Charles Goodhart, 05 December 2008

Credit rating agencies were at the heart of the rise of securitisation, and securitised assets were at the heart of the Subprime problems. Plainly these agencies are slated for major reforms. This column presents the statement of an eminent group of financial economists on such reform.

Alberto Giovannini, 22 November 2008

Simplicity and transparency, two major causalities of recent financial market changes, are essential to restoring trust in financial markets. This column suggests that distinguishing two types of financial intermediaries – client servicers and capital managers – would be a big step in the right direction. Today’s lack of distinction means one set of regulations is applied to the two very different functions.

Jon Danielsson, 12 November 2008

Iceland’s banking system is ruined. GDP is down 65% in euro terms. Many companies face bankruptcy; others think of moving abroad. A third of the population is considering emigration. The British and Dutch governments demand compensation, amounting to over 100% of Icelandic GDP, for their citizens who held high-interest deposits in local branches of Icelandic banks. Europe’s leaders urgently need to take step to prevent similar things from happening to small nations with big banking sectors.

Richard Baldwin, Barry Eichengreen, 09 October 2008

Without rapid and coordinated action by G7/8 leaders, this financial crisis could turn into a jobs crisis, a pension crisis and much more. This column introduces a collection of essays by leading economists on what the G7/8 leaders should do this weekend. The dozen essays present a remarkable consensus on a few points: we need immediate, coordinated global action that includes recapitalisation of the banks.

Barry Eichengreen, Richard Baldwin, 10 November 2008

This column introduces a collection of essays by leading economists from around the world on what the G20 leaders should do this weekend. Four priorities are identified: nations should act quickly to strengthen and coordinate their firefighting responses; they should immediately reinforce the IMF’s ability to fire-fight the crisis as it spreads to emerging markets and vulnerable developing nations; they should 'above all, do no harm'. Finally, they should start 'thinking outside the box' when it comes to long-run fixes.

Luc Laeven, 31 October 2008

A new IMF database, which covers the universe of systemic banking crises from 1970 to 2007, shows that the average fiscal cost was about 15% of GDP, or three times the US’s $700 billion. This column points out that quick action often lowers the ultimate cost. Moreover wishful thinking teamed with regulatory forbearance and bank liquidity plans often raises the cost by delaying vital, but politically painful, government action.

John Muellbauer, 27 October 2008

The current financial crisis will probably lead to an unnecessarily deep recession. This column suggests that European central banks, misguided by outdated econometric models, should have cut rates faster and deeper in a coordinated fashion. They should now scrap these models and agree on a large, coordinated cut of 2 percentage points.

Viral Acharya, Raghu Sundaram, 26 October 2008

The recapitalisation aspects of the October rescue packages have been widely analysed by the world’s most effective think-tank in this crisis – the blogosphere. Here finance professors from LBS and NYU evaluate the rescue packages’ loan guarantees. The UK scheme has the flavour of a small tax, and is partly market-reliant; The US plan has the flavour of a $50 billion subsidy, and is almost fully government-reliant. Which scheme works better may depend upon the depth of the coming recession.

Frank Heinemann, 26 October 2008

The dizzying falls in equity prices seem to have stopped. If they restart, it may be time for radical measures. This column suggests one motivated by bubble theory. The Fed could temporarily guarantee a lower bound for the S&P 500 through targeted purchases of market portfolios via open-market operations and financed by injecting cash.

Avinash Persaud, 12 October 2008

The US Economic Emergency Act of 2008 allows the SEC to suspend mark-to-market accounting rules. But a blanket suspension would be counter-productive. Crises are times when uncertainty quickly turns to panic. Now is not the time to increase uncertainty by changing accounting standards. This column proposes an alternative: mark-to-funding.

Ángel Ubide, 10 October 2008

Policy has been reactive and reluctant, and politics have trumped efficiency and common sense. There are three steps that must be applied quickly and decisively: close the bad or small banks; recapitalize the good or too big to fail banks; and remove the bad assets from the system so that banks can return to lending.

Barry Eichengreen, Richard Baldwin, 14 September 2018

Original teaser from the column posted on 9 October 2008: Without rapid and coordinated action by G7/8 leaders, this financial crisis could turn into a jobs crisis, a pension crisis and much more. This column introduces a collection of essays by leading economists on what the G7/8 leaders should do this weekend. The dozen essays present a remarkable consensus on a few points: we need immediate, coordinated global action that includes recapitalisation of the banks.

Marco Pagano, 08 October 2008

By simplifying the information they transmitted to investors, banks managed to expand the market for the structured bonds that they issued. But this has also led to a catastrophic uncertainty that paralyses markets and even affects policy choices. The choice of opacity by issuers and rating companies has been socially harmful and should have been constrained much more tightly by regulation. Until today, though, few believed that transparency could be worth as much as 5% of US GDP.

Nicholas Bloom, 08 October 2008

The crisis is shaping up to be a perfect storm – a huge surge in uncertainty that is generating a rapid slow-down in activity, a collapse of banking preventing many of the few remaining firms and consumers that want to invest from doing so, and a shift in the political landscape locking in the damage through protectionism and anti-competitive policies.

Barry Eichengreen, 07 October 2008

Global crises used to remind us why we have the IMF. If the Fund doesn’t come up with some new ideas for how to handle this one, it may remind us why it has become increasingly unimportant. The IMF could reassert its relevance by aiding middle-income countries caught up in the crisis with new ideas on how to link emergency lending with policy adjustment.

Avinash Persaud, 06 October 2008

The liabilities of the biggest US bank equal half the US tax revenues; the ratios in Europe are bigger. Deutsche Bank’s liabilities are one and a half times Germany’s annual tax revenue; Barclays' are twice Britain’s. This crisis will either leave European financial integration in tatters or quicken the development of European fiscal capacity. European integration is a historical process that routinely stumbles upon crises that threaten to destroy it, only to find that it has been deepened by the crisis.

Tito Boeri, Willem Buiter, Daniel Gros, Klaus F. Zimmermann, Guido Tabellini, Stefano Micossi, Charles Wyplosz, Richard Baldwin, Alberto Alesina, Francesco Giavazzi, 30 September 2008

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 before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath.

Jon Danielsson, 29 September 2008

Complex financial models and intricate assets structures meant extraordinary profits before the crisis. Markets for structured products became overly inflated as even the banks did not have a clear view of the state of their investments. Given complexity's role in today’s mess, future regulation should focus on variables that are easy to measure and hard to manipulate (e.g. leverage ratios).

Daniel Gros, Stefano Micossi, 30 September 2008

Europe’s largest banks are highly leveraged and thus vulnerable, as Fortis showed. But some of these banks are both too large to fail and too big to be rescued by a single government. The EU should: (1) urgently pass legislation to cover banks with significant cross-border presence and empower the ECB to provide direct support, and (2) create an EU-level rescue fund managed by an existing institution like the European Investment Bank.

Barry Eichengreen, 28 September 2008

The Paulson Plan, whatever its final form, will not end the crisis quickly. Unemployment will rise but will the most serious credit crisis since the Great Depression bring about a new depression? Here one of the world’s leading economic historians identifies the relevant Great-Depression lessons. We won’t see 25% unemployment as in the 1930s, but double digits are not out of the question.



CEPR Policy Research