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Crisis Economics

A crush course in the future of finance

Cat: ECO
Pub: 2010
Nouriel Roubini et. al
up 15x01

Crisis Economics


  1. Introduction:
  2. The White Swan:
  3. Crisis Economists:
  4. Plate Tectonics:
  5. Things Fall Apart:
  6. Global Pandemics:
  7. The Last Resort:
  8. Spend More, Tax Less?:
  9. First Steps:
  10. Radical Remedies:
  11. Fault Lines:
  12. Conclusion:
  13. Outlook:
  1. 序文
  2. 白鳥:
  3. 危機の経済学者:
  4. プレートテクトニクス:
  5. すべてがばらばら:
  6. 世界的な伝染病:
  7. 最後の貸手:
  8. 浪費は節税?:
  9. 最初の一歩:
  10. 特効薬:
  11. 断層:
  12. 結論:
  13. 展望:
Black Swan; John M. Keynes; Securitization; CMO/CDO/CLO; Sept. 15, 2008; Quantitative easing; Moral Hazard; Contingent capital; Club Med countries; Whither Japan?;
  • This world is full of optimistic euphony; but the reality could be more pessimistic.
  • In Japanese superstition, saying too pessimistic things would be regarded a taboo; once it is told, it might really realize it.; Japanese government emphasizes; steady economic growth, continuing Japanese manufacturing strength, society full of shining women's activities, more active peace offensive policy, reoperation of nuclear power plants under the world most stringent safety inspection, etc.
  • 世の中には楽観的な調子の良い言葉に溢れている。だが現実はもっと悲観的である。
  • 日本の迷信ではあまり悲観的なことを言うのは憚れる。口に出すとそれが実現するかも知れないと。持続的な経済成長、日本のものづくりの強さ、女性が輝く社会、積極的平和主義、世界一厳格な安全審査の下の原発再稼働等。

>Top 0. Introduction:

  • Jan. 2009: US Vice president Cheney's response, "Nobody anywhere was smart enough to figure it out"; it is the Lehman Shock.
    • Nouriel Roubini, the author, issue a very clear warning in the halcyon days of 2006.
    • In 2008; collapse of Bear Sterns, and Lehman Brothers. BOA absorbed Merrill Lynch. Morgan Stanley and Goldman Sachs were forced to become bank holding companies.
    • deflationary spiral, of a sort not seen since the Great Depression.
  • Crisis are hardwired into the capitalist genome. The very things that give capitalism its vitality - its powers of innovation and its tolerance for risk - can also set the stage for asset and credit bubbles and eventually catastrophic meltdowns whose ill effects reverberate long afterward.
  • the final chapters wrestle with:
    • How will globalization affect the probability of future crises?
    • How will we resolve the global imbalances that helped create the recent crisis?
    • How will we reform global capitalism?

0. 序文:

  • 2009: チェイニー副大統領のコメント
  • 危機は、資本主義に組み込まれている。

>Top 1. The White Swan:

  • When did the boom begin? Perhaps it began with he sudden mania for flipping real estate, when first-time speculators bought and sold subdivision lots like share of stock.
    • At some point the boom became a bubble.
    • As the stock market crashed, foreclosures mounted, firms failed, and consumers stopped spending
    • then the sickness in US had spread to the world. Falling prices raise the specter of deflation. It happened on the even of the Great Depression.
  • The panics: in the history of modern capitalism, crises are the norm not the exception.
    • Crises can trace their origins to different problems in different sectors of the economy; in the excess of overleveraged households, financial firms or corporations or governments are to blame.
    • 1720 South Sea Bubble
    • 1825 Global financial crisis (UK)
    • 1929-30s: Crises have even paved the way for wars; the Great Depression to WWII.
    • 1991-2000 Japan's lost decade
    • 1980s -90s US saving and loan crisis.
  • Black Swan: >Top
    • after the disaster, plenty of people invoke the concept of Black Swan to explain it.
    • black swan event: a game-changing occurrence that is both extraordinarily rare and well-nigh impossible to predict.
    • financial crises generally follow the same script over and over again.
    • housing bubble in US; real estate was said to be a safe investment that never lost value because house prices never fall.
      • the same was said of the complex securities built out of thousands of mortgages.
    • crises are not black swans but white swans; the elements of boom and bust are remarkably predictable.
  • Dark Ages:
    • Spain and England debased their currencies while maintaining the fiction that the new coins were worth as much as the old.
    • the advent of paper money. China pioneer this practice as early as 1072. European adopted it much later in 18C.
    • 14C UK; Edward III borrowed money for 100 years' war (1337-1453) from Florentine bankers, but refused to pay it back; default
    • 16C; Netherlands, the first capitalist dynamo; 1630 tulip mania bubble.
    • 1720; South Sea Co. bubble; stock price increased by 1000 % and crashed.
    • 1825; UK economic panic; the crisis quickly spread to the rest of Europe.
    • 1873; US railroad securities; Northern Pacific Railroad; after the Civil War.
    • 1819, 1837, 1866, and 1893; many more panics; began in more developed economics after excessive speculative lending and investments.
    • 1907; US, after a speculative boom in stocks and real estate collapse.
    • 1929-33: the worst depression in US history; unemployment rates shot from 3.2% to 24.9%; 9,000 banks closed.
    • 1944: Allied nations met in Bretton Woods, New Hampshire, to hammer out a new world economic order; fixed rate; option of redeeming for US gold at $35 an ounce; pax moneta
    • 1971: US went off the last vestiges of the gold standard.
    • 1973 and 1979: two oil shocks; botched monetary policy response.
    • 1980s; Paul Volcker sharply raised interest rates; many Latin American loans were linked to LIBOR (London Interbank Offered Rate)
    • 1982 -80s; Latin American debt crisit; Mexico the default ushered in an economic collapse; then Brazil, Argentina, etc.
      • when foregin investors panicked and refused to rollover short-term debts, overvalued local currencies collapsed.
    • 1989-90a; Japanese the Lost Decade; never again growning GND from 4% to only 1%; prices of land and equities never recovered.
    • 1997-98; Asian financial crisis; emerging economies fell; Thailand, Indonesia, South Korea, and Malaysia; tehn Russian in 1998.
      • Crises contintued; Ecudor, Pakinstan, and 1Brazil (1999), Ukraine (2000), Turkey and Argentina (2001), and Uruguay and Brazil again (2002)

1. 白鳥:

  • ブームはいつ開始されるか。
  • 資本主義 -危機の歴史:
    • 1720
    • 1825
    • 1929-30s
    • 1991-2000
    • 1980s-90s
  • 黒い白鳥:
    • 災難の後、黒い白鳥を認識
    • 財政危機はほぼ同一シナリオで繰り返す


  • 暗黒時代:
    • 1072: 宋紙幣; 交子・会子
    • 14C 英破綻
    • 16C 蘭
    • 1873 米国鉄道危機
    • 1720 South Sea会社
    • 1825 英経済危機
    • 1907 米株暴落
    • 1929-33 米国大恐慌
    • 1944 Bretton Woods体制
    • 1971 米金本位制廃止
    • 1973/79 石油危機
    • 1980s 中南米財政危機
    • 1982 メキシコ破綻





>Top 2. Crisis Economists

  • Crisis economics; the study of how and why markets fail.
    • Mainstream economics is obsessed with showing how and why markets work well.
    • Adam Smith; in 'Wealth of Nations', he advanced "invisible hand"; he was interested in explaining how capitalist markets succeed, now why they fail.
  • John M. Keynes; >Top "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."
  • The Cradle of Crisis Economics:
    • Americans have a reputation for optimism; Europeans by contrast are often viewed as dour and gloomy.
    • John Stuart Mill (1806-1873); "Principles of Political Economy, 1848"; first to write about crises in a sustained way; Utilitalianism
      • Falling prices invariably overshoot; prices fall as much below the usual level, as during the previous period of speculation they have risen above it. The crash spill over from the financial sector to the rest of the economy, destroying businesses, driving up unemployment.
    • Karl Mark (1818-1883); "The Communist Manifesto, 1848";
      • their real value of goods depends on the human labor that goes into making them. As capitalists replaced workers with machines in an attempt to cut costs, profits would perversely decline. This decline would spur capitalists to cut costs even more, eventually driving the economy into a crisis born of overproduction and underemployment.
      • the first thinker to see capitalism as inherently unstable and prone to crisis.
  • The long shadow of John Maynard Keynes (1883-1946):
    • The most important economist to emerge out of the Great Depression; was J. M. Keynes. Keynes was born the year Marks died.
    • He was comfortable beyond the confines of academia at Cambridge; witty, urbane, and vivacious.
      • published "The General Theory of Employment, Interest and Money, 1936"; much of the research agenda of economics in the 20C was an explicit or implicit engagement with Keynes 's ideas.
      • argued that what really determines employment levels; is effective or aggregate demand - the collective demand for goods and services; if wages are cut and workers are fired, people will consume less, and demand will falter. As demand drops, entrepreneurs will become more reluctant to invest. Likewise, ordinary consumers will save more and spend less - laudable goals; "paradox of thrift"
      • The argument essentially contradicted the era's conventional wisdom.
      • the solution was simple: government would step into the breach and create demand, reversing the downward spiral; this insight became orthodoxy in the postwar years.
  • Milton Friedman (1912-2006):
    • the father of the monetarist school of economics.
    • Friedman and Anna Jacobson Schwartz had different interpretation of the Great Depression; not caused by a collapse in demand, but rather was a direct consequence of a decline in the quantity of bank deposits and bank reserves.
    • both opposed government intervention on principle.
  • Hyman Minsky (1919-96):
    • Capitalism is fundamentally flawed. This flaw exists because the financial system necessary for capitalist vitality and vigor.
    • financial intermediaries - bank - play a critical and growing role in modern economies, binding creditors and debtors in elaborate and complex financial webs.
    • categorized the debtors in a given economy into three groups; 1) hedge borrowers, 2) speculative borrowers, and 3) Ponzi borrowers.
      1. hedge borrowers; can make payments on both interest and principal of their debts.
      2. speculative borrowers; will cover interest payments but not the principal; they have to roll over their debts, selling new debt to pay off old.
      3. Ponzi borrowers; are the most unstable; their income covers neither the principal nor the interest payments. Their only option is to mortgage their future finances by borrowing still further, hoping for a rise in the value of the assets they purchased with borrowed money.
      • During a speculative boom, the number of hedge borrowers declines, with the number of speculative and Ponzi borrowers grows.
  • 2007-2008 the financial crisis:
    • American policy makers looked to the lessons of the Great Depression and acted accordingly. Rather than let thousands of banks and corporations go under as Hoover had done in the early 1930s, the Federal Reserve made available unprecedented lines of credit.
    • Chrysler and GM were given lines of credit to prevent from falling into Chapter 7 bankruptcy. Instead the government steered them into Chapter 11, where they could be reorganized and reborn. It was all a far cry from the leave-it-alone liquidationists of the Hoover administration.
      • In 2009 Obama administration passed the biggest stimulus bill in the nation's history. Between monetary policy (control over the money supply) and fiscal policy (taxing and spending), everything that should have been done was done, however imperfectly.
  • Paul Anthony Samuelson (1915-2009):
    • founder of the neoclassical school.
    • Economic history is important; that's not because history repeats itself in some simplistic, cyclical way, though parallels between past and present are plentiful. Rather, history is useful precisely because its raw material can inform and inflect economic theories.

2. 危機の経済学者:

  • J. S. Mill: 経済学原理


  • 危機の経済学
    • John Stuart Mill
    • Karl Marks
    • John Maynard Keynes



  • John Stuart Mill
  • Karl Mark
  • John Maynard Keynes
  • Milton Friedman
  • Hyman Minsky
  • Paul Anthony Samuelson

>Top 3. Plate Tectonics:

  • Securitization: >Top
    • securitization of bad loans was but the beginning; long-standing changes in corporate governance and compensation schemes played a role too.
    • federal regulators turned a blind eye to the rise of a new shadow banking system that made the entire financial system dangerously fragile.
    • these changes may have been invisible, or their importance was no fully recognized.
  • Financial innovation:
    • 1830: the first railroad between Manchester and Liverpool;
      • 1845-46 share prices of railroad stocks soared, and corporations built thousands of miles of track, much of it redundant and unnecessary.
    • 1990s: the dot-com boom; swiftly became a speculative bubble; when this bubble collapsed, plenty of new companies survived, as did a new communications infrastructure, and other tangible technological improvements.
    • 2006 Recent crisis; the housing boom has left behind few tangible benefits; houses built in 2006 were no different and no more efficient than houses built a decade or two earlier.
  • Mortgage-backed securities:
    • Freddie Mac, Fanie Mae joined securitization business.
    • Investment banks guided the creation of pools of mortgage-backed securities.
    • SPV (Special Purpose Vehicle); issued mortgage-backed securities, selling to investors.
    • Everyone got with this system; homeowner got a loan, mortgage broke and the appraiser earned their fees. Mortgage lender made a tidy profit without waiting 30 years. Investment bank earned a fat fee with unloading the risk of the mortgage. And last, the investors who purchased the securities expected to receive a steady revenue as homeowners paid off their loans.
      • Most infamous were 'NINAJ loans'; the borrower had No Income, No Job, and no Assets.
    • Rating agencies - Moody's, Fitch, Standard & Poor's - had possible incentive to give a high rating to the securities, earning nice fee from the entities they evaluated. (half profits from AAA ratings)
      • CMOs: Collateralized Mortgage Obligations >Top
      • CDOs: Collateralized Debt Obligations
      • CLOs: Collateralized Loan Obligations
      • the simplest CDOs had only three tranches;
        1. equity tranche; high risk high return
        2. mezzanine tranche; less risky
        3. senior tranche; low risk low return
      • to combine CDOs with other CDOs, then split them up into tracheas; (CDO^2)
      • CDOs of CDOs of CDOs, better known as CDO^3
        • it became difficult to value them by conventional means.
  • Moral Hazard:
    • is someone's willingness to take risks that he would normally avoid, simply because he knows someone else will shoulder whatever negative consequences follow if not bail out those who took those risk.
      • played a significant role in the recent economic crisis.
      • the bonus system, which focused on short-term profits made over the course of a year, encouraged risk taking and excessive leverage on a massive scale.
  • Deregulation from 1980s:
    • Glass-Steagall Act of 1933; separated commercial banks and investment banks.
    • merger of Travelers with Citicorp; brought commercial banking, insurance underwriting, and securities underwriting.
    • Some have claimed that it was the product of too much government, not too little. That pice of legislation, which prevented banks from discriminating against low-income neighborhoods when they made loans, made it easier for the poor and minorities to obtain mortgages.
  • Shadow Banks:
    • financial institutions that look like banks, act like banks, and borrow and lend and invest like banks, but are not regulated like banks.
  • World Awash in Cash:
    • Easy money poured into US, and this powerful global trend sustained the boom. Combined with lax monetary policy, reckless financial innovation, the problems of moral hazard and poor corporate governance, and the shadow banking system, easy foreign money helped brew a disaster of epic proportions.
    • 40-50% of the securities generated by US financial institutions ended up in the portfolios of foreign investors.
  • The lure of Leverage:
    • Leverage has been on the increase for years. From 1960 to 1974 the leverage ratios of banks in US increase by some 50%. In 1981, the debt of the US private sector was equal to 123% of GDP, by the end of 2008 it had soared to 290%.
    • if debt increase among households and corporations during this period, the financial sector came to rely on debt in a big way; 22% to 117% of GDP between 1981 and 2008.

3. プレートテクトニクス:

  • 証券化
  • 金融イノベーション
  • 債務担保証券(CDO)
    • Originator: 原資産所有者
    • SPV (Special Purpose Vehicle)特別目的事業体
    1. シニア債
    2. メザニン債
    3. 劣後債
    4. CDOのCDO=CDO^2


  • モラルハザード

>Top 4. Things Fall Apart:

  • The Unraveling:
    • Hedge funds many not look like banks, but they operate much as banks do.
    • The collapse of two funds in 2007 portended shadows bank system as a whole. These two funds were virtually unregulated but highly leveraged; debt-to-equity ratio of 20-t0-1.
  • Fear of the Unknown:
    • "Risk, Uncertainty and Profit", published in 1921 by Frank H. Knight:
      • Risk; can be priced by financial markets because it depends on known distributions of events to which investors assign probabilities and price thing accordingly
        • like the Russian roulette
      • Uncertainty can't be prices; it related to events, conditions, and possibilities that can't be predicted, measured, or models.
        • two men are handed a mystery gun, which could have six bullets, or none. The players don't know. That is uncertainty: they have no idea how to assess the risk.
    • In nor mal times. the overnight LIBOR is only a few basis points above the overnight policy rates.
    • In August 2007, the spread between LIBOR and the rates charged by European central banks soared, from 10 basis points to about 70.
    • By the end of 2007, profound uncertainty prevailed. Which banks had bodies buried off their balance sheets? Which hedge funds had placed foolish bets. Who else had invested in subprime CDOs? The financial system was extraordinarily opaque.
  • Mere Anarchy:
    • On Sept. 15, 2008; Lehman declared bankruptcy (Chapter 11), and AIG'S credit ranking was downgraded.
      • US government threw the firm an %65B lifeline; additional funds would flow in the coming months; most of the firm's common stock now belonged to the government.
      • It was a bailout not so much of AIG as of all the banks that had purchased insurance from AIG.
      • US government bought back the CDO tranches that AIG had insured.
    • Emergency times call for emergency actions. The collapse of the commercial paper market, which handled some $1.2T in loan, posed the risk that otherwise solid corporations would go insolvent because of a run on their short-term liabilities.
      • In order to avoid any further runs, the Federal Reserve opted to extend lender of last resort support to nonfinancial corporations.
      • On Oct. 7, 2008, it set up yet another lending facility that made loans to corporation issuing commercial paper (A rating or better) could borrow from the Fed. This was a belated gesture a holding the line against moral hazard.

4. すべてがばらばら:

>Top 5. Global Pandemics

  • "When US sneezed, the rest of the world catches a cold."
    • Nor was the crisis confined to Europe and Canada It hammered countries including Brazil, Russia, India, and China.
    • by the end of 2008 most of the world's advanced economics had slipped into a recession, and emerging market economies in Asia, Eastern Europe, and Latin America.
  • Financial institutions:
    • Banks and other financial firms borrow and lend money on a short-term basis. These webs of deb and credit have always been fragile in times of panic, spreading problems from one part to the global economy to another.
    • Sept. 15, 2008 Lehman Shock: >Top when Lehman Brothers failed, the hundreds of billions of dollars in short-term debt it has issued - most of it commercial paper and other bond debt - became worthless, triggering panic among the various investors and funds that held it.
      • This panic prompted a run on the money market funds that provided lending to the commercial paper market and sowed further panic throughout the global banking system.
    • Subprime meltdown: spilled over from US to Europe, Australia, etc. for the simple reason that about half of the securitized sausage made on Wall Street - CDOs and CMOs - were sold to foreign investors.
      • the largest portion of these securities ended up in the asset portfolios of European banks and their subsidiaries.; BNP Paribas and UBS.
      • these subsidiaries had pumped significant amounts of credit into Ukraine, Hungary, Latvia, and other countries.
      • American stock market plunged, followed by precipitous drops on exchanges in London, Paris, Frankfurt, Shanghai, and Tokyo.
      • The contagion that raced through the stock markets may have been more pervasive, faster, and more synchronized than in any previous disaster.
  • The Great Synchronization:
    • The effects of the downturn in China were not limited to trading links. Many Asian countries produced computer chips and exported them to China, where they would be assembled into computers, consumer electronics to be shipped to US. When the crisis hit US, it hit not just China but all the countries in its supply chains.
  • Peoples too:
    • As US plunged into recession, migrant workers stopped sending money back to their home countries; Mexico, Nicaragua, Guatemala, Colombia, Pakistan, Egypt, and the Philippines.
    • when housing booms became busts, remittances back home collapsed too.
      • in some Central American countries, more than 10% of the national income comes from the works abroad.
  • Commodities prices;
    • 2007-2008, the prices of oil, food, and other commodities rocketed upward. In the summer of 2008 oil prices peaked at around $145 a barrel, up form $80 a year earlier.
    • it was a function of investment or speculation driven by hedge funds, endowment funds, broker dealers, and various commodities funds that had invested some of their portfolios in commodities.
    • What was true on the way up was true on the way down:
      • The oil price fell from its peak to a low of $30 in the first quarter of 2009.
        • In Chile, the collapse of demand for copper hammered that country's export driven economy, propelling it into a recession.
  • Abundance of easy money:
    • abundance 0f easy money and low interest rates then contributed to inflation and to asset bubbles.
    • At their peak, stocks in China and India hit price-to-equity ratio of 40 or even 50 late in 2007 - definite bubble territory.
      • Many of these economies overheated in advance of the American financial meltdown, making them extraordinarily fragile and susceptible to sudden shocks.
  • Death of Decoupling:
    • Central bankers in emerging economies raise interest rate in a n attempt to tighten monetary policy. their counterparts in the more advanced economics followed suit; and in mid 2008 the European Central Bank implemented an ill-fated and misguided increase in policy rates;
      • Spain, Portugal, Italy, and Greece (Club Med countries) were already running big budget deficits and carried a large stock of public debt relative to the size of their economy.
    • Japan, which initially hailed as immune to the crisis, saw its economy contract at 12.7%; South Korea saw an even bigger decline of 13.2%. China managed to avoid an outright recession.

5. 世界的な伝染病

  • Sept. 15, 2008 shock





  • P/E Ration (PER)

>Top 6. The Last Resort:

  • Deflation:
    • is not the debtor's friend. A 10-year loan at an interest rate of 5%. Deflation of 2% means effectively paying 7% a year.
    • the borrowing costs rise above and beyond what they originally anticipated.
  • Last Lender Standing:
    • IMF: was born at the end of WWII to act as an international lender of last resort to governments and central banks.
      • SBA (Stand-By Arrangement) to 14 countries as the traditional lifeline. IMF made foreign currency loans only if the recipients adopted economic reforms.
        • $50B by 2009; in 1997 including South Korea received a loan of $10B, and in 2008 Ukraine received $!6.4B.
      • FCLs (Flexible Credit Lines); as precautionary or prophylactic lines of credit, for more stable countries;
        • $78B by 2009
    • Federal Reserve:
      • SWAP Lines: the Fed swaps dollars for some other central bank's currency.; Eg. in 2009, Mexico activated $30B swap line with the Fed.
      • By late 2008 these swap lines totaled half a trillion dollars.
    • Quantitative easing, Credit easing, or Qualitative easing: >Top
      • had been tested in Japan in 1990s; The basic idea is to have the central bank intervene in markets for long-term debt in the same way that it does in markets for shot-term debt.
      • Thank to cuts in the overnight Federal funds rate, bank had access to plenty of cash; Banks were getting no-interest loans from the Fed, but market rates for everyone else remained high. Financial institutions continued to hoard cash in anticipation of future losses.
        • By borrowing money from the Fed at policy rates approaching zero, then plowing it into a 10-year or 30-year Treasury bond paying 3-4%.
      • quantitative easing on a far more massive scale; manipulating the foreign exchange markets to weaken the value of the dollar; like "having the government print money and scatter it on the population from helicopters." (propose by Milton Friedman);
        • actually giving people tax cut financed entirely by printing money.
        • the Fed has sent a clear message to the financial markets that it will do almost anything and everything to prevent a financial crisis from spinning out of control
        • but it creates Moral Hazard on a grand scale. >Top
          "Capitalism without bankruptcy is like Christianity without hell" (Frank Borman, Eastern Airlines)
    • Monetary policies; stepped into the financial system;
      • bleed imperceptibly into the traditional domain of fiscal policy - government's power to tax and spend - prerogative of the legislative branch.
      • after all, proposals to allocate taxpayer dollars to rescue the financial system; most powerful weapons in the arsenal of crisis economics.

6. 最後の貸手:

  • デフレーション
  • 最後の貸手:
    • IMF
      • SBA
      • FCL
    • 連銀
    • 量的緩和
    • 金融政策


  • モラルハザード:

>Top 7. Spend More, Tax Less?

  • Bank's Balance Sheet:
    • As the recent financial crisis worsened, many of the assets that banks had dis start to lose their value; some of those assets were loans that went bad.
      • Banks needed to raise more money, or capital. Sold 'preferred shares to raise capital.
      • in the fall of 2008, the value of bank assets continued to fall, and no one was interested in pumping any more capital into banks.
    • Toxic Waste:
      • splitting a troubled bank into two banks; a good bank included all the solid assets, and a bad banks that contained everything else.
      • Reverse auction
      • Public Private Investment Program (PPPIP, or Pee-Pip) which went into operation in 2009.
        • the trillion dollar program gives low interest loans to private investors who want to bid at auctions in which banks sell their toxic assets.
      • Nonrecourse loans:
        • in the event that things go badly, investors can walk away from them without penalty.
        • in effect, the private sector gets all the glory and the profits when things go well, while the government or the taxpayer shoulders the fiscal burden when thing go away.

7. 浪費は節税?:

Bank's Balance Sheeet
Assets Liabilities
Current assets Current liabilities
  Money   Deposit money
  Lending loan   Issuing bond
Fixed asset Shareholders' equity
      Preferred share
  Facility   Capital
  Building   Retained earnings

>Top 8. First Steps:

  • Basel: old Swiss city.
    • G10: recommendation are nonbinding, it nonetheless carries a great deal of weight.
    • Basel Capital Accord (Basel I):
      • Banks that operated in multiple countries had to hod capital equivalent to 8% of their risk-weighted assets.
      • by 1992 most of G10 had adopted its recommendations,
      • Basel I did not anticipate - Eg. by securitizing assets.
    • Basel II (in 2006): Basel I has 30 pages, the new accord was almost 10 times as long
      • though many European nations wanted Basel II to apply to all banks, US , Canada, and UK argued that it should apply only to large international banks.
      • Tangible Common Equity (TCE) counts only common shares in its calculation of capital; by contrast, Basel's Tier I capital definition includes both common and preferred shares.
      • Procyclicality: something that's procyclical amplifies fluctuations in the economy at large - Eg. a boom-and-bust cycle.
      • Contingent capital >Top ; in good times banks issue a special kind of debt known as "contingent convertible bonds." It differs from ordinary debt in that if a bank's BS declines past a particular trigger point, the debt will convert into shares or equity in the bank.
        • Contingent capital may be on e way around that problem too, ensuring that debt get converted into equity rather than guaranteed, backstopped, and bailed out. It might hold the line on moral hazard.
      • Vaue at Risk (VaR):
        • a mathematical formula that purports to claculate the likelihood that a firm will suffer a loss on its assets.
  • Coming Crisis:
    • Financial crises have a funny way of making radical reforms seem reasonable.
  • much in this chaptere would have seemed extreme and unnecessary in advance of the crisis that hit in 2008.
      • increasing accountability and transparency in the financial system by reforming compensation, regulating securitization, bringing derivative under public scrutiny, and putting the putative guardians of the system - the rating agencies - on a very short leash.
      • the concentration of financial power has created a system that is too interconnected to fail.

8. 最初の一歩:

  • バーゼル規制


  • Contingent Capital:

>Top 9. Radical Remedies:

  • Glass-Steagall legislation of 1933:
    • separated commercial banking from investment banking. This firewall eroded in 1980s and 1990s, finally disappearing altogether with the Gramm-Leach-Bliley Act of 1999.
    • this resulted a firm like Citigroup or JP Morgan Chase can be commercial bank, a broker dealer, a prop trader an insurance company, an asset manager, a hedge fund, and a private equity fund.
    • the breakdown of barriers meant that banks with access to deposit insurance and lender of last resort support pursued high-risk activities that resemble gambling more closely than banking.
    • One final note:
      • only commercial banks would have access to deposit insurance and a government safety net.
      • Everyone else - investment banks, broker dealers, hedge funds, insurance companies, and private equity firm - would be on their own.
          • by unbundling the financial services now combined under one roof, we can steer the financial system away from an excessive reliance on too-big-to-fail and too-interconnected-to-fail firms.
  • Asset-Based Reserve Requirements (ABRR):
    • In one variation of this idea, central banks could unilaterally raise reserve requirements for certain assets. Had the Fed possessed this power in the years leading up the current crisis, it could have raised reserve requirements for any assets rooted in real estate.
    • For year, the Fed has adopted a laissez-faire approach to asset bubbles. that alone would be bad enough, but the Fed's behavior has arguably been worse.
    • For over 60 years, US and it dollar have reigned supreme. Those days may be coming to an end, and how we manage that difficult transition will be integral to determining the prevalence of crises in the coming years.

9. 特効薬:

  • Glass-Steagall法へ戻す


>Top 10. Fault Lines:

  • Rashomon:
    • In that saga a terrible crime has occurred in the forest; but each gives a different explanation of what happened and who is to blame.
    • within economic circles there are multiple account of this crime, multiple accusation and alibis.
    • financial globalization: money can flow easily c¥across national borders and into US, making current account deficits more sustainable than in previous ears.
    • A decade ago the average maturity of US public debt was close to 60 months By 2009 that figure shrank to below 50 months, which reflects growing worry that the dollar will decline in value.
  • Key difference:
    • Most important, US borrows from abroad in its own currency. The potential depreciation of the dollar doesn't increase US liabilities. Instead, that currency risk is transferred to foreign creditors.
    • Asset protectionism:
      • ownership stakes in American companies; so far US has resisted foreign ownership of its most important corporations.
      • In 2005 public outcry stopped the China National Offshore Oil Corp. from purchasing an ownership stake in Unocal.
      • in 2006, Dubai Ports World from assuming management control of a number of key US ports.
  • Temblors in Club Med countries: >Top
    • The financial crisis wounded a number of advanced economies; Greece, Ireland, Italy, Portugal, Spain, and even UK; particularly so-called Club Med countries of Greece, Italy, Portugal, and Spain - may default sooner rather than later, threatening EU and potentially plunging these region into the sort of chaos that touched Argentina in 2002 and Iceland in 2008.
  • Decline of the Dollar:
    • In the late 1950s US was at the peak of its power. It ran a current account surplus, and the dollar served as the international reserve currency.; Breton Woods agreement.
    • In 1971: when President Nixon reneged on the pledge to convert dollars into gold.
    • In 2001; dollar made up a little over 70% of the currency reserves held overseas; 63% in 2008, and in the third quarter of 2009, dollar constituted only 37% of newly acquired reserves.
    • US political stalemate; Republicans veto tax increases, Democrats veto spending cuts, and monetizing the deficits - printing money - becomes the path of least resistance.
    • Inflation Tax: investors around the world dump their dollars, moving them into the currency of a country with a far better reputation for fiscal responsibility.
  • Renminbi:
    • From now, the Renminbi faces an uphill battle to become the world's premier currency. Even the Chinese may not want it to happen too quickly.
      • Exchange rate would have to become more flexible.
      • to implement reforms it may not wish to take; easing restrictions on money entering and leaving the country.
      • need to accelerate domestic financial reforms and start issuing much greater quantities of yuan-dominated debt.
      • the idea of turning the SDR into a global reserve currency remains fanciful.
        • China and many other emerging markets want to replace the dollar with something a bit more stable and resistant to crisis and collapse.
        • the IMF have to be reformed.

10. 断層:

  • 羅生門


  • 重要な変化


  • 地中海クラブの国々

  • ドルの衰退


  • 人民元

>Top 11. Conclusion:

  • Tragedy and Farce:
    • Crises are as old and ubiquitous as capitalists itself. They arose hand in hand with capitalism; like the plays that Shakespeare first staged at this time.
      • The staging changes, as do the audiences, but everything else - the cast of characters, the order of the acts, and even the lines - remains remarkably consistent from crisis to crisis, century to century.
  • The road to redemption:
    • Central banks arguably have the most power and the most responsibility to protect the financial system. In recent year they have performed poorly.
      • In the future, central banks must proactively use monetary policy and credit policy to rein in and tame speculative bubbles.
    • Crises cannot be abolished; like hurricanes, they can only be managed and mitigated.

11. 結論:

  • 悲劇と笑劇は繰り返す


  • 償いへの未知
    • 中央銀行の役割
    • 根絶できなくとも軽減を

>Top 12. Outlook:

  • >Top Whither Japan?:
    • Lost Decade from the early 1990s: in the wake of the bubble, Japan made many policy mistakes.
    • Japan proved vulnerable on account of its heavy dependence on foreign trade, dependent on a weak yen. When global growth collapse in 2008-09, exports collapsed.
    • Japan faces a host of long-term problems. Its aging population, combined with its reluctance to welcome immigrants.
    • An inefficient service sector with low productivity has proven resistant to change, as rigid economic and social conventions like lifetime employment.
    • More worrisome, Japan's high public deficits, weak growth, and persistent deflation point to a possible fiscal crisis; almost 200% of GDP
    • household saving rate fell sharply to spend more to maintain their standard of living.
  • China:
    • has an infrastructure that outstrips its level of development; the supply is starting to outstrip the demand.
    • some of the credit now flooding toward other, equally unproductive uses, including speculative, leverage purchases of commodities, equities, and real estate; which has the potential bubble.
    • Consumption in China remains around 36% of GDP while 70% in US.
    • Coastal, urban areas that depend on export are advancing more quickly than rural areas in the central and western parts.
    • Environment; leading to pollution that disfigures the landscape and causes significant health problems.
  • Gold:
    • Gold prices rise sharply in one of two situations; 1) rise sharply in first 6 mons of 2008 The the bubble burst, commodity prices fell, and gold prices fell too. 2) at the time of the Lehman collapse in 2008. investment became sufficiently scared about the security of their financial assets; some preferred the safety of gold.
    • Gold prices spike in response to concerns about either inflation or depression. In both case, gold makes a good hedge against risk.
    • Unlike other commodities, gold has little intrinsic value. You can't eat it, heat your house with it, or put it to good use. It is what Keynes called a "barbaric relic."
  • Inflation or Deflation?
  • Globalization and its Discontents:

12. 展望:

  • 日本の状況



  • 中国


  • I can recall the famous theory of geology as 'Uniformitarianism' of James Hutton and 'Catastrophism' by Georges Cuvier.
  • But these two theories seem to have the same root; catastrophes can be repeat regularly: Uniform Catastrophism or Catastrophic Uniformitarianism, such as the Plate Techtonics movement.
  • 斉一性と天変地異説とは同根。斉一的な変化が継続するとある時点でカタストロフィが発生するし、一方カタストロフィーのしくみがあるからこそ、斉一的な変化が継続するという両面がある。(プレートテクトニクス)

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