Finance & Economics
Finance & Economics
Fair Observer's analysis of important economic and financial issues, events and trends in global markets and the world economy.
-
Commentary on the Greek crisis, and why Greece should not leave the euro zone. Why did German people support Hitler? The Weimar Republic appeared to have no idea how to solve the problems of the Depression. The Nazis on the other hand promised to solve the problems (Nazism at the time was a small fringe movement seeking power through revolution). Hitler promised most groups in Germany what they wanted. Hitler used the Jews and other sections of society as scapegoats, blaming all the problems on them. To Germans at the time, Hitler made sense; he united everyone by providing explanations — though not necessarily solutions — for Germany's problems. People in Germany were tired...
-
A financial transaction tax might help regulate high frequency and derivative trading. This is a rebuttal to a previous article which was skeptical of the so-called Tobin tax. Partially adapted from: A General Financial Transaction Tax: Strong Pros, Weak Cons, Stephan Schulmeister. Intereconomics, Review of European Economic Policy, 47 (2), March/April 2012. The assumption that asset markets are basically efficient has become increasingly questionable in the past three decades. Deregulation – notably the Gramm–Leach–Bliley Act of 1999 – has allowed financial innovators to trade an ever more diverse set of assets, and at a much higher overall frequency...
-
Greece’s economy has not recovered in spite of government efforts to implement austerity measures in the last two years, causing dysfunction in the political sphere in Greece and across the world. Background As Greece prepares for new elections, it contemplates its possible exit from the euro zone. The potential decision to leave has not only been brought on by the country’s political dysfunction, but also by the downfall of its economy. The country is currently in the midst of one of its worst financial crises since 1974 when the government moved from military rule to a democracy. In 2011, Greece’s public debt-to-GDP ratio was a 165.3%, the highest...
-
Commentary on how Europe can strengthen trust in its banking network. Systemic fragility in the European banking sector predates the Greek fiscal crisis. It was revealed by the subprime/Lehman shock of 2007-08, and has never been properly addressed since then in spite of successive “stress tests.” In recent weeks, several senior policymakers have become more explicit on the need for a “banking union” – in other words, a federal framework for banking policy. Among them is Christine Lagarde, managing director of the International Monetary Fund (IMF), who on April 17 said, “To break the feedback loop between sovereigns and banks, we need more risk-sharing...
-
A single-pronged approach is unlikely to solve the problems inherent in the current model for credit rating agencies. A cynical colleague once remarked that credit rating agencies (CRAs) were like cockroaches; distasteful, but with an unmatched ability to survive. This flippant remark had the weight of experience behind it. But to a young trader near ground zero of the nuclear blast that was the US housing and structured credit market meltdown, CRA survival looked unlikely. Their fingerprints were all over the structured credit disaster and it looked as if it was only a matter of time before the regulators hauled them off to join the Arthur Andersons of the world. Cynicism and experience...
-
Is it possible to create an international and impartial credit rating agency? In recent years, no business has lost its reputation as devastatingly as credit rating agencies have. Leading up to the worst financial crisis in decades, the top rating agencies: Moody's, Standard & Poor's, and Fitch, rated questionable financial products with excellent marks. They exacerbated the ensuing credit crises by downgrading many European countries’ debt—wrongly, as many politicians later found. In order to prevent this from happening again, an international rating agency is sorely needed. This is true especially for the EU, which has learned its lesson from the crisis of the past...
-
By Atul SinghGiven its role in the recent global financial crisis and major flaws including its participation in an oligopoly, lack of competence, and conflicts of interest, a new, more robust model for credit rating agencies must be created in the future. Background A credit rating agency (CRA) is a company that is in the business of rating the credit worthiness of debt. It does so by rating issuers of debt obligations and also by rating the debt instruments themselves. Credit ratings are meant to provide easy-to-use measurements of relative credit risk so that investors can make informed choices. The idea is to facilitate transactions and lower costs for both borrowers and lenders. Three CRAs...
-
Analysis on the unexpected relationship between the dollar’s international acceptability and the US military’s global presence. Since World War II, the US has provided two essential services to the rest of the world: an international currency and international military protection. Producing them was costly, both in terms of achieving dollar stability and undertaking military expenditures in many parts of the world. However, the benefits were far more important. Foreigners were prepared to hold more dollars than they actually needed and to forgo risk premiums even when the dollar weakened. The more the dollar was held abroad the more gains the US could collect, as the production...
-
Andrew Pollen and economist Edward Hugh find an unexpected link between Europe's ageing population and its ongoing financial crisis Developed country societies have been steadily getting older ever since the coming of the industrial revolution. But now they are ageing more quickly as birth rates in many developed countries continue to remain well below replacement rate and life expectancy continues to rise. Median ages in several countries are now around the 45 year mark, and during the late 2020s will even near the 50 year barrier. According to UN data, the proportion of the world's population aged over 65 is set to more than double by 2050, rising to 16.2% from 7.6% currently. The...