US government support for the world's biggest insurer, extra liquidity made available by the US, UK and European central banks to support national financial institutions, an exception on competition policy for Britain's new monster-size mortgage lender, the "transformation of the USA into the USSRA (United Socialist State Republic of America) ". What will financial regulation look like post credit crisis?
- Increased cooperation between national governments and national central banks. Different rules, for example regarding the provision of emergency funds to credit institutions, have encouraged banks to find arbitrage opportunities and essentially undermine governments' efforts to calm the markets. Streamlining of financial regulation across jurisdictions may be expected.
- Exceptions on free-market regulation for the sake of the national interest. The UK government's decision to allow HBOS and Lloyds to merge and take a 30% market share, thereby overriding long-standing rules on fair competition, might be the first in a series of exceptional political decisions to promote economic stability.
- A closer eye on banks? Interesting to hear from various sources that the era of 'liberal bank regulation' has now passed. The financial sector is, has been and will be one of the most heavily regulated economic sectors. Sometimes I think national regulators view banks as utility companies, channeling cash from investors to entrepreneurs and desiring home owners and being an indispensible element of our economic reality. National decision makers might change existing rules, but they're unlikely to make many more.
Sunday, 21 September 2008
Sunday, 17 February 2008
Entrepreneurship demonised
Political culture can be defined as a collection of values and opinions about politics and politicians - what the trade should be like and how participants ought to behave. Attitudes about the role of government are shaped at an early stage, hence Mao Zedong's obsession with educational policy and researchers' fascination with history text books.
A recent article in the FT sheds light on the teaching of economics in (Continental) Europe's secondary schools. According to the author, Stefan Theil, French and German school books cultivate socialist ideals at the expense of entrepreneural spirit, as companies feature as the source of all evil and the welfare state as the solution to the horrors of capitalism. Entrepreneurs are portrayed as "idle, cigar-smoking plutocrats" connected to "child labour, internet fraud, mobile phone addiction, alcoholism and redundancies", while "self-help groups and anti-reform protests" are the only way to achieve social innovation.
Theil's comment is interesting in the light of German and French governments' recent attempts to achieve economic reforms. Should Merkel and Sarkozy do away with the consultants and economists, and hire some market friendly teachers instead?
See also Theil's article in Foreign Policy.
A recent article in the FT sheds light on the teaching of economics in (Continental) Europe's secondary schools. According to the author, Stefan Theil, French and German school books cultivate socialist ideals at the expense of entrepreneural spirit, as companies feature as the source of all evil and the welfare state as the solution to the horrors of capitalism. Entrepreneurs are portrayed as "idle, cigar-smoking plutocrats" connected to "child labour, internet fraud, mobile phone addiction, alcoholism and redundancies", while "self-help groups and anti-reform protests" are the only way to achieve social innovation.
Theil's comment is interesting in the light of German and French governments' recent attempts to achieve economic reforms. Should Merkel and Sarkozy do away with the consultants and economists, and hire some market friendly teachers instead?
See also Theil's article in Foreign Policy.
Sunday, 6 January 2008
Microfinance direct
Forget about your high street branch, the future of banks is online. Why do borrowers and lenders need an intermediate institution if there is the Internet? It works for books, holiday homes and unwanted Christmas presents, so why not for credit, the founders of websites like Zopa and LendingClub must have thought.
The principle has also been adopted in the charity world. Microfinance, made popular by Nobel Price winner Muhammad Yunus and Dutch fund manager Marilou van Golstein Brouwers, has discovered online lending as a cheap and effective way to match small business owners in the developing world with individual investors. An intermediate organisation such as Kiva allows you to lend $325 to Thuli Maiya Lama in Nepal, who needs the money to buy seeds and fertilizer for her farm. Kiva's local partners take care of the loan servicing and collection, and if all is well you should have the money back in 12 months, repaid in monthly terms.
Some teething problems remain. The Dutch peer-to-peer lender Boober recently ran into trouble with the regulator because it did not have the relevant licences. There are still some transparency issues that surround most online microfinance initiatives: if the lender does not receive interest, who does? Who collects the loan installments and how? But give them a little more time, and online micro lenders may well become a more permanent feature of the philantropic landscape.
The principle has also been adopted in the charity world. Microfinance, made popular by Nobel Price winner Muhammad Yunus and Dutch fund manager Marilou van Golstein Brouwers, has discovered online lending as a cheap and effective way to match small business owners in the developing world with individual investors. An intermediate organisation such as Kiva allows you to lend $325 to Thuli Maiya Lama in Nepal, who needs the money to buy seeds and fertilizer for her farm. Kiva's local partners take care of the loan servicing and collection, and if all is well you should have the money back in 12 months, repaid in monthly terms.
Some teething problems remain. The Dutch peer-to-peer lender Boober recently ran into trouble with the regulator because it did not have the relevant licences. There are still some transparency issues that surround most online microfinance initiatives: if the lender does not receive interest, who does? Who collects the loan installments and how? But give them a little more time, and online micro lenders may well become a more permanent feature of the philantropic landscape.
Sunday, 9 December 2007
Risk takers in carbon
Not only environmental groups are watching the proceedings of the climate change summit on Bali this week. Carbon traders, hedge fund managers and project developers are equally impatient to hear news about the future of the Kyoto Protocol.
So far, the Kyoto Protocol runs up to 2012. Nations subscribing to the Protocol have committed to reducing green house gas emissions relative to 1990 levels. For some, this means an actual cut in total emissions; others, particularly the youngest members of the EU, are allowed a slight increase as not to hamper economic growth.
Kyoto allows for two trading mechanisms that allow countries or individual companies that are 'short' of carbon allowances to purchase 'carbon credits' on the market. The first of these mechanisms is allowance based, facilitating the trade of emission allowances allocated by the regulators between those who have too few and those who have too many. EU Allowances (EUAs) issued under the EU Emissions Trading Scheme (EU ETS) are the best example. A second mechanism is project based. Under the Joint Implementation Initiative (ex-Soviet states) and the Clean Development Mechanism (all others) organisations in developing countries can obtain 'carbon offsets' for every ton of green house gas that is taken out of the atmosphere. A project developer planting trees in Mali, or starting a wind farm in Colombia, can sell these offsets to Kyoto participants who need to comply with new regulations.
The emergence of these new markets, and the prospect of emissions restrictions also after the end of the first Kyoto phase in 2012, has attracted the attention of the financial world. Banks are busy hiring carbon traders and invest on their own account in JI and CDM projects, insurance companies are developing a new range of products to help companies insure against carbon-related risks, and carbon funds are mushrooming on the streets of Mayfair. They're all taking on a bit of the risks that companies needing to comply with new regulations face. But more importantly, they're investing heavily in a new economy whose future is far from guaranteed. If Kyoto does not survive post-2012, or regulations do not grow beyond their current, rather limited scope, they're bound to lose a lot of money.
So far, the Kyoto Protocol runs up to 2012. Nations subscribing to the Protocol have committed to reducing green house gas emissions relative to 1990 levels. For some, this means an actual cut in total emissions; others, particularly the youngest members of the EU, are allowed a slight increase as not to hamper economic growth.
Kyoto allows for two trading mechanisms that allow countries or individual companies that are 'short' of carbon allowances to purchase 'carbon credits' on the market. The first of these mechanisms is allowance based, facilitating the trade of emission allowances allocated by the regulators between those who have too few and those who have too many. EU Allowances (EUAs) issued under the EU Emissions Trading Scheme (EU ETS) are the best example. A second mechanism is project based. Under the Joint Implementation Initiative (ex-Soviet states) and the Clean Development Mechanism (all others) organisations in developing countries can obtain 'carbon offsets' for every ton of green house gas that is taken out of the atmosphere. A project developer planting trees in Mali, or starting a wind farm in Colombia, can sell these offsets to Kyoto participants who need to comply with new regulations.
The emergence of these new markets, and the prospect of emissions restrictions also after the end of the first Kyoto phase in 2012, has attracted the attention of the financial world. Banks are busy hiring carbon traders and invest on their own account in JI and CDM projects, insurance companies are developing a new range of products to help companies insure against carbon-related risks, and carbon funds are mushrooming on the streets of Mayfair. They're all taking on a bit of the risks that companies needing to comply with new regulations face. But more importantly, they're investing heavily in a new economy whose future is far from guaranteed. If Kyoto does not survive post-2012, or regulations do not grow beyond their current, rather limited scope, they're bound to lose a lot of money.
Sunday, 21 October 2007
Palin's New Europe
Michael Palin travels through the New Europe every Sunday eve on BBC1. We see him call on count Dracula's castle, visit places of communist remembrance, appear on Polish breakfast TV, and walk a fashion show in Budapest.
It's lonely-planet style; up to five countries in one hour leaves little space for anything off the beaten track. But Palin's programme does a great job in showing us what the new European countries are really like: places where communism is equally despised and loved nostalgically, where immigration to the West puts strain on economic growth at home, and where the latest trends are discussed over soy-milk lates in fashionable cafes.
Palin's visit to Lithuania can be viewed on youtube:
See also the 'Unofficial Fan Center' on blogspot.
It's lonely-planet style; up to five countries in one hour leaves little space for anything off the beaten track. But Palin's programme does a great job in showing us what the new European countries are really like: places where communism is equally despised and loved nostalgically, where immigration to the West puts strain on economic growth at home, and where the latest trends are discussed over soy-milk lates in fashionable cafes.
Palin's visit to Lithuania can be viewed on youtube:
See also the 'Unofficial Fan Center' on blogspot.
Saturday, 13 October 2007
Another take on asset-backed security
With the credit market in distress, and the market for asset-backed securities under public scrutiny, it might be interesting to note that a very different interpretation can be found in public policy.
Perhaps little more than a silly word game, but the concept of asset-backed security has arisen as one of the latest trends in social policy making. Ownership or even plain cash in the bank gives people a sense of responsibility and empowerment, so goes New Labour's philosophy, and it's therefore down to the government to help people acquire wealth. Gordon Brown made headlines with his baby bonds, and the Institute for Public Policy Research (ippr), a centre-left think tank based in London, decided to dedicate a research centre to study the concept.
Unfortunately not much help for the bankers in distress, who worry about their own security now assets prove worth little to nothing.
Perhaps little more than a silly word game, but the concept of asset-backed security has arisen as one of the latest trends in social policy making. Ownership or even plain cash in the bank gives people a sense of responsibility and empowerment, so goes New Labour's philosophy, and it's therefore down to the government to help people acquire wealth. Gordon Brown made headlines with his baby bonds, and the Institute for Public Policy Research (ippr), a centre-left think tank based in London, decided to dedicate a research centre to study the concept.
Unfortunately not much help for the bankers in distress, who worry about their own security now assets prove worth little to nothing.
Friday, 7 September 2007
The end of emerging markets?
Investors in emerging markets have not massively pulled out of this asset class during the credit squeeze, writes the Financial Times. Whereas in previous periods of uncertainty emerging markets were the first to take a hit, this summer they have been affected no more than others. What's more, investors are starting to differentiate: Russia's bonds and equities have suffered less than Venezuela's, where Hugo Chavez maintains fears of sudden government intervention.
Over the past decade, balance sheets of companies in developing countries have strengthened, and also public finances have become more reliable. This has led a handful of analysts to believe that the term "emerging markets" is no longer relevant, and that movements within this asset class should be studied by looking at individual countries, as is custom for the "developed markets". But only a real wave of market panic could test investors' appetite for risk. This summer's troubles suggest that developing economies might no longer have enough in common to be treated as simply parts of a whole.
Over the past decade, balance sheets of companies in developing countries have strengthened, and also public finances have become more reliable. This has led a handful of analysts to believe that the term "emerging markets" is no longer relevant, and that movements within this asset class should be studied by looking at individual countries, as is custom for the "developed markets". But only a real wave of market panic could test investors' appetite for risk. This summer's troubles suggest that developing economies might no longer have enough in common to be treated as simply parts of a whole.
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