billy blog » Blog Archive » Naked Keynesianism: "Naked Keynesianism"
There's the beginning of a good discussion in the commentary to this blog. How much of the institutions surrounding government spending are necessary to keep the political and economic machinery running smoothly? And, more to the point, how can we start to change the level of discourse so that we can move the debate on to better ground i.e. MMT.
Tuesday, May 18, 2010
Tuesday, May 11, 2010
Friday, May 7, 2010
SSRN-The Shanxi Banks by Randall Morck, Fan Yang
Here's a little piece of insight into Chinese history.
SSRN-The Shanxi Banks by Randall Morck, Fan Yang: "The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance. Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers."
SSRN-The Shanxi Banks by Randall Morck, Fan Yang: "The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance. Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers."
Thursday, January 14, 2010
Just as sad - Cochrane
http://www.newyorker.com/online/blogs/johncassidy/2010/01/interview-with-john-cochrane.html
Sad
http://www.newyorker.com/online/blogs/johncassidy/2010/01/interview-with-eugene-fama.html
This interview is so sad. What is Fama trying to say?
This interview is so sad. What is Fama trying to say?
Tuesday, December 15, 2009
Japanese consumer deflation
I will scream if I see again the comment that Japanese deflation tends to make consumers defer purchases. This is ridiculous. If an economy has 2% deflation a year then a good that costs 100 will cost 98 after a year. Who'd defer the purchase for this saving? The convenience of the good is surely worth at least this much! And how many people put off buying computers because they'd be at least 20% more cost-effective if they waited a year? After an initial lag the steady state emerges.
People who make this statement on deferring consumption have mislearned the lesson from bouts of 10%-20% deflation. When deflation is at these levels then people may defer purchases, but on the other hand the deflation is most probably caused by people deferring purchases.
People who make this statement on deferring consumption have mislearned the lesson from bouts of 10%-20% deflation. When deflation is at these levels then people may defer purchases, but on the other hand the deflation is most probably caused by people deferring purchases.
Thursday, November 12, 2009
The danger of indexes
http://online.wsj.com/article/SB10001424052748704576204574529722299099570.html#articleTabs%3Dcomments
HEARD ON THE STREET
NOVEMBER 11, 2009, 1:30 P.M. ET
Contingent Capital's Tricky Path
By RICHARD BARLEY
Contingent convertibles may become a key part of the future bank-capital landscape, but their path to widespread acceptance is unlikely to be smooth. The nascent instruments this week suffered a setback in an arcane yet critical row over their inclusion in bond indexes used by investors around the globe. The outcome could be reduced investor appetite for the bonds.
Lloyds Banking Group is currently offering to exchange as much as £7 billion ($12 billion) of contingent convertibles for existing subordinated debt as part of a bigger £21 billion capital raising to free itself from the U.K. government's toxic-asset insurance plan. The notes have a fixed maturity but will convert into equity if Lloyds's core Tier 1 capital ratio falls to less than 5%.
Many bond investors, the traditional buyers of bank hybrid capital, don't want these bonds included in bond indexes because they are prohibited from owning equity. Bank of America Merrill Lynch, which compiles some of the most widely watched bond indexes, initially agreed, then changed its mind only to change it back again after the Association of British Insurers complained that investors might be forced to buy the notes because of their inclusion, but then be forced to sell upon conversion at a time of market stress. That is a brave but welcome decision. Barclays Capital also isn't including the notes in its corporate-bond indexes; iBoxx is making its mind up about them.
Lloyds's deal may work, as it is making investors an offer that is difficult to refuse--unexchanged bonds are set to have payments blocked by the European Commission as a condition of state aid. But the bond debate is a blow for any hope that contingent convertibles are the solution to banks' capital woes. It also underlines the limitations of the structure: While undoubtedly an improvement on traditional hybrid bonds, their success depends on a similar ambiguity over where they sit in the capital structure between debt and equity. That makes them an unlikely silver bullet.
Write to Richard Barley at richard.barley@dowjones.com
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
My Comment
What a sad commentary this is on the investment management industry, and a classic example of the tail wagging the dog. In deciding whether something is a good investment for the medium to long-term, there should be no consideration of whether it is in an index or not. That index inclusion is a major stumbling block shows how many of the fund managers, despite their high fees, have abrogated the most basic role of an investment manager.
HEARD ON THE STREET
NOVEMBER 11, 2009, 1:30 P.M. ET
Contingent Capital's Tricky Path
By RICHARD BARLEY
Contingent convertibles may become a key part of the future bank-capital landscape, but their path to widespread acceptance is unlikely to be smooth. The nascent instruments this week suffered a setback in an arcane yet critical row over their inclusion in bond indexes used by investors around the globe. The outcome could be reduced investor appetite for the bonds.
Lloyds Banking Group is currently offering to exchange as much as £7 billion ($12 billion) of contingent convertibles for existing subordinated debt as part of a bigger £21 billion capital raising to free itself from the U.K. government's toxic-asset insurance plan. The notes have a fixed maturity but will convert into equity if Lloyds's core Tier 1 capital ratio falls to less than 5%.
Many bond investors, the traditional buyers of bank hybrid capital, don't want these bonds included in bond indexes because they are prohibited from owning equity. Bank of America Merrill Lynch, which compiles some of the most widely watched bond indexes, initially agreed, then changed its mind only to change it back again after the Association of British Insurers complained that investors might be forced to buy the notes because of their inclusion, but then be forced to sell upon conversion at a time of market stress. That is a brave but welcome decision. Barclays Capital also isn't including the notes in its corporate-bond indexes; iBoxx is making its mind up about them.
Lloyds's deal may work, as it is making investors an offer that is difficult to refuse--unexchanged bonds are set to have payments blocked by the European Commission as a condition of state aid. But the bond debate is a blow for any hope that contingent convertibles are the solution to banks' capital woes. It also underlines the limitations of the structure: While undoubtedly an improvement on traditional hybrid bonds, their success depends on a similar ambiguity over where they sit in the capital structure between debt and equity. That makes them an unlikely silver bullet.
Write to Richard Barley at richard.barley@dowjones.com
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
My Comment
What a sad commentary this is on the investment management industry, and a classic example of the tail wagging the dog. In deciding whether something is a good investment for the medium to long-term, there should be no consideration of whether it is in an index or not. That index inclusion is a major stumbling block shows how many of the fund managers, despite their high fees, have abrogated the most basic role of an investment manager.
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