Où l'on reparle de régulation

Et pas n'importe où. Une des principales surprises du credit crunch aura été de voir le FT, bastion du capitalisme s'il en est, embrasser tôt la cause d'une meilleure (et plus abondante) régulation, jusques et y compris de certaines pratiques à effets pervers relevant normalement de la sphère privée (pratiques de compensation des banques, notamment). Via Yves Smith.

From Wolf:
Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

Mine is not a judgment on whether the Fed was right to rescue Bear Stearns from bankruptcy. I do not know whether the risks justified the decisions not only to act as lender of last resort to an investment bank but to take credit risk on the Fed’s books. But the officials involved are serious people. They must have had reasons for their decisions. They can surely point to the dangers of the times – a crisis that Alan Greenspan, former chairman of the Federal Reserve, calls “the most wrenching since the end of the second world war” – and the role of Bear Stearns in these fragile markets.Mine is more a judgment on the implications of the Fed’s decision. Put simply, Bear Stearns was deemed too systemically important to fail. This view was, it is true, reached in haste, at a time of crisis. But times of crisis are when new functions emerge, notably the practices associated with the lender-of-last-resort function of central banks, in the 19th century.The implications of this decision are evident: there will have to be far greater regulation of such institutions. The Fed has provided a valuable form of insurance to the investment banks. Indeed, that is already evident from what has happened in the stock market since the rescue: the other big investment banks have enjoyed sizeable jumps in their share prices (see chart below). This is moral hazard made visible. The Fed decided that a money market “strike” against investment banks is the equivalent of a run on deposits in a commercial bank. It concluded that it must, for this reason, open the monetary spigots in favour of such institutions. Greater regulation must be on the way.The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable. Systemically important institutions must pay for any official protection they receive. Their ability to enjoy the upside on the risks they run, while shifting parts of the downside on to society at large, must be restricted. This is not just a matter of simple justice (although it is that, too). It is also a matter of efficiency. An unregulated, but subsidised, casino will not allocate resources well. Moreover, that subsidisation does not now apply only to shareholders, but to all creditors. Its effect is to make the costs of funds unreasonably cheap. These grossly misaligned incentives must be tackled.I greatly regret the fact that the Fed thought it necessary to take this step. Once upon a time, I had hoped that securitisation would shift a substantial part of the risk-bearing outside the regulated banking system, where governments would no longer need to intervene. That has proved a delusion. A vast amount of risky, if not downright fraudulent, lending, promoted by equally risky finance, has made securitised markets highly risky. This has damaged institutions, notably Bear Stearns, that operated intensively in these markets.Yet the extension of the Fed’s safety net to investment banks is not the only reason this crisis must mark a turning-point in attitudes to financial liberalisation. So, too, is the mess in the US (and perhaps quite soon several other developed countries’) housing markets. Ben Bernanke, Fed chairman, famously understated, described much of the subprime mortgage lending of recent years as “neither responsible nor prudent” in a speech whose details make one’s hair stand on end.* This is Fed-speak for “criminal and crazy”. Again, this must not happen again, particularly since the losses imposed on the financial system by such lending could yet prove enormous. The collapse in house prices, rising defaults and foreclosures will affect millions of voters. Politicians will not ignore their plight, even if the result is a costly bail-out of the imprudent. But the aftermath will surely be much more regulation than today’s.If the US itself has passed the high water mark of financial deregulation, this will have wide global implications. Until recently, it was possible to tell the Chinese, the Indians or those who suffered significant financial crises in the past two decades that there existed a financial system both free and robust. That is the case no longer. It will be hard, indeed, to persuade such countries that the market failures revealed in the US and other high-income countries are not a dire warning. If the US, with its vast experience and resources, was unable to avoid these traps, why, they will ask, should we expect to do better?These longer-term implications for attitudes to deregulated financial markets are far from the only reason the present turmoil is so significant. We still have to get through the immediate crisis. A collapse in financial profits (so significant in the US economy), a house-price crash and a big rise in commodity prices are a combination likely to generate a long and deep recession. To tackle this danger the Fed has already slashed short-term rates to 2.25 per cent. Meanwhile, the Fed also clearly risks a global flight from dollar- denominated liabilities and a resurgence in inflation. It is hard to see a reason for yields on long-term Treasuries being so low, other than a desire to hold the liabilities of the US Treasury, safest issuer of dollar- denominated securities.“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.

25 mars...

... et après deux semaines de folie qui ont vu la réserve fédérale inventer quotidiennement de nouveaux moyens d'intervention, jusqu'au chèque en blanc pour reprise à prix cassé de courtier en faillite (Bear Stearns), la situation semble se calmer un peu... JPM a même dû relever son offre sur BSC à 10$, ce qui ressemble moins à une liquidation mais n'est quand même pas glorieux. Si les choses semblent aller légèrement mieux dans la sphère purement financière (par aller mieux on entend des taux positifs sur les BdT US, un rythme non horaire de rumeurs de faillite de banques, et quelques bonnes surprises sur les Q1 de certains brokers), les nouvelles de l'économie réelle sont moroses: indice de confiance des consommateurs US à son plus bas depuis 73, case shiller encore en baisse pour une année consécutive. Martin Feldstein (président du NBER) a annoncé qu'il s'attendait à la pire récession depuis la guerre, ce qui n'est pas rien.
Une des questions intéressantes sera de voir l'étendue de l'impact de cette récession sur le système bancaire et financier : en gros, après avoir mis l'économie en faillite, parviendra-t-il à s'en sortir indemne (au prix s'il le faut de multiples sauvetages gouvernementaux) ou coulera-t-il avec ses victimes ?

7 mars 2008

Une du FT, 7 mars

Aujourd'hui la crise semble avoir pris un tour nouveau, avec un certain nombre d'annonces concomittantes qui laissent présager un bain de sang conforme aux prédictions des pessimistes :

• Le fonds Carlyle se plante, et entraîne avec lui le marché du crédit (moins par son importance intrinsèque que par les doutes qu'il génère sur la liquidité générale de ses congénères)


• La Fed se lance dans un nouvel exercice d'injection de liquidités dans le système


• Les chiffres de l'emploi US sont tombés il y a deux heures et sont abominables

Surprise fall in jobs fuels US recession fears
By Chris Bryant
Published: March 7 2008 14:07 Last updated: March 7 2008 14:30
US employers cut the most jobs in almost five years last month, increasing the odds that the economy could fall into a recession.
Non-farm payrolls fell 63,000 in February, the most since June 2003, marking a second consecutive monthly decline. Economists had expected an unchanged reading.
Adding to the headache for investors, January’s loss of 17,000 jobs was revised lower to a decline of 22,000 while an initial estimate of a gain of 82,000 jobs in December was cut to 41,000.
Manufacturers (down 52,000), construction firms (down 39,000) and retailers (down 34,000) all slashed jobs last month, the Department of Labor said, although food services and health care continued to defy the trend.
Another slight consolation was a fractional downtick in the unemployment rate, which fell a tenth of a percentage point to 4.8 per cent.
After the jobs report, stock futures fell sharply while treasuries rallied amid expectations that the Federal Reserve will be forced to keep cutting interest rates . Meanwhile, the dollar plunged to a fresh record low against the euro.
The futures market fully priced in a 75 basis point rate cut when the Fed meets later this month, with a 22 per cent likelihood of a more aggressive 100bp cut.
John Ryding, chief US economist at Bear Stearns, said back-to-back nonfarm payroll declines were “a strong indication that the economy has fallen into recession” which raised the likelihood of an inter-meeting 50bp rate cut.
Traders were alert to a bad number as immediately before the data the Fed increased to $100bn the total size of its March term auctions - whereby banks can borrow funds more cheaply from the Fed - to help ease liquidity pressures.
The Fed also announce a series of new term repo operations which will allow banks to borrow another $100bn against collateral, including agency-backed mortgages.
A report on private sector employment had indicated weakness in the jobs market earlier this week, registering an unexpected decline of 23,000 jobs
Although initial jobless claims dipped in the latest week, they too have been trending higher. Data on US manufacturers have also been particularly weak while the ISM non-manufacturing index has contracted for two consecutive months.

Un petit résumé de la crise

Un article de John Dizard qui présente la situation actuelle dans une intéressante perspective manichéenne, sauf que dans ce cas on ne sait plius vraiment qui sont les bons et les mauvais. Noter l'apparition du term "debasement" pour le dollar, qui est en général utilisé pour des monnaies plus exotiques.
Disquiet on the western front of the credit world
By John Dizard

Published: March 4 2008 02:00 Last updated: March 4 2008 02:00
The credit world is aligning itself into political factions, divided over the right approach to untangling the present mess. On one side are the trader-fundamentalists, with one hand on the Bloomberg keyboard, the other hand on a dog-eared copy of Atlas Shrugged . They believe in the literal interpretation of scripture, which in this case means that an asset is only worth what the bid side says it is. As far as they are concerned, the only way to deal with the excesses of the credit markets is to take the write-offs and start over, having accepted the revealed truth of what bankruptcy sale buyers are willing to pay.
Opposed to them are the would-be managers of systemic risk. They believe that the aggressive application of the mark-to-market rule would result in another Great Depression, only bigger. Their Qum is Washington DC, where the differences between the Republicans and the Democrats are small relative to their agreement that a deep recession, let alone a depression, must be avoided at all costs. One of those costs could be years of stagnation and low growth. You could call them Keynesians, except that Keynes was strongly opposed to currency debasement. As far as this group is concerned, currency debasement to the point of depravity is a good starting point. (Strangely, they still publicly proclaim adherence to a "strong dollar policy", even at $1.50 to the euro. What would a "weak dollar policy" be?)
However, the anti-fundamentalists are not just a Washington group. They also have strong representation at the top of the major dealers and banks. While the dealers' and banks' trading desks are mostly populated by fundamentalists, management people and board members on the upper floors realise that any thorough "liquidation" would include them.
This political fight is most evident in the US. That's because the US markets and institutions are further along in recognising the extent of the problems, on balance sheets and in business practices, that built up in the past decade. Up to now, European finance has appeared to be a happier place than its counterpart across the Atlantic. However, both the credit trading fundamentalists in New York and the systemic risk managers in Washington have done their own analyses of European balance sheets, and agree that it's a matter of time until the storm moves to the east.
As one credit strategist for a major New York dealer says, "I was over doing client calls in Europe last week, and they told me that they believed the US financial system will recover faster because the loss recognition is swifter." A mark-to-market fundamentalist, he believes that it follows that "Any move to retard loss recognition is, categorically, a mistake." At the end of the day, the liquidations would win the argument on the integrity of their market economics, while the systemic risk managers, aka Keynesians, would have the politics right. Being politicians at heart, however, the systemic risk managers are going to try to split the difference. That is to say the regulators will try to have as much recognition of losses as possible without any contraction of credit availability for the real economy.
That means that while the central bank people and regulators may be willing to have "flexibility" in the mark-to-market accounting of structured credit product on the books of the financial sector, what they want is to accelerate the recapitalisation of the banks and dealers. Banks and dealers with bigger equity bases could afford to take mark-to-market losses while continuing to lend money and maintain liquid securities markets. Simple, right?
As one official told me: "The easiest way to solve for lack of capital is to go get capital. We are in the early stages of capital raising." The first stage was that series of calls on the sovereign wealth funds in recent months. Unfortunately, the limit on that source of equity has probably been reached, both for the banks and the SWFs. Most of the new equity for the banks and dealers will have to come from their home markets.
As that official continued, "We have been encouraging institutions to get going and do road shows. There is no shortage of capital on the sidelines." At some price that is true. Undoubtedly that new equity will have dividends and seniority superior to the old equity. Which is why the bank and dealer management may be hesitant to book those road shows. It's easy for officialdom to say that the equity holders will be diluted, because it's true. However, if you're a C-suite executive or board member, you are supposed to be working to protect the interests of those existing equity holders. We could be talking career death here. So why not put off any decision until we see what the marks will be at the end of the quarter?
Even before the lowest marks-to-market are taken, there are probably some real values to be had in the credit markets. They are not, I believe, to be found in the junk market, which probably does not yet reflect the prospective hits to cash flow from the sinking. But the high-grade credit indexes should see some more tradable rallies.
johndizard@hotmail.com

un petit résumé de la crise actuelle

Un article de John Dizard qui présente la situation actuelle dans une intéressante perspective manichéenne, sauf que dans ce cas on ne sait plius vraiment qui sont les bons et les mauvais. Noter l'apparition du term "debasement" pour le dollar, qui est en général utilisé pour des monnaies plus exotiques

Le rôle des institutions dans le développement des inégalités

Via Mark Thoma, un papier de Frank Levy sur le rôle des institutions (par opposition aux mécanismes normaux du marché et du progrès technologique) dans le développement marqué des inegalités de revenu aux USA sur les deux dernières décennies.
Intéressant dans la mesure où il apporte de l'eau au moulin de ceux qui, comme Krugman ou une partie de la gaucha américaine, pensent qu'il existe une dimension institutionnelle (et donc réversible) au phénomène. Certains des arguments avancés dans le papier sont assez convaincants (voir le graphe comparé des répartitions de revenu entre les USA et le Japon, c'est édifiant).