Another year, and the Eurozone crisis lingers on. This column asks why, and discusses what can be done. It proposes a solution that can be achieved without the pain of a new EU treaty. This time last year, I wrote a Vox column wishing us all a better year than the previous one. Alas, 2011 […]
A few months ago, we were anxiously discussing whether governments should bail out banks. They did. And then they went into the business of bailing out car companies, just as central banks – a branch of government – started to lend directly or indirectly to the private sector. And now we start discussing whether governments should bail out… governments within the euro area.
The creation of the G20 reflects the bad instincts of politicians. A rushed decision to pretend that “we are in command”, with no ex ante substance, poor preparation, and conflicting aims, can the G20 do some good when it meets in April in London? The odds are clearly dark, but miracles sometimes happen. Here are a few ideas.
The annual Geneva Conference organised together with CEPR by the International Centre for Monetary and Banking Studies looked this year at financial market regulation. The latest title in the Geneva Reports on the World Economy series, “The Fundamental Principles of Financial Regulation ”, has been prepared by Markus Brunnermeier (Princeton and CEPR), Andrew Crockett (JPMorgan), Charles Goodhart (LSE), Avinash Persaud (Intelligence Capital) and Hyun Shin (Princeton and CEPR).
The massive and reasonably well coordinated bailouts undertaken in a large number of countries should eventually bring the financial crisis to its unhappy end. There may be more hiccups and the need for more intervention – and more money – but the British plan has offered a good blueprint. The original Paulson plan sought to relieve banks from their toxic assets, but it never quite managed to find a good way to price them. Instead of attempting to shore up the asset side of bank balance sheets, the British plan focuses instead on the liability side. By undertaking to guarantee bank borrowings, it lays the ground for a restart of the money market. By further offering to inject capital, the plan kickstarts the process of reconstruction of badly damaged banks. It could well be the final best plan combines both.
The G7 and Eurozone meetings have raised hopes of expedient recapitalization of several banking sectors with the use of public funds. Such recapitalization is rightly aimed at shoring up equity base of the highly leveraged banks whose capital is essentially eroded, and of better-capitalized banks whose equity base has suffered too due to a spillover […]
The Lehman Brothers story has shown two things – banks cannot be simply allowed to go bankrupt and a piecemeal approach will not bring banking systems back into minimal functioning condition. The lesson is that there will have to be a bailout. The contagion from the US to Europe and now to most other parts […]
Anger runs deep. It is aimed at financiers, who first earned huge and conspicuous bonuses and now successfully force taxpayers to pay for their mistakes. It is also aimed at financial markets, whose merits have been oversold. The mantra that financial markets always allocate resources better was never true. Financial markets suffer from very […]
This is a once-in-a-lifetime crisis. Trust among financial institutions is disappearing; fear may spread. Last week’s US experience showed that saving one bank at a time won’t work. A systemic response is needed and in Europe this means an EU-led initiative to recapitalise the banking sector. Unless European leaders immediately unite to address this crisis […]