Thursday, July 22, 2010

Dodd-Frank must be the first – not the last – step in a long-term restructuring of financial markets

By Michael Prowse, Senior Visiting Fellow

After Britain’s first military victory against Germany in the Second World, at El Alamein in Egypt, Winston Churchill cautioned against excessive optimism. “This is not the end,” he said. “It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Thursday, July 15, 2010

Why the governance rules of the Financial Stability Board will not satisfy any true democrat

By Michael Prowse, Senior Visiting Fellow

Plato would have supported the Financial Stability Board (FSB) because he believed in rule by benevolent “Guardians”. He rejected democracy partly on the grounds that only an elite of knowledgeable experts can be trusted to make the “right” decisions for the rest of us.

Wednesday, July 7, 2010

Moises Schwartz makes the IMF’s critics an offer they should not refuse

By Michael Prowse, Senior Visiting Fellow

Moises Schwartz, the new director of the IMF’s Independent Evaluation Office (IEO), is reaching out to the Fund’s critics. At a briefing at New Rules last week he urged the non-governmental sector to propose topics for investigation. As Mr Schwartz is drawing up a work programme to present to the IMF’s Executive Board this is an opportunity that should be grasped.

Tuesday, July 6, 2010

Korea's opportunity: the G20's Seoul summit is shaping up to be the most significant since London, 2009

By Michael Prowse, Senior Visiting Fellow

Toronto was just a holding operation for the G20. Amid signs of flagging growth in many countries, the assembled leaders agreed to disagree on the need for further fiscal stimulus. All the other important decisions – for instance on bank capital requirements, on IMF reform, on the broader financial regulation agenda, on the European sovereign debt crisis, and on what to do if the world economy does sink back into recession – were postponed until the Seoul meeting.

Tuesday, June 29, 2010

Toronto, the ghost of Keynes and the future of the international monetary system

Toronto, the ghost of Keynes and the future of the international monetary system

By Michael Prowse

If Lord Keynes were alive today how would he have reacted to last weekend’s G20 meeting in Toronto?

Like President Obama, he would probably have accepted the consensus view that fiscal deficits should be halved by 2013, while worrying that too much fiscal consolidation too soon could derail the global recovery. He would also have accepted the logic of delaying the implementation of more stringent rules on bank capital until the recovery is better established.

Wednesday, June 23, 2010

Austerity versus growth: why can’t Europeans be more like Americans?

By Michael Prowse

Debate at this weekend’s G20 meeting in Toronto is likely to focus on the rift that has opened between the US and Europe on macroeconomic policy. The US view is that governments should spend now, so as to create jobs and sustain economic growth, and save later. The European view is that fiscal consolidation is the urgent priority: governments must spend less, now and in the future.

Friday, June 18, 2010

The significance of leverage in financial crises: what Shakespeare can teach economists and regulators

By Michael Prowse

Who remembers the interest rate that Shylock charged Antonio in the Merchant of Venice? Nobody – but everyone remembers the pound of flesh that was agreed as collateral.

John Geanakoplos, the James Tobin professor of economics at Yale, argues – only half in jest – that Shakespeare had a better understanding of finance 400 years ago than do most regulators today. Shakespeare understood that most loan contracts involve negotiations over two variables, rather than one. The borrower must worry not just about the interest rate demanded but also about the collateral that he has to put up to get a loan at all. Sometimes the collateral demanded is far more significant than the interest rate – as in Antonio’s case.