Archive for August, 2018

Citibank: America’s most political bank

August 22, 2018

Nice review of the much talked about book on history of Citibank: Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi by James Freeman and Vern McKinley.

In the turbulent history of American banking, one institution looms larger than the rest.

Take a momentous event in US history — the end of slavery, the country’s breakneck industrialisation, its infatuation with the stock market in the 1920s, and the recent mortgage meltdown — and chances are that two-hundred-year-old Citi was involved: sometimes bankrolling the government, other times frantically knocking at its door for help; sometimes a prudent steward of financial stability, others enabling the punters’ most outlandish bets.

For two centuries, the fortunes of Citi have been conflated with the fate of the country more than most politicians and regulators would care to admit. James Freeman and Vern McKinley’s Borrowed Time: Two Centuries of Booms, Busts, and Bailouts at Citi, a formidable deep dive into the vicissitudes of this largest and most controversial of American banks, reveals just how dependent Citi became on the leniency of government officials — and how handsomely the bank repaid their largesse.

Citi is infamous as the biggest beneficiary of the various bailout programs orchestrated by the Federal Reserve and other financial regulatory bodies during the 2008 financial crisis. All told, the bank secured official support worth $517 billion between late 2007 and early 2009 — a whopping 25 times shareholders’ equity.

While the scale of the rescue may have been unprecedented, Freeman and McKinley show that it was by no means the first time Citi relied on government forbearance and funding to remain a going concern. Borrowed time documents how the bank would have struggled to survive the painful hangover from the Roaring Twenties boom and the emerging market rout of the 1980s without preferred treatment from regulators.

In the end it is all about politics:


Capitalism or socialism? The surprising truth about British voters’ economic views

August 22, 2018

Matt Singh in CapX tells us that British voters (sample of 1000) barely distinguish between the two isms:

We hear a lot about what the public thinks about day-to-day, week-to-week politics, via voting intention polling, leader ratings and the like. Topical issues like Brexit as well as scandals and specific policies are also polled extensively.

When it comes to the bigger picture, recent discussion of more fundamental concepts has become dominated by the culture war between social liberals and social conservatives. But while the more traditional left-right divide over the size and role of the state has been supplemented, it hasn’t been supplanted.

This piece is the first in a CapX series probing the British attitudes on the economic battle of ideas. In the latest wave of Number Cruncher polling, we asked a set of questions on ideologies to over a thousand UK eligible voters.

First of all, how positive or negative are people towards capitalism and socialism? The headline figures suggest that neither system elicits a particularly positive reaction. In fact something that’s notable across the two questions is just how negative people are about both ideologies.

Thirty-two per cent of eligible voters have a positive view of capitalism, 52 per cent negative. On socialism, 30 per cent have a positive view, 53 per cent negative. In other words, it is pretty much a score draw.

The breakdowns contain a few surprises. Supporters of both main parties break in the directions you’d expect, but not as sharply as you’d expect. Neither the Conservatives who are positive on capitalism (50 per cent) nor the Labour voters who are positive on socialism (47 per cent) are a majority.

Not surprised to read the findings. If there was a question on what they mean by capitalism or socialism, one could have seen people confusing between the two as well…

The price impact of removing the penny

August 22, 2018

Nice post by Marilena Angeli and Jack Meaning on BoE’s Bank Underground Blog.

There is a belief that removing pennies will lead to higher inflation as shops adjust price upwards in absence of this short denomination change. They say these arguments are flawed:


The Toll of Tariffs: Protectionism, Education and Fertility in Late 19th Century France

August 22, 2018

Research paper by Bignon Vincent and Garcia-Peñalosa Cecilia of Banque de France:

Vincent Bignon and Cecilia García-Peñalosa examine a novel negative impact of trade tariffs and the costs they induce by documenting how protectionism reversed the long-term improvements in education and the fertility transition that were well under way in late 19th-century France. The Méline tariff, a tariff on cereals introduced in 1892, was a major protectionist shock that shifted relative prices in favor of agriculture and away from industry. In a context in which the latter was more intensive in skills than agriculture, the tariff reduced the relative return to education, which in turn affected parents’ decisions about the quantity and quality of children. They use regional differences in the importance of cereal production in the local economy to estimate the impact of the tariff. Their findings indicate that the tariff reduced enrollment in primary education and increased birthrates and fertility. The magnitude of these effects was substantial. In regions with average shares of employment in cereal production, the tariff offset the (downward) trend in birthrates for 13 years; in those with the highest cereal employment shares, there was a delay of up to 22 years.


How women in rural India turned courage into capital: Story of Mann Deshi Mahila Sahkari Bank

August 22, 2018

Inspiring TED talk by Chetna Gala Sinha who started the Mann Deshi Mahila Sahkari Bank. She came in KBC as well which was quite inspiring too.

What led to the formation of the bank? The other banks were unwilling to open bank accounts for rural women:


How Jamaican monetary policy is moving towards an inflation targeting regime..

August 22, 2018

Bryan Winter, GOvernor of Central Bank of Jamaica gives this interesting speech,

He points how several steps and policies were needed before Jamaica could transition to an inflation targeting regime:

For several years, the central bank in Jamaica has been operating an ‘inflation targeting
lite’ policy regime. I am sure our colleagues in Chile will confirm that full-fledged inflation
targeting is not something to jump into all of a sudden unless you already have the good fortune
of a conducive economic environment. That environment is now emerging in Jamaica with the
remarkable successes of an ambitious economic reform programme that is now beginning its
sixth year.

For Jamaica to be in a position to consider adopting price stability as the central bank’s
primary objective and the use of the interest rate lever as its main policy tool, several things had
to happen first. Since high public debt and fiscal dominance will undermine the effectiveness of
any central bank, fiscal sustainability is critical to allowing the central bank the breathing space it
needs to conduct an effective monetary policy. Once fiscal operations begin to crowd in the
private sector and net export earnings increase, a sustainable current account balance becomes


Why we should read David Hume and why is he even more relevant today?

August 22, 2018

Superb piece by Julian Baggini (writer and founding editor of The Philosophers’ Magazine).

He revisits the legacy of David Hume and tells us two things. First, despite his insights why Hume is not considered in the league of say Socrates or Kant. Second, why his thoughts and ideas matter even more today:

In his own lifetime Hume’s reputation was mainly as a historian. His career as a philosopher started rather inauspiciously. His first precocious attempt at setting out his comprehensive new system of philosophy, A Treatise of Human Nature (1739-40), published when he was 26, ‘fell dead-born from the press, without reaching such distinction as even to excite a murmur among the zealots’, as he later recalled, with self-deprecating exaggeration.

Over time, however, his standing has grown to the highest level. A few years ago, thousands of academic philosophers were asked which non-living philosopher they most identified with. Hume came a clear first, ahead of Aristotle, Kant and Wittgenstein. Scientists, who often have little time for philosophy, often make an exception for Hume. Even the biologist Lewis Wolpert, who says philosophers are ‘very clever but have nothing useful to say whatsoever’ makes an exception for Hume, admitting that at one stage he ‘fell in love’ with him.

Yet the great Scot remains something of a philosopher’s philosopher. There have been no successful popular books on him, as there have been for the likes of Montaigne, Nietzsche, Socrates, Wittgenstein and the Stoics. Their quotes, not his, adorn mugs and tea towels, their faces gaze down from posters. Hume hasn’t ‘crossed over’ from academic preeminence to public acclaim.

The reasons why this is so are precisely the reasons why it ought not to be. Hume’s strengths as a person and a thinker mean that he does not have the kind of ‘brand’ that sells intellectuals. In short, he is not a tragic, romantic figure; his ideas do not distil into an easy-to-summarise ‘philosophy of life’; and his distaste for fanaticism of any kind made him too sensible and moderate to inspire zealotry in his admirers.

Hume’s philosophy can be distilled to three key ideas:

It is somewhat perverse that the attractiveness of a philosophy seems to be directly correlated with how miserable its author’s life was. However, that is not the only reason why there are few self-ascribed Humeans outside academe. Hume’s philosophy does not add up to an easily digestible system, a set of rules for living. Indeed, Hume is best known for three negative theses.

First, our belief in the power of cause and effect, on which all our reasoning about matters of fact rests, is not justified by either observation or by logical deduction. We only ever see one thing following another: we never observe any power that makes one thing necessitate an effect. Even if we could be satisfied that we had established x caused y, logic can’t establish any general principle of causation, since all the regularities we have observed in nature were in the past, but the principle of cause and effect is assumed to apply in the present and future. Logically, you can never arrive at a truth about the future based entirely on premises that concern the past: what has been is not the same as what will be.

Hume did not deny cause and effect were real. We could not reason about any matter of empirical fact without assuming their reality, as his own writings frequently do. However, he was clear that this linchpin of sensible thinking is not itself established by reason or experience. This is philosophically strong stuff but hardly the source of inspirational Instagram quotes.

Hume is also well known for his arguments against various aspects of religion, although he never came out as a fully fledged atheist. Most famously, he argued that it would never be rational to accept the claim of a miracle, since the evidence that one had occurred would always be weaker than the evidence that such things never happen. It would always be more likely that the witness to a miracle was mistaken or lying than that the miracle actually took place. But again, skepticism about the claims of traditional religion does not amount to a substantive, positive philosophy.

Hume’s third notable negative claim does have the benefit of a stirring slogan, albeit one that is somewhat opaque: ‘Reason is, and ought only to be, the slave of the passions.’ Reason by itself gives us no motivation to act, and certainly no principles on which to base our morality. If we are good it is because we have a basic fellow-feeling that makes us respond with sympathy to the suffering of others and with pleasure at the thought of them thriving. The person who does not see why she should be good is not irrational but heartless.


He remains relevant given the political times:

If ever there were a time in recent history to turn to Hume, now is surely it. The enthusiasts are on the rise, in the form of strongman political populists who assert the will of the people as though it were absolute and absolutely infallible. In more settled times, we could perhaps use a Nietzsche to shake us out of our bourgeois complacency, or entertain Platonic dreams of perfect, immortals forms. Now such philosophical excesses are harmful indulgences. Good, uncommon sense is needed more than ever.

We also desperately need the right kind of skepticism to replace the weary, global shrug that allows people to dismiss climate change as a hoax or the judgments of experts as conspiracies. Humean skepticism is an antidote to hubris, not a recipe for inaction or an excuse to defer to prejudice. Hume’s mitigated skepticism rests on the principle that we should proportion our beliefs to the evidence, not doubt the value of any of it. Hume would not be a climate change skeptic but skeptical of our glib assumption that whatever happens, we’ll be okay.

The problem for fans of Hume is how we can be enthusiastic advocates of someone so opposed to enthusiasm. If the case for Hume is to be made in Humean terms, it has to be gently but eloquently argued for. More importantly still, perhaps, it has to be demonstrated. True lovers of the secular, reasonable way of life Hume stood for ought to avoid hysterical condemnations of religion and superstition as well as overly optimistic praise for the power of science and rationality. We should instead be modest in our philosophical pretensions, advocating human sympathy as much, if not more, than human rationality. Most of all, we should never allow our pursuit of learning and knowledge to get in the way of the softening pleasures of food, drink, company and play. Hume modelled a way of life that was gentle, reasonable, amiable: all the things public life now so rarely is.

Lot more in the essay..

Brief history of Indian Rupee when it was linked with Sterling Pound

August 21, 2018

Puja Mehra has a nice piece on the tricky (and difficult to understand) history of Indian Rupee when it was linked with Sterling Pound before and after independence.

The rupee’s depreciation to more than 70 to a dollar just ahead of Independence Day led to historical comparisons of the value of the rupee. These can be misleading, as political freedom did not automatically result in India’s monetary independence in 1947. The rupee’s association with Britain was prolonged by factors beyond India’s control.

On a sterling standard 1931 onwards, the rupee, linked to a depreciating currency, depreciated along with the sterling.


75 years of Central Bank of Ireland: A Brief History

August 21, 2018

Nice speech by Patrick Honohan, former Governor of Central Bank of Ireland(Sep-2009-Sep 2015). The speech was given on the occasion of celebrating the 75th anniversary of the central bank (formed in Feb -1943). The 75th celebrations themselves were important as both 25th and 50th anniversaries as 25th was not celebrated and the 50th one just ran into controversy.

Honohan divides the history into three periods:

The 75-year history of the Central Bank of Ireland falls neatly into three contrasting quartercenturies. For the first quarter-century (1943-68) Irish banking continued to operate as a kind of satellite of the British system, with the Central Bank maintaining the non-interventionist approach that had characterised the currency board regime in place from 1927. The second quarter century (1968-93) was a period of monetary instability with double-digit inflation and repeated devaluations. 

Hyper-globalisation has defined the most recent 25 years (1993-2018) of the Central Bank’s operations, with the Irish economy experiencing a damaging episode of over financialisation followed by a collapse, from which the Bank sought to navigate a recovery that would minimise economic damage. Evaluating national economic performance in each of the three periods on price stability and average job growth, the most recent quarter century outperforms the other two; but it has been more volatile.

Always useful to figure histories of other countries’ central banks as it gives one perspective on both monetary and financial history. Then one can compare with other countries to draw richer insights..

The note issuing Central banks were privacy providers, in digital money their role is of privacy regulation

August 20, 2018

Brilliant paper by Charles Kahn of St Louis Fed. It is easily one of the most thoughtful papers on role of central banks in digital currency era.

The conclusion of the paper sums up:


Enhancing central bank communications with behavioural insights

August 20, 2018

A superb collaborative paper by researchers at Bank of England and Behavioral insights Team.

They try and understand whether simplifying the message in BoE’s Inflation Report leads to more people reading and understanding the analysis. Not surprisingly, simplifying helps a great deal:


Teaching money/macro in 90 minutes

August 20, 2018

Scott Sumner attempts the impossible: teaching money/macro in 90 minutes.

A few weeks ago I gave a 90-minute talk to some high school and college students in a summer internship program at UC Irvine.  Most (but not all) had taken basic intro to economics.  I need to boil everything down to 90 minutes, including money, prices, business cycles, interest rates, the Great Recession, how the Fed screwed up in 2008, and why the Fed screwed up in 2008.  Not sure if that’s possible, but here’s the outline I prepared:

1.  The value of money (15 minutes)

2.  Money and prices  (20 minutes)

3.  Money and business cycles (25 minutes)

4.  Money and interest rates (15 minutes)

5.  Q&A (15 minutes)

He actually covers all this in 75 mins leaving 15 mins for Q&A. He says that he managed to finish about 90% of what he wanted to say, which is quite impressive given the wide variety of macro/money topics.

For those who say they cannot explain Macro in 30 lectures (1.5 hours each), Prof Sumner provides a snapshot of how to cover main ideas in just 75 mins…

Meet the “men” on the Central Board of Reserve Bank of India

August 20, 2018

Gradually the media is exerting some kind pf pressure on RBI Central Board to be more open and transparent in its conduct. And rightly so as we have only begun to realise that the Board is responsible for bulk of RBI’s major policies. Atleast that is what the Act says. This blog has written several pieces on RBI Board recently:

This piece by Sriharsha Devulapalli in Mint analyses the RBI Board today and how it has evolved since 1999-2000.


Atal Bihari Vajpayee: A titan of Indian politics and his political life in four distinct stages

August 17, 2018

Nice editorial by Mint as we just bid goodbye to India’s former Prime Minister A.B. Vajpayee.

Politicians are thick upon the ground in India. Atal Bihari Vajpayee was a rarer breed: a statesman. It was a stature he acquired despite himself at times. In a political life that spanned seven decades, he rose to become one of India’s most consequential prime ministers and a colossus of the Indian Right.

His political life had four distinct stages. In the 1930s, K. B. Hedgewar’s Rashtriya Swayamsevak Sangh (RSS) was still in many respects a fledgeling organization, digesting diverse influences—from Bal Gangadhar Tilak and the Hindu Mahasabha to, most importantly, V. D. Savarkar. Vajpayee joined the organization towards the end of the decade. Under Hedgewar’s successor, M. S. Gowalkar, the RSS made a tactical choice to stay aloof from the mass movement for independence. Vajpayee had other ideas. In 1942, he jumped into the Quit India movement and was briefly arrested for it. This ability to step over the line when it came to party orthodoxy would come to be one of his greatest political strengths.

The second stage is expansion of Jana Sangha/BJP, third stage was time around Ayodhya and Babri Masjid demolition and fourth as the Prime Minister.

On economics:

When it came to economic policy, Vajpayee was a big picture man with the perspicacity to pick the right men to see to the details, and the wisdom to back them. He continued the economic reforms begun under Rao, pushing disinvestment, making the first moves towards the goods and services tax (GST), blessing the Fiscal Responsibility and Budget Management Act, opening up the insurance sector and much more. And with his National Telecom Policy and focus on the country’s road and highway infrastructure, he laid the foundations for two critical elements of India’s growth since. Equally important was his administration’s success in building institutional strength; the rapport between the finance ministry and the Reserve Bank of India has rarely been stronger than it was during his time.

As prime minister, he stands with Jawaharlal Nehru, Indira Gandhi, and now, Narendra Modi, in his ability to seize and shape the political discourse. In his ability to win allies and disarm rivals, he keeps company with just the first name on that list. No doubt about it: A giant has left the national stage.


Hajj: how globalisation transformed the market for pilgrimage to Mecca

August 17, 2018

Seán McLoughlin  (Professor of the Anthropology of Islam, University of Leeds) has this fascinating piece:

More than 2m Muslims are currently gathering in Mecca ahead of the annual Hajj, which begins on August 19. As long as they are fit and financially able, the pilgrimage is an obligatory act of worship that followers of Islam owe to God once in their lifetime. Reenacting the faith-testing ordeals of Ibrahim (Abraham, the Biblical founder of monotheism) and his family, Muslims believe that an “accepted Hajj” will cleanse them of all their sins. Their hope is to return home as pure as the day they were born.

But until the introduction of modern transport systems, most Muslims beyond the Arab world had little expectation of completing this fifth and final pillar of Islam. Before the mid-1950s, the number of overseas pilgrims rarely exceeded 100,000 and modern Saudi institutions were still developing. Yet by the early 2000s, the total number of Hajj pilgrims had passed the 2m mark, reaching a recent peak of just over 3m in 2012.

New opportunities for pilgrimage in the jet age have put immense pressure on the infrastructure of Mecca. Hundreds have lost their lives during periodic disasters including fires and stampedes, most recently in 2015. Undoubtedly, the Saudi authorities have invested huge sums in continually seeking to improve facilities and the overall management of the Hajj.

Hajj organisers and guides I have interviewed compare overseeing the pilgrimage to hosting the Olympics every year.


Historians of Indian Railways point how the railways helped Hindus in India visit pilgrim centres across the country.

How France continues to dominate its colonies via the currency system

August 17, 2018

Fascinating piece on The Minskys Blog:

French geopolitics in Africa is interested in natural resources. Initially, the franc zone was set as a colonial monetary system by issuing currency in the colonies because France wanted to avoid transporting cash. After these countries gained their independence, the monetary system continued its operation and went on to include two other countries that were not former French colonies. At present, the CFA franc zones are made up of 14 countries. The fact that even today the currency of these regions is pegged to the euro (formerly French franc) and that reserves are deposited in France shows the subtle neocolonialism France has been pursuing unchecked. It is a currency union where France is the center and has veto power. This is supported by African governing elites who rely on the economic, political, technical, and sometimes military support provided by France. It is no wonder then that these former colonies are not growing to their full potential because they have exchanged development through sovereignty for dependency on France. This article investigates the set up of the CFA franc zones, its ties to French neocolonialism and its ability to further breed dependency in the former colonies of West and Central Africa.

Why French continue to dominate compared to say British?


Tourists snap up ‘zero euro’ banknotes with Karl Marx’s image

August 17, 2018

Did not know that ECB permits printing of zero euro banknotes as souvenirs. They feel same as Euro notes but with zero value as they are not legal tender and cannot be tendered as currency.

They also printed a zero euro note with Marx’s image. And it is selling like hotcakes:


How 250 year old Greek bell makers defied the global financial crisis

August 17, 2018

Nice video of of the Galanopoulos brothers who are one of the two surviving bell-makers in Greece. Their family has been in the business of making bells since 250 years. Most other bell makers in Greece failed barring them and another one in Athens.

Am wondering whether the financial crisis led more demand for church services as people looked to God in case of despair. This led to rise in demand for their bells? But then other bell makers should have survived too..

Using CPI vs RPI: Politics over using measures of inflation in UK…

August 16, 2018

Nice piece on the issue. Despite being deeply flawed, UK still uses Retail Price Index as a measure of inflation.

RPI overstates inflation and thus is disliked:


200 Swiss Franc new banknote: No personalities

August 16, 2018

The design of some of these European banknotes is just so fascinating.

Here is the new design of CHF 200 banknote. It is equivalent to nearly 15,000 Rs which tells you how Swiss are not as worried about high denomination notes as other countries are.


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