Remaking finance
More than a decade after the global financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.
Finance
New Paradigm Knowledge Base
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The Challenge
The 2008 Global Financial Crisis was the worst economic crisis since the Great Depression and the world still suffers from systemic financial instability.
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What went wrong?
The efficient market hypothesis stipulated that bubbles could not exist and that the market is the best disciplining device.
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New Economy in Progress
A better financial system needs to counter herding, booms and busts and the inherent tendency towards instability.
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CHART: Financial crises in advanced economies, 1870-2015
Evidence shows that larger and more complete financial markets have not led to a reduction in the incidence of financial crises. On the contrary, systemic risk is back.
5 ways that are discussed to remake finance
- Macro-prudential regulation such as caps on loan-to-value or debt-to-income ratios to lower systemic risk.
- Higher bank capital ratios to reduce leverage levels and the risk of bank collapses.
- Countercyclical capital buffers to reduce the procyclicality of the financial system
- Financial transaction tax to reduce unnecessary or destabilising financial activity.
- A new version of the Bretton Woods System, which shaped the post-war era.
More News on Finance
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The Prudence Principle
In the first episode of our New Economy interview series, Marc Blyth and Eric Lonergan introduce the idea behind their Forum Working Paper for a revised Eurozone fiscal policy framework.
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Event: A new generation Bundesbank?
Germany is looking for a new Bundesbank president. In our last New Economy Short Cut edition, Holger Schmieding and Benjamin Braun discussed whether the upcoming change at the top is an opportunity to future fit the Bundesbank mandate.
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Book presentation: How companies can deliver both purpose and profit
Alex Edmans, finance professor at LBS, argues that companies should be run with the primary purpose of creating value for society (and profits secondary) and provides evidence that this is more profitable in the long run. Jointly with ESMT Berlin, we have invited him to present his 2020 book and to discuss how companies can best serve society.
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Forum Newsletter #46 – Wrap-up from the New Economy
A new era of debt creation? - Short Cut Series on the Federal Election - The Forum Grows
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A new German fiscal policy framework
In view of high levels of Corona debt, dealing with the German debt brake has become one of the hotly debated election campaign issues. A new study shows what German fiscal policy beyond the current debt rules could look like.
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On climate, jobs and financial stability: Towards a new mandate for central banks?
Whether the ECB needs a new mandate was discussed on the VIII. New Paradigm Workshop by Isabel Schnabel, Adam Tooze, Moritz Schularick, and Laurence Tubiana.
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Financial supervision post Wirecard – Time for a new paradigm
Gerhard Schick and Martin Hellwig presented their suggestion of a paradigm change in German financial supervision on the VIII. New Paradigm Workshop.
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Joint call for 21st Century Central Banking
Promising to some - a nightmare for others: should the ECB care about climate and justice? Experts have tried to work out what this might look like in a joint call.
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Re-Watch: New Economy Short Cut & INET Debt Talk – Who’s Afraid of European Banks?
Join us for our ninth edition of the New Economy Short Cut, this time in partnership with the Institute for New Economic Thinking. With Martin Arnold, Elena Carletti and Richard Vague; moderated by Thomas Fricke and Moritz Schularick
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Ann Pettifor – Green New Deal: Warum wir können, was wir tun müssen
In ihrem neuen Buch beschreibt die britische Ökonomin und Finanzexpertin Ann Pettifor einen „Green New Deal“, der weit über den derzeitigen Vorschlag der Europäischen Kommission hinaus geht.
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The Corona Crisis – Is this the time for Helicopter Money?
Marc Adam explains the concept of helicopter money and analyzes the discussion around it. Input for the session on central bank action during the corona crisis.
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The Conflict of Interest on the Financial Market in Europe
How far can policymakers stretch the mandate of the ECB? Right now the central bank seems to be the institution burdened with organizing European solidarity. Erik Jones gives a detailed look into the current developments and explains how the banking sector functions.
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IfW Kiel on the EU Financial Transaction Tax: “Instrument suitable, proposed implementation flawed”
According to a recent German-French proposal, a financial market transaction tax (FTT) at a rate of 0.2% on the purchase of securities is to be introduced in 10 EU countries, including Germany, and limited to shares in large companies. In their study, the authors of the Kiel institute for the world economy compare this proposal in an international perspective, assess its strengths and weaknesses on the basis of empirical evidence and develop policy recommendations.
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Towards a New Paradigm: Stabilizing Financial Markets
By Moritz Schularick and Kaspar Zimmermann, University of Bonn
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Crashed: How a decade of financial crisis changed the world
By Adam Tooze, Penguin, 2019.
