Global Finance

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Simon Johnson

Among the fundamental principles of any functioning judicial system is the following: Don’t lie to a judge or falsify documents submitted to a court, or you will go to jail. These are serious criminal offenses, but apparently not if you are the heart of America’s financial system.

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RECENT COMMENTARIES

FEATURED COMMENTARIES

Grit is Good

Howard Davies Series: Finance in the 21st Century

2012-02-21

Nowadays, many are questioning the old assumption that greater market efficiency is always and everywhere a public good. Phrases like “sand in the machine” and “grit in the oyster,” which were pejorative before the 2008 financial crisis, are now used to support regulatory or fiscal changes that might slow down trading and reduce its volume.... read

Comments: 4 Recommended: 1 Read: 4540

From Argentina to Athens?

Mohamed A. El-Erian Series: The Risk Factor

2012-02-15

What Greece is facing today is, in key respects, what Argentina faced in August of 2001. Unless Europe reflects on Argentina's experience, the parallels with Greece may end up including financial meltdown, a deep output collapse, and social and political turmoil.... read

Comments: 3 Recommended: 0 Read: 24182

Egypt’s Unfinished Revolution Will Succeed

Mohamed A. El-Erian Series: The Risk Factor

2012-01-23

A year ago, as the World Economic Forum convened in Davos, Egyptians of all ages and religions took to the streets and, in just 18 days of relatively peaceful protests, removed a regime that had ruled over them with an iron fist for 30 years. Today, their revolution is, unfortunately, incomplete and imperfect, but make no mistake: Egyptians will finish what they started.... read

Comments: 5 Recommended: 0 Read: 9016

The Libertarian and the Lobbyists

Simon Johnson Series: The Hopeful Science

2012-01-23

Among the Republican candidates still vying to challenge Barack Obama in November’s US presidential election, Ron Paul stands out for arguing consistently that government is the problem, not the answer, with regard to banking. But the real problem with financial regulation, a new study shows, is lobbying.... read

Comments: 5 Recommended: 2 Read: 14782

Repairing the Global Plumbing

Mohamed A. El-Erian Series: The Risk Factor

2012-01-19

More than three years after the global financial crisis, the world still has a nasty plumbing problem: credit pipes remain clogged, and only central banks are working to clear them. Fortunately, it is not too late to build broader pipes that compliment and replace the damaged infrastructure.... read

Comments: 12 Recommended: 0 Read: 25661

Does Austerity Promote Economic Growth?

Robert J. Shiller Series: Finance in the 21st Century

2012-01-18

Policymakers cannot afford to wait decades for economists to figure out definitively how government austerity affects growth. But, judging by the evidence that we have, austerity programs in Europe and elsewhere appear likely to yield disappointing results.... read

Comments: 14 Recommended: 3 Read: 41458

How to Create a Depression

Martin Feldstein Series: The Magic of the Market

2012-01-16

European political leaders may be about to agree to a fiscal plan which, if implemented, could push Europe into a major depression. It would be much smarter to focus on the difference between cyclical and structural deficits, and to allow deficits that result from so-called "automatic stabilizers."... read

Comments: 8 Recommended: 4 Read: 46659

The French Don’t Get It

Martin Feldstein Series: The Magic of the Market

2011-12-28

The French government doesn’t seem to understand the real implications of the euro, which it shares with 16 other EU countries. French officials have now reacted to the prospect of a credit rating downgrade by lashing out at Britain, which is not in France's position precisely because it retains its own currency.... read

Comments: 11 Recommended: 1 Read: 26982

The New International Economic Disorder

Mohamed A. El-Erian Series: The Risk Factor

2011-12-21

A new economic order is taking shape in front of our eyes, as the old Western powers and the emerging world’s major new players converge. But the forces driving this convergence are not those that generations of economists envisaged when they pointed out the inadequacy of the old order.... read

Comments: 8 Recommended: 0 Read: 40949

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Defaulting to Big Government

Simon Johnson Series: The Hopeful Science

2011-07-18

Opponents of raising the US debt ceiling argue that the federal government is too big relative to the economy, and that drastic measures are needed to bring it under control. But the consequences of any default would, ironically, actually increase the size of government relative to the US economy.... read

Comments: 1 Recommended: 2 Read: 23459

Europe’s Naked Banks

Simon Johnson Series: The Hopeful Science

2011-06-24

European leaders are convinced that bank capital is “expensive,” in the sense that raising capital requirements would slow economic growth. But the latest developments in the Greek crisis show that the exact opposite is true – it’s European banks’ lack of capital that threatens to derail European and global growth.... read

Comments: 0 Recommended: 1 Read: 24085

The End of China’s Surplus

Martin Feldstein Series: The Magic of the Market

2011-01-28

The policies that China will adopt as part of its new five-year plan will shrink its trade and current-account surpluses, possibly moving them into deficit. This is exactly the outcome that US officials want, but they should be careful what they wish for.... read

Comments: 4 Recommended: 0 Read: 31186

A People’s Economics

Robert J. Shiller Series: Finance in the 21st Century

2011-01-20

The financial crisis has deflated professional economists' scientific pretensions, because they failed to predict it. Part of the process of pursuing the inexact aspects of economics must be speaking honestly to the broader public, learning from them, and then searching one’s soul to decide whether one's favored theory is really close to the truth.... read

Comments: 6 Recommended: 3 Read: 33953

Did the Poor Cause the Crisis?

Simon Johnson Series: The Hopeful Science

2011-01-19

The US continues to be riven by heated debate about the causes of the 2007-09 financial crisis, with Republicans blaming government policies that encouraged the poor to borrow more than they could afford. But if US politicians love the poor so much, why have they bailed out only the rich?... read

Comments: 20 Recommended: 8 Read: 83753

Shorting Fiscal Consolidation

Robert J. Shiller Series: Finance in the 21st Century

2010-11-18

Real long-term interest rates have fallen to historic lows in much of the world. This is an economic fact of fundamental significance, for the real long-term interest rate is a direct measure of the cost of business financing – and because current levels fly in the face of all the talk about the need to slash government deficits.... read

Comments: 4 Recommended: 2 Read: 31548

A Man against the Machine

Simon Johnson Series: The Hopeful Science

2010-05-17

America’s financial sector has shown renewed strength in recent months – political strength, that is, undermining most of the sensible proposals for banking reform that remain on the table. If we are still making any progress at all, it is because of the noble efforts of a small number of US senators - and the prescience of one in particular.... read

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Off With Their Heads

Simon Johnson Series: The Hopeful Science

2010-01-21

WASHINGTON, DC – At last the Obama administration seems to be contemplating a decisive move against America’s banking elite. Following the recent electoral setback in Massachusetts the proposals laid down by former Federal Reserve chairman, Paul Volcker, to reduce the market power of the banks, are being dusted off. ... read

Comments: 1 Recommended: 2 Read: 34111

Finance Agonistes

Howard Davies Series: Finance in the 21st Century

2009-07-13

For at least a quarter-century, the financial sector has grown much more rapidly than the economy as a whole, both in developed and in most developing countries. But there is strong evidence that this was a relatively short-term phenomenon, and that the industry's salad days are well and truly over.... read

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Time to Nationalize Insolvent Banks	Nouriel Roubini
Nationalizing insolvent banks is, paradoxically, the most market-friendly way to clean up a rotten financial sector. Whereas Sweden adopted this approach successfully during its banking crisis in the early 1990’s, the current US and British approach may end up producing Japanese-style zombie banks – never properly restructured and perpetuating a credit freeze for years. ... read
Reviving the Animal Spirits	Robert J. Shiller
The world’s fundamental economic problem today is a staggering loss of business confidence - a weakening of what Keynes called the "animal spirits." One reason is that people know enough about the Great Depression to understand that, unlike previous economic convulsions, there are parallels with today.... read

Is There a Bubble in Home Prices?

Robert J. Shiller Series: Finance in the 21st Century

2003-09-26

Around the world, newspapers trumpet a "housing bubble" about to burst. The Economist has run numerous cautionary articles with titles like "Castles in Hot Air." "Housing Prices Soar, Fueling Bubble Fears," chirped The Wall Street Journal . "The Property Bubble Menaces Growth," warned Le Monde . "Homes Bubble May go Toxic," The Sydney Morning Herald admonished. ... read

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The Neuroeconomics Revolution

Robert J. Shiller Series: Finance in the 21st Century

2011-11-21

Economics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain works – is beginning to change the way we think about how people make decisions.... read

Comments: 27 Recommended: 1 Read: 91903

Geithner’s Gamble

Simon Johnson Series: The Hopeful Science

2011-02-22

Timothy Geithner, the US Treasury secretary, recently laid out his view of the nature of world economic growth and the role of the US financial sector. It is a deeply disturbing vision, one that amounts to a huge, uninformed gamble with the future of the American economy.... read

Comments: 18 Recommended: 0 Read: 89178

Did the Poor Cause the Crisis?

Simon Johnson Series: The Hopeful Science

2011-01-19

Comments: 20 Recommended: 8 Read: 83753

What’s Happening to the US Economy?

Martin Feldstein Series: The Magic of the Market

2011-06-29

The US economy has recently slowed dramatically, and the probability of another economic downturn increases with each new round of data. This is a sharp change from the economic situation at the end of last year – and it represents a return to the very weak pace of expansion since the recovery began in the summer of 2009.... read

Comments: 26 Recommended: 2 Read: 75898

Debt and Delusion

Robert J. Shiller Series: Finance in the 21st Century

2011-07-21

The fundamental problem for much of the world today is that investors are overreacting to debt-to-GDP ratios, fearful of some magic threshold, and demanding fiscal-austerity programs too soon. We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the often-irrelevant constructs that they are.... read

Comments: 15 Recommended: 5 Read: 66966

How Risky is the Global Economy?

Mohamed A. El-Erian Series: The Risk Factor

2011-04-18

While the obstacles to sustainable global economic growth are not yet sufficiently serious to derail the ongoing recovery, it would be foolish to gloss over them. Nowadays, four major risks are looming larger in importance and becoming more threatening in character.... read

Comments: 10 Recommended: 2 Read: 62070

Bubble Spotting

Robert J. Shiller Series: Finance in the 21st Century

2011-03-22

Forecasting the next speculative bubble is a bit like predicting who will be running the government two elections from now. But some places appear a little more likely than others to give rise to bubbles, and right now one of those places is farmland.... read

Comments: 6 Recommended: 2 Read: 61692

A Roosevelt Moment for America’s Megabanks?

Simon Johnson Series: The Hopeful Science

2010-07-14

Just over a hundred years ago, the US led the world in terms of rethinking how big business worked – and when the power of such firms should be constrained - by enacting the Sherman Antitrust Act. The Dodd-Frank financial-reform bill, which is about to pass the US Senate, does something similar – and long overdue – for banking.... read

Comments: 1 Recommended: 3 Read: 58557

Sleepwalking through America’s Unemployment Crisis	Mohamed A. El-Erian
It is past time for the US to wake up and confront in a holistic fashion its unemployment crisis. As everyone who has ever had an unpalatable job knows, shutting off the alarm and pulling the blanket over one’s head is not a solution.... read
The Culture of Entrepreneurship	Robert J. Shiller
Governments around the world want to promote entrepreneurship. Though most business start-ups will never amount to much, each little company is an experiment, and a great deal of experimentation is necessary to produce the occasional firm that can transform a nation’s economy – or even rise to international significance. In short, entrepreneurship is an incubator, and one that is essential to long-term economic success.... read

FEATURED COMMENTARY

Debt and Delusion
Robert J. Shiller
Series: Finance in the 21st Century

Comments: 15
Recommended: 5
Read: 66966

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