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speculation: more con September 25, 2010

Posted by Bradley in : markets , add a comment

The UN’s Special Rapporteur on the Right to Food, Olivier de Schutter, writes:

a significant portion of the increases in price and volatility of essential food commodities can only be explained by the emergence of a speculative bubble.
In particular, there is a reason to believe that a significant role was played by the entry into markets for derivatives based on food commodities of large, powerful institutional investors such as hedge funds, pension funds and investment banks, all of
which are generally unconcerned with agricultural market fundamentals. Such entry was made possible because of deregulation in important commodity derivatives markets beginning in 2000.

speculation: pro and con (again) September 24, 2010

Posted by Bradley in : financial regulation , add a comment

This week the UK’s Business Department announced a review of corporate governance and economic short-termism and the Independent Commission on Banking published an issues paper and call for evidence which identifies as one concern excessive risk-taking by banks:

This separation of the costs of risk and the benefits of reward produces inefficiencies through the distortion of resource allocation and risk management; it incentivises excessive risk-taking.

And Adair Turner gave a speech in which he reiterated his concern about whether financial practices were all socially useful and said:

underlying all of these problems, and far more fundamental, were prudential rules and an entire philosophy of market regulation – embraced by policy makers throughout the world – which failed to identify and adequately address the dangers of excessive leverage and maturity transformation, and which too confidently relied on supposedly efficient and rational markets always to produce good results.

Last week the EU Commission published its proposals on short-selling and CDS and noted that one of the reasons for short selling is speculation. The Commission doesn’t say this is bad, but does suggest that disorderly markets (which may be in part the result of speculative short selling) are a Bad Thing:

in extreme market conditions there is a risk that short selling can lead to an excessive downward spiral in prices leading to a disorderly market and possible systemic risks.

In contrast, the bottom line of the ISDA Research Note on speculation published this week is:

In theory, a market could exist in which intermediaries match hedgers, investors, and borrowers with each other. But such a market would be costly and inefficient without the liquidity and price discovery provided by speculators hoping to profit from their investments in information. As discussed above, the news borne by speculators, especially short sellers is not always welcome. But the alternative is a world in which markets would function in a slow and costly manner.

financial supervision architecture sounds so much more substantial than … September 22, 2010

Posted by Bradley in : financial regulation , comments closed

A regime (too directive?), a scheme (too much like the frauds it might be designed to prevent)… But the building metaphors in financial regulation seem to hark back to the days when financial institutions constructed (and owned) big solid buildings to show how sound they were. I’m not sure the metaphors have so much power. Anyway, the European Parliament has approved the new financial supervision architecture for the EU.

new chairman of uk consumer financial education body – too trusting? September 21, 2010

Posted by Bradley in : financial regulation , comments closed

Yesterday the FSA announced that Gerard Lemos is to be the chairman of the Consumer Financial Education Body. He seems to be a big believer in trust:

In other ways perhaps trust has even grown. Trust is not a zero sum game. I encounter what I might call new horizontal social movements of trust everywhere: millions of people have joined local book clubs. They didn’t need encouragement from the government or business; there is a global movement of people who sing in choirs from Jesmond to Johannesburg. And in politics, which is supposedly the place where no one trusts anyone anymore, environmental issues have galvanised hundreds of millions of people, leaving international organisations far behind and struggling to catch up.

transnational consultation: residential mortgage underwriting September 20, 2010

Posted by Bradley in : consultation , comments closed

The Financial Stability Board is examining residential mortgage underwriting practices and seeks:

feedback from financial institutions, industry associations, consumer groups and other stakeholders on their experiences regarding residential mortgage underwriting practices, either in a particular country or across several countries. This could include comments on: gaps in regulatory and supervisory oversight; areas where regulations or guidance from different agencies might overlap; current or best practices for measuring a borrower’s ability and willingness to repay; how market practices have evolved in recent years; and challenges faced by underwriters or originators that operate in several countries.

Responses by 25 October 2010.

vatican’t deal with the 21st century September 15, 2010

Posted by Bradley in : life , comments closed

Via the BBC, on reports that said that Cardinal Walter Kasper said that arriving at Heathrow airport was like landing in a “Third World” country:

Vatican sources said …. his “Third World” comment referred to the UK’s multicultural society.

And that is supposed to make it better?

transnational regulation September 14, 2010

Posted by Bradley in : events , comments closed

The lecture I am about to give is here: Transnational Regulation and the Global Financial Crisis 2007-2010.

tree house September 7, 2010

Posted by Bradley in : life , comments closed

tree house

It seems the neighbours object.