1 / 20

The crisis: have we thrown the banking baby out with the bath water?

The crisis: have we thrown the banking baby out with the bath water?. Patrick Minford Keele World Affairs January, 2013. The crisis. In summer 2007 first problems with sub-prime mortgage products In rest of 2007 and into 2008 central banks stabilise banks; but Sept Lehman collapse

raanan
Download Presentation

The crisis: have we thrown the banking baby out with the bath water?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The crisis: have we thrown the banking baby out with the bath water? Patrick Minford Keele World Affairs January, 2013

  2. The crisis • In summer 2007 first problems with sub-prime mortgage products • In rest of 2007 and into 2008 central banks stabilise banks; but Sept Lehman collapse • World economy collapses; crisis starts • Governments sucked into massive bail-outs ; interest rates cut close to zero • Quantitative Easing starts, to reopen credit markets

  3. The recovery • Emerging markets and world bounce back; but Advanced economies have weak growth • Commodity prices return to pre-crisis peak • Productivity growth differential since 2001: advanced v emerging --Structural transformation in emerging creating rapid growth in commodity use --Productivity growth in advanced held back by high commodity prices

  4. Commodities

  5. Commodities

  6. A closer look at causes • Boom from 1983 fuelled by low commodity prices, assisting ‘computer age’ • Commodity shortage of mid-2000s --inflation and rising interest rates --falling western living standards --structural shift to less resource-hungry sectors --banking crisis; fall of banking industry

  7. The nature of crises ‘Trends’ due to productivity growth (innovation- unpredictable!). Stalling growth means future productivity level permanently lower. • Raw material availability/price key element in productivity/costs • Economy (incomes, house prices…) driven by productivity • ‘Run’ of good growth= boom. Run of bad growth= crisis

  8. UK GDP TRENDS

  9. The Crisis in the US

  10. Evidence of Political effect 1996 HUD target for F and F: 42% of mortgages to go to borrowers with income below area median (50% 2000; 52% 2005). 1996 HUD target for ‘special affordable’ (borrowers with less than 60% of area median) was 12% (20% 2000; 22% 2005). Also Community and Reinvestment Act of 1977 (Carter) strengthened in 1995 for ordinary banks. F and F securitised $394 billion of CRA loans 2000-2002. Taxpayer relief Act raised CGT exclusion band on houses.

  11. Crises without Banking crisis

  12. Crises with Banking Crises

  13. Histories with Financial Shocks only

  14. Policy conclusions • The ‘new normal’ in UK and most of west: weak growth due to new fundamentals • Alibi 1: ‘balance sheet weakness’. Symptom not cause • Alibi 2: ‘austerity the problem’. Government solvency limit fundamental too! • Alibi 3: ‘euro-zone crisis holding us back’. We can sell elsewhere and are doing so!

  15. How to restore (productivity) growth • Stop bank-regulation backlash; revive bank competition and credit growth to SMEs • Eliminate/weaken regulation (labour market mainly) on SMEs- Beecroft Report • Resist drift to anti-business populism • Reform tax system: flatter and broader • Liberate infrastructure planning

More Related