1. Opponents of capitalism tell you that the market system promotes greed. selfishness and rapacious behaviour by firms. Proponents say no: its the opposite as firms have to understand what consumers want. A view from Tim Harford's great book Fifty Things that Made the Modern Economy"
http://amzn.eu/aWaeGcn. about the founder of Selfridges, Mr. Selfridge
"He saw that female customers offered
profitable opportunities that other retailers were bungling, and made a point
of trying to understand what they wanted. One of his quietly revolutionary
moves: Selfridge’s featured a ladies’ lavatory. Strange as it may sound to
modern ears, this was a facility London’s shopkeepers had hitherto neglected to
provide. Selfridge saw, as other men apparently had not, that women might want
to stay in town all day, without having to use an insalubrious public
convenience or retreat to a respectable hotel for tea whenever they wanted to
relieve themselves. "
File as well under innovation.
3. Do our banks still need fixing? yes they very much do says Martin Sandbu.
Some points
"
A rather worrying consensus emerged in a recent conference
held by the Centre for Economic Policy Research, in which top names from the
economics profession (their presentation materials are available on the conference web page) assessed the state of the financial
system 10 years after the crisis.
The consensus was that we still fall far short
from what would be a safe financial system."
For as John Vickers pointed out, “the general . . . opinion among
economists outside the financial sector is that banks should be required to
have at least twice as much equity capital . . . as the prevailing
regulatory settlement”, but “regulators, not just banks, [think] that reform
since 2008 has got us to about the right place”.
Martin Wolf sums up the economists’ consensus in a recent
op-ed, where he advocates equity requirements four to five times higher
than today’s rules.
..... Vickers has strongly criticised the Bank of England for its judgment that the
required push for more equity funding in banks is largely completed. (To be
fair, the BoE is also adding requirements for non-equity funding that can be “bailed in”
to bear losses in a crisis.) Across the Atlantic, the US Treasury has plans
under way to weaken rather than strengthen capital requirements — plans
that, in William Cline’s analysis, could cost the US economy $2.7tn
in increased risks over 10 years
Vickers and Tucker are critical of equity measures (something for intangible reserachers to bear in mind)
Second, the way it [equity] is constructed means the inherent
instability of measured bank equity is unstable in just the wrong way. Paul
Tucker, the former BoE deputy governor, has explained this in a rather chilling, if technical, speech. Before the crisis, he says,
“‘common equity’ was measured without adjustments for items recorded by
accountants as assets but which don’t — can’t — help in a crisis”, such as
“goodwill” (the assumed extra value acquired when assets are taken over for
more than their prior accounting value) or future tax credits.
That means improvements in regulations made to sound
impressive — Vickers highlights BoE governor Mark Carney’s point that equity
requirements are 10 times higher than before the crisis — are true only because
of how absurdly low the requirements were then.
Here's a key calculation:
In Tucker’s calculation, “when
tangible common equity is measured in a way that is more fit for purpose, the
minimum risk-asset ratio requirement was about 1 per cent” and even less when
not discounting supposedly safe assets with low risk-weights (which has its own problems). Consequently, the ability of banks
today to have assets 25-30 times as large as the equity intended to absorb
losses on them is only 10 times stricter than before the crisis because they
could then get away with gearing up their own (their shareholders’) money by
three-digit multiples. Vickers is surely right that “10 times better than
hopelessly lax is not a useful measure”.
4. Related, here is Catherine Mann on how the wrong type of lending distorts growth.
Catherine L. Mann (OECD) Slides
