Shiller, RJ. 2008. The subprime solution. Princeton University Press.
The subprime crisis is a real-estate bubble that spread to finance. It has produced conditions that are potentially catastrophic, and needs to be addressed in a serious and direct way.
This is not, however, a crisis that should signal the retreat from finance capitalism. In fact, we should be doing more to create infrastructures that promote markets that are designed to mitigate risk. We should also be increasing transparency and moving towards a situation where the system is able to avoid the promotion of bubbles through increased information. As in Shiller's other work, there is a heavy focus on the psychological aspects of market behavior.
"The key to the subprime solution, to preventing future crises like the current one, as well as mitigating its aftereffects, is democratizing finance--extending the application of sound financial principles to a larger and larger segment of society, and using all the modern technology at our disposal to achieve that goal" (115).
In the index, there is no mention of either derivatives or collateralized debt obligations.
Showing posts with label Financial Reform. Show all posts
Showing posts with label Financial Reform. Show all posts
Thursday, March 12, 2009
Wednesday, January 28, 2009
Fischer: In Defense of the IMF
Fischer, S. 1998. In Defense of the IMF-Specialized Tools for a Specialized Task. Foreign Affairs 77, no. 4: 103-6.
"Martin Feldstein makes three criticisms of the International Monetary Fund's remedies for the Asian crisis...First, he argues that they are simply the same old IMF austerity medicine, inappropriately dispensed to countries su8ffering from a different malady. Second--and the main theme--he contends that by including in the program a number of structural elements, the IMF is unwisely going beyond its essential task of correcting the balance of payments and intruding into the countries' political processes. Third, he is troubled by the problem of moral hazard--the bailout issue" (103).
Fischer argues that the first two considerations are linked: the structural elements make IMF policies towards SE Asia very different from previous IMF SAP applications, and that the structural elements must be addressed in order for crises like this to not happen in the future. As to the issue of moral hazard, it is, according to this author, overstated.
This crisis stemmed from the following: "First, Thailand and other countries were showing signs of overheating in the form of large trade deficits and real estate and stock market bubbles. Second, pegged exchange-rate regimes had been maintained for too long, encouraging heavy external borrowing, which led, in turn, to excessive foreign exchange risk exposure on the part of domestic financial institutions and corporations. Third, lax prudential rules and financial oversight had permitted the quality of banks' loan portfolios to deteriorate sharply" (104).
Fischer argues that, though Feldstein proposed three questions that the IMF should consider before prescribing structural adjustment, each of these miss the most important question: "Does the program address the underlying causes of the crisis?" (105). "Financial sector and other structural reforms are vital to the reform programs of Thailand, Indonesia, and South Korea because the problems of weak financial institutions, inadequate bank regulation and supervision, and the complicated and non-transparent relations among governments banks, and corporations were central to the economic crisis. IMF lending to these countries would serve no purpose if these problems were not addressed. Nor would it be in the countries' interest to leave the structural and governance issues aside: markets are skeptical of halfhearted reform efforts" (105).
"Martin Feldstein makes three criticisms of the International Monetary Fund's remedies for the Asian crisis...First, he argues that they are simply the same old IMF austerity medicine, inappropriately dispensed to countries su8ffering from a different malady. Second--and the main theme--he contends that by including in the program a number of structural elements, the IMF is unwisely going beyond its essential task of correcting the balance of payments and intruding into the countries' political processes. Third, he is troubled by the problem of moral hazard--the bailout issue" (103).
Fischer argues that the first two considerations are linked: the structural elements make IMF policies towards SE Asia very different from previous IMF SAP applications, and that the structural elements must be addressed in order for crises like this to not happen in the future. As to the issue of moral hazard, it is, according to this author, overstated.
This crisis stemmed from the following: "First, Thailand and other countries were showing signs of overheating in the form of large trade deficits and real estate and stock market bubbles. Second, pegged exchange-rate regimes had been maintained for too long, encouraging heavy external borrowing, which led, in turn, to excessive foreign exchange risk exposure on the part of domestic financial institutions and corporations. Third, lax prudential rules and financial oversight had permitted the quality of banks' loan portfolios to deteriorate sharply" (104).
Fischer argues that, though Feldstein proposed three questions that the IMF should consider before prescribing structural adjustment, each of these miss the most important question: "Does the program address the underlying causes of the crisis?" (105). "Financial sector and other structural reforms are vital to the reform programs of Thailand, Indonesia, and South Korea because the problems of weak financial institutions, inadequate bank regulation and supervision, and the complicated and non-transparent relations among governments banks, and corporations were central to the economic crisis. IMF lending to these countries would serve no purpose if these problems were not addressed. Nor would it be in the countries' interest to leave the structural and governance issues aside: markets are skeptical of halfhearted reform efforts" (105).
Saturday, December 20, 2008
Armijo: Political Geography of World Financial Reform
Armijo, LE. 2001. Political Geography of World Financial Reform: Who Wants What and Why, The. Global Governance 7: 379.
Ever since the latter third of the 1990s and the collapse of many economies in South East Asia, there have been many calls for finance reforms. "The purpose of this essay is to demystify some of the major reform proposals, and to understand which countries and interests back them. I suggest that the reforms proposed by a loose coalition of 'financial stabilizers' make the most sense on economy efficiency grounds, but that the bargaining structure of the issue area is such that the reforms most likely to be implemented are those of the 'transparency advocates'" (1).
How does one define "Financial Architecture"? "Not unexpectedly, the definition of the beast is elastic. To multinational bankers and institutional. investors, reforms of the financial architecture means consensual global implementation of best practice standards of accounting and reporting of national and corporate financial information in developing countries. To many members of the U.S. Congress, it means that the [IMF]... and World Bank should slim down and stop wasting taxpayers' money. To Japan and many Western European governments it means that the U.S. government should cease acting like a one-man band in responding to global financial crises. To finance ministers in very poor countries, as well as to many middle class activists in the advanced industrial democracies, global financial reform means debt forgiveness...And to incumbent policy makers in the so-called emerging market countries...reform of the world's financial architecture usually implies creation of a global lender of last resort with deeper pockets than the present IMF" (2).
"For purposes of this essay, the global financial architecture is an 'international regime,' designating a set of 'principles, norms, rules and procedures' in an international issue area...The international financial regime includes but is not limited to norms and institutions governing exchange rate practices, regulation of all private cross-border financial flows, and management of the 'international financial institutions'..." (2).
Four groups are identified that are interested in financial reform, but that are motivated by different drivers. These are the following: laissez faire liberalizer, transparency advocates, financial stabilizers and anti-globalizers (3). Detailed overviews of each of these groups is presented. The author argues, as noted earlier, that the financial stabilizers are those that should be listened to, but that this is unlikely to actually happen.
Ever since the latter third of the 1990s and the collapse of many economies in South East Asia, there have been many calls for finance reforms. "The purpose of this essay is to demystify some of the major reform proposals, and to understand which countries and interests back them. I suggest that the reforms proposed by a loose coalition of 'financial stabilizers' make the most sense on economy efficiency grounds, but that the bargaining structure of the issue area is such that the reforms most likely to be implemented are those of the 'transparency advocates'" (1).
How does one define "Financial Architecture"? "Not unexpectedly, the definition of the beast is elastic. To multinational bankers and institutional. investors, reforms of the financial architecture means consensual global implementation of best practice standards of accounting and reporting of national and corporate financial information in developing countries. To many members of the U.S. Congress, it means that the [IMF]... and World Bank should slim down and stop wasting taxpayers' money. To Japan and many Western European governments it means that the U.S. government should cease acting like a one-man band in responding to global financial crises. To finance ministers in very poor countries, as well as to many middle class activists in the advanced industrial democracies, global financial reform means debt forgiveness...And to incumbent policy makers in the so-called emerging market countries...reform of the world's financial architecture usually implies creation of a global lender of last resort with deeper pockets than the present IMF" (2).
"For purposes of this essay, the global financial architecture is an 'international regime,' designating a set of 'principles, norms, rules and procedures' in an international issue area...The international financial regime includes but is not limited to norms and institutions governing exchange rate practices, regulation of all private cross-border financial flows, and management of the 'international financial institutions'..." (2).
Four groups are identified that are interested in financial reform, but that are motivated by different drivers. These are the following: laissez faire liberalizer, transparency advocates, financial stabilizers and anti-globalizers (3). Detailed overviews of each of these groups is presented. The author argues, as noted earlier, that the financial stabilizers are those that should be listened to, but that this is unlikely to actually happen.
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