Présentation PowerPoint - Paris School of Economics

Présentation PowerPoint - Paris School of Economics

De la crise financire la crise conomique. Roger Guesnerie Collge de France, EEP/PSE Introduction. Crisis : un fait conomique total . - History. The present events. Mechanisms. Institutions and organizations. Survey : subjective choice. - Crises in history. The illness and its therapies. Back on the diagnosis.

Conclusion. De la crise financire la crise conomique. Les crises dans lhistoire. The history of crises: famous Bubbles . 17th century : the tulip mania . The dutch society fascinated by tulips, (Bruegel). Futures for tulips. From 1634 to 1637, A speculative increase of prices. 1637, example of a bulb price. The price of 2 houses, 5 to 15 years of income of a craftsman. February 1637 : the market collapses. The end of the trade of wind le commerce du vent . A speculative bubble.

Financial Crisis. 18th century: The South Sea Bubble 1711, the South Sea Company gets the management of the Britain debt, 6/ interest + exclusivity of trade with latin America. stratospheric price level 1720-21, collapse in 1721. Newton : I can forecast the movement of planets, but I could not compute the madness of men. Les grandes crises : 1929, 2008. 1929. The mother of all crises. From the krach to the world crisis. A spectacular rise of the Dow Jones index. From 1921 to 1929, increase of industrial production 50/, of the Stock Exchange, >300/ New system of credit for purchasing shares ? The krach

Contained on black Thursday, but October 28, Black Monday : -13/, then Black Tuesday, -12/. An ongoing fall from 1930 to 1932. Considerable losses. Trigerring a world crisis. 2008. The present crisis : From sub-primes to depression A local crisis. The burst of the housing bubble in the States. Connected with sub-primes loans. Propagated to the world financial system. Rescue of Northern Rock, then Fall of Lehman Brothers, Sep. 2008, fall of Stock exchanges in the world. A quick and synchronised transmission to the world economy. 2008, 2009

What next ? V, U, V, W, L Dot.com bubble. Source: Ofek and Richardson, 2003, Journal of Finance What is a crisis ? The variety of crises. economic crisis and financial crisis. Sectoral or general. Geographic field que, local or global. What is a crisis ? Dysfonctioning of a decentralised economy. Decentralised means : actions taken by millions of independant agents. With their own objectives. The opposite polar model : centralisation, the

Gosplan. Market economies are decentralized. Synonym of capitalism ? Yes, historically. Synchronisation of decentralised economies : mecanisms. Price adjustement. Adjustment of the views of the future : expectational coordination. Crisis : brutal break Of the path followed by the economy. Of the collective image of the future associated with this path. Quiet time : the image is approxiamtely selfulfilling. De la crise financire la crise conomique. Le mal , sa transmission et la thrapeutique. The disruption of the planet

finance. The sub-primes crisis : A local fire ? Risky loans, from prime to sub-prime . To favour access property to the poorest houselholds. Mortgage loans, sometimes 100/ or more of the house value, A break of the incentives system, increased by titrisation . A self-sustained increase of the housing prices, Bubble Non sustainable. A fire that could have been limited ? 2 to 300 Billions dollars. The shaking of the world financial system : A big forest fire The imbrication of the actors :

sub-prime loans disseminated in the world sliced (titriss), out of the balance sheet. Increase of risk premia, loss of confidence. The Dominos effect, how to manage it ? Rescuing Northern Rock, Fall of Lehman Brothers. The collapse of the stock market. To sell assets, cumulative loss, Decembre 2008, SP 500, fall of stock exchanges Titrisation et la chaine-decredit - Initiation du prt banque grant

le prt banque lorigine du prt Pool de prts Investisseur Hedge Fund Credit Enhancer Sicav montaires Assureur d obligations

From the financial crisis to the real crisis. The facts : A quick and synchronised depression. ? Decrease of GdP of developed countries starts at the fall 2008. Japan tendancy -5/ , end 2008 Lower production of 2/ Euro zone en 2009 ? Increase of unemployment, 2pts. Transmission via international trade towards emerging countries. (China,) 2009 contraction and rebounce. Mecanisms : Wealth effect , credit crunch Wealth Effect. Non expected loss of permanent income .

Housing. /holders of income indexed ont shares, Pessimism of wage earners, Change of the image of the future : Increase of uncertainty. Precautionnary savings Induces a reduction of consumption Or postponement of purchase. (durables) Une contraction of the loans of the banking system, credit crunch, Pessimism on the future, lower self finance resources, reduced investment.

A cumulative recession mechanism. Bitter remedies. An eclectic medicine : Between Friedman and Keynes. Shock therapies : forgetting principles. The influence of the monetarist interpretation of the 1929 crisis. . Keynes back through the window. Not to kill international trade. The 1929 lessons, according to Friedman.

A disastrous monetary policy. Absence of rescue to the banking system. 2008, avoid the collapse of banks and the domino effect. But what about moral hasard ? John Maynard Keynes back. Inject short run purchasing power. Governement expenditures. To save private trade. Trade contraction, the worrying example of 929. Limiting the trade effects, Cooperation reasserted, G20 De la crise financire la crise conomique. Le diagnostic ? A carburator failure? The car metaphor : Carburator versus motor.

The world financial system, the carburator. The world economy, the motor First thesis, a carburator failure ? The overloaded carburator , logics of sophistication. Recent evolutions : multiplication of actors. End of Glass Steagall act de 1933, sep. Deposit and investment banks. Hedge funds, special vehicles Recent evolutions : multiplication of products. Derivatives, example les options. Credit Default Swap, la titritisation. Argument, to improve the systems performances. Finance the economy Share risk, mutualisation, completing the market. Control through financial mathematics. The overloaded carburatorr gonfl , fragilities of sophistication. Internal Opacity, modelling as a veil.

Exteranl Opacity, how to decipher products ? Systemic Opacity. Expectational coordination, rationality, uncontrolled leverage effect? A poorly designed or poorly maintained carburator ? First thesis : the overloaded carburator. More performance kills performance. Who is responsible ? Bankers or . Regulators. Regulation failures ? Fragile sophistication. The limits of internal regulations. Financial mathematics and systemic risk. The failure of notation agencies. Opacity And perverse incentives.

Regulation failures ? how to forbid sophistication? Knowledge uncertainty. Forbid sophistication ? Regulation mistakes, Basel 2, naive regulators. Does competition between regulators lead to regulation ? A story at BDF Other chapters. Fiscal paradises. Remunrations of traders The motor changes. The 19th century globalisation. Mobility of goods, fix factors The products are mobile, Factors, land, labour, capital, immobile. s Hekscher-Ohlin effects. The end of the 20th century globalisation: Sliced production -

Sliced production. : - The firms shops all over the world. - International trade through multi-national firms (1/3 of world trade). Direct competition of labour factors when substitutes. Winners and losers. And trade imbalances : The China savings. Considerable financial flows, counterparts of trade flows. Freedom of capital movements. A post- Bretton-woods monetary system. Global imbalances: Current Account surplus and deficits of selected countries, 19872008 1000000 Japan+BRICS+ Oil producers (incl Russia)

800000 Current account (Million USD) 600000 400000 Japan+BRICS 200000 Japan 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -200000 -400000 United States

-600000 -800000 -1000000 Source: OECD Year Taux d'intrt court et long: Bons du trsor US, 1982-2008 14 12 Annual rate (per cent) 10 8 Bons 10 ans

6 Bons 3 mois 4 2 0 1982 1987 1992 1997 Year 2002

2007 Taux d'intrt long et inflation US, 1982-2008 14 12 Annual rate (per cent) 10 8 Bons 10 ans 6 4

Inflation 2 0 1982 1987 1992 1997 Year 2002 2007 De la crise financire la crise conomique.

Remarques finales en guise de conclusion. Quid du (des) conducteur(s) ? Le moteur : La structure de lconomie. La structure de l'conomie mondiale est en mutation rapide. Interactions commerciales et financire fortes entre conomies Qui ne perdront pas leur intensit dans le futur Moteur et carburateur : Crise du temps de la globalisation ou crise de la globalisation ? L'excdent d'pargne mondiale et les dsquilibres mondiaux: Effet sur les taux dintrt, effet de levier Sur-endettement et prise excessive de risque. Robert Solow: lorsque des flux normes de capitaux liquides coulent travers le monde il est possible qu ils dbordent de leur vase

Le conducteur : Des erreurs de maintenance et de conduite. Maintenance : les fautes de la rgulation Politique montaire accomodante, expansion du crdit (Greenspan). Capital mobility and crisis. einhart and Rogoff, (2008) Banking Crises: An Equal Opportunity Menace Quid du (des) conducteur(s) ? Le conducteur : Les illusions de la grande modration. les fautes de la rgulation, Politique montaire accomodante, expansion du crdit (Greenspan). Le quasi-consensus de la grande modration. Le calme avant la tempte ? Libralisation et crises ??

Frontires de lEtat et frontires du march Crise du temps de la globalisation, crise de la globalisation ? Des ingrdients communs ttes les crises : ancrage /fondamentaux. le ds- politique monetaire laxiste dreglementation ou liberalisation => Une phase spculative: illusion d un nouveau modle Anticipation de plus-values court terme Des caractristiques spcifiques :

Crise du temps de la globalisation ou crise de la globalisation ? Lautonomie de la plante financire, La mondialisation des changes et les dsquilibres financiers. La logique de circulation des capitaux et le systme montaire Les menaces: Les causes imparfaitement traites. - Un systme financier imparfaitement remis en ordre. - Les dsquilibres dus lpargne mondiale perdurent. - Le systme de changes reste rformer. Qui est responsable? FIN.

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