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Archive for 16. Oktober 2018

Self-Fulfilling Financial Crises

Posted by hkarner - 16. Oktober 2018

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

Many mistaken assumptions about the 2008 financial crisis remain in circulation. As long as policymakers believe the crisis was rooted in the housing bubble rather than human psychology, another crisis will be inevitable.

BERKELEY – The 2008 financial crisis and subsequent recession left the Global North 10% poorer than it otherwise would have been, based on 2005 forecasts. For those hoping to understand this episode better, I have long recommended four books, in particular: Manias, Panics, and Crashes, by the twentieth-century economist Charles P. Kindleberger; This Time Is Different, by Carmen M. Reinhart and Kenneth S. Rogoff of Harvard University; The Shifts and the Shocks, by the Financial Times economics commentator Martin Wolf; and Hall of Mirrors, by my University of California, Berkeley, colleague Barry Eichengreen.

Now, I want to add a fifth book to the list: A Crisis of Beliefs: Investor Psychology and Financial Fragility, by the economists Nicola Gennaioli and Andrei Shleifer. (Full disclosure: Shleifer was my roommate in college and graduate school; to this day, I credit him with whatever positive skills or reputation I may have.)

A Crisis of Beliefs is important for three reasons. First, it offers a welcome rejoinder to those who argue that the past decade was an unavoidable result of the housing bubble in the United States. Many experts still claim that the bubble’s deflation triggered the financial crisis. But the fact is that the bubble had already deflated substantially before the crisis erupted.

Recall that by mid-2008, home prices had returned to, or even fallen below, levels supported by their underlying fundamentals, and employment and production in the residential construction industry had declined to levels far below trend. The work of rebalancing asset valuations and reallocating economic resources across sectors had already been accomplished.

To be sure, there still would have been around $750 billion worth of financial-asset losses in the form of defaults on subprime mortgages and home-equity loans. But that is only one-quarter of what global equity markets lost in seven hours on October 19, 1987. In other words, it would not have been enough to sink the global financial system. Ben Bernanke, then Chair of the US Federal Reserve, seemed confident in the summer of 2008 that the correction in housing prices had not triggered any unmanageable financial crisis. At the time, he was mainly focused on the dangers of rising inflation.

And then the bottom fell out. The reason, Gennaioli and Shleifer show, is that beliefs changed. Investors came to believe that financial markets were saddled with highly elevated risk, owing to a number of factors. The interbank market had seized up, homeowners were defaulting on their mortgages, Bear Stearns had collapsed, the US Treasury had intervened to rein in Freddie Mac and Fannie Mae, and, above all, Lehman Brothers had declared bankruptcy.

All of this led to the sudden run on both the shadow and non-shadow banking systems, as investors scrambled to dump assets. The increased risk that they had imputed to the system became a reality. Like triage nurses in an emergency room, they quickly assessed the patient and then ran with their initial diagnosis as if there were no other option.

And yet nothing about the fallout from the crisis was inevitable. Had the Fed been in possession of contingency plans for putting too-big-to-fail institutions into receivership and becoming the risk-bearer of last resort, we would probably be living in a very different world today. Unlike those who look back and conclude that it was all an inevitable consequence of the housing bubble, Gennaioli and Shleifer recognize the central role that contingency played in the crisis and its aftermath.

Gennaioli and Shleifer’s second important contribution is to show that “crises of beliefs” like the one that precipitated the disaster of 2008-2009 are deeply rooted in human psychology, so much so that we will never be free of them. Thus, neither prudential policies nor crisis-response measures should treat these occurrences as flukes or one-off exceptions. Crises of belief are manifestations of a chronic condition that must be managed.

Thus, central banks and fiscal authorities should not use the end of a crisis as an excuse to step back or to take their hands off the wheel. When fundamental beliefs have shifted permanently, one should not expect the same policy mix that supported full employment, low inflation, and balanced growth before the crisis to do so afterwards. Moreover, the seeds of the next Kindlebergian sequence – displacement, optimism, enthusiasm, crash, panic, revulsion, discrediting – have already been sown by the very policies that were needed to address the last downturn.

The third reason why Gennaioli and Shleifer’s book is important is more technical, and applies directly to the field of economics. Economists have long recognized that requiring one’s representative agent to hold rational expectations of the future tends to produce models that are profoundly inapplicable to the real world. But, until now, no alternative approach has ever gained any traction. Gennaioli and Shleifer’s investors-as-triage-nurses framework shows great promise for being considered alongside other model-building strategies.

For a decade now, people have been looking for a silver lining to the disasters of 2008-2018, hoping that this period will bring about a more productive integration of finance, behavioral economics, and macroeconomic orthodoxy. So far, they have been searching in vain. But with the publication of A Crisis of Beliefs, there is hope yet.



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„Europa braucht starke Banken und überregionale Fusionen“

Posted by hkarner - 16. Oktober 2018

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Zusammenschluss oder Zerfall: Für den spanischen Banker Jorge Gual steht Europas Finanzsystem am Scheideweg.

Europas Banken haben die Finanzkrise hinter sich gelassen und sind nun wieder in einer besseren Form. Sie haben uneinbringliche Kredite aus den Büchern genommen, Eigenkapital aufgebaut und sie sind profitabler geworden. Doch: „Das reicht nicht, um auch künftig krisenfest zu sein“, ist Jorge Gual, Chef der spanischen Caixa Bank und Berater der EU-Kommission in Finanzfragen, überzeugt.

Europa brauche pan-europäische Banken, also länderübergreifende Zusammenschlüsse von Finanzinstituten, sagte Gual im Gespräch mit dem KURIER. Dann hätte Europa nämlich eine Risikoaufteilung auf privatwirtschaftlicher Ebene, falls es wieder zu einer Krise komme. Gual weiß aber auch, dass diese länderübergreifenden Zusammenschlüsse in Europa schwierig sind. Denn erstens sind die Regeln für Banken nicht überall gleich und zweitens sind Kreditinstitute derzeit nicht gern auf Einkaufstour. „In Zeiten, in denen die Bankenbranche zunehmend in Richtung Internet geht, sind Filialbanken kein begehrtes Kaufobjekt“, betont er.

Aufsichtsrat der Erste Group

Der Chef der Caixa, der wegen der rund 10 Prozent-Beteiligung an der Erste Group auch im Aufsichtsrat der Erste sitzt, sieht aber noch eine weitere große Hürde, die große Bankenfusionen blockiert: Die Euroländer seien nach der Krise nicht in Richtung Zusammenhalt unterwegs, sondern in Richtung Abschottung. Einige Länder hätten ihre Finanzmärkte nach der Krise 2008 gegenüber anderen abgegrenzt. Banken müssten in jedem Land Liquidität vorhalten. „Das widerspricht einer paneuropäischen Bankenfusion“, kritisiert der Banker.

Diese Fragmentierung aber werde zum Problem, sobald es wieder Turbulenzen im Finanzsystem gebe. Denn Länder, die sich abschotten, würden im Notfall auch keine Hilfe von zentralen EU-Einrichtungen erhalten, warnt Gual. „Wir brauchen einen gewissen Grad gemeinsamer Versicherung. Sonst wird der Binnenmarkt unterminiert.“

Aber es wäre nicht der grundsätzlich optimistisch eingestellte Gual, würde er nicht daran glauben, dass sich die EU-Länder schrittweise doch auf eine gemeinsame Versicherung für ihre Banken und die Einlagen verständigen werden. „In Europa braucht das alles Zeit. Das geht schrittweise voran in Richtung Bankenunion“, lautet seine Überzeugung.

Ein Fonds für Pleiten

Besonders zuversichtlich ist Gual, dass der nächste Schritt zur gemeinsamen europäischen Bankenunion gelingt: die Schaffung eines Bankenabwicklungsfonds, des so genannte Single Resolution Fund. Dieser soll sicherstellen, dass im Falle einer Systemkrise rasch Geld in die Bank gepumpt wird, damit wieder Stabilität entsteht. Das sei auch der große Vorteil der USA in der Finanzkrise gewesen. Sie konnten dank ihrer einheitlichen Mechanismen sehr rasch in das Finanzsystem eingreifen, rasch Mittel in den Markt pumpen und so für Stabilität sorgen. „Am Ende haben die USA sogar daran verdient“, gibt Gual zu bedenken.

Es reiche eben nicht aus, ein Krisenmodell nur für die Banken zu haben. „Wir brauchen auch eines für Probleme des Gesamt-Finanzsystems. Und da müsste die öffentliche Hand eingreifen“, so Gual. Auch auf dieser Ebene müssten gemeinsame Krisenmodelle entstehen, vergleichbar mit einer Versicherung gegen Erdbeben.

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The Twilight of German Conservatism

Posted by hkarner - 16. Oktober 2018

Date: 15-10-2018
Source: Foreign Policy by Georg Diez

Why Angela Merkel Presides Over a Movement in Crisis

Much ink has been spilled on the collapse of European social democracy, and Germany’s Social Democratic Party (SPD) provides a perfect case study. Once a proud political heavyweight that raked in upward of 40 percent of the vote, the SPD still governs the country as part of a coalition with Chancellor Angela Merkel’s conservatives, but now polls at a meager 16 percent, the same as the environmentalist Green party and the far-right Alternative for Germany (AfD). The German left’s fall from behemoth to sideshow has provided fodder for endless commentary: Did it fail to address the ills of globalized capitalism? Are all of its policy solutions obsolete?

Much less talked about, but just as brutal, has been the decline of German conservatism. For a long time, there was little to complain about: Merkel’s conservative Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), have been in power for the last 13 years. Merkel herself is on track to become the country’s longest-ruling postwar chancellor, tied only with her onetime mentor Helmut Kohl. But her party is hovering at an all-time low of 26 percent in national polls, with poor prospects in two crucial state elections and deep internal rifts. Merkel seems increasingly embattled, and many speculate that her reign as the eternal chancellor is nearing its end. What this means for Germany or for conservatism as a whole is unclear. But coming at a moment when the aggressive nationalism, racism, and xenophobia of right-wing populists has put liberal values on the defensive across Europe, the crisis of German conservatism spells trouble for the continent’s project of transnational unity. Den Rest des Beitrags lesen »

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