Tuesday, September 29th, 2009
In a lively discussion with Simon Johnson (MIT Prof, former Chief Economist, IMF), Lawrence Fish (former Chairman and CEO, Citizens Financial) deconstructs the near collapse of the banking system and points out the multiple factors that have contributed to the financial crisis.
Topics in the discussion include the banks that did not fail, how Canadian and other countries’ banking systems also did not fail, the political landscape of banking regulation, ethics, bonuses in the banking industry and the ethics oath signed by 50% of the students at the Harvard Business School.
This is a must-view video clip, but be warned that it runs for 53 minutes.
Tags: Banking Industry, Banking Regulation, Banking System, Banking Systems, Canadian Market, Ceo, Chief Economist, Citizens, Collapse, Ethics, Financial Crisis, Financial Services, Harvard Business School, Hat Tip, Imf, Infectious Greed, Lawrence Fish, Political Landscape, Prospects, Simon Johnson, Video Clip
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Monday, August 10th, 2009
Simon Johnson, former Chief Economist at the IMF, and MIT Sloan School professor provides a well thought out explanation of how market bubbles form in “How to Blow A Bubble.” Earlier this year in May, Johnson penned the Atlantic magazine article – “The Quiet Coup: How Wall Street Captured Government.”
First he gives credence to Rolling Stone columnist Matt Taibbi, author of the now famous expose on Goldman Sachs, for shedding light on “market microstructutures”
“- not the technological variety usually studied in mainstream finance, but more the politics of how you construct a multi-billion dollar opportunity so that you can get in, pull others after you, and then get out before it all collapses. (This is also, by the way, how things work in Pakistan.)”
Johnson then provides his own view of Goldman Sachs has provided monetary policymakers with the ammunition and the will to make decisions that are ultimately responsible for the formation of bubbles:
Now it seems the ideological initiative may be shifting towards Goldman Sachs.
As Bloomberg reported on August 5th, “Goldman economists, led by Jan Hatzius in New York, now see a 3 percent increase in gross domestic product at an annual rate in the last six months of this year, versus a previous estimate of 1 percent. The new projections were included in a research note e-mailed to clients.”
Goldman’s public thinking, of course, has been that we face such slow growth that interest rates should be kept low indefinitely. There is, in their view, no risk of inflation – and no such thing as potentially new bubbles (e.g., in emerging markets). The adjustment process will go well, as long as monetary policy stays very loose – it’s back to Bernanke’s 2003 line of thinking.
This line of reasoning has been very influential – reinforcing Bernanke’s commitment not to tighten monetary policy in the foreseeable future and fitting in very much with the Summers model of crisis recovery. Just a couple of weeks ago, in his July 14 report, Jan Hatzius argued, “further stimulus remains appropriate” and “the appropriate debate is not whether fiscal and monetary expansion is appropriate in principle but whether it has been sufficiently aggressive.” I don’t know if he has revised this line in the light of the big upward revision in his growth forecast or whether he is still saying, “Ultimately, we do expect further stimulus, but it may take significant disappointments in the economic data and the financial markets before policymakers move further in this direction.”
Much faster growth than expected is, of course, in today’s context a good thing. But it also brings complications. If you keep monetary policy this loose for much longer, you will feed bubbles. And if you encourage even looser monetary and fiscal policy, there will be a costly reckoning not too far down the road.
…Next time, our big banks will take another massive hit – quite possibly bigger than what we saw in 2008.
Goldman and its insiders are ready for this. Are you?
Read the whole article and others by Simon Johnson at Baseline Scenario.
Tags: Bill Gross, Bloomberg, Bubbles, Chief Economist, Coupl, Credence, Crisis Recovery, Dollar Opportunity, Emerging Markets, Goldman Sachs, Gross Domestic Product, Imf, Line Of Reasoning, Magazine Article, Matt Taibbi, Mit Sloan School, Monetary Policy, Monetary Policymakers, Rolling Stone, School Professor, Simon Johnson
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Monday, March 30th, 2009
*The following is an excerpt from The Quiet Coup, by Simon Johnson, Atlantic Magazine, May 2009.
Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at baselinescenario.com, along with James Kwak, who also contributed to this essay.
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
The Quiet Coup
by Simon Johnson
“One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.”
“The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials-from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere-trudging to the fund when circumstances were dire and all else had failed. . . .”
Read the complete article here.
Tags: Chief Economist, Dance Card, Emerging Market, Finance Industry, Imf, Imon, International Monetary Fund, Kwak, Last Ditch, Oligarchy, Painful Changes, Private Capital, Regional Trading, Running Out Of Time, School Of Management, Simon Johnson, Sloan School Of Management, State Of Affairs, True Depression, Unpleasant Truths
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