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Saturday, February 9, 2013

ECB’s Draghi Resists Pressure to Devalue Euro and Stimulate Growth

Despite pressures from the appreciation of the euro, which had hit a 15-month peak of $1.3711 on February 1, 2013, Mario Draghi of the European Central Bank announced four days later that the benchmark financing rate would be on hold at the record-low 0.75 percent. In making the announcement, he stressed that the worst was over for the Eurozone and that the uncertainties would be gone by midyear. “The economic weakness in the euro area is expected to prevail in the early part of this year. But later in 2013, economic activity should gradually recover, supported by our accommodative monetary policy stance and the improvement in financial market confidence.” Draghi was tacitly undercutting Francois Hollande’s earlier statement that the euro should depreciate so as not to hurt economic competitiveness. A higher euro means more expensive euro-based exports abroad. The relationships between monetary policy, a currency, and economic growth are complex. It would thus be worthwhile to unpack the scenario facing Draghi and Hollande in early 2013.
                         Mario Draghi addressing the World Economic Forum. In resisting pressure to lower the benchmark rate, he increased his financial stature abroad. 
The full essay is at Essays on the E.U. PoliticalEconomy, available at Amazon.

Thursday, February 7, 2013

S. & P. Sued for $5 Billion: Breaking a Conflict of Interest?

In sending a message to S & P as well as Wall Street more generally regarding the excesses in the securitization of subprime mortgages that contributed materially to the financial crisis of 2008, the U.S. Government and several state governments announced in early 2013 that they would sue S & P for $5 billion as a penalty and to cover damages to state pension funds and federally-insured banks and credit unions.  The operative assumption was that such a monetary figure would have considerable force as a disincentive to profit by means of fraud.  Would $5 billion be sufficient for the message to be delivered not only S. & P. but also to Wall Street? 

The full essay is at Essays on the Financial Crisis, and
 Institutional Conflicts of Interest, both available at Amazon.

Wednesday, February 6, 2013

Is a Stronger Euro in Europe’s Interest? In America’s?

Speaking at the European Parliament in early February 2013, Francois Hollande of France castigated the floating exchange rate of the euro. “The euro should not fluctuate according to the mood of the markets. A monetary zone must have an exchange rate policy. If not it will be subjected to an exchange rate that does not reflect the real state of the economy.”  The week before, the euro was at $1.37, a 15-month high. The euro was at its strongest rate against the Japanese yen since April 2010. Behind the rise in the currency’s value was a surge in investor interest in the euro from assessments that the worst of the debt crisis had passed. Hollande’s statement can be critiqued on a number of points.

Was the upswing in the value of the euro just the beginning of the currency's rise as a reserve currency around the world?

The full essay is at Essays on the E.U. Political Economy, available at Amazon.

Tuesday, February 5, 2013

Is the E.U. More Than the Sum of Its Parts?

In the wake of David Cameron’s announcement that he would try to renegotiate Britain’s obligations in the E.U. then have an “in or out” referendum in his state on whether it should secede from the Union, Francois Hollande of France warned that state interests were in the process of usurping “the European interest.” According to the French president, Cameron was heading the E.U. down the path in which each state “looks for what is good for itself and only itself.” As such, the Union would simply be an aggregation of state interests. The question is perhaps the old one of whether the whole is more than the sum of the parts. In proffering different answers, the European federalists and anti-federalists (or Euro-skeptics) have fundamentally different conceptions of what the E.U. is.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Is the E.U. no more than an aggregation of its states, or does a distinct whole exist such that the E.U. is itself distinct from its states? 

Monday, February 4, 2013

Fixing the Foreclosing Banks: A Hidden Conflict of Interest in Regulatory Compliance

After the financial crisis of 2008, regulators in the U.S. ordered banks to hire consultants to implement more than 130 “enforcement actions,” which represent 15% of the cases. In 2011 alone, regulators mandated that eleven banks hire consultants to determine whether mortgage borrowers had been wrongfully evicted. The consultants collected about $2 billion in fees, which amount to more than half of what homeowners were to receive under the $8.5 billion settlement that ended the consultants’ work. According to regulators, the consultants’ work was plagued with inefficiencies. This is probably the least of it, for virtually any expectations for “an industry that is paid billions of dollars by the same banks it is expected to police” are bound to be chimerical in nature.

The full essay is at Institutional Conflicts of Interest, available at Amazon.