Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Risk’

Risk taking and firm growth

Posted by hkarner - 4. August 2015

Peng Xu 03 August 2015, voxeu

Professor and Director, Institute of Comparative Economic Studies, Hosei University

According to Hofstede’s analysis, Japan is one of the most uncertainty-avoiding countries. Indeed, Japanese firms exhibit the lowest level of risk taking in the cross-country analysis of John et al. (2008). Den Rest des Beitrags lesen »

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Reinsurance: Compacts of god

Posted by hkarner - 30. Mai 2015

Date: 28-05-2015
Source: The Economist

The market for risk is changing

Let’s hope they issued cat bonds

INSURANCE only works if reinsurance works, those in the business say. An insurer that would face crippling losses if, say, a hurricane struck an island where it had covered lots of property against extreme weather, would typically insure itself against such an event with a reinsurer. But the $425 billion industry is under threat as insurers increasingly offload risk directly to capital markets instead. This month Warren Buffett, who has investments in reinsurance, dismissed it as a “fashionable asset class” whose prospects have “turned for the worse”. Den Rest des Beitrags lesen »

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Ten Take Aways from the “Rethinking Macro Policy: Progress or Confusion?”

Posted by hkarner - 2. Mai 2015

An excellent report on the current thinking (hfk)

Posted on by iMFdirect

blanchBy Olivier Blanchard

On April 15-16, the IMF organized the third conference on “Rethinking Macro Policy.

Here are my personal take aways.

1. What will be the “new normal”? 

I had asked the panelists to concentrate not on current policy challenges, but on challenges in the “new normal.” I had implicitly assumed that this new normal would be very much like the old normal, one of decent growth and positive equilibrium interest rates. The assumption was challenged at the conference.

On the one hand, Ken Rogoff argued that what we were in the adjustment phase of the “debt supercycle.” Such financial cycles, he argued, end up with debt overhang, which in turn slows down the recovery and requires low interest rates for some time to maintain sufficient demand.  Under that view, while it may take a while for the overhang to go away, more so in the Euro zone than in the United States, we should eventually return to something like the old normal.

On the other hand, Larry Summers argued that, while debt overhang was clearly relevant, more was going on.  He expanded on his secular stagnation hypothesis, arguing that, in the context of a chronic excess of saving over investment, keeping the economy at potential may well require very low or even negative real interest rates.  He pointed out that real interest rates had started declining long before the crisis, and pointed also to the further decline in long rates since he first stated this hypothesis at an IMF conference last year. If he is right, the new normal will not be like the old normal. Den Rest des Beitrags lesen »

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Challenges ahead: Managing spillovers

Posted by hkarner - 3. Dezember 2014

Olivier Blanchard, Luc Laeven, Esteban R Vesperoni 03 December 2014, voxeu

Chief economist, IMF

Deputy Division Chief in the Research Department of the International Monetary Fund and CEPR Research Fellow

Esteban R Vesperoni

Senior Economist, IMF


The events of the last five years have been a forceful reminder of the interconnections among nations. There has been renewed debate on the optimal way to combine fiscal, monetary, and financial policies to deal with international spillovers, and on the scope for coordination of such policies. This column discusses the highlights of a recent IMF conference on “Cross-Border Spillovers”, and applies the lessons to the challenges of the US and the Eurozone exiting from their unconventional monetary policies.

Events of the last five years have forcefully reminded the global community of the risks present in the global economy and the interconnections among nations. Intense discussions have arisen on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers across nations, and on the scope for coordination of such policies. In this context, the theme chosen for the IMF’s 15th Jacques Polak Annual Research Conference was “Cross-Border Spillovers”.1 This column discusses the conference highlights. Den Rest des Beitrags lesen »

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Global Solutions for Globalization’s Problems

Posted by hkarner - 28. November 2014

Date: 27-11-2014
Source: Project Syndicate

Ian Goldin, Director of the Oxford Martin School, Professor of Globalization and Development at the University of Oxford, and Vice-Chair of the Oxford Martin Commission for Future Generations, is the co-author of The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It.

OXFORD – The last few decades of globalization and innovation have resulted in the most rapid progress that the world has ever known. Poverty has been reduced. Life expectancy has increased. Wealth has been created at a scale that our ancestors could not have imagined. But the news is not all good. In fact, the achievements brought about by globalization are now under threat.

The world has simultaneously benefited from globalization and failed to manage the inherent complications resulting from the increased integration of our societies, our economies, and the infrastructure of modern life. As a result, we have become dangerously exposed to systemic risks that transcend borders.

These threats spill across national boundaries and cross the traditional divides between industries and organizations. An integrated financial system propagates economic crises. International air travel spreads pandemics. Interconnected computers provide rich hunting grounds for cybercriminals. Middle Eastern jihadis use the Internet to recruit young Europeans. Living standards rise – and greenhouse-gas emissions follow, accelerating climate change. Den Rest des Beitrags lesen »

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Investors in Europe Hungry for Riskier Debt

Posted by hkarner - 18. April 2014

What a crazy, greedy world! Lesson not learned! (hfk)

Date: 18-04-2014
Source: The Wall Street Journal

Amid the Search for Yield, Issuers are Able to Negotiate Favorable Terms

Investors in Europe are buying up riskier debt at a record pace. They are also giving up many of the usual safeguards they would normally seek when lending companies cash.

High-yield corporate debt issuers have sold €18.5 billion ($26 billion) of euro-denominated bonds since January, according to Dealogic. That is a record, and roughly 17% more than at this point a year ago.

Amid persistent low interest rates, issuers have been able to negotiate favorable pricing. The average yield on euro-denominated junk bonds hit 4% last week, according to a Markit index, down more than two percentage points in the past year.

Corporate Junk BondsBond issuers are demanding looser terms too and yield-hungry investors say they are willing to oblige.

The market has seen “a race to the bottom in terms of covenant standards,” said David Fancourt, a fund manager at M&G Investments, which manages £244 billion ($411 billion).

For instance, the terms of Belgian fast-food chain Quick Restaurants SA’s €595 million two-part bond sold earlier this month say the company can change owners without recourse to bondholders so long as certain leverage ratios are met. Traditionally, investors in similar bonds could force the company to buy its debt back if there is a change in ownership.

Some issuers have also negotiated looser terms around early repayment of the bonds or whether they can increase dividend payments.

The trend toward weaker protection for debtholders mirrors a shift in Europe’s corporate lending market, where there has been a rise in covenant-lite deals recently. Almost €3 billion of the €25 billion of euro-denominated leveraged loans issued this year have been covenant-lite, the highest year-to-date figure since Dealogic started tracking such deals in 2006. Den Rest des Beitrags lesen »

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The Changing Face of Global Risk

Posted by hkarner - 1. April 2014

Date: 01-04-2014World Economic Forum Annual Meeting 2007
Source: Project Syndicate


Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

NEW YORK – The world’s economic, financial, and geopolitical risks are shifting. Some risks now have a lower probability – even if they are not fully extinguished. Others are becoming more likely and important.

A year or two ago, six main risks stood at center stage:

· A eurozone breakup (including a Greek exit and loss of access to capital markets for Italy and/or Spain).

· A fiscal crisis in the United States (owing to further political fights over the debt ceiling and another government shutdown).

· A public-debt crisis in Japan (as the combination of recession, deflation, and high deficits drove up the debt/GDP ratio).

· Deflation in many advanced economies.

· War between Israel and Iran over alleged Iranian nuclear proliferation.

· A wider breakdown of regional order in the Middle East.

These risks have now been reduced. Thanks to European Central Bank President Mario Draghi’s “whatever it takes” speech, new financial facilities to stabilize distressed sovereign debtors, and the beginning of a banking union, the eurozone is no longer on the verge of collapse. In the US, President Barack Obama and Congressional Republicans have for now agreed on a truce to avoid the threat of another government shutdown over the need to raise the debt ceiling.

In Japan, the first two “arrows” of Prime Minister Shinzo Abe’s economic strategy – monetary easing and fiscal expansion – have boosted growth and stopped deflation. Now the third arrow of “Abenomics” – structural reforms – together with the start of long-term fiscal consolidation, could lead to debt stabilization (though the economic impact of the coming consumption-tax hike is uncertain).

Similarly, the risk of deflation worldwide has been contained via exotic and unconventional monetary policies: near-zero interest rates, quantitative easing, credit easing, and forward guidance. And the risk of a war between Israel and Iran has been reduced by the interim agreement on Iran’s nuclear program concluded last November. The falling fear premium has led to a drop in oil prices, even if many doubt Iran’s sincerity and worry that it is merely trying to buy time while still enriching uranium.

Though many Middle East countries remain highly unstable, none of them is systemically important in financial terms, and no conflict so far has seriously shocked global oil and gas supplies. But, of course, exacerbation of some of these crises and conflicts could lead to renewed concerns about energy security. More important, as the risks of recent years have receded, six other risks have been growing.

For starters, there is the risk of a hard landing in China. The rebalancing of growth away from fixed investment and toward private consumption is occurring too slowly, because every time annual GDP growth slows toward 7%, the authorities panic and double down on another round of credit-fueled capital investment. This then leads to more bad assets and non-performing loans, more excessive investment in real estate, infrastructure, and industrial capacity, and more public and private debt. By next year, there may be no road left down which to kick the can.

There is also the risk of policy mistakes by the US Federal Reserve as it exits monetary easing. Last year, the Fed’s mere announcement that it would gradually wind down its monthly purchases of long-term financial assets triggered a “taper” tantrum in global financial markets and emerging markets. This year, tapering is priced in, but uncertainty about the timing and speed of the Fed’s efforts to normalize policy interest rates is creating volatility. Some investors and governments now worry that the Fed may raise rates too soon and too fast, causing economic and financial shockwaves.

Third, the Fed may actually exit zero rates too late and too slowly (its current plan would normalize rates to 4% only by 2018), thus causing another asset-price boom – and an eventual bust. Indeed, unconventional monetary policies in the US and other advanced economies have already led to massive asset-price reflation, which in due course could cause bubbles in real estate, credit, and equity markets.

Fourth, the crises in some fragile emerging markets may worsen. Emerging markets are facing headwinds (owing to a fall in commodity prices and the risks associated with China’s structural transformation and the Fed’s monetary-policy shift) at a time when their own macroeconomic policies are still too loose and the lack of structural reforms has undermined potential growth. Moreover many of these emerging markets face political and electoral risks.

Fifth, there is a serious risk that the current conflict in Ukraine will lead to Cold War II – and possibly even a hot war if Russia invades the east of the country. The economic consequences of such an outcome – owing to its impact on energy supplies and investment flows, in addition to the destruction of lives and physical capital – would be immense.

Finally, there is a similar risk that Asia’s terrestrial and maritime territorial disagreements (starting with the disputes between China and Japan) could escalate into outright military conflict. Such geopolitical risks – were they to materialize – would have a systemic economic and financial impact.

So far, financial markets have been sanguine about these new rising risks. Volatility has increased only modestly, while asset prices have held up. Noise about these risks has occasionally (but only briefly) shaken investors’ confidence, and modest market corrections have tended to reverse themselves.

Investors may be right that these risks will not materialize in their more severe form, or that loose monetary policies in advanced economies and continued recovery will contain such risks. But investors may be deluding themselves that the probability of these risks is low – and thus may be unpleasantly surprised when one or more of them materializes.

Indeed, as was the case with the global financial crisis, investors seem unable to estimate, price, and hedge such tail risks properly. Only time will tell whether their current nonchalance constitutes another failure to assess and prepare for extreme events.

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A world of trouble

Posted by hkarner - 16. Januar 2013

Date: 15-01-2013
Source: The Economist: Schumpeter

Which risks loom largest for businesses in 2013?

Economist risk IN “THE MAGIC MOUNTAIN” by Thomas Mann, a young businessman visits his ailing cousin in a sanatorium in Davos, in the Swiss Alps. The businessman starts to feel unwell himself. The sanatorium’s chief doctor, who also owns the place, advises him to rest. He ends up staying for seven interminable years.

Reading reports on risk can have much the same effect. The more you read, the more risks you see; eventually, you succumb to nervous exhaustion. This week saw the publication of two particularly angst-inducing accounts: “Global Risks 2013”, by the World Economic Forum (which meets in Davos this month), and “Top Risks 2013”, by the Eurasia Group, a consultancy.

It is nevertheless worth pouring yourself a stiff whisky and ploughing through all those pages about “chronic labour-market imbalances” and “the unforeseen consequences of climate-change mitigation”. These reports not only provide warnings about dangers that can be avoided by better planning or clearer thinking. They also suggest opportunities—for it is a basic law of business that one man’s cliff is another’s ladder.

The WEF explores some familiar problems, such as rising inequality and the fragility of the global economic system (which is being tested anew by the unfamiliar combination of bold monetary policies and austere fiscal ones). But it focuses on two more unfamiliar threats that lie just beneath the surface of everyday life, in your inbox and your medicine cabinet.

The WEF speculates that “digital wildfires” could wreak global havoc. The internet spreads disinformation in the blink of an eye. Traders, human and robotic, act on it faster than you can say “flash crash”. In July 2012 oil prices rose by more than $1 a barrel when a Twitter user, impersonating the Russian interior minister, tweeted that Syria’s president, Bashar Assad, had been “killed or injured”. In October NASDAQ halted trading in Google shares when a leaked earnings report led to a $22 billion plunge in the company’s market capitalisation. And in November the BBC was rocked when an irresponsible news programme prompted Twitter users to accuse an innocent politician of paedophilia. Den Rest des Beitrags lesen »

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Risk On: Was 2008 Just a Bad Dream?

Posted by hkarner - 28. Februar 2012

Date: 27-02-2012

Source: BusinessWeek

With volatility back to low, pre-crisis levels, safety is being shunned for excitement

The ghosts of 2008 linger. They haunt an economy that’s slowly and unevenly recovering from its worst shock since the heyday of bread lines and Hoovervilles. The financial crisis taught us that long-held assumptions and complacencies can and will fall apart in a subprime minute. Markets tanked. Credit dried up and marginally financed companies went under. Banks failed. Even today, whole subdivisions of newish homes remain abandoned, their copper pipes ripped out and their pools sporting a phosphorescent, almost otherworldly, shade of green.

Point is, the concept of risk is not to be underestimated. In mere months, American household wealth took a brutal, $14 trillion hit.

That’s more than $120,000 per household. And lest you thought a snapback in 2009 and 2010 made things perfect once again, Europe’s fiddling last year while Rome (and Athens and Lisbon) burned sent volatility soaring and markets tanking all over again. Some economists swear we are only in the middle innings of a potentially decade-long financial crisis. Den Rest des Beitrags lesen »

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Resilient to what?: a fascinating new look at risk

Posted by stgara - 12. Juli 2011

Published Jul 8 2011 by Transition Culture, Archived Jul 8 2011

Resilient to what?: a fascinating new look at risk

by Rob Hopkins

I was reading through the Executive Summary of the World Economic Forum’s Global Risks 2011 this afternoon (as you do) and the chart on page 3 (see above) caught my eye (click on it to enlarge it). In it, the authors set out all the risks they see in the world on a matrix which positions the various risks by their perceived impact on the global economy and by the perceived likelihood of their happening. What you might expect to be at the top, given recent media reports, would be the threat of terrorism or perhaps some hideous computer virus that knocks out nuclear power station. But no. There at the top, leading the pack, are climate change, ‘extreme energy price volatility’ and fiscal crises. Den Rest des Beitrags lesen »

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