Archive for December 26th, 2008

Remembering, praising Dr Reddy and financial sector reforms

December 26, 2008

Blogs and media is talking a lot about this piece from Joe Nocera from NYT. Nocera tries to answer this question- How India Avoided a Crisis?

My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner?

The author visits some Senior Indian bankers and says the most important factor was RBI’s previous Governor – Dr Reddy:

(more…)

How Paul Volcker identifies a bank in trouble?

December 26, 2008

I have said on numerous occasions-  In times of stress, read Richard Fischer of Dallas Fed.

In his recent speech he says financial crisis have been there since ages and defends recent Fed decisions. I just loved his anecdote involving Paul Volcker, now the adviser to President-elect Obama:

Paul Volcker told me recently that in his day, he knew that a bank was headed for trouble when it grew too fast, moved into a fancy new building, placed the chairman of the board as the head of the art committee and hired McKinsey & Co. to do an incentive compensation study for the senior officers.

:-) This really hits hard. 

Fisher also points to quotes which seemed to have been written describing today’s crisis:

Every now and then the world is visited by one of these delusive seasons, when ‘the credit system’ … expands to full luxuriance: everyone trusts everybody; a bad debt is a thing unheard of; the broad way to certain and sudden wealth lies plain and open; and men … dash forth boldly from the facility of borrowing.

“Promissory notes, interchanged between scheming individuals, are liberally discounted at the banks…. Everyone talks in [huge amounts]; nothing is heard but gigantic operations in trade; great purchases and sales of real property, and immense sums [are] made at every transfer. All, to be sure, as yet exists in promise; but the believer in promises calculates the aggregate as solid capital….
 
“Speculative and dreaming … men … relate their dreams and projects to the ignorant and credulous, dazzle them with golden visions, and set them maddening after shadows. The example of one stimulates another; speculation rises on speculation; bubble rises on bubble….

“Speculation … casts contempt upon all its sober realities. It renders the [financier] a magician, and the [stock] exchange a region of enchantment…. No ‘operation’ is thought worthy of attention that does not double or treble the investment. No business is worth following that does not promise an immediate fortune….

“Could this delusion always last, life … would indeed be a golden dream; but [the delusion] is as short as it is brilliant.

After this he adds:

That was not written by Martin Wolf of the Financial Times or Paul Gigot of the Wall Street Journal or David Brooks of the New York Times or Lee Cullum in the Dallas Morning News. It was written by Washington Irving in his famous Crayon Papers about the Mississippi Bubble fiasco of 1719.

Yeah 1719!  And we clamour so much that this is modern financial system, need to make policies for developing a modern financial system etc etc. And how different this crisis is.  No wonder, Rogoff and Reinhart said in a paper -Is subprime crisis any different? It takes a crisis for us to realise that it is less to do with modernism and fancy techniques, but more to do with basics. And latter is seldom in place.

Excellent speech!

Elaine Bennett Research Prize for 2008 to Amy Finkelstein

December 26, 2008

I had pointed about 2 relatively unknown awards for Economists. One of them is Elaine Bennett Research Prize given to women economists.

So far, the winners have been:

For 2008, the award goes to MIT’s economist Amy Finkelstein. Majority of her research work focuses on insurance markets.

Assorted Links

December 26, 2008

1. MR on GMAC becoming a Bank

2. Krugman’s excellent post on Keynes’s difficult idea

3. Krugman points Latvia is the new Argentina and Ukraine in Great Depression

4. Mankiw points Martin Feldstein is keen on defence spending

5. Rodrik points to his interview on growth diagnostics


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