Stephany Griffith-Jones was recently interviewed on The Real News Network on how major banks fixed interest rates to make short term profits and look stronger than they were.
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Credit to Small Enterprises: The silent crisis
A new BIS working paper by Cecchetti and Kharroubi makes a point that is becoming more widely known, especially after the continuing financial crises experienced globally since 2008. This is that the level of financial development is good only up to a point, after which it becomes a drag on growth. In fact, the authors argue that when the focus is on advanced economies, a fast-growing financial sector is actually detrimental to aggregate productivity growth. This is explained by the authors on the grounds that, because the financial sector competes with the rest of the economy for scarce resources, financial booms are not, in general, growth-enhancing.
The recent experience of the United States and now particularly Europe, certainly confirms this – and even established doyens of the world of private finance are now more willing to concede this. But one critical aspect of the failure of financial intermediation is still inadequately recognised and discussed: the inability of the currently constituted private financial system to deliver funds to small and medium enterprises (SMEs), which still account for the bulk of employment not just in developing countries but also in advanced economies.
Three Reasons the Euro Zone Deal Won’t Work
Mark Blyth and Stephen Kinsella, guest blogger
The latest Euro crisis summit was different from the 19 others that preceded it in one very important respect: The PR department of the EU played this one very well. Rather than hopes being raised only to be dashed, this time they were dashed before the summit only to be raised after it ended.
And yet hopes are now slowly deflating once again, even as the Eurogroup works out the final details.
Three Reasons the Euro Zone Deal Won't Work
Mark Blyth and Stephen Kinsella, guest blogger
The latest Euro crisis summit was different from the 19 others that preceded it in one very important respect: The PR department of the EU played this one very well. Rather than hopes being raised only to be dashed, this time they were dashed before the summit only to be raised after it ended.
And yet hopes are now slowly deflating once again, even as the Eurogroup works out the final details.
A Big Banker’s Belated Change of Heart
Last week, in a CNBC interview, Sanford I. Weill, the former chairman of Citigroup, said that America should separate investment banking from commercial banking. This separation, of course, was the prime purpose of the Glass-Steagall Act of 1933, a piece of legislation that Mr. Weill and other bankers had successfully watered down, with Alan Greenspan’s support, before Mr. Weill helped engineer its official demise in 1999. Now, Mr. Weill, the creator of what was once the largest financial conglomerate in the world, suggests that Citigroup and others should be broken up. Banks can no longer “be too big to fail,” he told CNBC.
But what was most eye-catching was Mr. Weill’s claim that the conglomerate model “was right for that time.” Nothing could be further from the truth.
Protecting Developing Country Growth from Global Shocks
Stephany Griffith-Jones and Dirk Willem te Velde, guest blogger
The global financial crisis as well as food and fuel price increases have had a great effect on developing countries. Even though there is a common perception that poor countries were relatively unaffected by the 2008-2010 financial crisis, we estimate that sub- Saharan Africa lost around 5% of Gross Domestic Product (GDP) (compared with forecasts prior to the onset of the crisis). Contrary to perceptions, sub-Saharan Africa is a net oil importer (although there are of course some major exporters), and small and vulnerable countries (as a group) are net food importers, so high and vulnerable food and oil prices have very negative effects.
Developing economies slowing down
Developing countries are now facing an economic slowdown resulting from the Eurozone crisis, with a deterioration in GDP growth, exports and lending conditions.
Developing countries are increasingly being adversely affected by the economic recession in Europe and the slowdown in the United States.
The hope that major emerging economies like China, India and Brazil would continue to have robust growth, de-coupling from Western economies and becoming an alternative engine of global growth has been dashed by recent data showing that they are themselves weakening.
The Eye of the Currency Storm: Currency war gives way to currency confusion
Through much of 2010 and 2011 many of us watched the unfolding “currency war.” The currency war construct came into vogue after Brazil’s Finance Minister Guido Mantega began to complain openly in 2010 about the pressures placed on his economy and currency (and that of other rapidly-growing developing countries) by the cheap credit made available by the US Federal Reserve and other wealthy country central banks. Brazil’s President, Dilma Rousseff, joined the rhetorical fray later in 2012 by calling US President Obama and European leaders on the carpet for what she termed the “monetary tsunami” of hot money coming from rich countries.
How Wall Street Won and America Lost
In his latest book, Age of Greed, former New York Times economic columnist Jeff Madrick tells how Wall Street triumphed and America paid the price. It’s the story of how, starting in the 1970s, right-wing economics – a mystical cult centered on small government, low taxes and financial deregulation – and human greed teamed up to produce not shared prosperity but obscene economic inequality and financial instability, through the ideas and doings of a bipartisan roster of politicians, financiers, and economists, some obscure, others prominent (hello, Robert Rubin, Larry Summers!). We recently got him on the phone to talk about the triumph of finance and the decline of America in our age of greed.
The Time Bomb of Public Private Partnerships
Philip Arestis and Malcolm Sawyer
The South London Healthcare Trust, which runs three hospitals in south-east London, has recently been put into administration by the UK Secretary of State for Health as it struggles with its debts and deficits (see, for example, PFI will ultimately cost £300bn, Guardian, 5th July 2012). This story has much wider significance than a struggle with the effect of cuts in health expenditure, as much of the blame for the financial plight of this healthcare trust is being put at the door of the costs of the use of the private finance initiative (PFI) for the construction of two of the hospitals managed by the trust. It is also seen as a forerunner for further financial difficulties for many other healthcare trusts arising from the PFI-financed hospitals. It is indicative of the dangers of public partnerships which are costly, inflexible and disguise the financial implications of infrastructure investment.