Leestips - Zaterdagbijlage DDSFI 4 mei 2013

Op zaterdagen zal de redactie van DDSFI proberen u wekelijks een portie leesvoer voor het weekend te geven: tien artikelen die wij gaande de week selecteren uit de vloed van stukken de wij doornemen om onze analyses te onderbouwen en te kunnen doorgeven: onze Zaterdagbijlage. Soms zullen dit artikelen zijn over zaken die niet aan bod zijn gekomen, andere vertegenwoordigen een visie die niet de onze is, maar desalniettemin van belang om kennis van te nemen.

U vindt hier de titel (wat direct ook de link is), en de eerste alinea's.

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1. The debt to pleasure

This was Daniel McFadden’s memorable summation, in 2006, of the idea of Everyman held by economists. That this description is unlike any real person was Mr McFadden’s point. The Nobel prizewinning economist at the University of California, Berkeley, wryly termed homo economicus “a rare species”. In his latest paper* he outlines a “new science of pleasure”, in which he argues that economics should draw much more heavily on fields such as psychology, neuroscience and anthropology.

2. Desperately seeking 11.2 trillion collateral, or how modern money really works

Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability.

3. Here Are The 4 Big Ways That The Government Will Steal Money From Bondholders

Bill Gross's latest monthly letter is out, and the title is There Will Be Haircuts. Haircuts, of course, are a popular topic of discussion ever since Cyprus clipped the savings of large depositors in order to recap the banks.

In his latest letter, Bill Gross points argues that there's no way that governments will ever be able to reduce total debt to GDP unless they find creative ways to clip bondholders. He comes up with four main ways.

4.Big Banks’ Tall Tales
There are two competing narratives about recent financial-reform efforts and the dangers that very large banks now pose around the world. One narrative is wrong; the other is scary. 

At the center of the first narrative, preferred by financial-sector executives, is the view that all necessary reforms have already been adopted (or soon will be). Banks have less debt relative to their equity levels than they had in 2007. New rules limiting the scope of bank activities are in place in the United States, and soon will become law in the United Kingdom – and continental Europe could follow suit. Proponents of this view also claim that the megabanks are managing risk better than they did before the global financial crisis erupted in 2008.

5. Love the Bank, Hate the Banker

Public discourse is rarely nuanced. The public’s attention span is short, and subtleties tend to confuse. Better to take a clear, albeit incorrect, position, for at least the message gets through. The sharper and shriller it is, the more likely it is to capture the public’s attention, be repeated, and frame the terms of debate.Consider, for example, the debate about bank regulation. Bankers are widely reviled today. But banking is also mystifying. So any critic who has the intellectual heft to clear away the smokescreen that bankers have laid around their business, and can portray bankers as both incompetent and malevolent, finds a ready audience. The critic’s message – that banks need to be cut down to size – resonates widely.

Bankers can, of course, ignore their critics and the public, and use their money to lobby in the right quarters to maintain their privileges. But, every once in a while, a banker, tired of being portrayed as a rogue, lashes out. He (it is usually a man) warns the public that even the most moderate regulations placed on banks will bring about the end of civilization as we know it. And so the shrillness continues, with the public no wiser for it.

6.Self-defeating austerity shocks

Europe’s austerity-first approach has triggered research-based efforts to evaluate the effectiveness of debt-reduction strategies. This column, based on a US empirical study, suggests that an ‘austerity shock’ in a weak economy may be self-defeating. Public-debt reduction historically occurs gradually amid improved growth. If policymakers, firms and households respond as in the past, we should expect lower deficits amid higher growth and, eventually, decreasing debt ratios.

In many advanced countries, in the wake of the 2008 global financial crisis, deficits skyrocketed and public debt ballooned (see Figure 1). In fact, fiscal stimulus accounted for only a small fraction of the increase in debt, whereas collapsing revenues and higher unemployment and social benefits contributed the largest share (IMF 2011).

7. Will JPMorgan's "Enron" Be The End Of Blythe Masters?

One year after the infamous Jamie Dimon "tempest in a teapot" fiasco, which promptly turned out to be the biggest TBTF prop-trading desk debacle in history, things were going well for JPMorgan.

On one hand, the chairman of the TBAC (and thus US Treasury advisor and policy administrator), and former LTCM trader, Matt Zames, was just recently promoted to the sole second in command post at the biggest US bank (and 2nd biggest in the world) by assets, and first in line to take over from Jamie Dimon. On the other hand, one of Mary Jo White's former co-workers, and a JPM defense attorney from Debevoise just became head of the SEC's enforcement division, in theory guaranteeing that the US government would never do more than slap the wrist of JPM in perpetuity.

And then, when everything seemed like smooth sailing ahead, the Federal Energy Regulatory Commission (FERC) showed up on March 13, the day before Carl Levin's committee released its latest report on JPM's prop trading blunder, and according to the NYT, alleged that JPM in the past several years, quietly became nothing short than the next Enron.

8. Bubble, Bubble, Housing in Trouble

It appears that the Fed’s zero-interest-rate and QE policies have finally achieved its insane goal of re-igniting a housing bubble.

The Case-Schiller 20-City Index shows that housing prices increased by 1.2 percent in February and 9.3 percent year-over-year. All cities included in the index experienced substantial gains, which have been driven by staggeringly large increases in the bottom tier of the market. In Phoenix housing prices rose by 23 percent over the past year, but by 39 percent in the bottom third of the housing market. Las Vegas home prices were up by 17.6 percent in the past year while prices for houses in the bottom tier rose by 34.2 percent, and at an annual rate of 56.2 percent in the last three months. In Atlanta, bottom-tier home prices rose 36 percent year-over-year and at an annual rate of 70 percent in the past three months.

In light of the current data, Dean Baker, one of the few left-of-center economists to issue an early warning about the last housing bubble, sees signs of a renewed housing bubble on the horizon:

9. The mother of invention 

I thought I’d quickly highlight a point made recently by two great posts. First, here’s J.W. Mason:

Now, from the blog direct economic democracy:

It’s something of a cliché, starting with Marx and moving through Schumpeter, to gush over capitalist economies’ capacity to innovate, reinvent, and overthrow themselves. Profit-seeking entrepreneurs constantly strive to find new and/or cheaper ways to “serve customer needs”. In a capitalist economy, necessity surely is the mother of invention.

10. The Libertarian Case for Corporate Social Responsibility

The AEI, a centrist-establishment think tank, published a compelling policy study this week by Timothy P. Carney. The Case against Cronies: Libertarians Must Stand Up to Corporate Greed is a hard-hitting critique of crony capitalism that goes beyond merely recounting the ubiquitous and shameful instances of gigantic U.S corporations seeking and obtaining subsidies and monopoly privileges from Big Government at the expense of taxpayers, consumers and more efficient competitors. Indeed, Carney calls into question the conservative mantra as classically enunciated by Milton Friedman: ‘The social responsibility of business is to increase its profits.” Not so fast, Carney says. For what if investing in lobbying for a government subsidy or political barrier to entry is the best way for a corporation to increases its profits? Isn’t such behavior not only ethically dubious, but also inconsistent with the free market? While Carney does not formulate a libertarian standard of corporate responsibility to replace Friedman’s, he does make a powerful case that it should include explicit prohibitions against violating the principles of the free market. As Carney concludes:

De redactie wenst u - naast uw dagelijkse nieuwsvoorziening - veel leesplezier dit weekend.