Archive for June 15th, 2016

If Pate’s Grammar School sets UK Monetary Policy…

June 15, 2016

Each year, the Bank of England organises the Target 2.0 competition for A-level economics students.  This year  Pate’s Grammar School won the competition.

In this guest post on Bank’s blog  (https://bankunderground.co.uk) the winning team explains what they would do if they were at the MPC:

We decided as a team to hold Bank Rate at 0.5% and to maintain asset purchases at £375bn. In our view it is not yet time to tighten monetary policy. Though we believe the output gap is small, we feel the economy is yet to reach escape velocity and the Wicksellian natural rate is likely to stay low in the years ahead. We are more optimistic on potential supply than other economists and we think oil prices will stay low.

Escape velocity? Oh no! A level students should be using more economic terms so to speak.

Read the whole thing. It just reads like any other MPC statement. Not sure how should one react reading this.  Perhaps, the MPC can be replaced with these young guys. Based on their kind of analysis, one wonders whether you need the kind of army employed by Bank of England.

Why West Bengal continues to be a place for unauthorised money raising (This time is hardly different)?

June 15, 2016

In the same event when certain players were blamed for being too optimistic while bidding for payment banks, there was another development.

SEBI chief (who never really get much media space despite stellar work) UK Sinha made a statement about illegal deposits/funds raising in West Bengal:

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How Mututal Funds own most big U.S. Banks leading to less competition..

June 15, 2016

Martin Schamlz of Ross Business School has this interesting bit of research.

He says the top American banks are basically owned by top Mutual Funds. This is leading to these MFs grouping together and minimizing competition:

A century ago, J.P. Morgan made a fortune by buying up shares of competing railroad companies with other people’s money. He used cash from savers and financiers to buy shares in competitors. Then Morgan forced those competitors to cooperate. Similarly, Gilded Age “voting trusts” pooled money from individuals to buy shares in competing companies. Then the trusts used shareholder voting rights to restrict competition

These schemes handed their investors huge profits. Yet the unfortunate side effect of uncompetitive markets is that consumers pay higher prices. Given limited budgets, they buy fewer things. Macroeconomic output drops; people become unemployed; and political unrest ensues.

Could something similar to these 19th Century voting trusts be happening today? New research from my coauthors and me suggests that the answer is yes – and that your retirement savings are part of the problem.

Basically, a handful of asset management firms have become the most powerful shareholders of the nation’s largest banks. These mutual fund companies collect cash from retirement savers like you and me. They buy shares with it on our behalf, and vote these shares, usually with one voice. In these key aspects, large mutual fund firms resemble the voting trusts of J.P. Morgan’s time.

And yes, large-scale common ownership nowadays also appears to thwart competition. In “Ultimate Ownership and Bank Competition,” José Azar, Sahil Raina, and I looked at banks across different parts of the United States. We observed a big difference in competitive outcomes between counties where banks are more commonly owned by the same set of investors and counties where they’re not. In counties where common ownership increases, banks raise fees for deposit accounts and lower savings interest rates.

Today’s large-scale common ownership is probably not a deliberate action by a lone capitalist out to throttle competition. It may be more of an accident. Partly due to the decline of corporate pension plans, mutual funds have grown widely popular and commonplace. Index funds have given millions of people relatively low-cost access to the stock market.

How the finance world have come around. At sometime MFs were basically sponsored/supported by banks (directly or indirectly). Now, they own these very banks. All pretty complicated game of ownership…

Sri Lanka under IMF’s Washington Consensus (or is it Washington imposition?)

June 15, 2016

AS European countries continue to make noise over IMF help, there is something happening in the island country of Sri Lanka as well.

It has borrowed $1.5 billion from IMF and agreed to follow so called Washington Consensus:

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