Author Archives: Lily Fleur

UK to Make Market Manipulation a Criminal Offense

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Bloomberg notes: Amid a spate of scandals over the rigging of financial benchmarks ranging from commodities to currencies to interest rates, the U.K. government is making a bold move toward restoring confidence: By the end of this year, it plans to make manipulation a criminal offense in all the affected markets.

The U.K.’s plan — aimed at maintaining London’s role as a major financial center — raises some questions. Can’t investors look out for themselves? Wouldn’t tweaking the way markets are designed, combined with the risk of damage to reputation, suffice to keep traders in line? No and no.

“Buyer beware” doesn’t apply. These markets aren’t casinos, where people can choose whether to play. Trade in money and commodities is central to the functioning of the global economy. The prices set in these markets affect what people pay for everything from gasoline to mortgages. If insiders manipulate them for personal gain, they do so at the expense of millions of ordinary consumers.

And reputation, by itself, isn’t enough of an incentive to keep traders honest. The profits from manipulation — and the bonuses they entail — can be huge, and traders and executives change jobs too often for the good name of an institution to carry much weight. Consider: Many of the world’s largest banks lied about their borrowing costs for years, in some cases with the knowledge of senior executives.

Regulators are rightly taking steps to make benchmarks less vulnerable to manipulation, in part by requiring them to be based on observable transactions (rather than relying on traders to tell the truth) and administered by independent parties (rather than by the same banks that set the prices). Good market design will help, but it’s no panacea.  Traders managed to rig currency benchmarks that already met regulators’ guidelines.

Stronger deterrents are needed. Fines alone fall short: The billions of dollars that banks have paid hit shareholders, whose control over corporate culture and behavior would be limited even if they chose to exert it. The threat of criminal penalties will be much more potent.

UK Clamping Down on Bankers

Sweden Veers Left

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Everyone thought the Nordic countries were the model for helping countries move from the welfare state to modern economic realities.  Privitization and tax-cutting went too far for Swedes.  Sweden still has eniable gender equality and functional democracy, but here, as in much of the world, inequality looms large.  Stefan Lofven the new prime minister says there are bad cracks in the system.

Swedish youth unemployment is at 22 %.  Norway’s and Germany’s youth unemplooyment is at around 8%.  Unemployment drives fears about the number of immigrants entering the country, as it does in the US.

Sweden -- Looked After?

Federal Reserve of New York Builds a DSCG Model for Policy Analysis and Forecasting

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In recent years, there has been a significant evolution in the formulation and communication of monetary policy at a number of central banks around the world. Many of these banks now present their economic outlook and policy strategies to the public in a more formal way, a process accompanied by the introduction of modern analytical tools and advanced econometric methods in forecasting and policy simulations. Official publications by central banks that formally adopt a monetary policy strategy of inflation targeting—such as the Inflation Report issued by the Bank of England and the monetary policy reports issued by the Riksbank and Norges Bank—have progressively introduced into the policy process the language and methodologies developed in the modern dynamic macroeconomic literature.
The development of medium-scale DSGE (dynamic stochastic general equilibrium) models has played a key role in this process.2 These models are built on microeconomic foundations and emphasize agents’ intertemporal choice.    New York Federal Reserve DSCG Model

Intertemporal Choice

Blackstone Pulling Out of Russia

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US private equity group Blackstone is “giving up on Russia”, highlighting how even well-connected western investors are shying away from doing business in the country.

The New York-based buyout group has been frustrated in its attempts to find deals in the country since its co-founder Stephen Schwatzman joined the international advisory board of the Russian Direct Investment Fund, a $10 billion government-backed fund, three years ago.

It hired Dmitri Kushaev, the former head of investment banking at ING in Russia and a former private equity executive, as senior adviser to assist on deals in the country.

But Blackstone, which does not have an office in Russia, has chosen not to renew the contracts of the consultants it employs in the country.

According to a person with knowledge of the matter, the move will bring to an end Blackstone’s embryonic attempts to break into Russia.

US and European sanctions against Russian individuals close to the Kremlin, as well as state-backed industrial and banking groups, have led to a freeze in Western investments in the country.

Blackstone’s decision was also prompted by the fact that it had not found suitable investment opportunities in the past three years, the person said. “In the good times, Blackstone couldn’t find anything to do and in the bad times, Blackstone can’t imagine doing anything.”

Russian Economy

The Swiss Vote to Get Gold Back

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Ron Paul writes:  On November 30th, voters in Switzerland will head to the polls to vote in a referendum on gold. On the ballot is a measure to prohibit the Swiss National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold to Switzerland, and to mandate that gold make up at least 20 percent of the SNB’s assets.

Arising from popular sentiment similar to movements in the United States, Germany, and the Netherlands, this referendum is an attempt to bring more oversight and accountability to the SNB, Switzerland’s central bank.

The Swiss referendum is driven by an undercurrent of dissatisfaction with the conduct not only of Swiss monetary policy, but also of Swiss banking policy. Switzerland may be a small nation, but it is a nation proud of its independence and its history of standing up to tyranny. The famous legend of William Tell embodies the essence of the Swiss national character. But no tyrannical regime in history has bullied Switzerland as much as the United States government has in recent years.

The Swiss tradition of bank secrecy is legendary. The reality, however, is that Swiss bank secrecy is dead. Countries such as the United States have been unwilling to keep government spending in check, but they are running out of ways to fund that spending. Further taxation of their populations is politically difficult, massive issuance of government debt has saturated bond markets, and so the easy target is smaller countries such as Switzerland which have gained the reputation of being “tax havens.”

Remember that tax haven is just a term for a country that allows people to keep more of their own money than the US or EU does, and doesn’t attempt to plunder either its citizens or its foreign account-holders. But the past several years have seen a concerted attempt by the US and EU to crack down on these smaller countries, using their enormous financial clout to compel them to hand over account details so that they can extract more tax revenue.

On the monetary policy front, the SNB sold about 60 percent of Switzerland’s gold reserves during the 2000s. The SNB has also in recent years established a currency peg, with 1.2 Swiss francs equal to one euro. The peg’s effects have already manifested themselves in the form of a growing real estate bubble, as housing prices have risen dangerously.

Switzerland… is ruled by a group of elites who are more concerned with their own status… than with the good of the country.  Given the action by the European Central Bank (ECB) to engage in further quantitative easing, the SNB’s continuance of this dangerous and foolhardy policy means that it will continue tying its monetary policy to that of the EU and be forced to import more inflation into Switzerland.

Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites.

Gold in Switzerland

Make Women in Technology Visible

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With nearly 16 million programmers in the world, at 10 to 15 percent women, there are more than two million female programmers — but we never see them. Technical women remain largely invisible and behind the scenes despite important and often elite contributions.

In tech, we are standing on the shoulders of giants — men and women who have innovated and collaborated to bring us to where we are today. So many entrepreneurs, computer scientists, heroes, and creators have come before us — and yet we are critically challenged by the lack of visibility innovators of those days.

In the Hollywood film Jobs, all of the men on the core Macintosh team are introduced and have speaking roles, but we don’t meet Joanna Hoffman or Susan Kare, though both were a core part of the original Macintosh product development team.

The Geena Davis Institute on Gender in Media (GDI), through studies done with the USC Annenberg School, found a three to one ratio of male to female characters in children’s TV, with 80 percent of the jobs held by characters in kids TV and films being held by male characters. We need to help Hollywood and other media creation hubs fix this damaging bug. Armed with GDI research and the need to shift, we and many others have begun helping with outreach work to top media partners.

We have a tremendous opportunity to help change the narrative and our actions — all of us, women and men working alongside one another, have an important role to play here.

With nearly 16 million programmers in the world, at 10 to 15 percent women, there are more than two million female programmers — but we never see them. Technical women remain largely invisible and behind the scenes despite important and often elite contributions.

Making Women Visible

Will the Alibaba IPO Drag the Market Down?

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Mohamed El-Erian writes:  The Alibaba IPO will be a very big deal, with potentially marketwide impact. At a possible $22 billion to $24 billion, it could well be the largest IPO in history. So it really matters how investors fund their purchase of Alibaba shares.

The broader market would be least affected if the incremental funds came from a healthy and sustainable increase in borrowing, associated with a greater willingness (and ability) on the part of investors to assume risk. The deployment of idle cash would also have minimal effect on the rest of the market. Although both will occur to some extent, they are unlikely to be the main drivers.

This leaves plenty of potential for downward market pressure as investors sell existing holdings in order to make room for their Alibaba purchases. Given that most investors don’t know as yet how many shares they will receive, most of the selling wouldn’t materialize until quite far into the IPO process. The combined effect could be quite significant.

Alibaba IPO

Scotland: Yes and No

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Conservative columnists suggest that it is unfair to other citizens of the UK who can’t vote on an issue that impacts them.  Others are arguing that there are benefits to separation for workers.  They talk about civic nationalistm – the idea that all citizens should be engaged in the process of deciding where society is headed, not just getting their hands on the tiller once every four or five years. It utilises the n-word because democracy on a national level offers the best opportunity for fundamental change.

The vote appears to be close, but insiders think there will be no split at this time.

 Scotch Independence

The State of the Irish Economy

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John O’Hagan writes:  Some recent commentaries would at times lead one to believe that our public finances problem has almost been resolved. And that with renewed significant growth the severe unemployment and equity problems that followed the crisis have largely been addressed.

Three years ago the economy of the Republic was still reeling from tumultuous years of economic setback.  Output after 2007 had declined on a scale almost never seen in peacetime anywhere, unemployment had trebled, employment had declined by almost 300,000 and large-scale net emigration had resumed for the first time in almost 25 years.

At times it seemed like the political system could not survive intact in the face of widespread anger and with huge numbers facing large-scale financial problems arising from negative equity, lost jobs and a fear that the euro zone might implode.

Three years on, things look a lot brighter. As some populist commentators fuelled the flames of discontent, most of the Irish population, it seems, got on with dealing with a crisis that was largely of our own making. There is only so long one can lament events and attempt to blame others, be it at a personal or societal level, but ultimately we must move on and try to make good the damage and plan for a better future.

Many of those most affected complained least: the involuntary emigrants, the newly unemployed, the people trapped in negative equity and the young who took the brunt of the pain. Very often it was those least affected who complained the most: those in secure, pensionable jobs and many of the elderly who were largely protected from the effects of the recession.

Last year now appears to have seen a major turning point, with further large employment increases likely this year. A remarkable recovery in employment, then, will have occurred in just three years.  There is no reason why the Republic cannot prosper in years to come and remain one of the high-income countries of the world.

The country has a healthy, stable democracy and a well-established rule of law. The skill levels of the labour force are the same as they were prior to 2008. There is a healthy openness to competition and entrepreneurship.

All democracies are flawed to an extent and economic debates are often fraught and misinformed, Ireland over the last six years being no exception. It is worth remembering therefore that economic policy is exercised in the political market place, and will continue to be so in the years ahead.

Economists may have forgotten their history up to recent times but so also do they often forget that economic policy and politics are inseparable. Having a solution to an economic problem is of little benefit if the political system cannot be assured of delivering on it without risking major instability, thereby exasperating the difficulties.

Huge inequities persist despite the recovery. The most important antidote to such inequities is to create employment which is now happening on a large scale in the Republic.  Bringing about major further reductions in unemployment is the great social and economic policy challenge ahead.

A disturbing reflection of this is the exercise electorally of “grey power” in recent years, where as a result payments to over-65s, regardless of their circumstances, have largely been protected while those to other, younger groups have been cut.

Short-term fluctuations

One also should not be deflected from the medium- to long-term focus by the short-term fluctuations of financial markets or predictions of imminent doom or boom.

Ireland  still has a huge accumulated debt and continued large borrowing needs to fund day-to-day expenditures.

Jobs in Ireland