Financial Stability News

News about financial stability, central banking and theory of money

Tag Archives: Ben Bernanke

Will Bernankes asset bubble transmission work?

Many commentaries today on whether Bernanke’s QE will work. This transcript from the press conference depicts his thinking well, I think. The question is will it work? May the idea of Anatole Kaletsky could give more traction, i.e. QE for the people?

Central Bankers Under Siege

Raghu Rajan has a new post out with this dramatic title. The essence is really that Chairman Bernanke is doing his best to revive the economy, but getting blamed whatever he does. Rajan is negative to further measures, and explicitly rejects the proposal by some economists for a higher target for the inflation rate. With a household savings rate of barely 4 %, the best we can do, according to Rajan, is

improving the capabilities of the workforce across the country, so that they can get sustainable jobs with steady incomes. That takes time, but it might be the best option left.

Not very encouraging for the 10 %  + unemployed (including those who have given up looking for work)!


Money, Power and Wall Street

PBS has made a four episode documentary about the crisis on Wall Street. The first two (on the build-up to the crisis and the crisis itself can be seen online). The next two will air today in the US and can be seen online afterwards. The two first were really good. Despite a wealth of reporting on the crisis, including numerous well researched books, they manage to recreate the suspense and also be quite analytical. Conclusion: Nothing much has changed since the crisis – are we heading for another one?

Fed conference on new central paradigm

Great conference at the Board of Governors last week: Central banking, before, during and after the crisis. “Everybody” was there, but unfortunately only by invitation. The program is out on the web, including Bernanke’s intro remarks, where he noted that:

“the events of the past few years pose serious challenges to the conventional, pre-crisis views and approaches of central banks and other financial supervisors”, and “we have much to learn about the workings and vulnerabilities of our modern, globalized financial system and its interactions with the broader economy”

Interesting papers by Gertler, Shin, Goodhart, Orphanides, Duffie and Aycharia (plus all the others “who is who” of academic central banking research). Should be worth the read.

No papers yet from the concluding discussion among Mervyn King, Caruana and Shirakawa, but obviously a lot to be discussed.

As Gillian Tett of the FT observed recently : “the crisis has tossed central banking into an intellectual limbo”.

Hopefully they found some of the answers in Washington DC last week!

Reading today

Mark Carney: A monetary policy framework for all seasons 

Al Gore: A Manifesto for Sustainable Capitalism

South Korea posts rare current account deficit : Exports to Europe fell 38 percent in January year-on-year compared to a 20 percent fall in December.

Evaluating the Impact of Fair Value Accounting on Financial Institutions: Implications for Accounting Standards Setting and Bank Supervision

The overall conclusion based on the evidence presented is that implementing fair value accounting more broadly may not necessarily provide financial statement users with more transparent and useful reporting.

Ben Bernanke and the zero bound

Very interesting NBER paper by Ball



Small banks are back

There has been some positive press about the beauty of small banks recently. Gillian Tett observed that small banks in the US are upbeat and doing well, and Ben Bernanke addressed the same topic at a recent FDIC conference where he supported their growth and support for small communities.

This is old news to Hyman Minsky, who back in the 90s was a strong advocate for smaller “Community Development Banks”. He criticized the TBTF long before the recent crisis and argued that small, locally based banks would be better for growth and investment. It’s interesting to note that his position is gaining traction, even in the Fed.

For those interested, there is a PhD thesis out by Morten Josefson of Norwegian Business School BI that actually proves that small owner-less savings banks in Norway are doing a better job (more profits) than their larger commercial bank peers. Quite interesting indeed, and as he notes contrary to the main findings of finance theory. His conclusion (on page 34 of the first paper: Stakeholder rights and economic performance: The profitability of nonprofits) is modestly stated as follows:

Our results do not support the idea that performance is higher the more profit-dominated the firm’s objectives and the stronger the ownership rights of the capital providers. After having accounted for differences in risk, size, and unobservable firm and industry effects, we find that owner-less firms are not outperformed by firms owned fully or partially by stockholders.

Quite some conclusion!

Bernanke on the dual mandate

Chairman Bernanke was responding to questions in the Senate Banking Committee today. Most of the Q&A were on fiscal matters, especially on the need for budget consolidating in the medium term, including the big three entitlement programs Medicaid, Medicare, and Social Security.

Federal Reserve Chairman Ben Bernanke urged senators to resolve differences over payroll tax cuts that expire this month saying uncertainty could slow the economy down. He testified before the Senate Budget Committee on the U.S. economic outlook for this year. Chairman Bernanke told the committee that the labor market still has a “long way to go” and unemployment levels remain “troubling.”

At around 1:27 Bernanke gives some interesting reflections on the dual mandate and the ongoing policy of quantitative easing.

At around 1:40 he gives a strong defense for the ZIRP policy and oppose the recent views from Charles Swab in WSJ and Bill Gross of PIMCO in FT

Throughout, many senators commended Bernanke on his new policy of increased transparency, including the posting of an inflation target.

Will the Fed buy European bonds in the end?

Zero hedge thinks yes, as the temptation to preserve the “reserve currency hegemony” will be too high.

If so, Ben Bernanke could end up like this – as the Reverend Ben’s Church of Ponzi.

Have a happy holiday.