The after-effects of the 2008 financial crisis are still being felt throughout the global economy. In order to help prevent a similar crisis from reoccurring, policymakers need to better understand finance’s continuing problems. Ahead of the publication of their new book, ‘From Hubris to Disgrace’, Mark Esposito and Terence Tse outline a framework to better understand the rise of finance through its mechanics, power relationships, economic rationale, politics, and philosophy.
Understanding how finance has moved from “Hubris to Disgrace” http://t.co/qx2tI3DUAj— Patrick Dunleavy (@PJDunleavy) January 30, 2015
Financial system that is more diverse, will be a financial system that is more stable.See my remarks today@LendItConf http://t.co/hT10VD76Oi— Lawrence H. Summers (@LHSummers) April 16, 2015
Brevan Howard financial research centre launches at Imperial, 23 September 2014
A new research hub set to help understand and prevent financial crises, was launched by the UK Chancellor, the Rt Hon George Osborne MP, at Imperial.
The Brevan Howard Centre for Financial Analysis at Imperial College Business School is funded by one of the largest gifts in business education history: £20.1 million from hedge fund Brevan Howard on behalf of its co-founder and Imperial alumnus Alan Howard (MEng Chemical Engineering & Chemical Technology 1986).
The Centre is led by two of the world’s most respected economists: Professor Franklin Allen, formerly of the Wharton School at the University of Pennsylvania, and Professor Douglas Gale, who came to Imperial from NYU...
With Chancellor George Osborne before launch of Brevan Howard Centre for financial analysis at Imperial pic.twitter.com/8rVoEiJzAD— Gerry George (@profgerrygeorge) September 23, 2014
"Fragile by Design bristles with insights about how conflicting private interests, intermediated through political institutions, have sometimes produced banking and social insurance arrangements that make financial crises much more likely than they should be."--Thomas Sargent, Nobel Laureate in Economics
"Fragile by Design explains why the U.S. banking crisis of 2007-2009 is no aberration, but only the latest episode of a populist bargain gone awry. This is a powerful entry in the debate on how to fix the postcrisis world."--Raghuram Rajan, author of Fault Lines
"A seminal political economy analysis of why banking varies so much across countries, with such profound consequences for economic development and social welfare. Not just fascinating and original, but also right."--James Robinson, author of Why Nations Fail
"A monumental intellectual and scholarly achievement that will shape thinking on finance and politics for decades to come. A book for the ages, whose insights are delivered in a lively, punchy, and nontechnical narrative."--Ross Levine, University of California, Berkeley
Why are banking systems unstable in so many countries--but not in others? The United States has had twelve systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households. Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries, Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents due to unforeseen circumstances. Rather, these fluctuations result from the complex bargains made between politicians, bankers, bank shareholders, depositors, debtors, and taxpayers. The well-being of banking systems depends on the abilities of political institutions to balance and limit how coalitions of these various groups influence government regulations.
Fragile by Design is a revealing exploration of the ways that politics inevitably intrudes into bank regulation. Charles Calomiris and Stephen Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why some endure while others are undermined, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues.
Regulators need to change their own behaviour towards banks if they want to change bank behaviour. Why and how: https://t.co/q3nATgYG9H— Robert Jenkins (@RobertJenkinsUK) August 5, 2014
Of carrots and sticks in the bank behaviour debate. http://t.co/NmqHUlGDch— Robert Jenkins (@RobertJenkinsUK) July 31, 2014
Bank bites the hand that feeds it (clients) then bites the hand that bails it out (BoE). Bonuses banked along the way http://t.co/PkLrRXECnh— Robert Jenkins (@RobertJenkinsUK) July 29, 2014
New York Federal Reserve steps up pressure on bank ethics, July 27, 2014, FT.com
NY Fed discovers that ethics and culture are crucial to sound bankng. Duh! Have they heard Lindberg made it? http://t.co/3pBZHlK9m5— Robert Jenkins (@RobertJenkinsUK) July 28, 2014
“The law is messy, and implementation is even messier,” said Anat Admati, a professor of finance and economics at Stanford.
not only US MT @BoringCorp Reading The Bankers New Clothes by Admati and Hellwig. Phenomenal. US banking system still isnt properly fixed.— Anat Admati (@anatadmati) July 23, 2014
Seeing through "the banker's new clothes": Anat Admati at TEDxStanford http://t.co/o6H699fnBw— Jack Ewing (@JackEwingNYT) July 18, 2014
ICYMI: OBAMA: BANK SYSTEM STILL IN NEED OF REFORMS http://t.co/GFixe16vkj— Anat Admati (@anatadmati) July 23, 2014
June 2, 2014
Around 60 University of Oxford academics have used an open letter to demand the institution stops investing in fossil fuel companies.
Among the 64 signatories so far are Lord May of Oxford, former chief scientific adviser to the UK government and Gordon Clark, current director of the Oxford Smith School of Enterprise and the Environment.
Henry Shue, professor of politics and international relations at Oxford, and one of the letter’s signatories, said: “We at Oxford like to claim the mantle of intellectual leadership…here is our opportunity to display genuine leadership when it counts.”
“We know about housing bubbles. Now we have a carbon bubble, a bubble of unreal value. It is too risky to own shares in this bubble..."
In an open letter to the university’s vice chancellor, the academics urge the world-renowned institution to join the fight to stop climate change by "ridding its £3.8 billion endowment of investments in fossil fuel companies".
The letter says that Oxford has a “responsibility to show leadership in tackling one of the greatest challenges we as a society currently face”.
The Intergovernmental Panel on Climate Change’s (IPCC) recent report concluded that carbon-intensive energy production was the single biggest contributor to global warming.
Energy companies continue to search for new fossil fuels reserves, despite warnings from the IPCC that 80% of the reserves such companies have already claimed must never be used if dangerous climate tipping points are to be avoided.
Recent analysis by the thinktank Carbon Tracker warned that as much as $1.1 trillion (£650 billion) of investors’ money is currently at risk as a result of this.
1. HEC Paris
2. Essec Business School
3. IE Business School
The Twitterverse, to misquote Monty Python’s Galaxy Song, keeps on expanding and expanding. Here is a FAR from comprehensive list of the best financially focused accounts to follow.
Adam Posen (@AdamPosen)
President of the Peterson Institute for International Economics and former member of Bank of England Monetary Policy Committee. Advises central banks and governments and “proclaims” on economic policy.
Chief executive officers and directors should make a New Year’s resolution to stop providing earnings guidance, abandoning the practice forever. If they don’t, regulators should resolve to do it for them. Regulators should repeal the safe harbor provision of the Private Securities Litigation Reform Act, which has enabled executives to provide guidance without fear of being sued.
It is possible. On Jan. 1, 2009, Paul Polman took over as CEO of Unilever (UNA), then the 60th-largest market-capitalization company in the world, valued at over $100 billion. Polman immediately told the capital markets that Unilever would no longer offer earnings guidance...
"[A] masterpiece". (Martin Wolf Financial Times )
"[E]ssential reading . . . both for its originality and for the sobering patterns of financial behaviour it reveals."--Economist
"[A] terrific book."--Andrew Ross Sorkin, New York Times
"[T]he most comprehensive study of financial crises and their aftermath . . ."--Eduardo Porter, New York Times
"Everyone working on economic policy should own This Time is Different and open it for a bracing blast of sobriety when things seem to be going well."--Greg Ip, Washington Post
Video uploaded on Oct 19, 2012. Sir Ronald Cohen, chairman of Big Society Capital, speaks with McKinsey's Ian Davis about the opportunities and challenges of financing social investments and the parallels he sees between these activities and the rise of the venture-capital industry.
A cofounder and former chairman of Apax Partners, Sir Ronald Cohen pioneered the British venture-capital industry. Over the past decade, he has also stood at the vanguard of social investing. When Britain established its first social-investment bank, Big Society Capital, in 2011, Sir Ronald was named its chairman. In a conversation with Ian Davis, McKinsey’s former managing director and a board member of the bank, he describes the opportunities and challenges of financing social investments and the parallels he sees between these activities and the rise of the venture-capital industry.
Click here to learn more about Big Society Capital: www.bigsocietycapital.com/
The Other Side blog, "A special marriage", October 22, 2012
Before Professor of Strategic Management Caterina Moscheri gives an address on corporate governance at a conference being held at Judge Business School in Cambridge, we have agreed to shoot this video about a “Special Marriage”.
8 a.m. We don’t have much time before she is due to speak, but on the plus side we are very pleasantly surprised to find that despite a horrendous weather forecast, the sky is blue and the sun is shining. So England 1, rest of the World 0. As Shakespeare said, “Something is rotten in the state of Denmark”.
this video Professor Moscheri talks about one of the subjects of her
research, (cross-border) Mergers and Acquisitions (M&As) (in Europe in the decade before the economic crisis), and takes us to a rugby
pitch, King’s College…
By the time we finish, the sky is gray and threatening rain. So now it’s England 1, rest of the world 1.
Finita la Comedia!!!
Professor Moscheri is fluent in several European languages, and runs almost every day.
P.S. Did you know that Pink Floyd is a Cambridge Band? Also she recommended an excellent film, “Moneyball”. You should try it!!!
(Reuters) - At a time of high-frequency robotic trading, market volatility and elephantine economic uncertainty, joining forces with your family and neighbors for an investment club might sound like a sucker's game.
There's a great deal of learning that happens in a social setting that you may not be able to do by yourself or by browsing online.
PwC Advisory @PwCAdvisory , 15 July, 2012
Like many other parts of companies, finance organizations haven’t been spared recent belt-tightening. They’ve been trimmed down and streamlined, and in many cases, are shadows of their former selves. Doing more with less has become a new mantra. Yet whatever the size of their teams, the onus is on CFOs today to leverage every part of the finance organization to deliver value beyond traditional transaction processing and control.
PwC and faculty at Wharton share insight on how top finance organizations can rise to the challenge.
...If the core of an MBA programme itself has a core, then it is the finance and strategy courses. Nothing could be more fundamental; they are the building blocks on which nearly all other business knowledge is built. Interesting, then, that a new survey of applicants, current students and recent graduates, conducted by Which MBA?, suggests that it is in these subjects that business schools are failing...
But what if firms could raise money from anyone? Fred Wilson, a prominent venture capitalist, calculates that if Americans used just 1% of their investable assets to crowdfund business they would release a $300 billion surge of capital. But will regulators, who worry about Joe Sixpack being ripped off by unscrupulous fund-raisers, allow the crowd in? The Securities and Exchange Commission (SEC) is trying to come up with rules to implement the (American) JOBS Act. Some fear that it will impose onerous requirements on firms raising equity from the crowd.
(Post-experience is ranking of four business schools)
Press release European Commission. 15/06/2012
On the occasion of the fourth meeting of the European SME envoys held in Malta today, European Commission Vice President Antonio Tajani announced a series of new initiatives and planned actions to improve access of SMEs to finance, to boost entrepreneurship and to go international. To facilitate access to finance, the European Commission published today a practical guide providing information on how to access over €50 billion of public finance in the 27 Member States. Secondly the Commission launched a European wide training campaign for the Enterprise Europe Network to help SMEs get access to finance. SMEs can contact one of 600 Enterprise Europe Network partners, who will be able to provide information on EU and national sources of finance. Vice President Tajani will also discuss with the SME envoys possible elements for an entrepreneurship action plan which Mr Tajani aims to table after the summer break to encourage the creation of new businesses and jobs. The plan intends to address obstacles, which hinder would-be entrepreneurs to set up their own business. It will also include measures to make the option of becoming his or her own boss a more widespread option.
European Commission Vice President Antonio Tajani, responsible for enterprise and industry policies, said today: "If we want to stimulate growth in Europe, it is from our SMEs that we must start. Entrepreneurial potential in Europe is not fully exploited: 45% of all Europeans would like to become their own boss if they could, but only an average of 10% are actually self-employed today..."
European startups get a shot in the arm this week with the launch of Silicon Valley Bank in London today. Known for its understanding of the tech space, SVB will target the technology and life science sectors.
It will make loans of between £300,000 and £30 million to tech companies looking to expand. Shazam and The Foundry are already UK clients.
In the U.S., where it has made $7 billion in loans, clients include Cisco Systems, Mozilla and Pinterest. It also acts as a bank for investors including NEA, Sequoia Capital and Silver Lake. In the UK the bank is working with Index Ventures and Balderton Capital among others.
The problem with existing retail banks is that they rarely serve smaller tech companies which are unlikely to have three years worth of accounts yet, or any sales when they start up. SVB aims to bridge that gap...
U.S. Senator Mark R. Warner (D-Va.) and three colleagues today introduced bipartisan legislation, Startup Act 2.0, to help jumpstart the economy through the creation and growth of new businesses and jobs. It is based upon research showing that for close to three decades, companies less than five years old have created almost all of the net new jobs in America, averaging about three-million new jobs each year...
WASHINGTON, D.C. (May 22, 2012) – Four U.S. Senators today introduced Startup Act 2.0 – bipartisan legislation designed to jumpstart the economy through the creation and growth of new businesses. Startup Act 2.0 builds upon the original Startup Act, introduced by Senators Jerry Moran (R-Kan.) and Mark Warner (D-Va.) in December 2011, and the AGREE Act, introduced by Marco Rubio (R-Fla.) and Chris Coons (D-Del.), in November 2011.
Startup Act 2.0 creates new opportunities for American-educated and entrepreneurial immigrants to remain in the United States where their talent and ideas can fuel economic growth and create American jobs. The bill also alleviates regulatory burdens that make it more difficult for businesses to expand and create jobs. Finally, Startup Act 2.0 makes changes to the tax code to encourage investment in startup companies...
An £82m loan scheme for young people wanting to create a business has been launched by David Cameron.
People aged between 18 and 24 can apply for funds, expected to typically be about £2,500.
Mr Cameron said he hoped the initiative could lead to 30,000 more start-ups and give a boost to economic growth.
The loans must be repaid within five years, and interest will be charged at the level of the Retail Prices Index plus 3%...www.startupbritain.org/loans, On 28 May 2012, StartUp Britain worked with the Department for Business to put on an event to launch StartUp Loans!...
What is out there?’ is a call for participants from all over the world to submit a video and participate in a competition on how to finance entrepreneurs through non-conventional ways.
Tell us about it and win a: FREE trip to Madrid and €2000
SCIEF Center, with the collaboration of IE Business School and King AbdulAziz University, invite you to share your innovative ideas that could shape how the world finance systems emerge. All you have to do is make a short video (3 mins max) that showcases examples of social impact finance from your community and around the world. We ask you to be creative; use videos, photos, drawings, or whichever visual medium you like in order to transmit your ideas.
VIEWPOINT: Professor Ignacio de la Torre – Academic Director, Master in Finance Programs (blog), IE Business School.
Professor Ignacio de la Torre is bullish with optimism in spite of - even because of - the latest financial crises: “This provides us with a world of once-in-a-lifetime opportunities,” he says.
Speaking before a talk entitled Financial History: What Can We Learn from Our Mistakes? – the Director of IE’s Master in Finance Programs outlined the less well-documented ‘glass-half-full’ view of the on-going global financial turbulence.
Financial crises give rise to positive change: “Look at the US - in the 6 years after the banking crisis of the early 1980s the US economy went from being made up of 20% markets and 80% banks – to vice versa.” That was a big, positive change in just six years – brought about by a financial crash. “I’m optimistic about Europe today because countries will finally take on reforms they haven’t looked at in 60 years.”
A big opportunity for positive change for de la Torre is the chance to educate a new generation of socially responsible financiers – something that, in his role at IE Business School, he feels both duty-bound and well-positioned to do. Deciding what and what-not to teach young, soon-to-be influential financiers is a big responsibility and one of the big decisions he has made at IE is to take certain ‘long-term view’ modules – and make them compulsory for every finance student...
Previously on DeansTalk, 05 September 2011, Professor Robert J. Shiller of Economics at Yale - Reuters TV: "new" "bigger" "balanced budget stimulus"
Finance has a reputation problem; it is perceived by some as a bad actor behind the mortgage and debt crises in the United States and Europe, economic inequality, and market manipulations. In his new book Finance and the Good Society (Princeton University Press, April 4, 2012), Robert J. Shiller, the Arthur M. Okun Professor of Economics, argues that finance shouldn't be condemned, but used as a force to achieve the greater goals of society....
Read excerpts from Finance and the Good Society in a four-part series published by Bloomberg:
Part I: Walt Whitman, First Artist of Finance
Part 2: Finance Isn't as Amoral as it Seems
Part 3: Don't Resent the Rich; Fix the Tax Code
Part 4: Logic of Finance Can Banish Corruption
Princeton University, Archived Lectures.
October 14, 2010
Robert J. Shiller, Professor of Economics, Yale University: "Finance and the Good Society" (69 mins 15)
Stanford Finance Expert: Federal Interpretation of Volcker Rule Would Lead to Constraints on U.S. Economic Growth and Recovery
Finance professor Darrell Duffie of the Stanford Graduate School of Business proposes alternative capital requirements for banks to eliminate potential unintended consequences of financial reform.
uValue (uValue Mobile, iOS 4.0+, Jan 20, 2012) is a corporate valuation app for the iPad (now also available in its fully functional form for the iPhone and iPod Touch). The app helps you value businesses using conceptually rigorous, yet practical, widely-used tools. You can value firms using the ‘weighted average cost of capital’ (WACC, or 'cost of capital') approach, the ‘adjusted present value’ (APV) approach, the ‘dividend growth model’ (DGM), or real option valuation (ROV) techniques. The app also includes a set of handy calculators to value bonds, annuities and perpetuities, as well as to calculate the cost of capital, to forecast exchange rates, to lever/unlever betas, and so forth.
Aswath Damodaran is a professor of Finance at the Stern School of Business, New York University.
Anant Sundaram is a professor of Finance at the Tuck School of Business at Dartmouth.
Via the (US) National Bureau of Economic Research (13 January 2012)
Mutual fund managers can outperform the market by picking stocks or timing the market successfully. Previous work has estimated picking and timing skill, assuming that each manager is endowed with a fixed amount of each and found some evidence of picking skills and little evidence of timing skills among successful managers. This paper estimates skill separately in booms and recessions and finds that the extent to which managers focus on stock picking or market timing fluctuates with the state of the economy. Stock picking is more prevalent in booms, while market timing dominates in recessions. We use this finding to develop a new methodology for detecting managerial skill. The results suggest that some but not all managers have skill. We describe the characteristics of the skilled managers and show that skilled managers significantly outperform the market.
An enormous literature asks whether investment managers add value for their clients and if so, how...
Financial models create a false sense of security, September 5, 2011
....Given the tremendous changes in financial systems, these theories must be scrutinised and then abandoned as models for the future. As business schools and institutions continue to preach these principles, they perpetuate a fundamentally flawed system of thinking. Now more than ever, it is as important to teach the flaws as it is to teach the basis that presents them.
Didier Cossin is professor of finance and governance at IMD, director of the IMD Global Board Center and programme director for High Performance Boards
The current limitations of the job market means that business schools need to embrace a wider audience
Western business schools can play an important role in helping to bring a more accountable, professional and responsible business culture to the region
While freedom of teaching and research must be defended, bridges for mutual transfers of knowledge and best practices have to be built
Business schools must look at their actions not through the lens of their knowledge, but through that of the student experience
French schools can no longer rest on their laurels: if the ‘grandes écoles’ system is to survive and thrive it must adapt and make a virtue of its size
In an ever more shifting world, having a baseline of values and beliefs will be crucial
Francis E. Warnock, Adjunct Senior Fellow for International Finance
Paul M. Hammaker associate professor of business administration at the Darden Business School, University of Virginia. Former senior economist at the Board of Governors of the Federal Reserve System. Author of the Center for Geoeconomics reports How Dangerous Is U.S. Government Debt?, Two Myths About the U.S. Dollar, and Doubts About Capital Controls.
The writer is chairman of Roubini Global Economics, professor at the Stern School, NYU and co-author of Crisis Economics.
Economics team at Goldman Sachs now say: "We now see a one-in-three risk of renewed recession".
...In the meantime, US politicians might have done just about enough to convince debt markets that America’s credit is still good. For that, Americans – and others around the world – should stop pillorying them and give them their due credit.
Raghuram Rajan, a former chief economist of the IMF, is Professor of Finance at the University of Chicago’s Booth School of Business and author of Fault Lines: How Hidden Fractures Still Threaten the World Economy, the Financial Times Business Book of the Year.
...None of the current policy stances in the United States, Japan, or Europe is sustainable...
Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management, a position he has held since 2004.
Economic Counsellor and Director, Research Department, IMF (March 2007-August 2008)
Simon Johnson was Economic Counsellor and Director of the Research Department (Chief Economist) at the IMF from March 2007-August 2008. Mr. Johnson was on leave from the Sloan School of Management at MIT, where he was the Ronald A. Kurtz Professor of Entrepreneurship. Mr. Johnson is an expert on the financial sector and economic crises. Over the past 20 years he has worked on crisis prevention and mitigation, as well as economic growth issues in advanced, emerging market, and developing countries. His work focuses on how policymakers can limit the impact of negative shocks and manage the risks faced by their countries. His PhD is in economics from MIT, while his MA is from the University of Manchester and his BA is from the University of Oxford.
...if, for any reason, a country does end up in the danger zone, only two responses make economic sense. Either officials recognize immediately the inevitability of default and waste no resources trying to prevent it, or they believe that a default can be avoided and deploy all the resources at their disposal as fast as possible. As in many wars, a staged escalation in a financial crisis often leads to the worst possible outcome: a defeat with large losses....
Luigi Zingales is Professor of Entrepreneurship and Finance at University of Chicago Graduate School of Business and co-author, with Raghuram G. Rajan, of Saving Capitalism from the Capitalists (www.savingcapitalism.com).
The man who started the private equity industry 40 years ago, is plotting to harness entrepreneurship to act as an agent for social change.
...has been back to Harvard and a clutch of other top universities to tell the students about the next big thing in the business world – social finance...
"We want to do the same thing for social entrepreneurship. We want to connect the capital markets to the social sector.
"I think it is going to be similarly powerful because the impact of the recent crisis on peoples consciousness has emphasised the importance of dealing with the social consequences of the [capitalist] system."
Sir Ronald is fervent in his belief that this is more than just the latest business fad, but a crunch-point moment for the entire Western market-based system.
"It is not enough to increase the standard of living at the high end. It is right at the same time to worry about those who are left behind," he says.
"I think societies everywhere will come to the conclusion that an important part of the capitalist system is having a powerful social sector to address social issues, because government doesn't have the resources."
Global foreign direct investment (FDI) has not yet bounced back to pre-crisis levels, though some regions show better recovery than others. The reason is not financing constraints, but perceived risks and regulatory uncertainty in a fragile world economy.
The World Investment Report 2011 (PDF, 251 pages) forecasts that, barring any economic shocks, FDI flows will recover to pre-crisis levels over the next two years. The challenge for the development community is to make this anticipated investment have greater impact on our efforts to achieve the Millennium Development Goals.
In 2010 – for the first time – developing economies absorbed close to half of global FDI inflows. They also generated record levels of FDI outflows, much of it directed to other countries in the South. This further demonstrates the growing importance of developing economies to the world economy, and of South-South cooperation and investment for sustainable development.
Increasingly, transnational corporations are engaging with developing and transition economies through a broadening array of production and investment models, such as contract manufacturing and farming, service outsourcing, franchising and licensing. These relatively new phenomena present opportunities for developing and transition economies to deepen their integration into the rapidly evolving global economy, to strengthen the potential of their home-grown productive capacity, and to improve their international competitiveness.
Unlocking the full potential of these new developments will depend on wise policymaking and institution building by governments and international organizations. Entrepreneurs and businesses in developing and transition economies need frameworks in which they can benefit fully from integrated international production and trade. I commend this report, with its wealth of research and analysis, to policymakers and businesses pursuing development success in a fast-changing world.
Secretary-General of the United Nations
Globalization TrendLab 2011: "Global Risk: New Perspectives and Opportunities, (PDF, 42 pages)" April 7-8, 2011.
Page 37 and 38 have a list of the more than 30 scholars and policymakers from around the world who gathered in Philadelphia for a two-day conference.
The financial and economic crisis has heightened everyone’s awareness of systemic risk. Confidence in the ability of decision-makers, policymakers and institutions to handle such risks has been shattered. Psychology, a culture of destructive self-interest, and social processes have also been invoked as part of a complex set of conditions that led to the debacle. In turn, the crisis has accelerated some prevailing demographic, economic, and social trends, including population aging, political tensions, geopolitical instability and environmental degradation, as the focus of attention has unavoidably shifted towards short-term, immediate concerns. The crisis has placed the issue of systemic risk at the top of the global agenda, forcing analysts and policymakers to make a stark distinction between what is important and what is actually urgent.
In this white paper we provide an overview of the causes, consequences, and potential solutions to the problem of risk, focusing on economic and financial aspects, while also paying attention to political, social and environmental risks associated with the crisis and its aftermath. The analysis represents the outcome of a collective, multi-disciplinary effort at understanding risk by a group of more than 30 scholars and policymakers from around the world who gathered in Philadelphia for a two-day conference.
The analysis begins with the conventional explanations of the crisis, further adding political considerations, institutional constraints, psychology, and social processes. This prepares the stage for the assessment of the effectiveness of policy interventions during the crisis which, while averting a massive meltdown, generated a number of additional problems, both short-term and long-term. Failures in global governance and in understanding complex ripple effects are also explored. Risks building up in emerging economies—from financial to political and demographic—are presented as a stark reminder that global instability is punctuated by a growing number of troubled hot spots.
The conference participants identified four action items. First, global governance needs to be enhanced, a task that is not easy as a changing of the guard takes place due to the ascendancy of the emerging economies. Second, regulation must both set parameters for self-regulation and establish a set of cushions, bells and whistles to ameliorate the possibility of further systemic crises. Third, policymakers and scholars ought to adopt a more humble attitude in terms of the extent to which they are able to understand and overcome the complexities posed by crises. And fourth, as people adopt shorter time horizons due to incentives, demographics, politics, and cognitive biases, it is important to remain on the alert for the weaknesses and faults in the global economic, political, and social architecture.
Post of IE Economy Blog, 21 July, 2011.
As the deadline approaches for the US Congress to either raise the debt ceiling or enter into technical default on the huge US public debt, what appears to characterize the debate is a lack of concern for what will happen if the deadline is missed.
Republicans, determined not to raise taxes, refuse to approve any compromise that would violate that objective. Democrats, reluctant to make deep reforms to social programs, want most adjustments to happen on the revenues side. The deadlock has held firm even under the time pressure of looming nonpayment on the debt.
Post of his blog Musing on Markets, July 14, 2011.
The talk of default is all around us, as we watch Greece and Italy struggle with impending disaster and the fight over debt limits in the United States fills the airwaves. But what is default? What are the consequences? And given a choice, when is default the best option?...
...But the development that has taken most business schools by surprise is the strength with which banks and financial service firms have returned to the hiring trough...