By Guillaume Duval – Ten years after the collapse of Lehman Brothers people are frequently asking themselves why the crisis has done so much to strengthen populism and nationalism everywhere you go. However, economically and socially, the process that lies behind this development is, unfortunately, all too easy to describe.
During the aftermath of the 2008 crisis, central banks’ rescue of finance continued on an unprecedented scale for ten years with what is called Quantitative easing (QE). The striking effect of this was to send prices of financial assets sky-high and thereby substantially enrich the bankers, speculators and the already rich holders of these assets at levels that are much higher than before the crisis.
At the same time, ordinary people found themselves lastingly out of work on a huge scale. Governments whose own finances deteriorated steeply – not least because of their aid to the financial sector – rushed to cut back on their spending, especially on welfare. Everywhere, classic right-wing governments but also social-liberal left ones as in France adopted deflationary policies to cut the cost of labor and loosen up the labor market rules, thus making ordinary people’s working and living conditions far worse. While cutting again the taxes on the super-rich and corporate earnings to preserve the country’s “attractiveness.”
These public policies – that have put all European countries permanently on the edge of recession and deflation – are also the main reason for the pursuit of the above-mentioned monetary policy that has so significantly increased inequalities. more>
Posted in Banking, Business, CONGRESS WATCH, Economic development, Economy, Education, History, Leadership, Media, Net
Tagged Business improvement, Capital, Ecology, Financial crisis, Government, Internet, Leadership, United States
By Michael Maiello – Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence.
They conclude that ML had significant advantages over conventional analysis in this challenging task.
ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.
“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers.
Of almost 100 characteristics the researchers investigated, the most successful predictors were price trends, liquidity, and volatility. more>
By Annie Lowrey – Stock buybacks are eating the world. The once illegal practice of companies purchasing their own shares is pulling money away from employee compensation, research and development, and other corporate priorities—with potentially sweeping effects on business dynamism, income and wealth inequality, working-class economic stagnation, and the country’s growth rate. Evidence for that conclusion comes from a new report by Irene Tung of the National Employment Law Project (NELP) and Katy Milani of the Roosevelt Institute, who looked at share buybacks in the restaurant, retail, and food industries from 2015 to 2017.
Buybacks occur when a company takes profits, cash reserves, or borrowed money to purchase its own shares on the public markets, a practice barred until the Ronald Reagan administration.
The regulatory argument against allowing the practice is that it is a way for companies to manipulate the markets; the regulatory argument for it is that companies should be able to spend money how they see fit.
In recent years, with corporate profits high, American firms have bought their own stocks with extraordinary zeal.
Federal Reserve data show that buybacks are now equivalent to 4 percent of annual economic output, up from zero percent in the 1990s. Companies spent roughly $7 trillion on their own shares from 2004 to 2014, and have spent hundreds of billions of dollars on buybacks in the past six months alone. more>
Posted in Banking, Business, CONGRESS WATCH, Economic development, Economy, History, Leadership, Regulations
Tagged Banking reform, Capital, Financial crisis, Government, Regulations, Stock buyback, United States
By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.
Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.
Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.
Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>
Posted in Banking, Business, CONGRESS WATCH, Economy, History, Leadership, Media, Net, Regulations
Tagged Banking reform, Capital, Congress Watch, Credit, Debt, Financial crisis, Regulations, United States
By Simon Wren-Lewis – Or maybe the middle ages, but certainly not anything more recent than the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology, and talk about the need for fiscal expansion when nominal interest rates are stuck at the Zero Lower Bound or Effective Lower Bound.
When monetary policy loses its reliable and effective instrument to manage the economy, you need to bring in the next best reliable and effective instrument: fiscal policy.
The Eurozone as a whole is currently at the effective lower bound. Rates are just below zero and the ECB is creating money for large scale purchases of assets: a monetary policy instrument whose impact is much more uncertain than interest rate changes or fiscal policy changes (but certainly better than nothing). The reason monetary policy is at maximum stimulus setting is that Eurozone core inflation seems stuck at 1% or below. Time, clearly, for fiscal policy to start lending a hand with some fiscal stimulus.
You would think that causing a second recession after the one following the GFC would have been a wake up call for European finance ministers to learn some macroeconomics. Yet what little learning there has been is not to make huge mistakes but only large ones: we should balance the budget when there is no crisis. more>
Posted in Banking, Business, Economy, Leadership
Tagged Banking reform, Capital, Credit, Currency, Debt, Financial crisis, Government, Monetary policy
By Hans Kundnani – There are two quite different ways of thinking about the Commission’s proposals. For Macron, they were part of a vision for a “Europe qui protege” in which there would be greater “solidarity” between citizens and member states.
In the context of this vision, the new European Monetary Fund would be a kind of embryonic treasury for the eurozone. But many in Germany, including Wolfgang Schäuble, seem to support the same idea for entirely different reasons. They see it as a way to increase control over EU member states’ budgets and more strictly enforce the eurozone’s fiscal rules and thus increase European “competitiveness”. If that vision were to prevail, “more Europe” would mean “more Germany” – as many of the steps that have been taken in the last seven years since the euro crisis began have.
These different visions illustrate the way that deepening European integration is not automatically or inherently a good thing. In fact, steps such as turning the ESM (European Stability Mechanism) into a European Monetary Fund may form part of a troubling transformation of the EU that goes back to the beginning of the euro crisis.
It is as if the EU is in the process of being remade in the image of the IMF. It increasingly seems to be a vehicle for imposing market discipline on member states – something quite different from the project that the founding fathers had in mind and also quite different from how most “pro-Europeans” continue to imagine the EU.
Indeed, it is striking that, in discussions about debt relief for crisis countries, the European Commission has often been even more unyielding than the IMF. As Luigi Zingales put it in July 2015: “If Europe is nothing but a bad version of the IMF, what is left of the European integration project?” more>
Posted in Banking, Business, Economic development, Economy, History, Leadership, Media
Tagged Banking reform, Business improvement, EU, Financial crisis, Government, Leadership, Organization, Super regions
By Andrés Velasco – The timing was exquisitely ironic: equity markets peaked – and a week later began crashing – just as pundits left this year’s World Economic Forum meeting in Davos, where they concluded that the global economy was on a steady upswing. In the weeks since, experts have divided into two camps.
Some, including new US Federal Reserve Board chairman Jerome Powell, believe that economic fundamentals are strong, and that what stock markets experienced in early February was only a temporary hiccup.
Then there are those who believe that fundamentals are in fact weak, that the current upswing will prove unsustainable, and that investors should regard stock-market gyrations as a necessary wakeup call.
Both schools of thought share a focus on fundamentals, unlike a third – and, in my opinion, highly plausible – view: that the asset-price volatility we have been seeing has little or nothing to do with changes in fundamentals.
The human brain is wired to structure knowledge around narratives in which we can tell if and how A (and B and C) causes X. We tend to be uncomfortable with the notion that an economy’s fundamentals do not determine its asset prices, so we look for causal links between the two. But needing or wanting those links does not make them valid or true. more>