Archive for the ‘Financial Markets/ Finance’ Category

Has microfinance lost its moral compass?

December 3, 2014

In this piece

This paper argues that microfinance in south Asia, like mainstream finance in North America and Europe, “has lost its moral compass”. Microfinance institutions have increasingly focused on financial performance and have neglected their declared social mission of poverty reduction and empowerment. Loan officers in the field are under enormous pressure to achieve individual financial targets and now routinely mistreat clients, especially poor women.

The values of neo-liberal mainstream finance in the rich world have spread to microcredit in the villages of Bangladesh and India. This situation is hidden from western publics who are fed the lie of “the magic of microfinance” by their media, guided by the needs and interests of mainstream finance seeking to provide some “good news” about the financial sector as scandal after scandal unfold. Urgent action is needed, particularly from the leaders of the microfinance industry, to refocus their organisations and workforce on achieving both financial and social performance targets.

It has interesting stories on how this social enterprise is just becoming like its greedy big cousin…

How a monster was born 100 years ago — Federal Reserve..

December 1, 2014

David Howden of Mises has this hard hitting post on Federal Reserve. Fed opened for business 100 years ago and Howden reflects on the history.

He says there are two schools on Fed- one that supports Fed and other against it (as always):

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Bankers were about as honest as anyone else — until they were reminded that they were bankers…

November 21, 2014

NYT points to this interesting bit of experimen on bankers.

In the experiment, people do not cheat as long as the are not reminded of their profession. The moment you ask them their profession and then get on with the experiment, bankers cheat:

As banking scandals have mounted over the past decade, some critics have suggested that the industry simply harbors a dishonest culture. Now, three economists from the University of Zurich have tested the idea.

They found that bankers were about as honest as anyone else — until they were reminded that they were bankers.

One hundred twenty-eight employees from a large international bank were assigned either to a group that answered questions about their profession (”What is your job?”) or general questions (“How much TV do you watch?”). Each employee was then asked to toss a coin 10 times and report the outcomes online.

There was an advantage, however, to lying: The subjects were told in advance that they would get a $20 reward if a given toss came up heads or tails — as long as the overall winning percentage they reported was greater than that of another randomly chosen participant.

The group that hadn’t been asked about their profession was largely honest, reporting a winning toss 51.6 percent of the time. The other group reported 58.2 percent winning tosses. The researchers calculated that 26 percent of the bankers in the latter group had cheated, compared with almost none of the first group.

To confirm their findings, the researchers performed the study again with people from other professions. Those people did not become more dishonest when asked about their work.

The findings, which were published in the journal Nature, suggest that bankers behave dishonestly only when they feel that is what is expected of them, said Alain Cohn, who is now with the University of Chicago. Perhaps, he said, banks should take a page from medicine and require their own version of the Hippocratic oath.

“It is very important to let employees know exactly what desired and undesired behaviors are,” he said in a conference call. “Then we could use a professional oath to activate these norms.”

Amazing sets of values the newgen bankers have accumulated over the years. Just make money in whatever way possible. The dangerous Friedman/Chicago School idea that the only purpose of the firm is to make money has become way too perverse..

Eurozone banks…do we finally know their status?

November 6, 2014

There is huge buzz around European banks stress test. There have been tests before as well but did not exude enough confidence.

Wharton Prof Richard Herring discusses what is new in these tests and do we finally know the true status of European banks.

The basic complications over who shall fund the bill remain despite ECB coming into the picture now:

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The White man burden of Indian equity markets…

November 4, 2014
Praveen Chakravarty, a former i-banker has this interesting article. It is actually interesting to see a former  i-banker calling FII inflows a white burden of sorts. Aren’t we always told that these flows are a divine’s blessing?
White man burden is a poem written by Rudyard Kilping and then a popular econ book by William Easterly. There is confusion as to the actual meaning of the poem but the book is pretty clear. It is based on how west has ruined the third world by giving aid.
So Chakravarty in the similar spirit shows how Indian equity markets have mainly risen because of FII inflows. So much so, he says our markets should open on national holidays and close on American ones!

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IMF floors its SDR rates at near zero..

October 30, 2014

A one week old news..not sure how many saw it.

IMF charges an interest rate for lending against SDR. These rates are calculated on a weekly basis. These interest rates are in turn calculated by the prevailing interest rates in developed economies, With rates even touching negative, there was a threat to SDR rates as well. So IMF has set the floor rate at 0.05%:

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Most RomComs are basically about money..

October 28, 2014

An interesting article (HT: INET).

It looks at how RomComs have evolved over the years and behind all the mush there is money. As they say it is all about money honey..

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UK monetary policy and Cricket…Switching gears from frontfoot to backfoot..

October 28, 2014

Andy Haldane reviews economic conditions in UK and change of mon pol stance. Using analogy from cricket, he had earlier said that in the batting (economic) corridor of uncertainty it is better to be on frontfoot:

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How fair and effective are the fixed income, foreign exchange and commodities markets?

October 28, 2014

The International Finance Centres are now discussing questions like these which were bread and butter (or mickey mouse) before the crisis. Even asking such qs was a crime and laughed upon.

UK Govt and BoE had floated a study group in Jun-14 and they have released a interim report of sorts now:

The Fair and Effective Markets Review (FEMR) has today published a consultation document on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.

The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high profile abuses, and to influence the international debate on trading practices.

The Chancellor, George Osborne, said:“The integrity of the City matters to the economy of Britain. Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy.

I am determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them. I want to make sure it is done in a way that preserves the UK’s position as the global financial centre for many of these markets, with all the jobs and investment that brings.

The consultation that the Fair and Effective Markets Review has launched today is comprehensive, balanced and rigorous, and asks all the right questions. I look forward to the Review’s final recommendations in June next year.”

Wholesale fixed income, currency and commodity markets ultimately make it possible to do business across almost every sector of the global economy. They help determine the borrowing costs of households, companies and governments, set countries’ exchange rates, influence the cost of food and raw materials, and enable companies to manage financial risks associated with investment, production and trade.

However, in recent years there have been a number of high-profile abuses in these markets. These have included the attempted manipulation of benchmarks, alleged misuse of confidential information, misleading clients about the nature of assets sold to them, and collusion.

Interesting times..Despite all this, hype over finance and financial development continue..

Inequality in US– Some Trends

October 22, 2014

Yellen has this useful speech to show how inequality has risen so much in US.

This is a trend which has clearly caught US econs napping. Economists is around two questions: How much to produce and how to distribute. The question of distribution was dismissed by most economists in recent years. There was a widely held belief that just like econs have resolved the problem of depression, they have  resolved for distribution as well.

And now both, depression and inequaity have hit these economies hard. And what is worse that there were clear signs of this but were ignored.

Paanch Kahani – five Ramayana stories of central banking…

October 20, 2014

Central Bank of Trinidad and Tobago has taken Ramayana really seriously. Last year this blog pointed, how the bank compared central bank to Lord Hanuman (to which this blog did not agree).

This year, the chief of the bank Jwala Rambarran looks at five more characters of Ramayana and once again points to lessons for central banking:

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Citigroup exiting commercial banking in eleven economies…

October 15, 2014

Just a news item but has important implications.

Citi is exiting commercial banking in eleven economies:

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Adjusting Human Development Indices with inequality…

October 14, 2014

Prof Joe Stiglitz has this interesting point on growing malaise in US economy. What was once a huge pride is now a huge failure and source of embarrassment:

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What has led to financialisation of developed economies?

October 13, 2014

Òscar Jordà, Alan Taylor and Moritz Schularick look at this question in this paper. They summarise the findings in voxeu.

Understanding the causes and consequences of the rise of finance is a first order concern for macroeconomists and policymakers. The increasing size and leverage of the financial sector has been interpreted as an indicator of excessive risk taking1and has been linked to the increase in income inequality in advanced economies,2 as well as to the growing political influence of the financial industry (Johnson and Kwak 2010). Yet surprisingly little is known about the driving forces behind these trends.

In our recent research we turn to economic history. We build on our earlier work that first demonstrated the dramatic growth of the balance sheets of financial intermediaries in the second half of the 20th century and how periods of rapid credit growth were often followed by systemic financial crises and severe recessions (Schularick and Taylor 2012, Jordà, Schularick, and Taylor 2013).

 

They say that main reason has been shift of bank credit towards mortgage lending or for home buying. Banks over the years have become like a housing fund:

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We should also look at redistributive effects of financial deregulation

October 10, 2014

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What could be the biggest risks for markets going ahead?

October 9, 2014

Vineer Bhansali of PIMCO has this article where he lists all the possible risks in future and the probability of them happening. Also the indicators one should track to monitor these risks like for inflation  there is PCE and so on.

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Reforming NY Fed and changing its culture…

October 9, 2014

WSJ Blog interviews Professor David Beim who was behind the report to study and reform NY Fed.  Though NY Fed did not do much to change and we have quite a story on the cards now.

So what did he find in NY Fed:

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Skills of Keynes as a fund manager…

October 7, 2014

David Chambers, Elroy Dimson and  Justin Foo have this interesting paper on Keynes and his skills in fund management. It is kind of known that he was quite skillful at managing money and left a fortune at the end. He could not see the depression and lost a lot of miney but at the end of the day (EoD as called by market guys), he was in positive.

This paper tracks how Keynes managed the endowment fund of King’s College. Keynes was a bursar of the college and responsible for the endowment.Keynes shifted the fund allocation from real estate to equities and till date Kings has higher asset allocation towards equities compared  to other colleges:

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Has China’s monetary policy become more “standardized”?

October 7, 2014

The title should actually read Has China’s monetary policy become more “advance country like”? I mean whatever they do is deemed as a standard even when they are all wrong on the matter.

Anyways, this note by John Fernald, Eric Hsu, and Mark Spiegel look at how Chinese mon pol has evolved over the years. The changes in Chinese economy have led monetary policy to react just like it does in the west:

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Central bankers as new philosophers to fix world economy and why that is a problem..

October 6, 2014

A brilliant column by Prof Harold James bringing a lot of things under one column.

He points how Europe and US have differed on philosophy of life. The philosophy of course comes from one’s world values which are shaped by culture and history. These differences reflect in all things including economic policy. Whereas US has been much more active trying to stimulate their economies out of trouble, Europeans have dithered for a long time.

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