The New York Times
Published: March 18, 2009

WASHINGTON — The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.
Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.
The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.
The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments. More...

Related Articles:

The Geithner plan explained - Audio (Financial Times)

A Test of Will (The Economist)

U.S. to Toughen Finance Rules

2009-03-16T01:10:00.002-05:00

By DAMIAN PALETTA, Wall Street Journal

The Obama administration, moving with increasing speed, has inked the main contours of its plan to revamp financial-market oversight -- changes that will ripple through the economy, affecting everything from the operations of international banks to consumer protection.
The principles include giving the Federal Reserve new powers that include authority to monitor and address broad risks across the economy, say people familiar with the matter. The proposals are expected to include tougher capital requirements for big banks and authority for regulators to take over a large financial firm that is failing.

Proposed Changes
Treasury Secretary Timothy Geithner will soon outline proposed changes in financial regulation. They are expected to include:
An enhanced role for the Federal Reserve to monitor and address broad economic risks.
Changes to the way banks are overseen to prevent lenders from shopping among regulators for the easiest supervision.
More transparency and stricter rules for the way money flows between banks.
Tougher capital requirements for big banks.
Consolidation of consumer-protection enforcement. Read More...

G20 Finance Ministers’ and Central Bank Governors’ Communiqué - 14 March 2009

2009-03-14T19:21:00.008-05:00

We, the G20 Finance Ministers and Central Bank Governors, met today to prepare for the Leaders’ London Summit. We agreed further action to restore global growth and support lending, and reforms to strengthen the global financial system.

Restoring Global Growth
1. We have taken decisive, coordinated and comprehensive action to boost demand and jobs, and are prepared to take whatever action is necessary until growth is restored. We commit to fight all forms of protectionism and maintain open trade and investment.
2. Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalisation and dealing with impaired assets, through a common framework (attached). We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions. More...

Annex to Communique Source: G20

Related Article: Nov 15 2008 G20 Communique

A Plan B for global finance

2009-03-14T11:58:00.004-05:00

Dani Rodrik

Mar 12th 2009, The Economist

One problem with the global [financial regulation] strategy is that it presumes we can get leading countries to surrender significant sovereignty to international agencies. It is hard to imagine that America’s Congress would ever sign off on the kind of intrusive international oversight of domestic lending practices that might have prevented the subprime-mortgage meltdown, let alone avert future crises. Nor is it likely that the IMF will be allowed to turn itself into a true global lender of last resort. The far more likely outcome is that the mismatch between the reach of markets and the scope of governance will prevail, leaving global finance as unsafe as ever. That certainly was the outcome the last time we tried an international college of regulators, in the ill-fated case of the Bank of Credit and Commerce International. Read Article...

The Fed Didn't Cause the Housing Bubble

2009-03-11T18:17:00.000-05:00

By ALAN GREENSPAN for Wall Street Journal

We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system.
There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.
The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages. Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate. More...

Adam Smith’s market never stood alone

2009-03-11T18:14:00.002-05:00

By Amartya Sen
Published: March 10 2009 20:15 Last updated: March 10 2009 20:15

Exactly 90 years ago, in March 1919, faced with another economic crisis, Vladimir Lenin discussed the dire straits of contemporary capitalism. He was, however, unwilling to write an epitaph: “To believe that there is no way out of the present crisis for capitalism is an error.” That particular expectation of Lenin’s, unlike some he held, proved to be correct enough. Even though American and European markets got into further problems in the 1920s, followed by the Great Depression of the 1930s, in the long haul after the end of the second world war, the market economy has been exceptionally dynamic, generating unprecedented expansion of the global economy over the past 60 years. Not any more, at least not right now. The global economic crisis began suddenly in the American autumn and is gathering speed at a frightening rate, and government attempts to stop it have had very little success despite unprecedented commitments of public funds. More...

Copyright The Financial Times Limited 2009

Now is the Time for Less Selfish Capitalism

2009-03-11T17:49:00.004-05:00

By Richard Layard
Published: March 11 2009 20:02 Last updated: March 11 2009 20:02

What is progress? The Organisation for Economic Co-operation and Development has been asking this question for some time and the current crisis makes it imperative to find an answer. According to the Anglo-Saxon Enlightenment, progress means the reduction of misery and the increase of happiness. It does not mean wealth creation or innovation, which are sometimes useful instruments but never the final goal. So we should stop the worship of money and create a more humane society where the quality of human experience is the criterion. Provided we pay ourselves in line with our productivity, we can choose whatever lifestyle is best for our quality of life.

And what would that involve? The starting point is that, despite massive wealth creation, happiness has not risen since the 1950s in the US or Britain or (over a shorter period) in western Germany. No researcher questions these facts. So accelerated economic growth is not a goal for which we should make large sacrifices. In particular, we should not sacrifice the most important source of happiness, which is the quality of human relationships – at home, at work and in the community. We have sacrificed too many of these in the name of efficiency and productivity growth.
Most of all we have sacrificed our values. In the 1960s, 60 per cent of adults said they believed “most people can be trusted”. Today the figure is 30 per cent, in both Britain and the US. The fall in trustworthy behaviour is clear in the banking sector but can also be seen in family life (more break-ups), in the playground (fewer friends you can trust) and in the workplace (growing competition between colleagues).
Increasingly, we treat private interest as the only motivation on which we can rely and competition between individuals as the way to get the most out of them. This is often counterproductive and does not generally produce a happy workplace since competition for status is a zero-sum game. Instead, we need a society based on positive-sum activities. Humans are a mix of selfishness and altruism but generally feel better working to help each other rather than to do each other down.
Our society has become too individualistic, with too much rivalry and not enough common purpose. We idolise success and status and thus undermine our mutual respect. But countries vary in this regard, and the Scandinavians have managed to combine effective economies with much greater equality and mutual respect. They have the greatest levels of trust (and happiness) of any countries in the world.
To build a society based on trust we have to start in school, if not earlier. Children should learn that the noblest life is the one that produces the least misery and the most happiness in the world. This rule should apply also in business and professional life. People should do work that is useful to society and does not just make paper profits. And all professions – including journalism, advertising and business – should have a clear, professional, ethical code that its members are required to observe. It is not for nothing that doctors form the group most respected in our society – they have a code that is enforced and everyone knows it.
So we need a trend away from excessive individualism and towards greater social responsibility. Is it possible to reverse a cultural trend in this way? It has happened before, in the early 19th century. For the next 150 years there was a growth of social responsibility, followed by a decline in the next 50. So a trend can change and it is often in bad times (such as the 1930s in Scandinavia) that people decide to seek a more co-operative lifestyle.
I have written a book about how to do this and there is room here for three points only. First we should use our schools to promote a better value system – the recent Good Childhood report sponsored by the UK Children’s Society was full of ideas about how to do this. Second, adults should reappraise their priorities about what is important. Recent events are likely to encourage this and modern happiness research can help find answers. Third, economists should adopt a more realistic model of what makes humans happy and what makes markets function.
Three ideas taught in business schools have much to answer for. One is the theory of “efficient capital markets”, now clearly discredited. The second is “principal agent” theory, which says the agents will perform best under high-powered financial incentives to align their interests with those of the principal. This has led to excessive performance-related pay, which has often undermined the motive to work well for the sake of doing a good job and introduced unnecessary tension among colleagues. Finally, there is the macho philosophy of “continuous change”, promoted by self-interested consulting companies, which disregards the fundamental human need for stability – in the name of efficiency gains that are often not realised.
We do not want communism – as research shows, the communist countries were the least happy in the world and also inefficient. But we do need a more humane brand of capitalism, based not only on better regulation but on better values.
Values matter and they are affected by our theories. We do not need a society based on Darwinian competition between individuals. Beyond subsistence, the best experience any society can provide is the feeling that other people are on your side. That is the kind of capitalism we want.

Lord Layard is at the London School of Economics Centre for Economic Performance. He has written Happiness (2005) and co-authored A Good Childhood (2009).

'Bad Bank' Funding Plan Starts to Get Fleshed Out

2009-03-03T01:03:00.001-05:00

By DEBORAH SOLOMON and JON HILSENRATH, Wall Street Journal

WASHINGTON -- The Obama administration, filling in some of the blanks in its bank bailout, is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, according to people familiar with the matter.
The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It's central to the administration's efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.
No decision has been made on the final structure of what the administration is calling a private-public financing partnership, but one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss. More...

U.S. Is Said to Offer $30 Billion More to Help A.I.G.

2009-03-02T00:59:00.002-05:00

By ANDREW ROSS SORKIN and MARY WILLIAMS WALSH
Published: March 1, 2009 New York Times

The federal government agreed Sunday night to provide an additional $30 billion in taxpayer money to the American International Group and loosen the terms of its huge loan to the insurer, which is preparing to report a $62 billion loss on Monday, the biggest quarterly loss in history, people involved in the discussions said.
The intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.
Federal officials, who worked feverishly over the weekend to complete the restructuring, said they thought they had no choice but to prop up A.I.G., because its business and trading activities are so intricately woven through the world’s banking system. More...

Biti's RBZ criticism good politics but bad policy

2009-02-23T12:20:00.005-05:00

By Kuthula Matshazi

Posted to the web: 18/02/2009 23:24:11 NewZimbabwe.com

FINANCE Minister Tendai Biti was recently quoted in the media apportioning blame to the Reserve Bank of Zimbabwe for the country’s economic problems. He vowed that he would reduce its role to a minimum.
At a time when Biti’s MDC party has joined an inclusive government, it wants to make a mark by announcing policies that would seem to be different from those of Zanu PF. Many, including Biti who subscribe to the lasseiz faire economic doctrine, argue that Zanu PF’s “big government” and the RBZ’s quasi-fiscal operations were responsible for leading the country to an economic depression. More...

Related Article:
Only governments can get credit rolling

'Nationalize' the Banks

2009-02-23T12:19:00.003-05:00

Dr. Doom says a takeover and resale is the market-friendly solution.

The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank -- supposed to be the lender of the last resort -- became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we've already crossed a significant bridge."

By TUNKU VARADARAJAN, Wall Street Journal
21 February 2009

Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.
"So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they're stronger! Nationalization -- or 'temporary receivership,' if you like, if the N-word is a political liability -- is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up." More...

Related Articles:

Greenspan backs bank nationalisation

The Problem With 'Nationalization'

U.S. Eyes Large Stake in Citi

2009-02-23T12:14:00.001-05:00

By DAVID ENRICH and MONICA LANGLEY, Wall Street Journal

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.
While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.
Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks. More...

US, China to ‘to help lead the world recovery’

2009-02-21T15:10:00.003-05:00

"Ahead of her arrival in Beijing, Mrs Clinton said that disagreements with China over Tibet and human rights should not be allowed to dominate the agenda".

By Geoff Dyer in Beijing
Published: February 21 2009 14:00 Last updated: February 21 2009 16:13

The US and China pledged to step up a high-level dialogue between the two countries which will address the global financial crisis, climate change and security issues.
Hillary Clinton, US secretary of state, said the two governments would work together “to help lead the world recovery” and that she appreciated China’s continued purchases of US Treasury bonds.
Hillary Clinton, US secretary of state, said the two governments would work together “to help lead the world recovery” and that she appreciated China’s continued purchases of US Treasury bonds.
Speaking on her first visit to Beijing since taking over at the State department, Mrs Clinton said that human rights issues would take a back seat to the discussions about the economy, North Korea and global warming. More...

Obama’s “Buy American” a threat to international trade

2009-02-02T13:08:00.004-05:00

By Kuthula Matshazi

While the world has been preoccupied dealing with the fallout of the global financial crisis in order to rescue the global economy, another danger looms. That danger is trade protectionism, which is being practiced by many countries but is now epitomized by the huge United States US$825 billion stimulus package.
The Bill, that has won the support of the US House of Representatives, contains a provision called “Buy American” that mandates all public works projects to procure iron and steel made in the US only. A similar Bill emanating from the Senate is reported to be considering the “Buy American” provision for all manufactured goods bought with stimulus funds. More...

Related Article:
How to tame this WTO monster

The humbling of Davos Man

2009-02-01T15:56:00.001-05:00

By John Gapper
Published: January 28 2009 19:04 Last updated: January 28 2009 19:04

Having journeyed this week up a Swiss mountain valley to the World Economic Forum’s annual meeting in Davos, I find myself in select company. Several members of the global business elite discovered at the last minute that they had pressing business elsewhere.
Where is John Thain, the former chief executive of Merrill Lynch? Back in New York trying to rescue his good name after being pushed out by Bank of America and having details of his $1.2m (€907,000, £839,000) office refurbishment leaked. And where is Sam DiPiazza, chief executive of PwC? In India, where two PwC auditors have been held by police over their role in the alleged $1bn fraud at Satyam Computers. More...