In the verbal jungle of rock criticism, Dylan is seldom talked about in musical terms. His work is analysed instead as poetry, punditry, or mystification.
Joan Didion said that Joan Baez was a personality before she was a person and the same could be said of Dylan.
Sunday 26 December 2010
Tuesday 30 November 2010
John Steinbeck on the decline of the USA
....made me think of the current political situation and the anger of the tea-baggers:
"Americans, over invested in material toys and saddled with debt are bored, anguished and discontented and no longer capable of the heroism which rescued them from the terrifying poverty of the Great Depression. And underneath it all, building energies like gases in a corpse. When that explodes, I tremble to think what will be the result." John Steinbeck to his editor Pascal Covici, 1960.
"Americans, over invested in material toys and saddled with debt are bored, anguished and discontented and no longer capable of the heroism which rescued them from the terrifying poverty of the Great Depression. And underneath it all, building energies like gases in a corpse. When that explodes, I tremble to think what will be the result." John Steinbeck to his editor Pascal Covici, 1960.
Buiter on MCM
He may be the chief economist of Citigroup but that doesn’t mean he can’t speak his mind as his latest essay for the bank’s clients proves. In it, Buiter claims Ireland is insolvent, Portugal is quietly insolvent, Greece is de facto insolvent and Spain will be insolvent once the problems in its banking sector are recognised. At which point things get really interesting. Buiter predicts the ECB could be forced to buy Spanish government paper and fund its banking system by purchasing the debt from the European Financial Stability Facility if things get really bad.
From Buiter’s Sovereign Debt Crisis Update
Portugal and Greece:
After an Irish agreement with the EU/IMF, the market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates, is less dramatically, but quietly, insolvent, in our view. We consider it likely that it will need to access the EFSF soon.
Greece is de facto insolvent, in our view, all the more so after the recent debt and deficit revisions. As long as Greece remains sufficiently compliant with the conditionality of its EU/IMF program, sovereign debt restructuring is likely to be postponed at least until mid-2013, when its EU/IMF programme expires. At that point, it likely will be transferred to the EFSF or its successor. Whether its debt will be restructured at that stage, including haircuts, will depend on factors beyond the sustainability of its debt.
Spain:
For now, the markets have put Spain in Italy’s sovereign risk class when, in our view, it should be closer to Portugal and Ireland once its banking sector problems are recognised. We argued before that the EFSF should be much larger (€2trn). Should Spain need assistance, it will stretch the resources of the EFSF, perhaps beyond its current limits. There may be some room to expand the size of the EFSF. But, in our view, once Spain needs assistance, the support of the ECB will be critical (by purchasing Spanish sovereign debt through its Securities Markets Program — SMP — and funding Spanish banks using Spanish sovereign debt or sovereign-guaranteed financial instruments as collateral or by making loans to or purchasing the debt of the EFSF, legally a limited liability company that could even be made an eligible counterparty of the Eurosystem for this purpose).
In the longer term, there may be a need for large-scale restructuring of the debt of the Spanish banking sector and possibly the sovereign. At longer horizons, high debt levels and political instability in Italy and Belgium may yet give rise to fundamentally warranted sovereign debt crises, while self-justifying crises are possible even in the near term, despite roughly balanced structural primary budgets.
And if you thought that the EU/IMF bailout marked the end of Ireland’s troubles, think again says Buiter:
Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent. The Irish sovereign cannot from its own resources ‘bail out’ the banks and make its own creditors whole. In addition, a fully-fledged bailout (permanent fiscal transfer) from EA partners or the ECB is most unlikely. Therefore, either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring with an NPV haircut, even if it is not a condition for accessing the EFSF or the EFSM at present.
From Buiter’s Sovereign Debt Crisis Update
Portugal and Greece:
After an Irish agreement with the EU/IMF, the market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates, is less dramatically, but quietly, insolvent, in our view. We consider it likely that it will need to access the EFSF soon.
Greece is de facto insolvent, in our view, all the more so after the recent debt and deficit revisions. As long as Greece remains sufficiently compliant with the conditionality of its EU/IMF program, sovereign debt restructuring is likely to be postponed at least until mid-2013, when its EU/IMF programme expires. At that point, it likely will be transferred to the EFSF or its successor. Whether its debt will be restructured at that stage, including haircuts, will depend on factors beyond the sustainability of its debt.
Spain:
For now, the markets have put Spain in Italy’s sovereign risk class when, in our view, it should be closer to Portugal and Ireland once its banking sector problems are recognised. We argued before that the EFSF should be much larger (€2trn). Should Spain need assistance, it will stretch the resources of the EFSF, perhaps beyond its current limits. There may be some room to expand the size of the EFSF. But, in our view, once Spain needs assistance, the support of the ECB will be critical (by purchasing Spanish sovereign debt through its Securities Markets Program — SMP — and funding Spanish banks using Spanish sovereign debt or sovereign-guaranteed financial instruments as collateral or by making loans to or purchasing the debt of the EFSF, legally a limited liability company that could even be made an eligible counterparty of the Eurosystem for this purpose).
In the longer term, there may be a need for large-scale restructuring of the debt of the Spanish banking sector and possibly the sovereign. At longer horizons, high debt levels and political instability in Italy and Belgium may yet give rise to fundamentally warranted sovereign debt crises, while self-justifying crises are possible even in the near term, despite roughly balanced structural primary budgets.
And if you thought that the EU/IMF bailout marked the end of Ireland’s troubles, think again says Buiter:
Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent. The Irish sovereign cannot from its own resources ‘bail out’ the banks and make its own creditors whole. In addition, a fully-fledged bailout (permanent fiscal transfer) from EA partners or the ECB is most unlikely. Therefore, either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring with an NPV haircut, even if it is not a condition for accessing the EFSF or the EFSM at present.
FT Alphaville on the Merkel Crash Mechanism
BNP Paribas agrees, it’s the Merkel crash
Posted by Izabella Kaminska on Nov 30 11:15.
It was first highlighted by economist Paul de Grauwe.
But, dare we say, the so-called ‘Merkel crash’ is quickly becoming analyst consensus for what really triggered this latest European debt rout.
As BNP Paribas points out on Tuesday:
Yesterday did see EMU spreads widening further despite the release of a credible Irish rescue package. The reason for continued peripheral selling pressure may be related to the funding needs of banks as highlighted in the stability report of the BoP. It was last Tuesday when Germany showed a blueprint for the further regulation of the private bond market. Germany aims introducing this law in 2011 and would like to harmonise this law EU wide. The blue print suggested that next to creditors and debtors it would be the regulator to decide if and when there would be hair cuts or maturity lengthening on outstanding bonds announced. Hence, last Tuesday set the starting point for bank CDS’s moving sharply up as markets assumed that bonds which such kind of clause (regulator deciding) would be difficult to sell. Spanish banks will have come to the capital market in the first half of 2011 and will have to issue more bonds than the Spanish sovereign. The stability report of the BoP highlighting this problematic will keep investors concerned and the EUR offered.
And thus the European Stability Mechanism is transforms ever more officially into the European Instability Mechanism (EIM), alternatively to be known as Merkel’s Crash Mechanism (MCM).
Vorsprung durch mechanismen.
Posted by Izabella Kaminska on Nov 30 11:15.
It was first highlighted by economist Paul de Grauwe.
But, dare we say, the so-called ‘Merkel crash’ is quickly becoming analyst consensus for what really triggered this latest European debt rout.
As BNP Paribas points out on Tuesday:
Yesterday did see EMU spreads widening further despite the release of a credible Irish rescue package. The reason for continued peripheral selling pressure may be related to the funding needs of banks as highlighted in the stability report of the BoP. It was last Tuesday when Germany showed a blueprint for the further regulation of the private bond market. Germany aims introducing this law in 2011 and would like to harmonise this law EU wide. The blue print suggested that next to creditors and debtors it would be the regulator to decide if and when there would be hair cuts or maturity lengthening on outstanding bonds announced. Hence, last Tuesday set the starting point for bank CDS’s moving sharply up as markets assumed that bonds which such kind of clause (regulator deciding) would be difficult to sell. Spanish banks will have come to the capital market in the first half of 2011 and will have to issue more bonds than the Spanish sovereign. The stability report of the BoP highlighting this problematic will keep investors concerned and the EUR offered.
And thus the European Stability Mechanism is transforms ever more officially into the European Instability Mechanism (EIM), alternatively to be known as Merkel’s Crash Mechanism (MCM).
Vorsprung durch mechanismen.
Saturday 20 November 2010
Michael Dirda on John Banville
Chekhov used to say that one had to be a god to distinguish between success and failure. While John Banville has won Britain’s major literary awards—the James Tait Black Memorial Prize for Doctor Copernicus in 1976 and the Guardian Fiction Prize for Kepler in 1981, as well as the real plum, the Man Booker for The Sea (2005)—and while he has been widely (and rightly) acclaimed for his linguistic inventiveness and artistic intelligence, his novels have tended to be more admired than loved. My impression from reading reviews and talking to readers is that his books, for all their virtuosity and precision, are seen by many as slightly forbidding and emotionally cold, their tone arch, their humor nastily black.
William Easterly on Foreign Aid for Scoundrels in the NYRB
....A more important political motive for aid is independent of cold wars or wars on terror. Aid agencies exist to give aid, so they must keep the money flowing. The department of an aid agency assigned to help a country may not get a budget next year if its officials don’t disburse to the country’s ruler this year; so they hand out funds no matter how autocratic he is.....
...The concept of development helps rationalize the position of autocrats by postulating an unstoppable transition toward a bright future. This is why donors call all poor countries “developing.” Once the donors started paying lip service to democracy, they could label undemocratic aid recipients as “democratizing.” Let’s call this the Gerund Defense for supporting dictators....
...The Gerund Defense has the attraction of being irrefutable. We don’t know the future, so we don’t know whether a particular event is a “setback” to “building institutions,” or whether the “building” is a myth. We could of course observe the actual trend in “democratizing”—but this has been discouraging in Ethiopia, where parties and politicians that seriously challenge the government risk prison. Donors could conceivably overlook anything, even the 1994 Rwanda genocide, as a temporary “setback” to an “innate tendency.” Such a view is not as easily dismissed as you might think.
...The concept of development helps rationalize the position of autocrats by postulating an unstoppable transition toward a bright future. This is why donors call all poor countries “developing.” Once the donors started paying lip service to democracy, they could label undemocratic aid recipients as “democratizing.” Let’s call this the Gerund Defense for supporting dictators....
...The Gerund Defense has the attraction of being irrefutable. We don’t know the future, so we don’t know whether a particular event is a “setback” to “building institutions,” or whether the “building” is a myth. We could of course observe the actual trend in “democratizing”—but this has been discouraging in Ethiopia, where parties and politicians that seriously challenge the government risk prison. Donors could conceivably overlook anything, even the 1994 Rwanda genocide, as a temporary “setback” to an “innate tendency.” Such a view is not as easily dismissed as you might think.
Giles Harvey on Saint Bob in the NYRB
As the Sixties wore on, however, Dylan grew increasingly frustrated with what he came to regard as the pious sloganeering and doctrinaire leftist politics of the folk milieu. (Such politicized folk music, Dylan said in one of the notorious semicoherent interviews he gave mid-decade, “is a bunch of fat people.”) As a result, his songs became stranger, more complex, less overtly concerned with the political happenings of the day. They no longer partitioned the country into moral factions, with arms dealers, corrupt politicians, Southern racists, and conventional bourgeois society on one side and the young, the poor, the downtrodden, and the guitar-and- harmonica-wielding troubadours on the other. They no longer asked—as Florence Reece’s pro-union protest song of the 1930s had done—”Which Side Are You On?” Instead, Dylan began writing a kind of visionary nonsense verse, in which the rough, ribald, lawless America of the country’s traditional folk music collided with a surreal ensemble of characters from history, literature, legend, the Bible, and many other places besides.....
.....Dylan has certainly made some astonishing records since then (1966), most notably The Basement Tapes, John Wesley Harding, and Blood on the Tracks (1975); but for years at a stretch—from 1971 to 1975, from 1978 to 1989—he went into creative tailspin, releasing album after album of generally insipid material......as the years went by, Dylan found himself trapped inside the aspic of his own legend.
.....Dylan has certainly made some astonishing records since then (1966), most notably The Basement Tapes, John Wesley Harding, and Blood on the Tracks (1975); but for years at a stretch—from 1971 to 1975, from 1978 to 1989—he went into creative tailspin, releasing album after album of generally insipid material......as the years went by, Dylan found himself trapped inside the aspic of his own legend.
Tuesday 16 November 2010
Roubini on Eurozone sovereign debt restructuring mechanisms
First, consider that any holder of CDS protection would not be a creditor of a distressed sovereign unless he/she has an actual long position in the underlying bonds; holders of CDS protection don‘t vote in a debt restructuring process (i.e., an exchange offer) if their CDS protection is naked without any underlying actual exposure to the bond........
Since most likely an exchange offer under threat of default is considered—as it is by rating agencies that considered them as coercive thus triggering a selective default rating–as a credit event that triggers the CDS an holder of CDS protection would be paid regardless of whether he/she has underlying exposure to the bonds and regardless of whether he/she tries to sabotage the debt restructuring. In effect, the holder of CDS protection has no incentive to sabotage a restructuring because such a restructuring is by itself a credit event that triggers the CDS regardless of whether the restructuring is successful or not.........
In summary, a European SDRM is not necessary to achieve an orderly restructuring of public debts of eurozone members. Such restructuring can be achieved in an orderly manner any time via the traditional tool of exchange offers that have been successfully been used for emerging market sovereigns in distress. Thus, the current debate on a European SDRM is a total red herring: The reason why the EU has so far decided to provide financing to member states in distress is not the lack of a legal mechanism for an orderly restructuring; rather, it reflects concern about systemic contagion. But an orderly restructuring via exchange offers can significantly reduce such a risk while providing significant debt servicing relief to sovereign that are financially distressed via an orderly—if coercive—debt restructuring.
The current tragedy is that the European debate on a crisis resolution mechanism or SDRM has had perverse effects: .... the talk about a European SDRM has been the trigger of the recent blow-out of Irish spreads and created greater turmoil than order. Additionally, the confusing and contradictory remarks of EU officials and national leaders on when the restructuring mechanism will take effect and to which debts it will apply (new or old ones) has created greater uncertainty among investors. The reality is that, regardless of what the EU says or doesn‘t say, the probability of a coercive restructuring of the Greek or Irish debt is totally independent of whether a European SDRM will be created in 2013 or later and whether its terms would apply to new or old debt. The EU has zero effective power in deciding—via a new legal mechanism—whether Greece or any other EZ sovereign will restructure its debt and when.
Indeed, if Greece does not regain market access it will be forced to restructure its debts when the IMF/EU bailout program expires even if, as possible, the IMF or the EU were to decide to maintain its exposure to Greece upon expiration of that official support. In effect, if Greece doesn‘t regain its market access, its need to finance its new yearly deficits and to rollover private claims coming to maturity will force a debt restructuring. To prevent this, IMF/EU would have to not only extend their existing program but, on top of that, significantly increase its lending/financial commitments beyond the current €110 billion lending envelope since Greece will have large financing needs beyond 2012 given its ongoing fiscal deficit and need to rollover private claims coming to maturity.
This is why the recent statement by some European finance ministers asserting that the proposed debt restructuring mechanism will apply only to debts issued only after 2013—a statement which backpedaled away from previous pronouncements in order to calm spooked bond markets—is totally meaningless.....Moreover, the recent statement of a sub-set of EU finance ministers that haircuts will be imposed on new debts issued after 2013 not the old one is actually counter-productive and ensures that PIIGS in distress will lose market access rather than regain it over time: Why would any private creditor of a PIIGS want to purchase the newly issued debt of such a sovereign when such debt—rather than the old one—would be restructured? The whole logic of DIP financing is that new debts get seniority relative to old debts—that are already locked in—to ensure that new financing arrives to a sovereign under distress. The weird EU view that new debts—rather than old ones—would be subject to debt restructuring turns the basic principle of DIP financing on its head and ensures that market access will be lost even to distressed sovereigns that still have such access.
The constraints for an orderly debt restructurings are not legal–the lack of a formal crisis resolution mechanism; they are rather political: i.e., when will the EU agree that some of its member states are not just illiquid but near insolvent and thus in need of an orderly market based restructuring of their public debts that would provide debt relief while limiting the risk of a systemic contagion to the rest of the eurozone.
Since most likely an exchange offer under threat of default is considered—as it is by rating agencies that considered them as coercive thus triggering a selective default rating–as a credit event that triggers the CDS an holder of CDS protection would be paid regardless of whether he/she has underlying exposure to the bonds and regardless of whether he/she tries to sabotage the debt restructuring. In effect, the holder of CDS protection has no incentive to sabotage a restructuring because such a restructuring is by itself a credit event that triggers the CDS regardless of whether the restructuring is successful or not.........
In summary, a European SDRM is not necessary to achieve an orderly restructuring of public debts of eurozone members. Such restructuring can be achieved in an orderly manner any time via the traditional tool of exchange offers that have been successfully been used for emerging market sovereigns in distress. Thus, the current debate on a European SDRM is a total red herring: The reason why the EU has so far decided to provide financing to member states in distress is not the lack of a legal mechanism for an orderly restructuring; rather, it reflects concern about systemic contagion. But an orderly restructuring via exchange offers can significantly reduce such a risk while providing significant debt servicing relief to sovereign that are financially distressed via an orderly—if coercive—debt restructuring.
The current tragedy is that the European debate on a crisis resolution mechanism or SDRM has had perverse effects: .... the talk about a European SDRM has been the trigger of the recent blow-out of Irish spreads and created greater turmoil than order. Additionally, the confusing and contradictory remarks of EU officials and national leaders on when the restructuring mechanism will take effect and to which debts it will apply (new or old ones) has created greater uncertainty among investors. The reality is that, regardless of what the EU says or doesn‘t say, the probability of a coercive restructuring of the Greek or Irish debt is totally independent of whether a European SDRM will be created in 2013 or later and whether its terms would apply to new or old debt. The EU has zero effective power in deciding—via a new legal mechanism—whether Greece or any other EZ sovereign will restructure its debt and when.
Indeed, if Greece does not regain market access it will be forced to restructure its debts when the IMF/EU bailout program expires even if, as possible, the IMF or the EU were to decide to maintain its exposure to Greece upon expiration of that official support. In effect, if Greece doesn‘t regain its market access, its need to finance its new yearly deficits and to rollover private claims coming to maturity will force a debt restructuring. To prevent this, IMF/EU would have to not only extend their existing program but, on top of that, significantly increase its lending/financial commitments beyond the current €110 billion lending envelope since Greece will have large financing needs beyond 2012 given its ongoing fiscal deficit and need to rollover private claims coming to maturity.
This is why the recent statement by some European finance ministers asserting that the proposed debt restructuring mechanism will apply only to debts issued only after 2013—a statement which backpedaled away from previous pronouncements in order to calm spooked bond markets—is totally meaningless.....Moreover, the recent statement of a sub-set of EU finance ministers that haircuts will be imposed on new debts issued after 2013 not the old one is actually counter-productive and ensures that PIIGS in distress will lose market access rather than regain it over time: Why would any private creditor of a PIIGS want to purchase the newly issued debt of such a sovereign when such debt—rather than the old one—would be restructured? The whole logic of DIP financing is that new debts get seniority relative to old debts—that are already locked in—to ensure that new financing arrives to a sovereign under distress. The weird EU view that new debts—rather than old ones—would be subject to debt restructuring turns the basic principle of DIP financing on its head and ensures that market access will be lost even to distressed sovereigns that still have such access.
The constraints for an orderly debt restructurings are not legal–the lack of a formal crisis resolution mechanism; they are rather political: i.e., when will the EU agree that some of its member states are not just illiquid but near insolvent and thus in need of an orderly market based restructuring of their public debts that would provide debt relief while limiting the risk of a systemic contagion to the rest of the eurozone.
Tuesday 2 November 2010
Larry Kotlikoff on Limited Purpose Banking
April 16, 2010 11:15am FT
An open letter from Laurence Kotlikoff of Boston University to Lord Turner, chairman of Britain’s Financial Services Authority
Dear Adair,
I listened to your terrific talk at the Soros conference. I could focus on the eloquence, fantastic delivery and numerous deep insights, but let me make a couple of comments that may be of actual value at the margin. Take them from where they emanate – real friendship and respect.
It seems that you are questioning yourself. On the one hand, you are saying it’s critical to consider radical solutions. On the other hand, you are saying, “Too radical, too fast, is too dangerous. If we move to real safely, we may need to take decades.”
And you seem to be saying, “If we get the regulators to do their jobs, we can fix this thing.” But, you’re also saying, “Regulators just failed us miserably and are working for their next bosses on Wall and Lombard streets.”
I take your public self-questioning to be an extremely healthy sign. No one can honestly contemplate the continuation of the current financial system without having deep and terrifying concerns. Yet, it also seems scary to imagine moving to a very different type of system, which has never been test-driven.
But the British public should be extremely thankful for your candour. I can’t imagine a head of the SEC providing such an open and honest appraisal of our financial ship of state, let alone admitting his uncertainty (which we all share) about knowing precisely how to fix it.
What I didn’t hear in your talk was an emphasis on the snake oil. To me, it’s the single most important factor in what happened, and the full and immediate disclosure and FDA-type verification of the securities being marketed is the only way to prevent it. It’s not prop trading, but prop information that’s the problem because the prop information is a front to sell the snake oil.
You referenced Limited Purpose Banking twice in your talk. It seemed like you got close to saying it was the way to go, at least over time, but then you said you were worried about sudden swings in the willingness of the public to extend credit to itself without traditional bankers “managing” their risks.
Let me respond.
Limited Purpose Banking (discussed in Jimmy Stewart Is Dead) has two legs – one is strict mutual fund intermediation and the other is the Federal Financial Authority that represents an FDA for the securities industry insofar as it would verify, fully and immediately disclose, and independently appraise and rate all securities bought, sold, or held by the mutual funds. When I reference disclosure, I mean, for example, displaying, in real time, on the web all of the details about each of the individual mortgages in a collateralised mortgate obligation. And yes, this would eliminate prop info about investment strategies. I think that’s a price worth paying.
Re the mutual fund leg, your talk suggested that Limited Purpose Banking might be subject to major credit swings because of changes in market perceptions. I differ for several reasons.
First, when there is disclosure, the potential for major and sudden swings in perceptions is greatly reduced. Recall the Tylenol scare back in 1984. A couple of bottles of cyanide-tainted Tylenol led, overnight, to no market for 30m bottles worldwide. The perception flipped from the pills being safe to being toxic. Once the contents of the bottles were replaced with new Tylenol and were disclosed, via safely sealed containers, to be Tylenol, as opposed to rat poison, the potential for such wild swings in the market value of Tylenol ended. I think the FFA’s disclosure, verification, rating, and appraisals will keep wild swings, which we now see, in the perception of the credit-worthiness of borrowers from occurring.
Second, you seem to be suggesting that if perceptions changed, there would be massive and sudden sale of mortgages and other loans under LPB. But the mutual funds intermediating mortgage and commercial lending would be closed-end, so there would be no fire sale of the loans themselves.
Third, you seem to be saying that the bankers are more level-headed than the public, so the public will panic, while the bankers won’t. I think the public panics when they suddenly suspect the bankers are stealing their money. Moreover, in the current setting, we have bankers fully panicked with respect to lending. Why else would they sit on more than $1 trillion in excess reserves here in the US? (Yes, the Fed is paying interest on those reserves. But what it’s paying is paltry.) I don’t see any evidence that bankers kept their cool in this crisis and kept lending. Absent Uncle Sam’s take over of Fannie and Freddie, we’d have had very few mortgages issued in the past 18 months here in the States.
Fourth, under LPB, the government is always free to intervene directly in mortgage or commercial paper mutual funds and ensure the supply of credit.
Fifth, if you are pushing for very high capital requirements (as you seem, at a minimum, to be doing), you are, in effect, pushing for each bank to become one very big mutual fund. But one big mutual fund is much less efficient than one, potentially, very big mutual fund company that markets many different mutual funds. It allows the public to buy the individual securities they want to hold.
Sixth, one can’t be a little bit pregnant. Even permitting small degrees of risk-taking by the intermediary will leave the intermediary enough rope to hang itself as well as the economy. Citigroup could have a 99 per cent capital requirement. But what if it has one trader who buys one security that has one obscure clause that commits it to a $1 trillion payout in some extreme state of nature? Well, that security may be viewed by regulators as acceptable for Citigroup to hold, but it’s not acceptable for the public who will get hit with the bill and the economic fallout. With a $600 trillion gross derivates market, losses of this magnitude aren’t out of the question.
What we need is 100 per cent capital requirements in all potential states of nature, not just the current state of nature.
All best and let’s keep debating how to move forward.
Larry
Laurence Kotlikoff is a professor of economics at Boston University and the author of Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.
An open letter from Laurence Kotlikoff of Boston University to Lord Turner, chairman of Britain’s Financial Services Authority
Dear Adair,
I listened to your terrific talk at the Soros conference. I could focus on the eloquence, fantastic delivery and numerous deep insights, but let me make a couple of comments that may be of actual value at the margin. Take them from where they emanate – real friendship and respect.
It seems that you are questioning yourself. On the one hand, you are saying it’s critical to consider radical solutions. On the other hand, you are saying, “Too radical, too fast, is too dangerous. If we move to real safely, we may need to take decades.”
And you seem to be saying, “If we get the regulators to do their jobs, we can fix this thing.” But, you’re also saying, “Regulators just failed us miserably and are working for their next bosses on Wall and Lombard streets.”
I take your public self-questioning to be an extremely healthy sign. No one can honestly contemplate the continuation of the current financial system without having deep and terrifying concerns. Yet, it also seems scary to imagine moving to a very different type of system, which has never been test-driven.
But the British public should be extremely thankful for your candour. I can’t imagine a head of the SEC providing such an open and honest appraisal of our financial ship of state, let alone admitting his uncertainty (which we all share) about knowing precisely how to fix it.
What I didn’t hear in your talk was an emphasis on the snake oil. To me, it’s the single most important factor in what happened, and the full and immediate disclosure and FDA-type verification of the securities being marketed is the only way to prevent it. It’s not prop trading, but prop information that’s the problem because the prop information is a front to sell the snake oil.
You referenced Limited Purpose Banking twice in your talk. It seemed like you got close to saying it was the way to go, at least over time, but then you said you were worried about sudden swings in the willingness of the public to extend credit to itself without traditional bankers “managing” their risks.
Let me respond.
Limited Purpose Banking (discussed in Jimmy Stewart Is Dead) has two legs – one is strict mutual fund intermediation and the other is the Federal Financial Authority that represents an FDA for the securities industry insofar as it would verify, fully and immediately disclose, and independently appraise and rate all securities bought, sold, or held by the mutual funds. When I reference disclosure, I mean, for example, displaying, in real time, on the web all of the details about each of the individual mortgages in a collateralised mortgate obligation. And yes, this would eliminate prop info about investment strategies. I think that’s a price worth paying.
Re the mutual fund leg, your talk suggested that Limited Purpose Banking might be subject to major credit swings because of changes in market perceptions. I differ for several reasons.
First, when there is disclosure, the potential for major and sudden swings in perceptions is greatly reduced. Recall the Tylenol scare back in 1984. A couple of bottles of cyanide-tainted Tylenol led, overnight, to no market for 30m bottles worldwide. The perception flipped from the pills being safe to being toxic. Once the contents of the bottles were replaced with new Tylenol and were disclosed, via safely sealed containers, to be Tylenol, as opposed to rat poison, the potential for such wild swings in the market value of Tylenol ended. I think the FFA’s disclosure, verification, rating, and appraisals will keep wild swings, which we now see, in the perception of the credit-worthiness of borrowers from occurring.
Second, you seem to be suggesting that if perceptions changed, there would be massive and sudden sale of mortgages and other loans under LPB. But the mutual funds intermediating mortgage and commercial lending would be closed-end, so there would be no fire sale of the loans themselves.
Third, you seem to be saying that the bankers are more level-headed than the public, so the public will panic, while the bankers won’t. I think the public panics when they suddenly suspect the bankers are stealing their money. Moreover, in the current setting, we have bankers fully panicked with respect to lending. Why else would they sit on more than $1 trillion in excess reserves here in the US? (Yes, the Fed is paying interest on those reserves. But what it’s paying is paltry.) I don’t see any evidence that bankers kept their cool in this crisis and kept lending. Absent Uncle Sam’s take over of Fannie and Freddie, we’d have had very few mortgages issued in the past 18 months here in the States.
Fourth, under LPB, the government is always free to intervene directly in mortgage or commercial paper mutual funds and ensure the supply of credit.
Fifth, if you are pushing for very high capital requirements (as you seem, at a minimum, to be doing), you are, in effect, pushing for each bank to become one very big mutual fund. But one big mutual fund is much less efficient than one, potentially, very big mutual fund company that markets many different mutual funds. It allows the public to buy the individual securities they want to hold.
Sixth, one can’t be a little bit pregnant. Even permitting small degrees of risk-taking by the intermediary will leave the intermediary enough rope to hang itself as well as the economy. Citigroup could have a 99 per cent capital requirement. But what if it has one trader who buys one security that has one obscure clause that commits it to a $1 trillion payout in some extreme state of nature? Well, that security may be viewed by regulators as acceptable for Citigroup to hold, but it’s not acceptable for the public who will get hit with the bill and the economic fallout. With a $600 trillion gross derivates market, losses of this magnitude aren’t out of the question.
What we need is 100 per cent capital requirements in all potential states of nature, not just the current state of nature.
All best and let’s keep debating how to move forward.
Larry
Laurence Kotlikoff is a professor of economics at Boston University and the author of Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.
Monday 1 November 2010
Mervyn King on Radical Bank Reform
How do we put more of the costs of maturity mismatch on the shoulders of those who reap the benefits?....
One simple solution, advocated by my colleague David Miles, would be to move to very much higher levels of capital requirements - several orders of magnitude higher. A related proposal is to ensure there are large amounts of contingent capital in a bank's liability structure....But unless complete, capital requirements will never be able to guarantee that costs will not spill over elsewhere. This leads to the limiting case of proposals such as Professor Kotlikoff's idea to introduce what he calls "limited purpose banking". That would ensure that each pool of investments made by a bank is turned into a mutual fund with no maturity mismatch. There is no probability of alchemy. IT IS AN IDEA WORTHY OF FURTHER STUDY.
Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another,more fundamental, example would be to divorce the payment system from risky lending activity - that is, to prevent fractional reserve banking....Eliminating fractional reserve banking explicitly recognisees that the pretence that risk-free deposits can be supported by risky assets is alchemy......
The advantage of these types of more fundamental proposals is that no tax or capital requirement needs to be calibrated......But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy. That is difficult because it is the nature of the services, not the institutions, that is the concern.....
The broad answer to the problem is likely to be remarkably simple. Banks should be financed much more heavily by equity rather than short-term debt.....
Of all the many ways of organising banking, the worst is the one we have today.
One simple solution, advocated by my colleague David Miles, would be to move to very much higher levels of capital requirements - several orders of magnitude higher. A related proposal is to ensure there are large amounts of contingent capital in a bank's liability structure....But unless complete, capital requirements will never be able to guarantee that costs will not spill over elsewhere. This leads to the limiting case of proposals such as Professor Kotlikoff's idea to introduce what he calls "limited purpose banking". That would ensure that each pool of investments made by a bank is turned into a mutual fund with no maturity mismatch. There is no probability of alchemy. IT IS AN IDEA WORTHY OF FURTHER STUDY.
Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another,more fundamental, example would be to divorce the payment system from risky lending activity - that is, to prevent fractional reserve banking....Eliminating fractional reserve banking explicitly recognisees that the pretence that risk-free deposits can be supported by risky assets is alchemy......
The advantage of these types of more fundamental proposals is that no tax or capital requirement needs to be calibrated......But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy. That is difficult because it is the nature of the services, not the institutions, that is the concern.....
The broad answer to the problem is likely to be remarkably simple. Banks should be financed much more heavily by equity rather than short-term debt.....
Of all the many ways of organising banking, the worst is the one we have today.
Mervyn King on Basel III
Basel III on its own will not prevent another crisis for a number of reasons.
First, even the new levels of capital are insufficient to prevent another crisis. Calibrating required capital by reference to the losses incurred during the recent crisis takes inadequate account of the benefits to banks of massive government intervention and the implicit guarantee. More fundamentally, it fails to recognise that when sentiment changes only very high levels of capital would be sufficient to enable banks to obtain funding on anything like normal spreads to policy rates, as we can see at present. When investors change their view about the unknowable future, as they occasionally will in sudden and discontinuous ways - banks that were perceived as well-capitalised can seem under-capitalised with concerns over their solvency.....
Second, the Basel approach calculates the amount of capital required by using a measure of "risk-weighted" assets. Those risk weights are computed from past experience. Yet the circumstances in which capital needs to be available to absorb potential losses are precisely those when earlier judgements about the risk of different assets and their correlations are shown to be wrong. And that is not because investors, banks or regulators are incompetent. It is because the relevant risks are often impossible to assess in terms of fixed probabilities........That is why the Bank of England advocated a simple leverage ratio as a key backstop to capital requirements.....
Third, the Basel framework still focuses largely on the assets side of the bank's balance sheet. Basel II excluded consideration of the liquidity and liability structure of the balance sheet, so much so that when the UK adopted Basel II in 2007, of all the major banks the one with the highest capital ratio was, believe it or not, Northern Rock. Within weeks of announcing that it intended to return excess capital to its shareholders, Northern Rock ran out of money. Basel II was based on a judgement that mortgages were the safest form of lending irrespective of how they were financed. If a business model is based around a particular funding model that suddenly becomes unviable, then the business model becomes unviable too, as events in 2007 showed.
First, even the new levels of capital are insufficient to prevent another crisis. Calibrating required capital by reference to the losses incurred during the recent crisis takes inadequate account of the benefits to banks of massive government intervention and the implicit guarantee. More fundamentally, it fails to recognise that when sentiment changes only very high levels of capital would be sufficient to enable banks to obtain funding on anything like normal spreads to policy rates, as we can see at present. When investors change their view about the unknowable future, as they occasionally will in sudden and discontinuous ways - banks that were perceived as well-capitalised can seem under-capitalised with concerns over their solvency.....
Second, the Basel approach calculates the amount of capital required by using a measure of "risk-weighted" assets. Those risk weights are computed from past experience. Yet the circumstances in which capital needs to be available to absorb potential losses are precisely those when earlier judgements about the risk of different assets and their correlations are shown to be wrong. And that is not because investors, banks or regulators are incompetent. It is because the relevant risks are often impossible to assess in terms of fixed probabilities........That is why the Bank of England advocated a simple leverage ratio as a key backstop to capital requirements.....
Third, the Basel framework still focuses largely on the assets side of the bank's balance sheet. Basel II excluded consideration of the liquidity and liability structure of the balance sheet, so much so that when the UK adopted Basel II in 2007, of all the major banks the one with the highest capital ratio was, believe it or not, Northern Rock. Within weeks of announcing that it intended to return excess capital to its shareholders, Northern Rock ran out of money. Basel II was based on a judgement that mortgages were the safest form of lending irrespective of how they were financed. If a business model is based around a particular funding model that suddenly becomes unviable, then the business model becomes unviable too, as events in 2007 showed.
Friday 17 September 2010
Gary Wills on B16 and Newman in the NYRB blog
Pope Benedict XVI is the best-dressed liar in the world. And in England he presided over the best set-designed lie imaginable. He beatified the nineteenth-century Oxford theologian John Henry Newman, presenting him (in the penultimate step toward canonization) as a docile believer in papal authority, an enemy of dissent, and a rebuke to anyone who questions church authority.
Newman was a restive Catholic under constant scrutiny and criticism from Rome until a new pope (Leo XIII) bought him off with a cardinal’s robes when he was eighty and tamable.
He was a fierce critic of Pope Pius IX (beatified in 2000 by Benedict’s predecessor). Pius was pope for over thirty years, and Newman said that any man holding that office even for twenty years was bound to become a tyrant. He was allied with Lord Acton in opposing the “tyrant majority” at the Vatican Council that in the year 1870 declared the pope infallible. He wrote of the Council: “We have come to a climax of tyranny. It is not good for a pope to live twenty years. It is anomaly, and bears no good fruit; he becomes a god, has no one to contradict him, does not know facts, and does cruel things without meaning it.”
Before the Council made the fatal declaration, Newman wrote to his closest friend Ambrose St. John hoping that the Italian forces threatening to take away his secular power would succeed, or that Pius would die: “We must hope, for one is obliged to hope it, that the pope will be driven from Rome and will not continue the council or that there will be another pope. It is sad he should force us to such wishes.” That is far from the figure the current pope will offer the world as a model for submissive belief. Benedict was once a scholar and now claims to be infallible in matters of faith or morals. But on the clearest facts of history he is a dissembler and disguiser. Were Newman alive to hope for preventing this distortion of his history, would he hope for the pope’s demise, as he hoped for Pius IX’s death before he did such damage to the church by claiming “tyrannical” powers?
September 16, 2010 12:20 p.m.
Saturday 11 September 2010
Friday 23 July 2010
Quis custodiet ipsos custodes?
A US colleague of mine thoughtfully sent through a memo on the Greek crisis and European economic outlook from a chap at Oaktree Capital. It was the usual pillory of the Greeks for being lazy tax-dodgers and praise for the fiscally prudent Germans. It prompted the following response.
"The Euro was basically a political compromise: West Germany was allowed to reunify with East Germany (the French hated this because it made Germany without doubt the premiere power in Europe) if the French were allowed to have the Deutsche Mark (i.e. a lower cost of borrowing). It was explicitly framed in these terms by Mitterand and Kohl. From the same source of French insecurity comes the decision to allow the fiscally weak countries such as Belgium, Italy and Greece to join despite the fact that they did not, and were not likely to, meet the Maastricht Convergence Criteria. The idea was to create a voting block of nations that France could commander as a counter-veiling force to Germany on the ECB and the Council of Economic Ministers.
"I also get a bit cheesed off when commentators describe the current crisis as being caused by the profligate South in the teeth of opposition from the fiscally prudent North. The South is profligate – not to mention inefficient, unproductive and crippled by an unjustified sense of entitlement (if Portugal didn’t exist, would you invent it (unless you were a golf-fanatic)?). But the North – while possessing a decent manufacturing export sector – is also crippled with over-generous and inefficient social security programmes. The key fact is that Germany – the apparent paragon of fiscal virtue – broke the Maastricht Stability and Growth Pact rules on budget deficits in 2002, 2003, 2004 and 2005. Not to mention to 2009 and 2010(f). By contrast, Spain passed the test with flying colours – posting SURPLUSES in 2004, 2005 and 2006. So, enough of the anti-South propaganda. Germany, France, Belgium etc all over-spent and that’s why they didn’t come down hard on Greece – because they would’ve had to come down on themselves too.
"The amazing thing is not that bond market vigilantes have finally caught onto this – but that between 2000 and 2008 they gave the Eurozone the benefit of the doubt. We are now in a situation where bond markets and rating agencies are enforcing the fiscal discipline that Eurozone politicians should’ve enforced themselves. All of which goes to show that there is nothing new in European politics. Juvenal had it exact in 180 AD – you can’t trust the people who are subject to the law to enforce it.
Saturday 17 July 2010
Information from the North Concerning Ice
Each seal uses many blowholes, and every blowhole is used by many seals.
Friday 16 July 2010
"JakeN" commenting on The Economist's analysis of Goldman versus the SEC
In summary,
a) Goldman escaped having to admit wrongdoing.
b) Goldman fined a fraction of the amount in the original complaint.
c) Goldman ordered not to break the law.
d) Goldman staff ordered to find out what the law is.
(a) and (b) are par for the course in terms of financial regulation. But (c) and (d) sound like an extract from the satirical script of “Jon Stewart’s Daily Show”.
Friday 9 July 2010
From The Economist
"The barrier to (EU structural) reform has always been political, not economic. Jean-Claude Juncker, prime minister of Luxembourg, put it best in 2007: “We all know what to do, but we don’t know how to get re-elected once we have done it.”"
Monday 5 July 2010
It's the little things
From the Letters page of the Trinity Issue of Oxford Today:
"In your interview with Monty Python actor Terry Jones ("A Python's Progress", OT, 22.2), you referred repeatedly to his involvement with the "Oxford Review". When I was at Oxford, my involvement was with the Oxford Revue. Call me picky, but I think that I was involved with the one better spelt.
Rowan Atkinson.
Queen's 1975.
"In your interview with Monty Python actor Terry Jones ("A Python's Progress", OT, 22.2), you referred repeatedly to his involvement with the "Oxford Review". When I was at Oxford, my involvement was with the Oxford Revue. Call me picky, but I think that I was involved with the one better spelt.
Rowan Atkinson.
Queen's 1975.
Friday 2 July 2010
Thoughts on listening to the Today programme
An Education minister says our curricula used to be "designed upwards" to suit the universities and that now they should be "designed downwards" to suit the needs of, you know, actual students. An unfortunate turn of phrase but it does hint, subconsciously, at the troglodytically poor standards of inner city secondary education.
Ten minutes later the Afghan ambassador to the Court of St James is talking about "time", "having enough time", and "this being the time to take time, not having enough time notwithstanding". He sounds like Culture Club.
Overall I'm, like, totally, like disturbed about the declining standards of public discourse on Radio 4, innit.
Maybe I have over-sensitized to the corruption of public discourse by last night's experience, on a "hot date" watching "Get Him to the Greek". I've always complained about having to choose between a career as an economist and as a film programmer. It seemed to me that these worlds were very different and rightly so. And now I find Nobel Prize winning economist Paul Krugman in a cameo in a Judd Apatow comedy. It's like seeing your dad crop up as a background singer in a Miley Cyrus video.
When I first started reading Krugman it was 1998 and he was but a humble trade economist with a lo-rent website out of MIT upon which he opined about the Liquidity Trap. (That was back in the day when the only liquidity trap was Japan, as opposed to now, when you could be referring to anywhere in the developed world.) Reading Krugman was a niche interest for Econ students at Oxford. It was the geek equivalent of being into Vampire Weekend before they put out "I Stand Corrected" as Free Song of the Week on iTunes. And then Krugman went to Princeton. I guess we should've seen it coming. From the third best University in Jersey, but the only one with a Gucci store, it was just a mere hop, skip and jump to the NY Times Op Ed page. Ever since then, Krugman's university page has been abandoned, and while he won the Nobel for his trade work, he hasn't written anything of substance since. Rather, he seems to have become enmeshed in political spats and ad hominem attacks. It's a crying shame. Krugman, in his old guise, could've been instrumental in actually rolling up his sleeves and sorting out the mess we're in - at the Fed, Treasury, IMF, whatever. Now, he's reduced to just another Huffpost contributor - and to being a cameo in a Judd Apatow movie.
I genuinely wonder how Krugman views this latest venture. Does he see it as part of his apparent mission to popularise economics? Is it just a vanity project? Or is he just a little bit embarrassed? He looked bewildered in the movie. But maybe that was just his "character". All I know is that he has probably ruled himself out of being Fed Chief. Or maybe not. In a world where Arnold Schwarzenegger can be elected Governor of California, anything is possible, maybe even the first Bank of England MPC member who simultaneously reviews flicks in The Grauniad?
Tuesday 29 June 2010
David Shulman on Gaza
“Can we make any sense of Israel’s policy toward Gaza? I think we can—a rather sinister sense—but only if we look beyond the mass of sometimes conflicting details that have emerged since the attack on the “Gaza Freedom Flotilla” on May 31. On the face of it, it’s hard to understand how any government could have decided to do anything so obviously self-defeating. At the very least Israel has handed Hamas a major propaganda victory, one that should easily have been foreseen. On the other hand, there is surely something about the whole foolish, deadly episode that is emblematic of Israeli’s current approach. Listen, first, to the public statements.
““Everything would have worked fine, but the passengers reacted inappropriately.” Thus, a headline describing the reaction of the captain who led the Israeli naval commando team onto the Mavi Marmara—the Turkish ship that was attempting to bring humanitarian aid to Gaza as part of the flotilla—and who was wounded in the ensuing struggle. (He was said to be speaking from his hospital bed.) He is certainly not alone in taking this view of the incident. In his first public statement after the debacle, Defense Minister Ehud Barak also blamed the activists on board the Turkish ship for what happened; he later added, in a striking non sequitur, that in the Middle East you cannot afford to show weakness, though that is precisely what the Israeli attack had demonstrated. Spokesmen for both the army and the government repeatedly said that the soldiers were in danger of being lynched—as if they were innocent victims of an ambush rather than, in effect, state-sponsored pirates attacking a convoy carrying humanitarian aid in international waters. The Israeli genius for “designer victimhood,” to borrow a phrase from the Indian political philosopher Jyotirmaya Sharma, is capable of surprising flashes of ingenuity.”
Monday 7 June 2010
Matthew D'Ancona on Initiativitis
If Labour had held on to power on May 6, I think it is a safe bet that an official investigation into the Cumbrian massacre would already have been announced. In the Commons on Thursday, Alan Johnson, the Shadow Home Secretary, asked his Conservative successor at the Home Office, Theresa May, a series of rapid-fire questions that hinted heavily at what he would have done if still in office. Would there be a review of firearm laws? Were the follow-up checks on those issued with firearm certificates adequate? Was co-operation across police forces sufficient? Was a small, rural force such as Cumbria’s “properly equipped to deal with events that are more often predicted to happen in urban areas”?
One could see the former home secretary’s nerve-endings twitching with the old instinct to open an inquiry, launch an initiative, assemble a taskforce, appoint a firearms “tsar”. It is to the Coalition’s credit that it has thus far resisted this temptation, often clumsily but accurately described as “initiativitis”. When the nation’s attention is gripped by a tragedy of this scale and horror, the pressure upon a prime minister to make promises, no matter how vapid, and take action, no matter how rushed, is immense. But David Cameron showed courage and maturity in declaring that there wasn’t always “an instant legislative or regulatory answer”.
One could see the former home secretary’s nerve-endings twitching with the old instinct to open an inquiry, launch an initiative, assemble a taskforce, appoint a firearms “tsar”. It is to the Coalition’s credit that it has thus far resisted this temptation, often clumsily but accurately described as “initiativitis”. When the nation’s attention is gripped by a tragedy of this scale and horror, the pressure upon a prime minister to make promises, no matter how vapid, and take action, no matter how rushed, is immense. But David Cameron showed courage and maturity in declaring that there wasn’t always “an instant legislative or regulatory answer”.
Wednesday 19 May 2010
Obama
Obama’s besetting political fault is his automatic adoption of the tone of command, accompanied by a persistent reluctance to be seen as the source of the policy he commandeers.
Obama acted on the assumption that the establishment is one and irreplaceable, and must be served in roughly its present form. This assumption he seems to have acquired between the summer of 2008 – the time of his capitulation on domestic surveillance and his Aipac speech affirming support for Israel – and the National Archives Speech on security a year later. The trajectory was completed by the sacking last November of Greg Craig as White House counsel: Craig was the lawyer who drafted Obama’s original plan for the closing of Guantánamo.
Monday 17 May 2010
Lex on Muni CDS
Always eager to deflect blame for fiscal lapses, state officials have pointed the finger at a small but growing market for municipal credit default swaps. There is no evidence, however, that banks are acting as anything but bond market facilitators. The first and loudest protests have come from – surprise, surprise – the state with the highest CDS prices, California. Treasurer Bill Lockyer has expressed indignation that prices imply California is riskier than many developing nations. With its intractable deficit, dysfunctional politics, powerful unions, inability to devalue and taxpayers who can decamp to states with lower taxes and better services, the CDS market may be right.
Wednesday 12 May 2010
Mark Lillo on Tea Party Jacobins
A new strain of populism is metastasizing before our eyes, nourished by the same libertarian impulses that have unsettled American society for half a century now. Anarchistic like the Sixties, selfish like the Eighties, contradicting neither, it is estranged, aimless, and as juvenile as our new century. It appeals to petulant individuals convinced that they can do everything themselves if they are only left alone, and that others are conspiring to keep them from doing just that. This is the one threat that will bring Americans into the streets............The new Jacobins have two classic American traits that have grown much more pronounced in recent decades: blanket distrust of institutions and an astonishing—and unwarranted—confidence in the self. They are apocalyptic pessimists about public life and childlike optimists swaddled in self-esteem when it comes to their own powers.
Monday 25 January 2010
Lex on Monetary Tightening
In their dreams monetary authorities tighten like Kaa, the Jungle Book python. Hypnotise the rank and file with assurances of a commitment to growth, while stealthily withdrawing various measures of support. Then, without anyone realising that the squeeze is actually on, the policy coils keep a firm grip on inflation.
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