Friday, October 31, 2008
Thursday, October 30, 2008
The result was the prodigious and noxious fecundity of the financial mind, which was so strikingly characteristic a feature of the administration of public funds during the final three centuries of the monarchy.
-- Alexis de Tocqueville, L'Ancien Régime et la Révolution, II.10
We are all Keynesians now.
The other day, for instance, Alain Lamassoure happened to pass through Cambridge. Lamassoure, who was minister for European Affairs under Balladur, minister of the budget under Juppé, and advisor to Sarkozy on European matters during the campaign, was passed over for a cabinet position in favor of socialiste d'ouverture Jean-Pierre Jouyet, who has announced that he will be leaving the government in 2009. Lamassoure was careful to note in his Harvard lecture that "Nicolas Sarkozy is a remarkable man." No doubt he hopes that Sarkozy will note in turn that among those remarkably eager to serve him in this hour of need, there are others just as remarkable as Devedjian and perhaps a trifle less ironic in their zeal to flatter the prince.
Wednesday, October 29, 2008
This commodity fetish is probably less effective than a blog and certainly more expensive, so if the market were logical it would soon vanish from the shelves. But as everyone now knows, markets aren't logical.
ADDENDUM: Sarkozy has joined Brown in calling on the IMF to provide funds for Eastern Europe. Meanwhile, the IMF has made 25.1 million euros available to Hungary.
Tuesday, October 28, 2008
Monday, October 27, 2008
Don't even think of branding Mosco a "sewer loser" or of descending to the level of "gutter politics." On the contrary, he seems "flush" with confidence.
(*Non French-speakers may wish to consult their dictionaries under tout à l'égout.)
By the way, this is further evidence that the driving force behind the earlier boom was the global savings glut, and sheer giddiness, not the excessively loose monetary policy of Greenspan's Fed. The ECB has pursued a relatively tight monetary policy since its origin. It also will be interesting to see what trouble arises in Spain, since Spanish banking regulation has been considered a model of how to keep these problems under control.
Sunday, October 26, 2008
One wonders who pays for polls of this sort or what they think they've learned from them. I suppose it's just something to blacken newsprint with. It would be more useful to pay a good political reporter. What exactly does this reputation for competence rest on? Delanoë has the advantage of occupying a more visible executive position than his rivals. He has avoided scandal and been a competent financial manager. He has managed to mute factional squabbling in his city. And he has taken some very visible measures, such as Paris Plage and the Velib initiatives. He has, if not charisma, a rather personable charm.
Of course all this adds up to a rather thin dossier for a candidate for party leader or, eventually, the presidency. One doesn't know much about his thinking on matters of foreign policy, domestic economic policy, energy policy, defense, etc. His low-key campaign for the party leadership has been an exercise in positioning rather than philosophizing, except for one much-reported statement of compatibility between socialism and liberalism, which was in fact merely a distillation of all his other positioning moves rather than an extended meditation on the relation between the two terms.
If he becomes party leader, his affable, sometimes pointedly ironic style may prove more attractive than the rather ringard franc-tireur acidulousness of Hollande (his "coup d'éclat permanent" dart at Sarko could be turned back on himself: his tenure has been a coup de blabla permanent, a steady drizzle of similarly harmless darts, which bring a momentary smile to the lips but leave no mark on the mind). As for Delanoë, I'm not at all sure what he would add up to as a presidential candidate or how he would fare in a confrontation with Sarkozy.
Will DSK's effectiveness be reduced? I think not. The severity of the crisis requires a competent technician at the helm, and no one doubts DSK's competence (though his work ethic has been questioned). Will it compromise any thought he might have of running for the French presidency in 2012? At this point, speculation on this matter is mere blather and froth. A week is a long time in politics. In the midst of an economic meltdown, 24 hours is a long time, and each weekend seems to bring a new round of restructuring of capitalism. 2012 is a century away.
But bloggers are licensed to blather, so ... if you push me, I'd say that Dominique Strauss-Kahn will never be president of France. Not because of this latest instance of philandering. I think he doesn't want the job badly enough. A sybarite and philanderer can become president of France: Sarkozy proved that. But he has to be the kind of sybarite who thinks of his future glory while shaving in the morning, while yachting in the Mediterranean, while dining at the trois-étoiles, and while disporting himself 'twixt satin sheets. DSK's mind wanders. He hasn't got the right stuff.
In France, Sarkozy has offered blanket guarantees of everything related to banking: deposits, loans, what-have-you, but details, so far as I am aware, have been thin. So it would seem on the surface that France more closely resembles the US plan. My sense--possibly erroneous--is that the government of France has been profligate with promises and short on particulars. Now that various bailout plans are being analyzed in detail, it would be nice to know more about what the French have actually proposed. If anyone knows where to find this information, please let me know. As usual, the French media (at least the media I have seen) have not been much help.
Saturday, October 25, 2008
Friday, October 24, 2008
And then I was pleased to read yesterday on one of my favorite blogs, Crooked Timber, that French Politics is "one of the treasures of the blogosphere." Thanks, Henry. Of course the pleasure was spoiled somewhat by this (predictable) comment: "I am trying very hard to resist making a comment on the suggestion that there is anything about French politics that is a 'treasure.'" Dear Antti Nannimus: if you can't find the treasure, learn to cherish la nostalgie de la boue.
In any case, I persist, and as always I welcome your suggestions of things I ought to have looked at but haven't.
Anyone who saw Juncker on France2 the other day in an interview with David Pujadas will recognize that Juncker is of the same opinion. He treated Pujadas' aggressive questioning about Luxembourg's fiscal paradise status and lax banking regulation as though Pujadas were a French skirmisher striking out in advance of an invading army. And he may well have been. What better way to exclude Juncker from the job of economic crisis czar than to link him to the failures at the heart of the crisis? (Past associations haven't slowed Henry Paulson down, though. Sarkozy should keep this in mind.)
Thursday, October 23, 2008
Call it an investment fund or sovereign wealth fund. Call Sarkozy a socialist in wolf's clothing (as one MEP did the other day). Mock his inconsistency or praise his political versatility. In fact he's merely doing what leaders of all the advanced industrial countries will be doing shortly, if they are not doing it already: trying to minimize the damage of the recession by turning on massive government investment. This can do a lot of good, especially if it is seen not solely as countercyclical spending but as a chance to do something about decaying infrastructure and make foundational changes with a chance for long-term impact. In France it's hardly unprecedented for major capital spending to be directed by the state, whether under the Commissariat au Plan, through state-controlled or -influenced enterprises, or directly by the Ministry of Finance. Sarkozy always danced nimbly between the neoliberal and state-capitalist camps. If the last two decades were the neoliberal decades, the coming two are likely to consecrate the hegemony of state capitalism. Sarkozy has been quicker than most to draw that conclusion and try to get ahead of the tsunami. Let's see what happens next.
Wednesday, October 22, 2008
One can wish that Friedman hadn't been quite so influential, but this seems a tad hyperbolic.
All the earmarks of authentic Sarkozyan policymaking are here: the idea is bold; it circumvents existing constitutional roadblocks (or in this case, the absence of a constitution and therefore of a stable European executive, which itself is a roadblock to decisive action); it was announced without prior consultation; it is an affront to other powerful players (Angela Merkel foremost among them); and it is an inextricable mixture of good ideas (continuity of policy and centralized decision-making are probably needed in the present crisis if not always) and bad ones (the sovereign wealth fund idea, which Germany has already rejected, is traditional French-style "economic patriotism" writ large and dressed up as an antidote to economic collapse, which it is not; the absence of democratic controls at the EU level would pose a serious problem).
Still, Sarko's excesses have the virtue of getting the pot boiling. Something may come of his proposal, though it will no doubt have to be much modified before it becomes acceptable to all the veto players. The sheer chutzpah of appointing himself economic czar of the Eurozone takes the breath away, but his instinct that, if not a czar, then at least a coordinator with clout is essential is probably correct.
Maybe DSK will be the man for the job if the IMF decides to sack him (I think they won't).
Tuesday, October 21, 2008
French observers should refrain from attributing these charges to "American puritanism," however. In fact, DSK's frasques have barely made a ripple in the US press. The public is indifferent, and virtually no one outside the Beltway knows his name. This is a purely inside play.
Monday, October 20, 2008
The current crisis is still unfolding. Its causes are not fully understood. Agreement on remedies is unlikely in the short term. And what is needed now are emergency measures, not overambitious makeovers. Sarkozy's activist instincts served him well in putting together a European bank rescue plan, but his summit proposal thus far seems long on showmanship and short on substance. Even Bush seems to recognize this, and I rarely give Bush credit for anything. Hence his footdragging. In any case, it would be absurd, not to say impossible, to make any commitments until a new administration is in place in the U.S.
But today he is back with a plan for "digital France." Compared with liberating the slumbering worker to work more in order to earn more, this initiative, the fruit of Eric Besson's elucubrations, seems a trifle underwhelming to warrant the full presidential Monty, but dog-and-pony opportunities have been in short supply, so on fait feu de tout bois. Digital television is coming to France. Broadcast frequencies will be liberated and can therefore be auctioned off to mobile Internet service providers--a one-time windfall to a state badly in need of same. There will be more high-speed Internet access as well. Who can complain about that?
No doubt the adepts of the ubiquitous "precautionary principle" will find grounds for bringing out their worry beads yet again. New antennas will spring up in neighborhoods not yet bristling with cell-phone towers. People whose noggins functioned well enough with television signals coursing through their brains will feel headaches coming on at the thought of their neighbors' e-mail doing the same. Scientific research will be brandished by six angry characters in search of an authority. Sociologists will write about new social movements. Orange and SFR will replenish their coffers. Monsieur Bouygues will find ways to favor the president with his largesse. Crisis or no crisis, life goes on.
Sunday, October 19, 2008
Saturday, October 18, 2008
Jean Quatremer, one of the original rumor-mongers, returns to the charge here.
Friday, October 17, 2008
Extrait de l'éditorial du Washington Post soutenant (non sans réserves parfois idiotes) Barack Obama :A McCain presidency would not equal four more years, but outside of his inner circle, Mr. McCain would draw on many of the same policymakers who have brought us to our current state. We believe they have richly earned, and might even benefit from, some years in the political wilderness.Et ça donne, en traduction dans Le Monde (un habitué du genre) :Le Washington Post précise que, selon lui, une présidence de McCain n'équivaudrait pas à quatre années supplémentaires d'administration Bush mais qu'elle profiterait aux mêmes décideurs. "Nous pensons qu'ils se sont enrichis, et qu'ils ont même tiré bénéfice de ces années de désert politique", peut-on lire dans cet éditorial, qui sera publié vendredi dans l'édition papier du journal.Nous pensons pour notre part que plusieurs heures de lecture d'un dictionnaire anglais / français seraient une punition largement méritée - et peut-être même profitable- pour le journaliste qui a commis cet affreux contresens
“I have no faith in the stock exchange, and this crisis proves I’m right.”
By Lisa Pham in Paris
October 15 2008
As the sun warmed the Parisian streets, market goers were making the most of their Sunday morning. Marché d’Aligre is one of the cheapest fruit and vegetable markets in the French capital, with buyers queuing up for bananas, fresh cauliflower and ripe tomatoes.
In a week that saw the Paris Bourse experience its worst ever single-day loss, the impact on daily living costs for French people has not yet been felt.
“We don’t yet know how the government is going to react,” says Vincent, a 40 year-old employment researcher. He keeps his money in three different bank accounts: ING Direct, Caisse d’Epargne and Banque Populaire. “I have no faith in the stock exchange, and this crisis proves I’m right,” he says.
For 49-year-old Alain S., an engineer, the plummeting shares have little impact on his routine. He and his wife are at the market doing their weekly shopping. “We don’t have any shares, so we’re not worried,” he says.
Vincent M., a student, shares this sentiment. “I know it’s being talked about a lot, but I feel like the situation doesn’t concern me directly just yet.” The long-term effects of the financial crisis are unclear, in particular whether price hikes should be expected. “I have simple habits,” continues the 21-year-old, “so not much will change.”
Many market goers are hesitant to comment on the situation because they feel like they don’t understand what’s happening. Nevertheless Mohamed, a 36-year-old electrician, is nervous about the future. His wife even more so. “We don’t have much money,” he explains. “We have some savings in the bank and my wife says that we have to withdraw it all.”
Their fear is reminiscent of the Great Depression of 1929, when customers took money out of all their accounts because they were worried about the banks becoming insolvent. This, however, only deepened the economic damage.
Does Mohamed trust his bank? “Not at all,” he replies staunchly. Fearing unemployment and inflation ahead, he and his wife are trying to pay more attention to what they spend. Shopping at the Sunday market is cheaper than at grocery stores.
Similarly 54-year-old Fateho, who works in opinion polls, is being careful with her money. “I’m looking for the cheapest things,” she explains, “I check out each stand when I’m at the market. I’ve decreased my spending habits and I’m trying to cook more at home.” While she says she has confidence in her bank, it’s a little shaky. “Touch wood!” she jokes.
For Cristina, a 31-year-old teacher, it’s too soon to predict what consequences the financial crisis will have on the French economy. If prices increase she’ll inevitably change how she spends money, but if not, she thinks it will be the same. “Maybe less travelling,” she admits.
Thursday, October 16, 2008
Q: Many market participants I talk with think that the way Lehman was allowed to fail caused substantial damage to confidence and to the access to credit of other financial institutions. Do you think that criticism has some merit, and if so how might it have been done differently, and could it be done differently if there were a similar situation under the TARP?
Mr. Bernanke: So, Lehman was not allowed to fail that in the sense there was some choice being made. There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation. The Federal Reserve's ability to lend which was used in the Bear Stearns case, for example, requires that adequate collateral be posted so that we are not taking credit risk, we are lending against collateral. In this case that was impossible. There simply wasn't enough collateral to support the lending. From the Treasury's perspective, unlike the FDIC, deposit insurance fund, there were no funds, there was no option. We worked very hard over one of those famous weekends, with not only some potential acquirers of Lehman but we called together many of the leading CEOs of the private sector in New York to try to come to a solution. We didn't find one, and therefore we were unable to do what we wanted very much to do, which was to prevent the failure of the company.
Indeed, Sarkozy recognizes what Merkel seems to have shut her eyes to: Europe, having offered massive guarantees to both depositors and lenders--guarantees that will remain credible only as long as they are not sorely tested--must now ensure that borrowers do not fail, that investor confidence does not crumble, that what Keynes termed "animal spirits" do not flag. Of the more than one trillion euros pledged thus far, only a small fraction involves up-front expenditure: the equity infusion to banks. The rest is in the nature of insurance, a sort of gigantic credit default swap, which, like too many other CDSs, cannot possibly be paid in case of systemic failure. Thus governments have now committed themselves, pace Merkel and Juncker, to making sure that systemic failure does not occur. The question is what form the stimulus will take, not whether it will occur, and it would be good if Europe could achieve coordination on that point as rapidly as it came to agreement on the insurance policy that made such coordination as inevitable as it is essential.
I am reminded of the 1968 Olympics. American athletes raised their clenched fists on the victors' stand in Mexico City, and to judge by the reaction in the States, you would have thought World War III had broken out. The root cause was the same. Minorities, feeling mistreated at home, seized one of the few occasions when their expression would have unquestionable public visibility to manifest their existence and their discontent. Having no use for the proprieties of normal political discourse, they were only too glad to be rapped on the knuckles by sputtering elders. The anger was proof they'd gotten under the skin of the martinets, which is precisely where angry young cut-ups want to be. Outrage and overreaction are hardly remedies, as anyone who has ever dealt with an adolescent (or been one) knows.
The politicians ought to stop their useless scolding and get back to the urgent business of the day. If the United States can stop talking about flags pinned (or not) to the lapels of candidates, France can stop yapping about jeering at soccer games.
Tuesday, October 14, 2008
One could imagine a defense of abstention, but not the one the Socialists gave. They complained that the plan contained no provisions for responding to the impending recession. I suppose that someone at rue Solférino thinks this makes it seem as though the PS is defending "workers." This is to take voters for fools. People may be wary of a plan that they don't fully understand (does anyone?), but they know the difference between an emergency and legislation-as-usual. Hollande and Ayrault essentially conceded that the situation was urgent, so that the party's abstention can only be interpreted as a refusal to share responsibility for navigating in the storm. This is a decision that will haunt them for some time to come.
1. To borrow a page from Alexander Gerschenkron (Economic Backwardness in Historical Perspective), there are sometimes distinct advantages to being late. Europe, which at first thought it might be largely spared in the current maelstrom, had the opportunity to observe U.S. (and British) mistakes in dealing with it.
2. Europe had the advantage of a convergence point modeled on the actions taken by Gordon Brown. Brown initially made the same errors as Paulson but did not share Paulson's ideological priors: (partially) nationalizing the banks allowed a New Labour politician to indulge Old Labour instincts.
3. A near-consensus had emerged among economists that something like the Brown plan--government purchase of an equity stake in banks plus loan guarantees--was much superior to the Paulson plan. The backing of experts mattered, though the experts often hedged their positions with considerable doubt and uncertainty, and how could they not, since so many facts remain unclear.
4. Europe's problem is more narrowly circumscribed than America's. In addition, the clash between Merkel and Sarkozy probably helped the Brown plan, since it came from neither of them. Furthermore, Merkel's initial opposition to coordinated action seems to have collapsed when she realized the size of the Hypo Real Estate failure--a German problem that might be too big for Germany to solve.
5. The existence of so many transnational banks subject to regulators in different countries (Fortis is a case in point) made some kind of coordination inevitable.
6. For Europeans, (partial) state ownership of banks is nothing new.
7. European politicians of all stripes are more deferential to economic technicians than some American Congressmen, so the possibility of a legislative revolt against the emergency measures by the executive was limited.
8. Europe's crisis is not complicated by the politics of a presidential election.
9. The political leadership in the UK, France, Germany, and the EU is more competent and economically literate than the U.S. president and is not handicapped by lame-duck status, although it is noteworthy that Brown and Sarkozy were able to lead forcefully despite low approval ratings and that Merkel came round despite losses by the right in recent regional elections.
ADDENDUM: I should say that the U.S. might have come to the new Treasury plan without the European example; things were already moving in that direction. But once Europe decided to guarantee deposits and interbank loans, the U.S. really had no choice; assets would have flown to safety in Europe without similar guarantees here. I suppose this could have been done without the equity infusion, but that would have been foolhardy. The fateful step that has yet to be taken is the acquisition of voting shares in the banks; the preferred shares to be acquired under the Paulson plan will be non-voting. And the exit strategy remains to be defined, so the U.S. government may be in banks far longer than it will remain in Iraq.
Some or all of these points may be wrong, but they provide a basis for discussion.
A good narrative of the process leading to accord can be found here.
Monday, October 13, 2008
- MIllion anglais = MIllion français
- BIllion anglais = MIlliard français
- TRIllion anglais = BIllion français, mille milliards de picaillons !
That was then; this is now.
Sunday, October 12, 2008
As promised, here's a quick report.
First, it's still work in progress. On day one of public opening, just one workshop in public use, but unfortunately, the artist had not arrived yet...
The place won't be humming until next Spring.
A memento of past "laicité" wars, it was built in the 1870's (on the site of a former slaughterhouse) as the warehouse for the Paris Catholic diocese funeral organization. Was seized by the City in 1905 after the separation of Church and State "to provide decent funerals for citizens irrespective of their creeds and financial means". It was not a funeral parlor, but a big industrial facility where hearses and horses were parked and caskets were manufactured and stored. Ofically, the City lost its funeral monoploy in the late 80's (of course, as often in France, the monopoly had effectively disappeared a long time before).
It is located near railroad lines which were useful to carry the timber used in the casket making process. Located in the 19th arrondissement, it is surrounded by housing projects and is close to an area that recently made the headlines after the Paris prosecutor declared an war against local gang warfare. Clearly, not your typical bourgeois area, we will be thrilled "de nous encanailler" when we visit the shows and attend artist performances.
The architecture is plain vanilla end of 19th century industrial of no special character. I have seen several similar projects in various European capitals (Brussels, Rome, Vienna...). However, the money spent (> € 100 Mio) shows, with quality fixtures and material.
You can see a few pictures on
The following is a guest post from Brent Whelan:
Last night I met the phénomène Olivier Besancenot face to face. I greeted M. Besancenot, shook his hand, and then watched him fire up a packed hall of 500 shouting, cheering supporters. It was the full Besancenot-effect, and I came away thinking that history may have some chapters left after all, and this man may write one of them.
The meeting took place in Évreux, an obscure little one-street town on the eastern edge of Normandy, at the Zenith, a large movie theater rented out for the event. When I arrived OB was standing in front of the theater chatting with a few supporters, while several camera crews circled around him and four burly handlers eyed him protectively. He is a small man, fine-featured and impeccable in pullover and jeans; he could be a real heart-throb if he wasn't so serious.
Politely excusing himself from his supporters, he turned to the micros and proceeded to give one of his unbelievably rapid-fire interviews, every word precise and logical, like a prof de lycée
giving a lecture to his class—double speed. Having seen a number of such interviews on video, I expected the speed, but not the emphasis—even in this dispassionate and expository mode he makes every word felt. But he also maintained a cool, business-like demeanor.
When the interview ended, I made my move. I went up to him, told him I wished to greet him, shook his hand, and remarked that I had come from the United States to hear him speak . This remark must have sounded particularly absurd here in Évreux, and the only response I got was a quizzically upraised eyebrow as his handlers spirited him into the hall.
I went in, grabbed a spot and watched as every seat filled with people of all ages and conditions, a huge event for this little town. The program was carefully choreographed to reflect the NPA's desire to form a broad coalition of people from many movements outside the traditional labor base of the Trotskyists. OB came out and sat with 5 or 6 others in armchairs at the front of the hall. Each of the others spoke briefly about her or his personal activism: an anti-nuclear environmentalist, a nurse/labor organizer, a former Socialist Party organizer, a member of a support team for undocumented workers, and—most movingly—a hoarse auto worker who had come directly from the picket line at the Renault factory, where several hundred workers are losing their jobs "so the shareholders can have their dividends," as he put it.
When OB finally stood up to speak, he seemed quite literally to arise from this collectivity of bruised and embattled citizens. As he warmed to his speech, a quite different side of him began to emerge: animated, even radiant, a man who loved being here, speaking to his people. He was funny and charming, this OB, ridiculing Sarkozy and Christine Lagarde, the finance minister, pulling scraps of paper from his blue jeans to read excerpts from their speeches. "Ne pa—ni—quez—pas," ("Don't panic") he mockingly quoted from the overreactive president's advice to his constituents. "Doesn't that always make you more anxious?" And he made one-liners out of the cabinet's substitute phrases—e.g. "negative growth" or "prolonged period of soft economic performance"—in place of the banished word "recession." This was OB's bravura performance as the "mailman from Neuilly," a folk opera about the local boy who scores first on the exams and outwits the profs, and uses his gifts to tell the people's real true story. The hall loved it, and loved him, and you could see in his shining eyes that he loved us back.
At a certain moment, though, this witty and sarcastic OB turned into a quite different speaker, this one angry, insistent, prophetic. He denounced the greed of the few, and the magnitude of the profits they "suck like blood from the economy," leaving "pas un radis" (not a red cent) for healthcare and education and social solidarity. Again and again he pointed to lay-offs and unemployment, and demanded decent-paying jobs for everyone able to work. Finally he called for nationalizing the entire finance sector, not just the "rotten fruit" but the whole orchard, a "service public financier."
I could try to itemize the many changes OB rang on these themes—he spoke for nearly an hour without a moment's lapse or lull—but I'll just say that it was galvanizing. All over the hall teenagers, distinguished-looking older people, people of all sorts were laughing and cheering and shouting out, and quite a few rose to their feet in tribute as he finished.
We were warned that the meeting would end promptly, as OB was tired and had to go to work the next day—he really does deliver the mail in Neuilly. As his handlers slowly moved him out the door and toward the parking lot, I got another close look at him and saw yet another side of this remarkable man, no longer lit by klieg lights, no longer radiant. His face was sweaty, and he was a bit slumped, clearly drained from the performance he had just turned in. He seemed as small as his actual size, an ordinary person like the rest of us, shouldering an enormous load. It no longer looked easy, much less glorious, being Olivier Besancenot. He is the lifeblood of this new party and the movements it embraces. Without him there would be no party, and everyone knows it. So his handlers gently detached him from his admirers, eased him into the back of a sedan, and drove off with him, to rest, to prepare to do battle another day.
In some respects, Sarkozy's political persona draws on elements of both American neoconservatism and American populism. But France is different, and in the end there was more mileage to be gained by playing the humanitarian card rather than by following Sarah Palin down the road to neo-McCarthyism. Sarkozy knows which country he lives in.
Late confirmation of my hypothesis: Carla and Valeria went to the hospital together to inform Petrella she would not be extradited. Interestingly, the Bruni-Tedeschis are in France because their family fled to escape the violence of radical groups in the 1970s.
Saturday, October 11, 2008
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Thursday, October 9, 2008
One small example among millions, no doubt, but it has the illustrative value of showing that the problem cannot simply be reduced to "subprime mortgages" or "the US housing bubble." Things are crazier than that. Just how crazy we're only beginning to discover. Read today's excellent NY Times article on derivatives and the determined opposition to regulating them, led by Alan Greenspan, yesterday's unassailable gnome. Another excellent article on the crisis is this one by Martin Wolf.
"Last night, the ECB switched the way it conducts its weekly auctions from variable to fixed-rate tenders. The effect of this in practice, as discussed on the next page, is equivalent to cutting interest rates by almost a further 75bp on top of the 50bp cut announced earlier in the day.
"Having participated in the coordinated central bank action earlier yesterday and cut rates by 50bp to 3.75%, the ECB followed up with further policy moves later on in the day, which in practice has the effect of cutting rates by almost a further 75bp on top of that. This relates to the way monetary policy is implemented in practice."Until now, the ECB conducted so-called variable rate auctions, whereby each week, it decided and announced the total amount of liquidity it was going to provide to the banking system as a whole. To obtain a share of this liquidity, banks entered bids in an auction, whereby they stipulated the sum they wanted to borrow from the ECB and the interest rate they were prepared to pay for this. The minimum bid rate in this auction was the official rate. The ECB then filled the bids top-down, allocating funds to the bank that bid for the highest interest rate first and so on, until its total liquidity provision target was met. This meant that, in practice, the actual rates at which banks borrowed was generally higher than the ECB's official rate. In normal times, that gap was around 6 or 7 basis points. But the extraordinary surge in money demand by banks means that at the last auction, the gap between the official rate and the (average) actual rate was 74bp."Yesterday evening, the ECB announced it was switching to conducting fixed-rate tenders instead. This means that the ECB is prepared to provide however much liquidity banks want at exactly the minimum bid rate. In effect, this therefore makes borrowing for banks much cheaper, eliminating the gap between the official and the actual borrowing rate.
"On top of that, the ECB narrowed the window for lending and borrowing outside the auction process in the discount facilities from +50bp/-50bp relative to the official rate. In practice, this matters much less, although it will help banks' profitability a little."
Furthermore, from today onwards the ECB reduced the spread between the interest rate of the marginal lending facility, where banks can receive overnight credit from the ECB, and the ECB target rate from 100 bp to 50 bp. Hence, the rate of the marginal lending facility dropped from 5.25 yesterday to 4.25 today (50 bp rate cut plus 50 bp spread cut).
Yet another "stealth" cut. The question is: why did they not trumpet these two additional changes?
Wednesday, October 8, 2008
Arindrajit Dube goes farther: he contends that the high remuneration of financiers accounts for much of the increased return to education that has been observed over the past two decades. This would be a significant finding if true, but the proof is not yet available.
When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. ... These tendencies are a scarcely avoidable outcome of our having successfully organized "liquid" investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the the fact that to the average Englishman Throgmorton street is, compared with Wall Street to the average American, inaccessible and very expensive. ... The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.
La Banque centrale européenne a décidé, mercredi 8 octobre, d'abaisser son principal taux directeur à 3,75% contre 4,25%, en raison de la crise financière. Simultanément, la Réserve fédérale américaine et la Banque d'Angleterre ont également annoncé une baisse d'un demi-point de leur taux directeur. Après ces annonces, le CAC 40 est aussitôt repassé dans le vert. (AFP)Plus d'informations sur Le Monde.fr dans quelques minutes. - http://www.lemonde.fr
Tuesday, October 7, 2008
Having luxurious fun in New York, the source of the financial mayhem that has hit Europe, is surely not a great idea. It hardly matches the censorious terms with which Sarko damned Wall Street greed in a speech in Toulon two days after his return from New York. It is especially surprising since the president ordered his ministers last month to stop appearing in glamour shots in the celebrity press. "In times like these, I don't want to see pictures of anyone at fancy events in dinner jackets (tuxedos) and long Dior dresses," he was reported to have told the cabinet.
Guéant of course knew this was coming. So, no doubt, did the people who started the rumors about tapping Villepin as a savior/fall guy in the financial crisis. Maybe it was Villepin's lawyers, or Villepin himself--a sort of Hail Mary pass, suggesting to Sarko that he could score a coup de théâtre by calling off the prosecutorial dogs and inviting Napoleon's ghost back into government to confront the invading Anglo-Saxon assets at Waterloo.
Ain't gonna happen. So much for Napoleon Redux at Waterloo II. Now Napoleon le Petit bis is left to face Madame Merkel at the remake of Sedan.
How does that saying go? "Victory has a thousand fathers, but defeat is an orphan." For the record, O! intrepid Google searchers, I'm not the father either.
Monday, October 6, 2008
Nicolas Sarkozy, the French president, was therefore right when he appeared to back a €300bn rescue fund. Regular readers of this column will probably recall my somewhat constrained enthusiasm for his economic policies. But this had the makings of a good plan. He ended up distancing himself from it, when it became clear that Angela Merkel, the German chancellor, would not support it. But he was right and she was wrong. Of course, a European plan should not have been a copy of the bail-out that was finally adopted by Congress on Friday. The US plan failed to address the problem of an undercapitalised banking sector. That issue is even more important in Europe where many banks have an extremely weak capital base, with leverage ratios of 50 or more.
FP contributor Éloi Laurent has a new book, co-authored with Jean-Paul Fitoussi, entitled La nouvelle écologie politique: Économie et développement humain. Éloi can also be heard on the France Culture program L'Économie en questions.
Sunday, October 5, 2008
Other news is that the German government-led bank consortium to rescue Hypo Bank has fallen apart, not a good sign. The German government has today moved to guarantee all "private savings deposits" [private Sparanlagen], also not a good sign. Which other countries will now follow suit? All of them? Europe as a whole lacks a safe asset as focal, liquid, and available as T-Bills and now that is becoming a problem.
Perhaps Kouchner should do an ad for Wheaties: "Hit your Wheaties, kids!"
Though they did not agree on a broad bailout along the lines of the $700 billion package that President Bush signed into law on Friday, the leaders of France, Germany, Britain and Italy pledged to prevent a bankruptcy on this side of the Atlantic like the one that brought down the Lehman Brothers investment bank in New York.
Hypo Real Estate, Germany's second largest real estate lender, teeters on the verge of collapse. The bank has a €400 billion balance sheet, which would make for a failure of a similar scale to Lehman's (Hypo's footings are roughly $550 billion, while Lehman's were $660 billion as of its last balance sheet date).
Although a private deal seemed to have been put together last week to save Hypo, it fell apart yesterday. Smith, who, it should be noted, is among the more consistently pessimistic commentators on the crisis, along with Nouriel Roubini, sees the end of the euro if Hypo goes down. Here's a French take.
Saturday, October 4, 2008
Really, Monsieur le Premier Ministre? Why undermine the perfect reasonableness of the first part of your statement with such a preposterous fib?
Debré ponders the vexed question of the elusive balance of powers between the executive and the legislative branches. Except that he doesn't put it in quite those terms. He refers, rather, to the "government" and "le parlement." "Bear in mind," he says, "that the law is the means available to the government to translate its political priorities into juridical terms."
This formulation provokes a number of reflections on the peculiarity of the French system. First, note the implicit hierarchy. In French constitutional thought, the "state" is such an abstract category that it barely appears, or appears, rather, only in its metaphysical coupling with the "head" of the national body, le chef de l'État. In practical matters we have only the government, which is an entity separate from the Parlement, and the administration, which is strictly subordinate to the government. It is the government that governs, according to Debré, whereas the Parlement merely "translates" the will of the government--personified in ministers who command departments of the administration--into "juridical terms." The Parlement does not deliberate or initiate or execute. Its function is one of legitimation, according to Debré: its members are there not to represent their districts, he says, and he goes on to deplore what he sees as an unfortunate evolution of Parlement in this sense, so that its members become representatives not even of their districts but of mere "cantons," and therefore subject to the influence of "special interests," such as lobbies, which also weigh upon the actions of the "administration." In Debré's mind, only the "government" is exempt from such influences. It is the repository of the "general interest," as opposed to "particular interests."
It is of course easy to detect in this portrait the influence of a hyper-Jacobin reading of French history, but it is rare to see it spelled out in quite such stark and uncompromising terms. Compare, if you will, the American Constitution, in which executive, legislative, and judiciary are three co-equal branches, which together constitute the government of the United States. It is interesting, perhaps, that when the French wish to refer to the collection of entities that constitute the political life of the nation, they speak not of "l'État" but of "le pouvoir." In English, "government" is often the best translation of le pouvoir, yet the term "government" connotes a constitutional legitimacy that the bald evocation of le pouvoir does not. For the French, there is always something starkly de facto and therefore temporary about le pouvoir, whereas "government" in English carries a connotation of de jure constitutional legitimacy, of contractual consent under a covenant binding on the people.